Wild Volatility To Send Stocks Down 35-45% This Year | Cem Karsan

**Cem Karsan** (0:00)
I've been calling for this year 35% to 45% decline, peak to trough. And this is going to be a process, a move that is much more akin for those who have been in recent history, although a very different move in macroways, you know, something much more akin to a tech bubble plus a great financial crisis, kind of one year plus time.

**Adam Taggart** (0:35)
Welcome to Thoughtful Money. I'm its founder and your host, Adam Taggart. In his last two appearances on this program, today's guest predicted the markets would start to become more volatile. In the fall, he didn't necessarily think that would mean lower stock prices, and he was proving correct. But he did express worry that as we entered 2025, continued higher volatility would start to become a real problem for investors. And boy, did he nail things with that prediction. Volatile is perhaps a gentle word for the major market swings we've seen this year, especially over just the past week. To find out where he sees things headed from here, we're fortunate to welcome back to the program Cem Karsan, founder CIO and managing principal of Kai Volatility Advisors & Kai Wealth, widely known as Cem Karsan on X. Cem, thanks so much for joining us today.

**Cem Karsan** (1:24)
Wonderful being here. Thanks for having me back, Adam.

**Adam Taggart** (1:26)
All right. Well, Cem, look, as I said earlier in the intro, I think you should take right now a very well-deserved victory lap. You were out there predicting volatility. It arrived pretty much on schedule with how you told us to expect it, and it's behaved so far, at least, like you thought it would. You didn't think it was going to weigh on prices running up to the end of 2024 You said that's likely to change in 2025 It certainly has. On the day we're recording this, it's the day after the historic, tremendous jump in the markets. The S&P up almost 10% in a single day. It looks like it's lost at least half that at the time we're recording here, although it's been bouncing all around so far today, so who knows where it's going to end up. But this is, I'm sure, the most volatile period in markets in recent memory for most folks on Wall Street.
First off, kudos, congratulations. And secondly, more importantly, if you can just give us a recap of what got us here on the volatility side of things, and then whether we should prepare for similar volatility going forward, less volatility, maybe even more volatility.

**Cem Karsan** (2:36)
Yeah. I'm not one to hype up the winds. Again, the second you do, there's an incorrect call coming around the corner.

**Adam Taggart** (2:46)
Yeah, you don't want to get fate angry. But also too, you got to take them when you can take them. This was a great prediction.

**Cem Karsan** (2:54)
We've been, I can say we've been pretty spot on for over a year. At this point, we expected a, we said 20 to 25 percent up market in 2024
It was election year. We talked about the likelihoods of that, and we expected to crescendo either in end of December or mid-January, which it did. We did expect a small vol event in the fall. We got one in August. It was a little earlier than our September expectations, but followed by a big rally into and through the election. So all those things happened when vol got to its nadir and moved in December after the election. That was structural. It was a function of effects that are effective positioning and where things go. A really effective December vol compressing, and that being the highest vol for lots of reasons, and giving people a really, really cheap vol behind it, and leading to selling at already two lower levels. And our view was that after December expiration, that would mark the low in volatility for a year. And so sure enough, that was the high in the markets and the low in volatility. We also said that expect a major decline to begin 10 to 15 percent, we said.

**SPEAKER_4** (4:18)
So we weren't perfect, right?

**Cem Karsan** (4:20)
It was the decline got down to 22 percent at its worst case. But we did expect that from February expiration. We said the Wednesday to Friday, and we said this starting in December, the Wednesday to Friday of February expiration into March expiration. That's where the majority of the first part of the decline came. We did get that 10 to 12 percent in that cycle. But then, like I said, got a continuation of 10 percent or so more on the tariff, and even greater volatility spike. So our general view, which has been incorrect, I can say that, was that we would get a big counter trend rally here starting in April. It hasn't happened yet. We did get a 10 percent rally yesterday.