With a curious mind and keen desire to learn how things work, Robin Wigglesworth has always found the complexity of financial markets fascinating. Now the editor of the well-regarded Alphaville markets blog, Robin has been with the Financial Times since 2008 and through this period he’s covered episodes of crisis in traditional markets, and more recently, within the cryptocurrency realm. Robin shares his perspectives on how vastly the terrain has shifted in the delivery of financial media, pointing to the emergence of Twitter as a source of important information. In Robin’s words, “journalism is best when it is quite heavily criticized”.The balance of our conversation is about Robin’s excellent book, “Trillions”, a deep dive into the history of index funds and the massive growth in passive investing. Through his work we learn of the key developments and the key people whose contributions led to the juggernaut that is passive indexation today. Laying out the early academic research that called into question the notion that active management consistently generated alpha, Robin walks through the initial, inauspicious attempts to create vehicles that simply bought the market. With a view that the massive growth in passive investing is a very positive development, Robin reflects on some of the risks. In addition to the proliferation of questionable ETFs, he cites concentration – among the money managers, among the index providers and even the proxy vote advisors – as considerations to keep an eye on.I hope you enjoy this episode of the Alpha Exchange, my conversation with Robin Wigglesworth.

For Jon Kalikow, more than two decades of experience in the derivatives and converts market provided important lessons on risk management and the reality that even well designed trades rarely go strictly according to plan. Our conversation explores lessons imparted by Mr. Market, both during the Dotcom bubble and the Global Financial Crisis. In the former, efforts to strip out the optionality embedded in convert positions were stymied by basis risk across markets. And in the period leading into the GFC, Jon grappled with the burden of option carrying costs, even as his firm was well positioned with long convexity on subprime and US financials.Today, Jon is President of Gamma Real Estate and AFC Gamma, a public REIT in the cannabis space. Through our discussion, we learn more about the risks and opportunities in real estate lending through Jon’s lens as a creditor. Noting that lending has a similar economic profile to equity put selling, he contrasts the two by drawing attention to the complex decision-tree required to “take delivery” in a real estate transaction, something Gamma ultimately did in 2017 after a borrower defaulted.Next, our conversation explores credit extension in the cannabis industry. We learn more about the unique regulatory issues in the space and how Jon and his team evaluate borrowers in seeking to construct a diversified portfolio of loans. We learn more about the differences in state regulations and how that impacts AFCG’s appetite for lending. I hope you enjoy this episode of the Alpha Exchange, my conversation with Jon Kalikow.

With a background in math and an inclination to embrace complexity, Puneet Kohli has always found managing capital in the derivatives market both interesting and challenging. And at the Health Care of Ontario Pension Plan, Puneet is also finding meaning and purpose in his work. Sitting within the Fixed Income and Derivatives team at HOOPP, Puneet helps play a role in delivering the pension promise for hundreds of thousands of front-line workers within the 110 billion dollar defined benefit plan.In pursuing this, HOOPP employs a derivatives-centric risk management process that is quite sophisticated, more resembling a US hedge fund than a US pension fund. Through our conversation, we learn more about how Puneet thinks about capitalizing on risk dislocations, utilizing the edge in HOOPPs long-dated capital and strong balance sheet but also incorporating the lessons provided by markets that are subject to episodes of extreme volatility that result in a significant liquidity shortfalls. With this in mind, we talk about liquidity management and also about playing defense through the search for negatively correlated assets. Here Puneet discusses rate contingent puts on the S&P 500, a trade that embeds short equity, short bond and long volatility exposures, all while achieving a healthy discount to vanilla put structures.Lastly, we reflect on market vol episodes including the global financial crisis, the blowups experienced during March 2020 and also the Meme stock up-crash of early 2021. I hope you enjoy this episode of the Alpha Exchange, my conversation with Puneet Kohli.

Armed with the power of the terminal, and bringing together a gift for writing and a deeply curious mind, Cameron Crise is a macro strategist at Bloomberg, contributing pieces on the big picture topics investment professionals are wrestling with. The author of the Macro Man column, Cameron utilizes a framework developed over years on the buy-side in portfolio management roles in which managing interest rate and FX risk were among his primary responsibilities.Through our conversation, we gather Cameron’s views on some of the overarching areas of uncertainty, focusing on the US interest rate vol surface and what it tells us. In this context, Cameron emphasizes the degree of uncertainty – via elevated options prices – embedded in the shorter maturities of the curve, ultimately a result of how much work the Fed has ahead of it. We talk as well about pricing incongruities and here he notes that the equity market multiple has not contracted nearly to the degree elevated inflation would imply it should. Lastly, Cameron points to curious differentials in the Euribor versus Eurodollar curves. Here, he notes that even as forward prices suggest the US may shift from an aggressive tightening cycle to actually easing in 2024, the Euribor curve implies ongoing tightening during this period. According to Cameron, The ECB has never actually hiked rates as the Fed was actively cutting, as is priced in 2024. Something to think about.I hope you enjoy this episode of the Alpha Exchange, my conversation with Cameron Crise.

Over a 30-year career in markets, Vadim Zlotnikov has gained a strong appreciation for the value of time horizon in risk management and alpha generation. Noting that being sufficiently early in expressing a view on markets is not much different from being wrong, Vadim stresses the importance of implementation in achieving a successful outcome. Here we talk of trade construction that is not necessarily burdened by high carry costs. We also discuss the endogenous nature of many market risks, an area that Vadim has focused on considerably and has developed a view that crowding plays a role in market vulnerability.Now the President of Fidelity Institutional Asset Management, Vadim is highly focused on portfolio construction and the exposures that should comprise the strategic allocation of his firm’s clients. In this pursuit, he’s thinking about the mix of assets that, in combination, is diversifying and able to deliver attractive returns. In this context, we discuss the changing interaction between risky and risk-free assets and the need to include additional sources of diversification including strategies focused on commodities, long/short equities and potentially, digital assets.Lastly, Vadim shares some of his thinking on the importance of diversification through strategies that have unique time horizons. Here, he makes the point that the alpha generation found in value investing takes place over a much different time horizon than does the alpha that accrues from momentum-based strategies.I hope you enjoy this episode of the Alpha Exchange, my conversation with Vadim Zlotnikov.

Amidst a fraught backdrop for macro risk, uncertainty around inflation is a new and vexing challenge for investors. And with this in mind, it was my pleasure to host a conversation with Lindsay Politi, the Head of Inflation Strategies at One River Asset Management. Through our discussion, we learn about the framework she has developed over two decades in fixed income with an emphasis on trading inflation. In Lindsay’s rendering, inflation is not a single variable but needs to be understood through unique cycles and in specific geographies and economies. Fiscal and monetary factors matter in driving inflation, but so to do structural components of labor markets, like demographics, and the degree to which wage and price growth can become linked in how employees and employers think.Today’s environment is unique in the impact of Covid and how it has created supply chain risks that are not easy to reverse, leaving the potential that today’s elevated inflation levels will not soon recede. We next turn to the ecosystem of products that pay out specifically on realized inflation. Here, Lindsay comments that shorter-dated, income oriented products have done quite well as the realized level of CPI has far outstripped anything that was implied even a short time ago. Rounding out our excellent conversation, we explore the Fed and how it impacts market prices. Lindsay sees lots of manipulation in prices but still valuable information to be derived from metrics like the break-even inflation curve.I hope you enjoy this episode of the Alpha Exchange, my discussion with Lindsay Politi.

Armed with a PhD in economics and policy experience, Dave Bizer hit Wall Street, landing at Lehman Brothers in structured equity derivatives in the early 1990’s. A deep background in options pricing theory notwithstanding, he soon found that concepts like Ito’s Lemma were less important than helping clients solve practical problems like hedging equity risk in a tax efficient manner. Developing a keen understanding of the tax code as it pertained to derivatives, Dave was among the innovators in product development in this area. Leaving the US for London in the pre-GFC period, Dave was head of European and EMEA Fixed Income. Our conversation explores the investor appetite for European structured products and the manner in which risks can be recycled to hedge funds.Turning to Dave’s transition to the buy-side, we learn of the framework he utilizes at GCW, the wealth management firm he co-founded.  Dave shares his views on equilibrium option pricing, seeing the clearing price for insurance as generally reflecting a risk-averse investor’s desire to truncate the potential for unwanted outcomes. On the long side of the portfolio, Dave and team believe that there is tremendous price discovery already incorporated into liquid, on the run public equities and, as a result, finding real alpha is difficult. The search for superior risk-adjusted returns is better focused in understanding complex, difficult to value situations that may be found in smaller cap equities or in private markets.I hope you enjoy this episode of the Alpha Exchange, my conversation with Dave Bizer.

For Robert Tipp, Chief Investment Strategist and Head of Global Bonds at PGIM Fixed Income, an appreciation for financial market history matters. And in today’s fast moving environment, in which market prices are rapidly adjusting to expectations of Fed policy changes, Robert’s perspectives are especially relevant. Our discussion is a review of inflation and monetary policy cycles from many years prior and through this, Robert shares his insights on the drivers of inflation. Calling into question a very basic assumption, that nominal interest rates are highly connected to inflation risk premium, Robert points to the importance of demographics and the availability of capital in setting the risk-free rate. Thus, today’s longer dated Treasury yields, well below concurrent inflation, are in part due to the excess of capital looking for a home, hoping to lock in some return over a longer time frame.Through our conversation, we also learn of Robert’s views on Central Bank communication, contrasting the Greenspan era of “constructive ambiguity” with Powell’s focus on transparency. In this context, Robert sees some components of the emphasis on messaging as positive, and others, including “time dependent” forward guidance as recently abandoned by Australia as less effective. Lastly, we consider the implications of higher rates moves on the stability of the ecosystem of asset prices. Here, Robert cautions that the transition to a higher rate environment may lead to large shifts, micro flash crashes and a breakdown in liquidity with respect to the flow that wants to move.I hope you enjoy this episode of the Alpha Exchange, my conversation with Robert Tipp.

Matt Amberson is among those who have watched the steady and consequential evolution of the listed equity options market over the last 3 decades. Getting his start on the floor of the CBOE in the 90’s, he was in the trenches during the period of incredible single stock volatility that was tied to the original tech bubble. While markets were not nearly as efficient then as they are now, Matt sought to improve his edge in trading options, seeking enhanced methods for estimating a stock’s volatility and searching for instances where the market may have left value undiscovered.Using proprietary option valuation and hedging techniques, Matt backed traders who were tasked with implementing this systematic approach some 25 years ago. And while those days are past, the IP developed lives on in the form of the company founded by Matt, ORATS, Option Research and Technology Services. Throughout our conversation, we learn about the growth of the US-listed options market and how Matt and his partners have developed their data, analytics and option back-testing service. In the process, we consider risk events like GME and hear Matt’s perspective on risk-management protocol in light of the increasing frequency of up-shocks in stocks.  I hope you enjoy this episode of the Alpha Exchange, my conversation with Matt Amberson.

The still-nascent world of trading derivatives on cryptocurrencies requires more than just expertise in the math of options and trade construction. Pricing relationships can be driven by flows, by changes in sentiment and by regulatory tape bombs. For Ari Pine, Co-Founder of Digital Gamma, adeptness in financial technology is critical as well. Disparate venues, unique margin relationships and economic nuances in products across different exchanges all require a heavy lift with respect to creating a robust risk management infrastructure.Working with his partners at Digital Gamma, Ari is mining the raft of data that is emerging from the 24/7 trading of the many new assets in the digital sphere. Our conversation is part retrospective on the history of risk events. Through our discussions of the Orange County and LTCM debacles in the 1990’s, Ari shares lessons imparted by episodes of market volatility and the pitfalls of being overly wed to pricing models.  We spend the balance of time discussing the financial properties of bitcoin – both in the portfolio context and with respect to how its movements help shape the implied volatility surface of options. I hope you enjoy this episode of the Alpha Exchange, my conversation with Ari Pine.

For Kris Sidial, the Co-CIO of the Ambrus Group, trading and risk management is a passion. A self-professed math nerd in college, Kris began dabbling in sports betting using a statistical approach. He soon found his way into option markets, where is now an active participant and also a humble student continuously gathering knowledge from his interaction with the markets. Through our discussion, we learn of how Kris thinks about flows, his analysis of positioning and the complex poker game that leaves him always evaluating the why of the actions of others in the market. In his view, the market has become more reflexive over time.Here he cites not only the volatility of Meme but also the substantial growth in products written on volatility itself and the huge growth in short-dated options trading. Kris observes changes in market microstructure over the past few years that leave the market leaning heavily one way or the other and creating very large bursts of volatility that come suddenly. It is this dynamic that he and partners at Ambrus Group are trying to capitalize on.  We also spend time exploring the beta relationship between the VIX and the SPX. Here, again, Kris points to the proliferation of volatility products as playing a role in the outsized moves in the VIX that have become more common over the recent period. Lastly, we talk about managing the reality that options bleed premium. In this context, Ambrus engages in medium frequency strategies that seek to cover some of the theta bill.  I hope you enjoy this episode of the Alpha Exchange, my conversation with Kris Sidial.

On this special 3 year anniversary episode of the Alpha Exchange, we turn the tables and your host Dean Curnutt is the guest. In conversation with dear friend Arthur Kaz, Dean shares perspectives developed over 30 years in financial markets. Through the discussion we learn of a risk framework focused on understanding the why of volatility events and how this study led to Dean’s founding of Macro Risk Advisors in 2008.  Asked by Arthur to share a few war stories, Dean tells us of how a surge in implied volatility during the financial crisis caused certain call options to actually rise in value even as the stock plunged.  With regard to market risk today, Dean has strong views on the risks of an unfriendly Fed, especially given the many signs of valuation froth that are easy to see. Lastly, Arthur and Dean talk about MacroMinds, a charitable organization Dean created in 2019 to support causes that expand educational opportunities for students. With a very successful launch event in 2021, Dean is looking forward to hosting the 2022 symposium in person, bringing the investment community together to learn and make an impact. We hope you enjoy this episode of the Alpha Exchange, a conversation with Dean Curnutt.

Now the Global Head of Quantitative Research at Soc Gen, Andrew Lapthorne got an early taste in unconventional macro thinking from the likes of Albert Edwards and James Montier. Over a career spanning 25 years, Andrew has engaged in the study of market prices, seeking understanding in their levels and volatilities both on an absolute and relative basis. Out of this work comes a framework for helping investors identify, capture and defend against risk exposures. Our conversation considers some of the market vol episodes most formative to Andrew’s process. And here we travel all they way back to the late 1990’s when, post the Asian crisis, disinflation began to travel around the world, depressing bond yields and leading to increasingly active Central Banks. The result, a tech bubble and substantial de-rating of all assets cyclical. The GFC was, unsurprisingly, greatly instructive for Andrew as well, helping him appreciate the Merton “distance to default” risk that equity investors are subject to. In the balance of our discussion, we consider the here and now and learn of the work that Andrew and his team are doing for clients seeking refuge from inflation. In this context, he’s suggested that bond investors use “dangerous equity to hedge safe bonds”, an idea that identifies certain stocks, like those driven by an underlying commodity, as performing strongly during inflationary periods. I hope you enjoy this episode of the Alpha Exchange, my conversation with Andrew Lapthorne.

In 2008, as the global financial crisis unfolded and his employer, Lehman Brothers, descended into bankruptcy, Jared Dillian decided to go it alone. An ETF market maker with a gift for writing, Jared launched the Daily Dirtnap, a newsletter focused on identifying market themes and actionable trade ideas.  Thirteen years and 3,000 publications later, the Dirtnap is widely enjoyed by a loyal readership finding value in Jared’s unique insights. Our conversation is one part retrospective, exploring the fast days of the pre-crisis period when Jared committed risk capital at Lehman, locking ETF markets in pursuit of buy-side commission business. In the process, we get a window into the formation of the Dirtnap, that being his daily client communications over Bloomberg while at Lehman. We also discuss Jared’s active imagination and love of writing, learning more of his fiction book, “All the Evil of this World”, built around the Palm/3Com pricing dislocation.Lastly, we talk macro markets, covering gold, inflation and energy. With gold, Jared takes a contrarion and bullish view, seeing the vastly negative sentiment on Twitter as an ultimate upside catalyst and also placing value in the low correlation that gold has with risk assets generally. I hope you enjoy this episode of the Alpha Exchange, my conversation with Jared Dillian.

Our conversation focuses on his current work as an Investment Strategy Advisor at Man Group where he has done work on the idea of crisis alpha: strategies that can effectively offset portfolio losses suffered during risk-off events. Campbell and his colleagues find that both time-series momentum as well as a long/short portfolio focused on the quality factor both have insurance-like characteristics and can be valuable overlays for equity portfolios. He also shares his work on rebalancing, where he sees alpha destruction if done in traditional form, but the opportunity for much greater efficiencies by incorporating some of the findings on time-series momentum. Lastly, we discuss Campbell’s new book, “DeFi and the Future of Finance”. As the title may imply, he’s bullish on the breathtaking pace of innovation in the financial services industry.  I hope you enjoy this episode of the Alpha Exchange, my conversation with Campbell Harvey.

Graduating from the London School of Economics in the mid 80’s, Victor Haghani set sail on a career in the fixed income markets. Joining Salomon Brothers and assuming a position in bond portfolio analysis, Victor became steeped in the math of bond markets and derivatives and part of a team that sought to conquer markets with science. He was among those who joined John Meriwether in the founding of Long Term Capital Management in 1993 and as a Partner experienced directly both the early spectacular success and the ultimate failure of the fund.  Our conversation considers the lessons – on market liquidity, reflexivity, and trade sizing as well as the vulnerability of relative value trades to errant correlation assumptions.  By 2002, Victor took up the “the case of the missing billionaires”, wondering why there were so few now given that so many individuals had over a million dollars a century ago. He set out on a journey of inquiry focused on finding an asset allocation strategy that could preserve and grow wealth over time. Today, that work has come to life at Elm Partners, an asset management vehicle that Victor founded in 2011 and serves as CIO of. We discuss the premise of Elm – that passive indexation is generally effective but can be improved upon. In this context, Elm employs “dynamic index investing”, looking beyond market cap weighting to incorporate economic fundamentals like earnings yield and factors like value and momentum. With this approach, Victor and team hope to avoid busts that periodically occur while remaining exposed to the market such that wealth can compound over time.  I hope you enjoy this episode of the Alpha Exchange, my conversation with Victor Haghani.

For the landscape of elevated asset prices that defines today, nothing may be more consequential than changes in the inflation outlook. And for Barry Knapp, the founder of Ironsides Macro, the Fed is off-track with respect to its understanding of inflation in a post-pandemic world. While the Covid shock brought market volatility comparable to the breathtaking levels experienced during the GFC, the inflation aftermath of these two crises could not be any different. In Barry’s rendering, while the GFC left household and financial sector balance sheets in disarray amid a damaged credit channel, consumer leverage is extremely low and lending is unimpaired in the post pandemic period. By crafting today’s policy as a function of the disinflationary decade post 2008, the Fed also fails to account for the positive supply shock in energy that was the Shale revolution as well as the decades long period of goods disinflation that resulted from China’s admission to the WTO.  The result, especially as supply chains are being restructured, is the risk that the Fed runs consistently behind the curve over the coming year. As our discussion continues, Barry shares his views on the inevitability of a risk-off resulting from the Fed’s attempt to normalize policy, a consequence of the degree to which market prices have become increasingly sensitive to even small policy changes in the post-QE era.  I hope you enjoy this episode of the Alpha Exchange, my conversation with Barry Knapp. 

With a position in rate strategy at Salomon Brothers in the late 1990’s, Subadra Rajappa developed an early appreciation for how market risk can be transmitted from one part of the world to the other through the 1997 Asian FX crisis and the LTCM debacle a year later.  Over the course of a career spanning more than 25 years, she’s developed a macro framework that is underpinned by an assessment of growth and inflation variables that help drive interest rate fair value models. Derivative market pricing and fund flows also make their way into her framework.  Specifically, Subadra looks at the interest rate vol surface with special attention to the price of out of the money options, and, to track the money, keeps an eye on positioning in futures markets. Our conversation considers key recent events that shape where we are in the monetary policy cycle. In this context, Subadra shares her views on the integrity of market pricing signals amidst the large participation of the Fed in the market.  We also explore inflation and here Subadra points out that while some components of the rise in inflation will be transitory, others, like wages, tend to be more persistent. A vulnerability that results is a the potential of a less market friendly Fed in 2022. Lastly, I solicit Subadra’s perspective on the degree of progress in promoting the career growth for women in finance. To this, she sees more attention to recognizing women and hiring them but there remains a lot of work to be done on the retention front. I hope you enjoy this episode of the Alpha Exchange, my conversation with Subadra Rajappa.

If you asked yourself, “what are the odds?”, Denise Chisholm can probably tell you insofar as market outcomes are concerned. A Sector Strategist at Fidelity Investments, Denise leverages historical data as part of a probability framework that helps her evaluate risk and opportunity in the equity market. Our conversation explores episodes when her process uncovered overlooked relationships that were hiding in plain sight. During the GFC, for instance, Denise connected faltering housing prices with default implications on Country Wide’s mortgage portfolio. Her work on probability is sometimes multi-layered. For instance, in evaluating the reaction of the long end of the yield curve to Fed tightening cycles, Denise found that conditional on the Leading Economic Indicator Index falling the 10 year yield increased only 30% of the time when policy was tightened.More currently, we discuss what Denise sees in markets today. Here she observes a strong recovery in wages from the Covid bottom as correlated to outperformance of cyclicals over defensive. Lastly, she shares a strong view on the energy sector linked to a combination of low capital spending and high free cash flows. As we round out our discussion, I solicit Denise’s views on the state of progress for women in the field of finance. And here, unsurprisingly, she’s focused on the numbers, viewing plenty of upside in the 20% of women that comprise senior leadership roles in financial services. Progress here can result from showing women at a young age just how interesting and rewarding a career in finance can be. I hope you enjoy this episode of the Alpha Exchange, my conversation with Denise Chisholm.

For Jeff deGraaf, financial markets have always been about figuring out who moved the pieces in a chess match and why. Early exposure to the discipline of technical analysis and its focus on prices and probabilities helped Jeff begin to develop a framework that concentrates on finding bets with favorable odds. Our discussion considers the market events that have played a formative role in how Jeff thinks about risk. Particularly influential among the big risk-off events was the LTCM debacle, especially as it illustrated the power of the Fed to bring an end to a de-risking process.A decade after founding Renaissance Macro in 2011, Jeff and his team continue to view the policy response as both inevitable and critical and in this context, we discuss the evolution of the interaction between markets and the Central Bank. Today’s much more activist Fed is one example of how historical pricing relationships, while a valuable tool to understand the present, must be interpreted with care. The shifting correlation profile of the Treasury market to various segments of the equity market is a ready example of this change. For Jeff, predicting the future is difficult and time is better spent on the study of price. Here, his process leads him to a lengthy checklist of indicators that allow the market to speak. And while, in his words, the market "fibs often", a wide enough swath of charts across asset classes and geographies is bound to provide clues on where both value and vulnerability are hiding.Lastly, we talk about life on the sell-side and Jeff's perspective on running a client centric business through the pandemic. Here, the take is an optimistic one with Jeff and team deriving value from connecting with clients virtually in order to deliver insights in an efficient manner. I hope you enjoy this episode of the Alpha Exchange, my conversation with Jeff deGraaf.

Initially trained as a lawyer and consultant, Peter Cecchini's career spans a few decades across the buy side and sell side, focused on both bottoms up and top down analysis of risk and opportunity. Now the head of research and strategy at Axonic Capital, Peter shared his insights on the Merton model and the linkages between credit spreads, stocks prices and asset volatility. In the context of this discussion, we explore episodes of dislocation between equity and credit markets, how to spot them and the implementation of trades to capitalize on them. In Peter’s view, the better risk signal has traditionally emanated from the credit markets where bondholder obsession with being paid back dominated the sometimes lofty upside scenarios entertained by equity market investors. Over time, however, the degree to which the equity cushion has risen so markedly may lead to credit market complacency, leaving Peter sometimes more focused on stock price fluctuations as the cleaner risk signal.Our conversation, of course, covers the Fed and it’s ever increasing interactions with market prices. We consider the hard to ignore breakdown between nominal interest rates and the concurrent inflation and here Peter believes the Fed is in quite a difficult spot. Inflationary periods, in Peter’s view, result from inorganic demand surges, coupled with supply disruptions and a burst in M2. On these three metrics, the risk that today’s strong recent price increases may not be entirely transitory is real. Lastly, we touch on the Meme stock craze and Peter shares his work on opportunities in the capital structure in AMC.  I hope you enjoy this episode of the Alpha Exchange, my conversation with Peter Cecchini.

Few professionals have the depth of perspective on the many market risk events that were missed by the models as Rick Bookstaber. Trained at MIT where he received a PhD in economics, Rick would become Morgan Stanley’s first risk manager in 1984.  There, and also at Salomon brothers, Rick was among the quants on Wall Street that developed early pricing models for interest rate derivatives. In this capacity, he had intimate knowledge of the challenges that complex products created for dealers looking to hedge them.  And related to this, he also had a front row seat to the early debacles of modern markets including the crash in 1987 and the LTCM unwind in 1998.  Across two excellent books, Demon of Our Own Design and End of Theory, Rick explores the characteristics of markets that make them inherently fragile, including the notion of tight coupling.  Here, feedback between trading, price changes and subsequent trading based on the price changes can give rise to instability. Today, Rick is the founder of Fabric RQ, a firm delivering risk management solutions to the RIA community. Among the issues Rick worries about today include SPACs, NFTs and the concentration of richly valued tech stocks in indices like the S&P 500.  I hope you enjoy this episode of the Alpha Exchange, my discussion with Rick Bookstaber.

With many years experience trading and risk managing derivative exposures, Simon Ho is now the founder and CEO of T3 Index, a financial research and technology firm doing some interesting work in the arena of complex index and product construction.  An avid user of VIX products during his time on the buy-side, Simon loved everything about the CBOE suite of vol products but the cost to use them. He set out to create a similar, but more economical product that could compete for the growing user base of investors who sought direct exposure to volatility. With this, SPIKES was born and so too began the journey for Simon and his team to bring a new volatility option and futures product to the market.  Next, we explore the newest creation from T3, the BitVol index.  Recognizing the interest from investors in trading volatility directly, Simon sees promise in an index that gives end users direct access to implied volatility in Bitcoin. While exploring this, we discuss the characteristics of vol surfaces for assets like Bitcoin, drawing similarity to gold and volatility itself.  Lastly, Simon is excited about T3’s work on interest rate volatility, having developed an index he hopes will become a leading instrument to manage risk in this important asset class.  I hope you enjoy this episode of the Alpha Exchange, my conversation with Simon Ho.

Now the Global Head of Macro at Schonfeld Strategic Advisors, Colin Lancaster has always found top-down investing a fascinating discipline.  Trained as a lawyer but finding his way to the buy-side in the 1990’s, Colin has spent the last 25 years in markets, allocating capital and building teams focused on macro.  Over his long career, he’s traded through his share of vol events, each a challenging experience but also formative from a risk philosophy standpoint. Our conversation is a retrospective on the nature of risks that investors are forced to confront, how discontinuities in asset prices materialize and that ever elusive search for the positive carry hedge. Exploring seismic episodes of risk-off, we also spend time on the need to anticipate the inevitable and typically overwhelming response from the Central Bank and how, post both the GFC and now Pandemic, the Fed’s interventions have increasingly crowded out the integrity of market price signals.  Lastly, we spend time on Colin’s fast paced and insightful book, “FED UP!”, a project he undertook in 2020.  In it, Colin brings to life the frenetic, all-consuming world of global macro investing in which an unwelcome portfolio move is always a bad tweet away and decisions must be made quickly and based on a vastly incomplete information set.  Weaved into “FED UP!” is a statement of concern about the widening gap of wealth inequality in the US.  In a world in which asset prices are increasingly the outcome of Central Banks who mean well but whose actions vastly benefit some versus others, a certain rethink may be in order.  I hope you enjoy this episode of the Alpha Exchange, my conversation with Colin Lancaster. 

From a young age and learning from his humble and hardworking parents who immigrated from South Korea, Paul Kim developed an appreciation for the value of capitalism and the pursuit of the American dream.  Finding his way into the investment industry first in an investment banking seat at Lazard where he learned by fire, Paul would ultimately spend time at PIMCO and then at Principal Global Investors where he launched and built the firm’s ETF business. More recently, Paul co-founded Simplify Asset Management, a firm committed to delivering innovative products in the exchange traded landscape. Our conversation is focused on how derivatives can be used within an ETF to augment the purely linear exposures provided by traditional instruments like the SPY. By overlaying a put option, for instance, an investor can protect against extreme downside risk in equities like that which materialized in March of 2020.  We discuss as well important and exciting new developments in the ETF industry, one of which allows for the utilization of OTC derivatives. In this context, Simplify has created a ground-breaking product that seeks to hedge interest rate risk for end users, work developed by derivatives pioneer Harley Bassman. In an environment in which fiscal and monetary policy are acting powerfully in tandem, such a product can easily prove critical to defending the potential inflation that may already be surfacing. Lastly, Paul and I touch on the fast moving world of cryptocurrencies and how his firm is thinking about giving investors access to this new asset class and the potentially diversifying role it may serve in a portfolio. I hope you enjoy this episode of the Alpha Exchange, my conversation with Paul Kim.

In the investment world, few if any products have experienced as much growth as the exchange traded fund. And within the ETF business, no firm is as large and as important as BlackRock. In this context, it was great to welcome Samara Cohen, Managing Director and Co-Head of EII Markets and Investments at BlackRock to the Alpha Exchange. Through our discussion, we learn of Samara’s start in the industry as employee 134 at BlackRock before attending business school and then spending 16 years in fixed income at Goldman Sachs. Here she developed a keen understanding of bond market plumbing and the implications of post GFC regulatory reforms for the design of future products. This focus on bond market structure strategy paved the way for her return to BlackRock in 2015. Samara shares with us some of the key milestones in the ETF business, including the electronification of bond market trading that came from the first fixed income ETF in 2002. Important as well for the ETF industry  has been episodes of significant volatility during which investor demand for liquid and transparent macro assets surged. Our conversation next considers the business coordination required among Samara’s team members to support the roughly 800 ETFs offered by BlackRock. Central to running a business at such scale has been substantial investment in technology and automation and these proved especially critical during the market crisis of 2020. It was during this incredible surge in volatility – both in the stock market and bond market – that investors utilized ETFs for price discovery and risk transfer in tremendous size. Lastly, we spend time on the people aspect of the business, a topic on which Samara is particularly passionate. She is proud that her team of investment managers within the engine is mostly women and plays an active role in the discussion among leadership around BlackRock’s commitment to a broadening the racial and ethnic make-up of the firm. In addition to being strongly motivated by efforts to increase inclusion, Samara looks forward and is genuinely excited about the prospect of bringing hundreds of millions more people into the markets and investing.  I hope you enjoy this episode of the Alpha Exchange, my discussion with Samara Cohen.

If “theta is the rent on gamma,” for Robert Bogucki, trading options from the long side has always been worth the inevitable pain from carrying positions during benign periods in markets. Trained in mechanical and aerospace engineering, Rob made his way to Goldman Sachs at a time when the Street was just starting to take on individuals with math and physics background. Starting on the currency options desk at Goldman, Rob would spend time at Morgan Stanley and Merrill Lynch before ultimately leading the global macro trading desk at Barclays, running a large customer and proprietary FX options book.  Musing that a “bachelor’s degree in crowd psychology is worth more than a PhD in economics”, Rob stresses that modeling architecture like Black Scholes is important as a starting point for valuation, but we need to appreciate the limitations of models. We review a few fascinating risk events in FX derivatives that Rob traded through. Remembering how disrespected risk premium was in the early summer of 2007, for example, Rob bought vol on the Brazil Yen cross, a pair in which hedge funds had piled into in order to earn the sizable interest rate differential. While difficult to carry, the market ruptures that materialized late summer as the Quant Quake went into full sway made this trade highly profitable.  We speak as well about taking in as many data points across the asset classes for clues as to what might sponsor the next risk event, a strategy Rob executed by roaming on different floors to get a feel for what colleagues were up to.  Today, Rob is co-head of global trading and head of derivatives trading at Galaxy Digital, a firm focused on various businesses in the crypto landscape. In his role of pricing options on digital assets such as Bitcoin and Ethereum, Rob has plenty to say about these interesting vol surfaces and the interaction of various actors who are net sellers or net buyers of volatility. In his view, derivatives market liquidity is steadily increasing and a virtuous cycle is in place. These products will become more important as the extraordinary thrust of Central Bank actions are creating a broad rethink of the fiat monetary system.  I really enjoyed this episode of the Alpha Exchange and hope you do as well. 

After a 6 week hiatus during which I was recovering from a serious jet ski accident, I am excited to bring you a fresh episode of the Alpha Exchange.  And it was wonderful to spend time with Andrew Scott, a Partner and Head of Client Solutions at Bach Option.  Our conversation is an exploration into the complex factors that drive the clearing price for volatility in equity markets.  In this context, we spend no time on the economic cycle or corporate profits or the latest missive from the Fed.  Instead, Andrew explains how the vast industry of Asian structured products leaves banks with complex exposures to optionality, correlation and dividends.  These trades, designed to create income in countries like South Korean that have seen interest rates in secular decline, leave banks with substantial long vol positions.   Through our conversation, we learn of the concept of “peak vega”, an industry estimate for the level of the underlying index where bank’s are most long vega.  Andrew also lays out in great detail the risk recycling that has long operated alongside the structured products universe.  Here, depressed levels of index vol and skew in Asia encouraged hedge funds and asset managers to implement volatility relative value trades versus the S&P 500.  Lastly, we touch on Andrew’s new position at Bach Option, joining founder Miao-Dan Wu in building out a firm dedicated to understanding and trading volatility at a time of great change in markets and plenty of catalysts for the next volatility event.  I hope you enjoy my discussion with Andrew Scott. 

On this episode of the Alpha Exchange, Dean had the pleasure of catching up with Erin Browne, a Portfolio Manager at PIMCO. Through their discussion, we learn of Erin’s introduction to the study of macro, a discipline she instantly found fascinating and has underpinned her more than 2 decades career in markets. At Moore Capital through the build-up and ultimate unwind of the US housing bubble, Erin provides perspective she gathered during the GFC, laying out the time spent on idea generation as well as efforts to optimize the trade construction. Because these shorts became so large, having a game plan on profit-taking also became an important consideration. The conversation also focuses on the 2020 Pandemic, and how Erin and her team successfully positioned portfolios at PIMCO through that volatility episode. Surveying the set of risks that comprise today’s investing landscape, Erin is focused on inflation and, importantly, the Fed’s reaction function to the data. She sees vulnerability in “spec tech”, that equity market segment with lofty valuations and for which higher interest rates appear a real headwind. But there is value out there and in EM, Erin sees cheap assets on both the FX and equity side. Dean closes the conversation by soliciting Erin’s views on the opportunity set for women in finance. Recently named to the highly prestigious list of Barron’s 100 Most Influential Women in Finance, Erin is in a great position to share her views. She sees lots of progress, with excellent efforts to support women at the junior level and more still to do at the mid-level segment of female career development. Please enjoy Dean’s discussion with Erin Browne.

A quarter-century ago, as the original tech bubble began in earnest, the American Stock exchange was full of action. Populated with an aggressive throng of option traders, the Amex was a critical liquidity venue during a period of heady growth in the US listed options market. It was here, starting as a clerk, that Dave Puritz began to hone the craft that underpins his role today as founder and CIO of Shaolin Capital Management. Through our discussion, we learn of Dave’s sell-side experience, as a listed options trader at BofA and then as head of convertible bond trading at Deutsche Bank, and the lessons he gathered in balancing the facilitation of customer business with the management of proprietary positions. Much of our conversation centers on converts, an asset class in which Dave and Shaolin have gained prominence. Reflecting on the tremendous issuance already in 2021, Dave finds it important to assess the combination of high implied volatility and long duration associated with recent large deals. A very active participant in the SPAC market, Dave sees plenty of opportunity here but argues that the entry price matters and believes it is better to be a buyer of unloved securities than part of a gold rush in which valuation is cast aside. Lastly, we explore Dave’s philosophy of tail risk hedging and how he utilizes both listed options and credit protection to defend the portfolio against the disruption events that have become a frequent reality in modern markets. I hope you enjoy this episode of the Alpha Exchange, my conversation with Dave Puritz.

Greg King has spent his career creating vehicles that enable investors to access complex risk exposures.  Part of the team from Barclays that designed the VXX ETP product in 2009, Greg went on to co-found Velocity Shares, a firm that was ultimately acquired by Janus and created both the TVIX and XIV, levered long and short versions of the VXX.  About the XIV, Greg shares his views on the manner in which the mechanical hedging requirements for inverse leveraged products can lead to a spiral in the price of the underlying asset.  Later, Greg would found Rex Shares, a platform that has brought a series of exchange-traded products to market.  Through our conversation, we hear Greg’s perspectives on the characteristics of products that attract considerable AuM versus the many that do not.  In this context, Greg believes that understanding the technicalities of how a product is built is important but so too is persistence and a little bit of luck.  We spent the balance of our discussion talking about Greg’s venture into crypto, a space he has been involved in for more than 7 years.  His Osprey Funds has launched OBTC, an access vehicle for Bitcoin, that seeks to lower both the costs and challenges associated with gaining exposure.  About the crypto space broadly, Greg sees lots of opportunity to develop tradeable, ticker-based trust structures that provide access to various digital coins and tokens.  I hope you enjoy this episode of the Alpha Exchange, my conversation with Greg King. 

For Mark Friedman, the Founder and CIO of DLD Asset Management, the convertible bond market has always made for interesting study.  Sitting at the intersection of critical asset classes, the convertible bond market requires investors to assess risk from many dimensions at once.  And with valuation components derived from equity, interest rate, credit and volatility risk, converts have provided Mark with plenty to analyze over nearly 3 decades in markets.  Our conversation is a retrospective on the evolution of this hybrid product – from Mark’s early days trading Asian convertibles in the mid 90’s to the high vol, crowded era of the early 2000’s, all the way to today.  Along the way in our discussion, we happen upon some of the important risk events in converts that Mark has traded through.  He highlights some of the ancillary risks that an investor assumes in a converts, specifically, borrow, dividends and a vol dampening take-over, and how the market has sought to address these.  We also spend some time assessing the changing buyer base in converts, from a market once dominated by arbitrage accounts to one in which long only capital has become a great proportion.  Lastly, we discuss portfolio construction in a world of low rates, active Central Banks and risks that originate from sources not previously contemplated.  In this context, Mark shares his thoughts on tail risk hedging, recognizing both its value and cost and preferring to keep it simple using listed options.  I hope you enjoy this episode of the Alpha Exchange, my conversation with Mark Friedman. 

As founder and CIO of QVR Advisors, Benn Eifert spends his time looking for opportunities in volatility markets and helping his investors protect capital through periods of uncertainty. With the surge in volatility that has recently materialized in GameStop and a number of other stocks with high short interest, it was timely to have Benn back on the Alpha Exchange to share his always excellent insights on option market dynamics.  Our discussion considers the emergence of a factor that may have been hiding in plain sight – crowd sourced convexity that left option hedgers short gamma.  In the process of laying out this recent single stock risk event, Benn clarifies some of the misconceptions that may be common around the retail options trading community.  From Benn’s vantage point, some of these investors are hardly unsophisticated and understand leverage, positioning and the feedback loops that can occur when dealers are hedging options from the short side.  As we step back and consider the ecosystem of supply and demand for optionality in the equity market, Benn describes the losses that were imparted on short volatility strategies in March 2020 and how that figures in to a VIX that has been persistently high relative to the metrics it is typically related to.  Lastly, given that 2021 has demonstrated that stocks can actually crash up as well as crash down, we consider the implications of GameStop on the volatility surface.  Here Benn sees good reason to expect a persistent, extra premium to the upside call as a result of recent events.  I hope you enjoy this episode of the Alpha Exchange, my conversation with Benn Eifert.

We take things in a different direction on this episode of the Alpha Exchange and focus on the importance of leadership and culture at large financial institutions. With this in mind, it was my pleasure to solicit the insights of Mark Miller, a personal mentor of mine and a capital markets professional whose sell-side career has spanned 4 decades. Having served in the role of global head of sales at Citigroup, BofA and HSBC, Mark has led significant teams of professionals across product areas and geographies. In this context, we explore the challenges and opportunities inherent in bringing together a firm's resources on behalf of its client base. We also discuss the process for evaluating talent, and for Mark, the successful salesperson is highly competent in understanding market pricing dynamics and often has the capacity to be a trader. In conjunction with this, a salesperson's success is contingent on having earned the trust of her or his clients. We also talk about leadership and what it takes to establish a cohesive culture. Here, Mark has strong views. In his rendering, good management is no surprises and being a source of feedback that is both consistent and fair, even if uncomfortable, is a critical deliverable of a leader. Lastly, I solicit Mark’s insights on diversity efforts on the Street. While certainly seeing progress over the course of his career, he also sees plenty of further opportunity to expand the presence of women and minorities in the field of finance. I hope you enjoy my conversation on leadership, culture and mentorship with Mark Miller.

Mentored at Legg Mason under the tutelage of legendary investor Bill Miller, Samantha McLemore is a student of finding value in corporate equities.  Now the founder and managing member of Patient Capital Management, Samantha shares her perspectives developed over two decades and through several cycles of the value factor.  Our conversation is an exploration of Samantha’s framework, keenly focused on finding opportunity based on valuation and with a long horizon in mind.  In Samantha’s world, embracing out of favor securities allows capital to be put work when and where others are reluctant to and sets the stage for achieving long term excess returns.  In this context, she recounts her purchase of UBER during the early days of the 2020 lockdown, seeing potentially strong upside relative to what she deemed as manageable downside risk.  We talk more broadly about the underperformance of the value factor in recent years as Samantha notes that the high growth segments of the market are in demand in an environment where investors have become less sensitive to valuation.  For her, some of these high flying stock prices warrant caution, especially as a vaccine provides the potential that business as we once knew it becomes more the norm rather than the exception.  And in this context, Samantha and her team are looking closely at the cruise line sector, again embracing disruption and volatility in pursuit of long term alpha.  I hope you enjoy this episode of the Alpha Exchange, my discussion with Samantha McLemore.

Working as an architect in the 1990’s, Tania Reif saw first hand the devastating impact on local communities of the currency crisis events that occurred with some frequency in her home country of Venezuela.  Gripped by the field of macroeconomics, Tania ultimately earned a PhD in economics from Columbia University, writing her dissertation on currency crises.  Our conversation brings to life Tania’s framework for the “why” of FX crisis events.  In this context, she shares her assessment of the multiple crisis events in the 1990’s, contrasting this today’s more stable emerging market FX environment.  Pointing to fixed exchange rate regimes, Tania describes the vulnerability that comes from a sudden stop of external financing after a period of excessively loose monetary policy.  The result, a balance of payments crisis that leads to a large currency depreciation and inflation shock.  We also discuss financial contagion and Tania makes the point that when countries have parallel risks, an event in one country can have implications for regions that investors deem similarly vulnerable.  Unsurprisingly, amidst our discussion on foreign exchange dynamics, we also discuss today’s era of remarkably low rates.  Pointing to the opportunity to capitalize on low borrowing costs to try to improve the circumstance of those impacted by the pandemic, Tania argues that if easy monetary policy does not ultimately translate to higher productivity and growth, we risk being stuck in a world of very low rates for a very long time.  Lastly, we discuss crypto currencies, an asset class that Tania has strong interest in and is very optimistic about.  The fixed supply of bitcoin, relative to the ongoing debasement of fiat currencies, addresses the conflict that individuals and Central Banks find themselves in.  With a view that the institutional adoption of crypto is increasing but still has far to go, Tania is bullish on growth in the market cap of bitcoin and believes investors should have some portfolio allocation.  Please enjoy this episode of the Alpha Exchange, my discussion with Tania Reif.

Gordy Lawrence, Director of Global Derivatives at Wellington Management, spends his days searching for value in optionality.  With a framework geared toward assessing option prices on both an absolute and relative basis, Gordy and his team support portfolio managers throughout the organization with the aim of utilizing derivatives to improve the up versus down capture profiles in portfolios.  My conversation with Gordy explores this process – how proxy hedges are evaluated based on historical performance through stress periods and how circumstances unique to a specific period might be given special consideration.  In this context, Gordy details his firm’s purchase of puts on the Euro Swiss cross in late 2014 at a remarkably low level of implied volatility, based not simply on option carry considerations but based on fundamental work and a view on the wherewithal of the SNB.  Sharing perspective on the current low level of US interest rate volatility and its divergence from the VIX, Gordy notes that with respect to rate risk, the Fed “has its thumb on the scale”.  Continuing to explore this, our discussion moves to equity volatility.  In significant contrast to a few years earlier when VIX ETP product growth was rampant and vol markets were well supplied, today’s equity volatility environment is impacted by the combination of a supply shortage along with strong demand for options from retail.  There may be another factor at work contributing to a high VIX and that, in Gordy’s view, is skepticism that market liquidity will be there when it is most needed.  All of this will make for a fascinating year in markets in 2021.  I hope you enjoy this episode of the Alpha Exchange, my conversation with Gordy Lawrence. 

Over more than two decades in markets, John-Mark Piampiano has traded his share of volatility. Managing derivative portfolios over the years from both the long side and the short side of the carry ledger and across the spectrum of listed and OTC products, John-Mark is a keen observer of change in market structure, trading technology and the provision of liquidity.  Our discussion considers the manner in which price discovery in equity option markets has evolved, now well represented on the screens through pricing engines that are entirely automated.  In this context, we explore the implications of much tighter screen bid/offers for the buy-side and sell-side alike.  Gone are the days where obvious pricing dislocations come about from concentrated option buying or selling activity in one name and one part of the vol surface.  The result, a greater degree of market efficiency and increased importance on trading technology to find and implement trades that capitalize on smaller relative pricing discrepancies.  We talk as well about running a tail risk program and the challenges that come from carrying protection during very quiet periods.  Noting the increased tendency for market vol regimes to transition very quickly, John-Mark shares his thoughts on how investors should think about hedging, emphasizing the need to have an action plan to monetize premium expansion during a market sell-off.  Please enjoy this episode of the Alpha Exchange, my conversation with John-Mark Piampiano.

Cutting his teeth on the acclaimed mortgage trading desk at Salomon Brothers in the 90’s, Troy Dixon gained an early appreciation for the speed and degree to which market liquidity can turn. Now the CIO of Hollis Park Partners, a firm he founded in 2013, Troy shares the perspectives gathered in managing complex trading risk over more than two decades in markets. We talk about his time at Deutsche Bank, where he ran the RMBS trading unit, and the intense pressure to compete in the pre-crisis period for profitability in each aspect of the mortgage lifecycle. Contemplating the asset price wreckage in the aftermath of the housing crash, Troy recounts the challenges in balancing the competing interests of providing market making services for the firm’s client base while risk managing a volatile book of prop exposures. Next, we discuss Troy’s founding of Hollis Park and the path that he has sought to provide for other professionals of color in the financial industry. In thinking back on the heavy lift he undertook, Troy said, “I was naive about a lot of things, but the core thesis of it was to lay the framework for people of color to follow suit in an industry that had created a plethora of wealth for people that don’t look like me.” A firm engaged in finding value in MBS and a variety of structured products, Hollis Park capitalizes on securities that have different prepayment speeds. No conversation with a fixed income expert would be complete without an assessment of Central Banks. And on the Fed, Troy has much to say. Calling low interest rates an addictive drug, Troy sees no obvious path for the Fed to disengage from markets, expecting ongoing volatility linked to this codependency. Please enjoy this episode of the Alpha Exchange, my conversation with Troy Dixon.

Over her 22 years at Citi Group, Anna Raytcheva managed complex trading risks through volatility regimes both high and low. The Orange County blowup on the back of Greenspan’s surprise tightening campaign in 1994 provided Anna with an early lesson on the vulnerabilities that arise from owning exotic securities, especially when they are positioned with leverage. My conversation with Anna considers this and other prominent periods of market disruption and what they taught her about the limitations of modeling. With markets prone to risk on / risk off, Anna sought to develop trading signals using machine learning techniques to detect clues that a change in the vol regime was afoot.  Founding Sonya Capital in 2017, Anna capitalized on the perspective she gained trading through crisis periods when liquidity evaporated from markets.  As such, she constructs positions using global futures to implement a discretionary global macro strategy that takes economic data, policy changes and flows as inputs.  We finish our conversation with Anna's assessment of the movement to empower more women in the field of finance.  Noting that there's plenty of work still to do, she is optimistic on the opportunities for female advancement in the industry.  Please enjoy this episode of the Alpha Exchange, my discussion with Anna Raytcheva.

Armed with a PhD in astrophysics, Josh Younger hit Wall Street in 2010 as the embers of the Global Financial Crisis were slowly burning out. With a decade of focus on modeling interest rate derivatives and with the perspective gathered through unique fixed income risk events, Josh brings exceptional insights to our discussion. Our conversation aims to uncover the factors that contributed to the near collapse of the Treasury Market during the chaos that ensued in March of 2020. Characterizing US government bonds as the asset that became toxic to own, Josh helps us understand the manner in which post GFC regulatory initiatives combined with buy-side incentives to rent balance sheet left the UST market vulnerable to overwhelming the system’s capacity to bear risk. On the back-end of our discussion, Josh brings to life the factors that influence the supply and demand for interest rate options and the impact that certain products used by insurance companies have on long-dated implied volatility. Please enjoy this episode of the Alpha Exchange, my conversation with Josh Younger.

For Jordi Visser, market crisis events inevitably result in regime shifts.  The pandemic of 2020 – a shock to the economy, deterioration in asset prices and an overwhelming response from the government and Central Bank – is no exception.  In his role as Chief Investment Officer at Weiss Multi Strategy Advisers, Jordi is dispassionate in his assessment of risk and reward, relying on hard data rather than the common narratives often proffered.  In today’s set of market prices and data, Jordi sees opportunities in that beaten down factor called value, as it is associated with cyclical industries that produce goods.  As supply chains are moving onshore, price increases are occurring as a result of production bottlenecks.  And at the same time, Jordi sees changes in demand, especially from millennials, who are shifting to consume “things” like autos and housing and focusing less on experiences in a post-pandemic world.  On balance, Jordi see relative value opportunities in value versus growth and EM versus DM. We talk as well of Jordi’s upbringing and the important impact his father has had in helping him think about odds.  Looked at through the lens of horseracing, betting on the trend is about laying significant odds to bet on the favorite. And market disruption events are inevitably tied to the shattering of a widely held consensus where too much capital was invested in the favorite.  In this context, and given his career experience, Jordi has plenty of insight to share on the derivatives markets, hedging and the price of tail risk.  Please enjoy this episode of the Alpha Exchange, my conversation with Jordi Visser.

When it comes to obvious asset class similarities, crypto and crude might seem to have little in common.  But for Rich Rosenblum, there are linkages between them upon closer inspection.  Seeing similarities in the diversifying characteristics of both assets in broad portfolios, Rich also notes the tendency for digital assets and crude to experience phases of investment and then value extraction from that investment.  The net result is volatility.  On this episode of the Alpha Exchange, it was a pleasure to solicit the insights of Rich, the former global head of oil derivatives at Goldman Sachs and, for the last 7 years, a co-founder and head of trading at GSR Markets, focused on delivering trading and investment product solutions to the crypto space.  Our conversation explores the financial attributes of bitcoin – its correlation to risk markets, its periods of strong price momentum and how it may perform during the chaos that investors are especially worried about right now.  We also discuss the expanding market for options on bitcoin and the manner in which the vol surface is priced both across strike and time.  The increasing degree of liquidity in this market provides new opportunities to gain exposure to both the upside and downside movements in the largest cryptocurrency.  Please enjoy this episode of the Alpha Exchange, my conversation with Rich Rosenblum.

In the words of former FOMC Governor, Kevin Warsh, “If you’ve seen one financial crisis, you’ve seen one financial crisis”.  The uniqueness of shocks makes this so and the result is that policymakers need to constantly innovate in their response to episodes of heightened uncertainty. Now a visiting scholar at the Hoover Institute, Kevin shares with me his perspective on the pandemic of 2020, evaluating the mix of forces that brought the VIX to a new time high even as the Treasury market nearly imploded. Kevin’s experience on the FOMC during the global financial crisis has taught him lessons about the institutional realities of crisis firefighting: in the moment, a central bank may be left with few good options and be forced to use controversial measures to restore market functioning. In Kevin’s rendering, what’s more important is the set of reforms pursued by a central bank between crisis events that matters most and here the Fed may not have done enough in the decade between the GFC and the pandemic. We end on an optimistic note, with Kevin expressing confidence that the US will get it right and the dynamism that characterizes the economy will again emerge. I hope you enjoy this episode of the Alpha Exchange as much as I did, my conversation with Kevin Warsh.

Widely considered one of the most gifted central bankers of the modern era, Raghuram Rajan is a highly prominent voice on monetary policy and the global macro economy and it was my distinct privilege to bring his insights to the Alpha Exchange.  Now the Katherine Dusak Miller Distinguished Professor of Finance at Chicago Booth, Dr. Rajan was head of the Reserve Bank of India from 2013-2016, stewarding the country’s economy and financial system through a precarious time punctuated by a violent currency sell-off and a challenging bout of inflation.  Our conversation covers monetary policy, episodes of financial crisis, the fallout from Covid-19 and that pesky conundrum, inflation.  Dr. Rajan gives the Powell Fed high marks on its forceful response to the pandemic, crediting it with staving off a self-reinforcing asset price sell-off.  At the same time, he worries that, as the Central Bank becomes more interventionist, it risks being captured by markets and will find it difficult to extricate itself from extraordinary accommodation.  Lastly, we discuss Dr. Rajan’s most recent book, “The Third Pillar”, an important contribution to how policymakers should think about the interaction between the state, markets and local communities.  I hope you enjoy this episode of the Alpha Exchange as much as I did.

From Latin America in the 80’s to South East Asia in the 90’s, the history of emerging market dust ups is rich. And for Jay Pelosky, the co-founder and CIO of TPW Investment Management, these episodes of instability provided critical early training on the “never say never” world of EM. On this episode of the Alpha Exchange, Jay recounts his days at Morgan Stanley, trained under Barton Biggs, and responsible for allocating capital across asset classes and countries. We reminisce on the Internet bubble that imploded as the century began and pivot to today’s post Covid markets: dominated by tech, propelled by low rates and preoccupied by a certain event coming in November. Jay’s framework views the world as tri-polar, with the US, Asian and European economies vying for global leadership and with a non-consensus view that Europe may finally turn a corner. We talk as well about the sudden stop of Coronavirus and the unique way in which the asset price reaction was so immediate, leaving a backdrop of substantially low yields and a need generate carry. As a result, in today's environment, Jay sees a need to underweight government bonds but overweight credit and as the US continues to fight Covid resulting in ongoing dollar weakness a need to underweight US equities. Lastly, in terms of potentially overlooked risks, Jay worries that a narrowing of the polls between Trump and Biden is something to watch for as some controversial election outcome could derail market sentiment. Please enjoy this episode of the Alpha Exchange, my conversation with Jay Pelosky.

Michael Pettis is no stranger to episodes of financial crisis.  Trading through multiple Latin American debt crises in the 1980’s, the Southeast Asia currency debacle in 1997 and, in its aftermath, the capital flight that engulfed Brazil, Michael has developed a rigorous framework for the how and why of these disruption events.  Central to his approach is Hyman Minsky’s focus on the balance sheet and the relationship between assets and liabilities both for individual entities and across the system.  Driving financial fragility, in Michael’s rendering, is a specific type of mismatch in which the payments on the liability side are vulnerable to sharply increasing when conditions become less favorable.  Our conversation considers these events in the context of China, a country that Michael moved to in 2002 and has become a renowned expert on.  Seeing China on an unsustainable debt path as early as 2007, Michael argues that the conditions for financial crisis are less obvious given the closed nature of the Chinese banking system and the powerful ability of the regulators to be able to force the creditors to restructure.  Michael has plenty to share on a number of other important topics including MMT and his recent, important book, “Trade Wars are Class Wars”, in which he lays out the impact of globalization on wages and the resulting shifting of political tides in the US and abroad.  Please enjoy this episode of the Alpha Exchange, my discussion with Michael Pettis.

Trading through big FX macro events in the 1990’s, Mike Novogratz is no stranger to market instability and the Central Bank response that is ultimately required to restore order. Our conversation is a retrospective on the long ago period when firmly positive interest rates were a thing and when market prices were discovered through supply and demand. In Mike's rendering, today's world looks a lot different. Central Banks have taken an increasingly activist role in guiding interest rate markets and preventing unwind events from becoming self-reinforcing. The result, stable prices in some asset markets but increasingly speculative characteristics in plain sight in others. Our conversation covers a lot of ground, and Mike has much to say about bonds, bubbles, bitcoin and even bail. About the latter, he has founded the "bail project", a passionate effort focused on creating a more humane pre-trial bail system. Lastly, we discuss Mike's founding of Galaxy Digital Holdings and his investments in various aspects of the crypto value chain. On bitcoin, he says both simply and emphatically, "we value it because we say its valuable." And in a world where money-printing has accelerated, bitcoin may still be in the early innings of a tail outcome resulting from the change that has been thrust upon us all.