Alpha Exchange

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Latest Episodes:

IBIT…the Hottest Option on the Planet Dec 18, 2024

The subject at hand in this discussion is the unbelievable launch of options on IBIT, the bitcoin ETF. What I’d like to put forth is that the financial characteristics of the underlying asset – bitcoin - pave the way for IBIT options, already off to an amazing start, to become a critical industry risk management tool.
The unique risk characteristics of bitcoin and how they shape the option vol surface in IBIT will underpin the success of its options. Specifically, bitcoin has 3 financial characteristics that pave the way for tremendous option adoption. First, it is a high vol asset. Second, bitcoin exhibits a great deal of vol of vol. Bitcoin goes through sleepy periods and also those when the daily fluctuations are huge. And the third of the financial characteristics, perhaps the most important of them, is bitcoin’s nearly unmatched propensity for positive spot/vol correlation.
I am really bullish on this new and exciting options complex. I hope you enjoy this perspective and find it interesting. Be well.

Ali Samadi, Managing Director, Equity Derivatives, Nomura Securities Dec 17, 2024

The “flow desk” as it’s often called on the sell-side is about repeatability and scale in the service of institutional clients. It’s a competitive business with not a lot of margin for error, especially in a product like equity options where being on the wrong side of a misbehaving Greek could spell trouble. With this in mind, it was great to welcome Ali Samadi, Head of Flow Equity Derivative Sales at Nomura Securities International to the podcast.

Our conversation explores aspects of the salesperson / client interaction that make a relationship stick. Namely, Ali suggests that first and foremost, one must understand the client’s objective and tailor the coverage experience accordingly. As a derivatives expert, he sees opportunities to utilize the volatility surface not just in the construction of trades, but also as a source of information, as it may provide clues as to where investor interest is concentrated. We also talk about addressing the inherent negative selection risk for a sell-side desk. This includes the inevitable need to manage client expectations on what size can be transacted at a given price, especially when markets turn especially illiquid as they did on August 5th.

Lastly, we spend some time talking about training younger professionals, a pursuit Ali is passionate about. He believes the best way to help junior colleagues advance is to have them review trades in order to develop a sense as to what the right price is. Along with this, he encourages those in the early parts of their careers to diversify their skill sets, learning at least something about other products and assets classes. I hope you enjoy this episode of the Alpha Exchange, my conversation with Ali Samadi.

Michael Green, CFA, Portfolio Manager, Chief Strategist, Simplify Asset Management Dec 10, 2024

A major theme of Alpha Exchange podcasts over the years has been the impact that financial products that live and breathe within the markets have on asset clearing prices. Events like the crash of 1987, the GFC, the 2018 XIV event or the unwind of short variance exposure in March 2020 come to mind as examples. More recently, the substantial growth of leveraged ETF products has gotten a lot of attention, as a potentially amplifying factor with respect to underlying asset volatility.
With this in mind, it was a pleasure to welcome Mike Green, a partner and Chief Strategist at Simplify Asset Management back to the Alpha Exchange. Our conversation drills down on leveraged products written on MSTR, the bitcoin buying company. Mike first describes how a leveraged product’s rebalancing requirement resembles a short straddle, buying when the underlying rises and selling when it falls. He next makes the case that the two times leveraged long products, MSTU and MSTX, are unique in that they are large in size and written on an underlying that is extremely asset.
This creates the potential for vol amplifying feedback loops that result from the extremely large daily re-hedging. Mike believes the leveraged complex has contributed to the large premium of MSTR to the value of its bitcoin holdings. We talk as well about the costs being borne by the ETFs who have been forced to utilize the options market as the swap providers have reportedly limited the amount of leverage they are willing to provide.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Mike Green.

Bitcoin, Price / Vol Spirals and MSTR Dec 07, 2024

What follows are some of my recent thoughts on a favorite topic: the interaction between option prices and the assets upon which these options are written. Specifically, I share thoughts on price / vol spirals, which come in two flavors: a) the asset plummets and vol explodes b) the asset surges and vol explodes. In the first, which we might call "Melt Down", the asset nears a bankruptcy cliff as vol surges. See GFC.
In "Melt Up", there's typically some version of a short squeeze involved. Everyone’s trying to get their hands on the same thing all at once. And that brings us to MSTR, the bitcoin buying engine run by Michael Saylor. There are some important considerations for evaluating risk in MSTR, driven by the fascinating interaction between the stock and both the leverage ETFs and options that sit alongside it. Especially given the unique empirical and implied distribution of bitcoin, these products create powerful powerful feedback loops that ought to be understood.
I hope you find this discussion interesting and useful.

Victor Haghani, Founder and CIO, Elm Partners Dec 07, 2024

It was a pleasure to welcome Victor Haghani, the Founder and CIO of Elm Wealth Management back to the Alpha Exchange for an engaging discussion on those turbo-charged financial products called leveraged ETFs. Our conversation is focused on the large product suite built around MicroStrategy, a software company whose mission appears to be solely focused on the accumulation of bitcoin. Itself a stock realizing 75 to 150 vol, MSTRs two times daily return products – MSTU and MSTX – have experienced one month delivered volatility levels approaching 400.
Victor shares the recent work he and team have done to model scenarios for these products based on price and vol assumptions for MSTR. The punchline is that investors need to carefully consider the risk exposure they are getting and be prepared for potentially large losses should the underlying stock fall and volatility rise. In the course of our discussion, we contemplate the directionality of the MSTR premium to its holdings of bitcoin and whether that is itself linked to the price of bitcoin.
Lastly, we touch on a new product proposed by ETF provider Battleshares that targets a daily long/short exposure to two assets, for which the Elm team has built a model and posted on their website. I hope you enjoy this episode of the Alpha Exchange, my conversation with Victor Haghani.

20 Things to Do Before You Ask for a Price (Part 4) Dec 02, 2024

Welcome back to the last installment of “20 Things to Do Before You Ask for a Price”. This 4-part series has been geared towards illustrating how the equity derivative salestrader can be a meaningful part of getting two institutional counterparties to “yes” with respect to the transfer of option risk. The salestrader, sitting between the trader and the client, can quarterback the process by appreciating the context of the trade and contributing insights on the risk profile of it. Context is about the client, the underlying stock, the trade motivation and the risk environment. The risk profile is about the many nuances of different option trades and what they imply for how the sell-side trader will think about pricing and providing capital.

In today’s highly electronified markets, prices are streamed continuously by tireless bots with neither faces nor names. But risk transfer still occurs the old-fashioned way as well – and these voice trades require superb communication, led by the salestrader. If you are executing upon “20 Things”, you are adding alpha to this process. Below are Things 16-20. I hope this 4-part series has been interesting and you’ve enjoyed the perspective.

16. What is the bid /offer is in vol terms? For example, if an option has 30 cents of vega and the bid / offer is 50 cents, the vol bid/offer is 1.6 vols. Bid / offers on long dated options often seem wide in terms of prices, but are not really in terms of implied volatility. This can be useful in defending your trader’s price.

17. Look at the combo. Check the implied vol on the put vs. the implied vol on the call of corresponding strike. Are they reasonably the same? If not, there could be a borrow issue or a dividend issue. When put vol is much higher than call vol, a borrow issue is often present. In instances where market is forecasting an increase in dividends, it is also the case that the put vol will be higher than the call vol.

18. Understand div risk. On long dated options, dividend risk is a big issue – especially for high delta options where the stock hedge is large. Example: buying the Jan’25 35 puts in VZ carries a great deal of dividend risk – if we buy the puts and buy stock we are effectively buying the dividend stream which, if cut, is painful. Use the Bloomberg function DVD and BDVD.

19. Know put/call parity. C = S + P = PV (K) – PV (Divs) and be prepared to use it to explain pricing to accounts especially on deep in the money or out of the money options.

20. Lastly, have an opinion on every single price you get. You should have a feeling of what you think the price should be before you get a price. Understand that traders are responsible for prices, but that your informed input is very important.

Rocky Fishman, Founder and CEO, Asym 500 LLC Nov 26, 2024

It was a pleasure to welcome Rocky Fishman, Founder and CEO of derivatives advisory firm Asym 500 back to the Alpha Exchange. An area of specialty for Rocky is evaluating systematic trading strategies, like vol targeting, that live and breathe within equity markets and potentially sponsor feedback loops.
The focus of our discussion, the growing universe of leveraged ETFs, a unique product set that has been on my mind and that Rocky has recently done a deep dive on. We start our conversation by revisiting the August 5th VIX event that saw the S&P options market turn highly illiquid as the prices quoted for deep out of the money puts reached unheard of levels. For Rocky, while the event came and went, there are lessons, namely that the tails can exert themselves suddenly.
With respect to leveraged ETFs, Rocky sizes the US universe as $135bln in assets under management for leveraged and inverse products, $120bln of which is in equity products. He walks through how both the leveraged long and inverse products on the same underlying, non-intuitively, are responsible for buying or selling in the same direction on the same day. These amplifying effects, unlike efforts to map the market’s gamma profile are unambiguous. As such, they are worth keeping a close eye on, especially as the ETF issuer’s daily required rebalancing efforts take place near the close of trading. Here, Rocky does observe both more vol and volume in the market near the end of the day.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Rocky Fishman.

20 Things to Do Before You Ask for a Price (Part 3) Nov 26, 2024

Welcome to Part 3 of “20 Things to do Before You Ask for a Price”. To review, “20 Things” is a to-do list I developed more than 2 decades ago while running a derivative sales team. The desk committed a substantial amount of capital in pursuit of business, which made it easy to win trades but also easy to lose money in the process of winning those trades. 20 Things was about playing defense and offense simultaneously by requiring the salesperson to be an active part of the price discovery process. While the trader would ultimately make the price and bear the risk, the salesperson, through 20 Things, could be a valuable part of the process. The result: better risk taking and a more sustainable business. Here are things 11-15. I hope you enjoy and find this useful. I wish you an excellent Thanksgiving holiday.

11. Corporate action? Is this stock a deal name or subject to some other corporate action? Use the CACS function on Bloomberg to look for corporate actions. Deal names can have very unique implied distributions and are difficult to provide risk capital into in option trades.

12. Evaluate the vol. What is the implied volatility of the name? How does it compare to realized volatility? How does the name spread versus index or sub-index volatility? Run the GV function.

13. What does strike skew look like? The skew may be indicative of the amount of gap risk potential in the name. Run Bloomberg command OVDV SKEW and look at the spread in risk reversals on the OMON screen.

14. What is the shape of the term structure? This can give a sense as to how much the market is willing to pay for an event (ie, earnings or an FDA announcement). Run Bloomberg command OVDV TRMS.

15. What is the vol risk in the trade? Is this a long-dated option on a high-priced stock? If so, you should know what the vega of the option is. Example: 10k F Jan’25 11 strike calls have far less vega than 10k MSFT Jan’27 430 call. These very different options call for different kinds of dialogue with the trader and client. Use the Bloomberg OV function.

Dominique Toublan, Head of US Credit Strategy, Barclays Nov 23, 2024

While the SPX has enjoyed a banner year in 2024, a series of risk events have mattered, including the August 5th spike in the VIX and option pricing uncertainty into the US election. Credit spreads have generally behaved in benign fashion, however. What will 2025 bring for the world of credit and what risks should we pay attention to? With this in mind, it was a pleasure to welcome Dominique Toublan to the Alpha Exchange. Now the Head of Credit Strategy at Barclays, Dom landed on a credit derivatives desk in 2007. With a deep background in physics, Dom quickly saw that while derivative products may utilize some of the complex equations that underpin the physical sciences, markets are prone to episodes of disorder with unpredictable outcomes.
Our conversation first considers the behavior of macro credit products in the period before and after US Election. Here, Dom shares that the same vol premium observed in equity options was visible in both credit spreads and credit implied vol as well. In the aftermath of the Election, Dom sees strong, ongoing demand for US spread product with a global buyer base looking less at whether spreads are wide or tight but for all-in yield, pointing to Taiwan life insurance companies for example. In evaluating the risk premium of credit spreads, Dom argues that while valuations are a bit tight, ongoing inflows should continue to support the market. Acknowledging there are some macro headwinds, he doesn’t see them as strong enough to be disruptive.
Lastly, we talk about the progress made in gaining credit exposure through a systematic, factor-based approach. Dom sees this as an exciting time of product development, calling it the equitification of credit. With considerably more data now available and with the advent of credit ETFs, the market has embraced portfolio trading, greatly facilitating risk transfer. Along with this, the credit market is incorporating the principles of factor exposure, long a part of the equity market.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Dominque Toublan.

20 Things to Do Before You Ask for a Price (Part 2) Nov 19, 2024

We are back, with installment number 2 of “20 Things to Do Before You Ask for a Price”. It’s a to-do list for the equity derivatives salestrader who chooses to be a relevant and constructive part of the option risk transfer process that a buy-side client and sell-side trader engage in. Small trades – like buying a pack of gum – can be consummated quickly. Large trades – like buying a house – typically take a while. But large trades that are borne in a moment’s notice – that’s a unique thing with unique risks. Things 6 through 10 are about quarterbacking trades to completion in the context of being short information asymmetry. I hope you enjoy and find this useful.

6. Is the order outright or delta neutral? This dictates speed of response needed to the client. There’s more time on delta neutral orders.
7. Check option market depth. Evaluate the screen market using OMON function. How wide are the screen markets? Is the option better bid or offered?
8. Check volume. Use the OMST function to see option volume in the name and that line today. Check open interest in that line to see if the trade is opening or closing.
9. What is the option delta? What is the share delta? What is share delta as % stock volume? Note that low delta options can be challenging to sell from a risk standpoint and that high delta options can be difficult from a stock liquidity standpoint.
10. Check earnings. When does the stock report? Does this option order comprise a report date or other important release of company information? Run the ERN function to look at historical impact of earnings announcements.

20 Things to Do Before You Ask for a Price (Part 1) Nov 15, 2024

I wanted to welcome you all to a new, 4-part series of the Alpha Exchange, “Twenty Things to Do Before You Ask for a Price”. In short, this is my thinking on what a derivatives salesperson ought to do instinctively and nearly instantaneously in his or her interaction with a trader colleague being asked to price option risk for a client. These 20 things constitute a real time to do list for the salesperson that adds alpha to the process of price discovery and can allow the trader to take more risk by mitigating certain kinds of risks. In this short podcast, I share the first 5. I hope you enjoy and find this useful.

Know the client. Who is the client, what is desk relationship and what are the client’s expectations? This starting point is a critical component of quarterbacking the price discovery and execution process. Every client is unique.
Know the risk environment. Is vol better to buy or are clients dumping options? What is the backdrop for the commitment of capital around the street? This is critical to managing expectations.
What motivates the specific trade? Is the client likely buying or selling vol? Is he/she opening, closing or rolling?
What is the stock? How well does the stock trade? Is there news out in the stock?
Buy yourself time. If it is an off-the-run name with a ticker you have never heard of, let the client subtly know you have never heard of it (nor should you have). This provides a bit more time for the trader.

Post Election Reflection (on Vol) Nov 12, 2024

A resounding Trump win. A collapse in vol. Bitcoin “number go up”. And up. And up. The French Whale on Polymarket got paid. A star was born in Scott Jennings. The Fed eased. And, Powell, in the words of DiCaprio in Wolf of Wall Street said, “I ain’t f’n leaving”. That’s the summary. But there’s lots more to explore and in this short pod I aim to provide you with some food for thought on the risk front. Markets have been well behaved and the VIX spiraled lower as most expected it would on November 6th. Still, there are plenty of risks on the horizon and we ought to recognize what volatility is all about. It’s how the market processes change. And it’s pretty difficult to argue that we have not just experienced profound change in the leadership and governing philosophy of the United States. Taxes and tariffs, regulation and immigration, foreign policy and Fed policy. I finish the discussion with a recommendation to stay quite long, but also spend a little premium on a put spread overlay. It feels like a small price to pay for sleep at night insurance. I hope you find this interesting and useful. Be well.

Shailesh Gupta, Head of Structural Alpha, Simplify Asset Management Nov 05, 2024

Of all the concepts focused on throughout the discussions hosted on the Alpha Exchange, the notion of “carry” is one of my favorites. In its most basic definition, carry measures the income or cost to holding an asset in the steady state, when nothing changes. Underpinning the assessment of value in any option trade or strategy is a view on the favorability of carry at a given point in time. Can I own options for free or at least at meaningful discounts to their value? Mr. Market makes this very unlikely. Can I be especially well compensated for being short optionality? These are challenging questions, worthy of careful study. And in this context, it was a pleasure to welcome Shailesh Gupta, the Head of Structural Alpha at Simplify Asset Management to the podcast. Our conversation explores areas of carry in the market, why they exist, how they can be harvested and what can go wrong in the process. Shailesh shares his views on the pricing of interest rate volatility, where the vol risk premium has been especially high and how that fits into product design at his firm’s ETF platform. We talk also about risk – including the crowding episode in VIX products in 2017 leading into the XIV event of 2018. I hope you enjoy this episode of the Alpha Exchange, my conversation with Shailesh Gupta.

Meb Faber, Founder and CEO, Cambria Investment Management Nov 01, 2024

It was a pleasure to host a discussion with Meb Faber, the Founder and CEO of Cambria Asset Management. Our conversation begins with the question of whether it’s a good idea to buy the market at an all time high. To this, Meb argues it’s actually a great idea, pointing to the data and that markets in an uptrend continue to move higher.
We incorporate the notion of a trend following strategy, which Meb illustrates can be helpful in managing the inevitable and substantial drawdown which forces many investors out of the market and destroys the value of compounding in the process. No strategy is perfect, and trend following can underperform during sideways, choppy markets. But it has proven important to cut off the deep left tail with reasonable success. We also explore the work Meb has done on shareholder yield, a strategy that he’s passionate about and argues works particularly well in foreign and emerging markets.
Lastly, we talk about that a vastly under-appreciated aspect of return generation in investing: taxes. The team at Cambria is doing some interesting work on this front, utilizing a feature of the code that helps investors diversify risk in a tax efficient manner. I hope you enjoy this episode of the Alpha Exchange, my conversation with Meb Faber.

The DOTS (Discounting of Trump Success) Oct 26, 2024

Is Trump in the price? Wall Street is asking this question. In this podcast, I walk through how the market prices implied volatility around the US Election, focusing on the SPX, TLT and even DJT. As option premiums are much higher than justified by recent realized, there’s an enormous vol risk premium, the result of a withdrawal of vol supply. There’s interesting information coming from betting sites like Polymarket and early voting data as well that might help us better understand the election probabilities and the implications for how the market prices options. Lastly, I consider the relatively rare co-existence of a high VIX but low SPX implied correlation and what that means. I hope you enjoy this discussion and welcome your feedback. Have a great week.

Hedge When You Can, Not When You Have to Oct 16, 2024

In this short podcast, I make the case for doing what doesn’t come naturally - taking defensive action when times are good. The first portion of the discussion assesses event risk premium into and after consequential macro events like Brexit and prior US elections. The main shared attribute is that implied vol remains elevated into the event, even in the face of muted realized volatility. A second attribute is that post event, implied vol falls. While the same playbook may be relevant in 2024, I argue that overlaying market-based insurance via SPX put spreads out to year end is compelling given the pricing and unique set of forward-looking uncertainties coming our way and the reality that liquidity conditions can change very quickly. I hope you find this podcast interesting and useful.

The Opera of Option Prices Oct 09, 2024

In China, the “vol shot” heard round the world occurred recently with the Chinese government throwing the kitchen sink at the economy and market, seeking to revive the relatively lifeless patient. As it usually does, at least temporarily, it worked. Insofar as asset price reaction that is. An explosion in volumes ensued as did the classic “stock up vol up” dynamic made most famous in 2021 during the Meme stock episode. In this short pod, I review the five characteristics of price/vol spirals, their implications and how these unique episodes resolve themselves. I also cover US Election risk and how its impacting the VIX. I hope you enjoy and find this useful.

Option Prices are Singing Oct 05, 2024

Option prices - by incorporating time (expiry) and distance (strike) - give us many more dimensions than a mere flat price like the SPX or a single stock. If the stock market speaks, then the option market sings. It's my strong contention that option prices are singing out loud right now, begging for attention. The market was largely unchanged on the week, but there were some meaningful developments in the price of options – on gold, on crude and on the VIX – that tell us something about an emerging discomfort and perhaps a view that stock prices at all-time highs do not have much margin of safety in this environment. What I highlight in this podcast is that hedging costs can be a function of the market's ability to provide the capital to absorb loss. The Election and a very unsettling geopolitical backdrop make this more challenging. I hope you find this helpful.

ODTE? No, OTTD! Sep 23, 2024

The gamma and theta characteristics of ODTE are attached at the hip. But the zero day to expiration straddle on last Wednesday’s Fed day was no normal ODTE. We might call this straddle a OTTD straddle. Zero theta to decision. The Fed decision isn’t just a date on the calendar. It’s a specific time of day on that date. It’s not like NFP which comes out before the market opens. It’s not like NVDA earnings, which come out after the close. Powell and his Fed teammates have decided they want to give us the goods during the trading day and on Fed days, “Ain't nothing going on but the rent” becomes “Ain't nothing going on pre-event.” I discuss the unique behavior of intraday option pricing on FOMC day and also how to think about the VIX floor as the US election comes into closer view. I hope you enjoy and find this useful.

Kris Abdelmessih, Co-Founder, Moontower AI Sep 11, 2024

Most of the discussions on the Alpha Exchange podcast consist of guests sharing views on market risk and portfolio construction. To be sure that leads the conversations down the path of monetary policy, positioning, inflation and growth. There’s a great deal of consideration around the price of optionality and the correlation of assets.

But what about insights on the nitty gritty of getting into option trades, being a liquidity provider to the Street and then risk managing those positions? Enter, Kris Abdelmessih, who spent well more than a decade doing just that. Now the author of the Moontower Substack and the founder of Moontower.ai, Kris looks back at his time on the market making front, starting with his formative experience in the renowned Susquehanna training program and ultimately trading volatility at Parallax. We talk about how he sought micro-edge by maintaining sell-side relationships, getting into positions as cleanly as possible and then having a dispassionate process for unwinding trades for which the vol profile was no longer suitable to own.

We also gain his insights on perils of trading off-the-run ETFs like those on natural gas and crude oil, with the April 2020 meltdown in the latter, an important case study. I hope you enjoy this episode of the Alpha Exchange, my conversation with Kris Abdelmessih.

Elections Have (Vol) Consequences Sep 09, 2024

“Elections have consequences”. So said former US President Barack Obama. He probably didn’t have our trusty fear gauge, the VIX, in mind, but he may as well have. We are one day away from the US presidential debate. I am not sure this one can deliver the same fireworks that resulted from June 27th. It may devolve into a food fight, with each side hoping to land a definitive blow. What I’ve learned about election risk with regard to derivatives through events like Brexit, the 2016 and 2020 US elections and certainly this one as well is that the clearing price for volatility is impacted by a decline in the willingness and ability to supply it to the market. The result, a VIX stuck at a reasonably high level. I hope you find this discussion enjoyable and useful.

Lessons from the Rowdy VIX Sep 03, 2024

Three hundred odd years ago, Sir Isaac Newton told us that “no great discovery was ever made without a bold guess.” My sense is he didn’t have the order book in Emini futures in mind, but his words do translate well to our world of financial instruments. In this short pod, I revisit the events of August 5th, a day when prices normally well discovered went dark. The implications are real and we ought to learn from this short-lived but real episode of instability. As we approach the “4 E’s” – employment, earnings, the election and the easing cycle – there’s a good deal to consider with respect to playing defense in markets. I hope you find this interesting and useful.

Kathryn Rooney Vera, Chief Strategist, StoneX Group Inc. Aug 27, 2024

Now the Chief Market Strategist at StoneX, Kathryn Rooney Vera comes from humble beginnings. As a teenager she cleaned houses in order to contribute to her family’s finances. In college, she changed her major to finance from liberal arts, seeing a more direct path to a well-compensated career. She would ultimately settle into the study of economics, a craft she continues to refine today in support of colleagues and clients at StoneX.
Our discussion surveys the process Kathyrn uses to find value in markets. She focuses on forecasting growth and inflation, the Fed’s response to these variables and the construction of trades that will capitalize on them. We review some of the recent cross-asset volatility and the role that positioning played. Kathryn rightly suggested that clients utilize protective option strategies in the period prior to August 5th.
She has also seen value in curve steepeners, embedding a little bit of the Sahm Rule notion that the Fed may find itself behind the curve. Lastly, she sees a favorable setup in the utilities sector, providing both the traditional defensive property through its linkage to rates as well as embedding an AI play that can empower it should the boom continue.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Kathryn Rooney Vera.

VIX Went Cray Cray Aug 20, 2024

When an accident occurs, the insurance claims adjuster produces a report. What does said report tell us? The yen’s largely one way path lower took a dramatic turn that saw it rally by roughly 9% over just 3 weeks. The pricing fallout was everywhere – in curves, credit, correlation, convexity and carry. That’s a bunch of C’s, isn’t it. The cause of chaos: crowding. When markets misbehave, it’s natural to jointly evaluate two factors: the combination of “new news” and the “setup” going in. Over the course of this short podcast, I share some thoughts on this recent risk flare-up and what it tells us about market fragility. I hope you find it interesting and useful.

Vineer Bhansali, Founder and CIO, LongTail Alpha Aug 19, 2024

Vineer Bhansali was recently among a small group of athletes who achieved the unthinkable, a 135 mile run in scorching heat, wind gusts and rain, all while traversing both the lowest and highest elevation points in North America. The Badwater 135 is considered the most difficult Ultra Marathon, an undertaking in which a guiding philosophy is, simply, “don’t die”.
As the CIO of LongTail Alpha, Vineer’s investment philosophy is also not to die – or, translated to markets – don’t get forced out at the wrong time. And in this context, he makes substantial use of derivatives, instruments that protect against the extreme events that markets all too often confront. Our conversation is a review of the August 5th risk event, exploring its causes and consequences. Unsurprisingly, Vineer sees the overconsumption of the Yen carry trade as a primary catalyst and he details the many ways in which printed, essentially free Yen made their way into risk assets of all shapes and sizes. He details how his firm navigated the flare-up, looking to trade VIX at incredibly elevated levels before the open.
With a view that the market price of insurance has come back to Earth too fast and with concerns that the recent risk-off may just be an appetizer for a larger unwind to come, Vineer argues that embracing insurance strategies is an important part of a long-term strategic portfolio plan. I hope you enjoy this episode of the Alpha Exchange, my conversation with Vineer Bhansali.

Oliver Brennan, FX Volatility Strategist, BNP Paribas Aug 15, 2024

Even if very short-lived, market vol episodes as protracted as that of Monday August 5th, demand our attention. In seeking some understanding of the why of successive 10% NKY moves and a 65 pre-open handle on the VIX, it was a pleasure to welcome Oliver Brennan to the Alpha Exchange. An FX vol strategist at BNP, Oliver brings theoretical training in physics to the related but also very different world of option pricing. In setting up the discussion, we first explore a series of past FX vol episodes including the Euro-Swiss break and CNH re-peg in 2015 and Brexit from the following year. At the heart of these events lie economic imbalances and Central Banks that get tested by the market to hold the line.
We shift to a discussion of the setup going into early August in the Japanese Yen. Always an investment currency because of its balance of payment profile, Oliver argues that carry trades had gotten especially extended as dollar/yen trended so consistently higher. Market participants were long calls and long carry, and the dealing community was especially exposed to an increase in both realized and implied vol. He notes the absence of corporate supply as well of Yen vol in this recent event, something that exacerbated the repricing. With the tails especially under-owned, the more than 6% sell-off in dollar/yen caught the market well off-sides.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Oliver Brennan.

Markets are Never Say Never Aug 12, 2024

What a week in markets and one that should give us a lot to chew on with respect to how and why risk episodes materialize. There are certainly some conclusions at the ready and first and foremost is that vol is the only anti-fragile asset. In the trading action on Monday, August 5th, we see the reflexive nature of vol exposures and the manner in which asymmetric outcomes can result. In this short podcast, I share some of what’s on my mind in trying to uncover the “why” of these seismic moves. Out of this, you’ll hear some of my thoughts on product innovation and market liquidity structure. I hope you find it useful.

Dan Greenhaus, Chief Strategist, Solus Alternative Asset Management LP Aug 08, 2024

With deep roots on the sell-side, serving in strategist roles at both Miller Tabak and BTIG, Dan Greenhaus is now Chief Strategist at Solus Asset Managment, a multi-billion dollar AuM firm with expertise in distressed and high yield investing. Our conversation considers economics in theory and practice, differentiating classic academic training from the role someone like Dan plays on a trading desk supporting clients, portfolio managers and an investment process.
Here, Dan shares the importance of understanding what’s in the price and details his efforts to evaluate consensus by talking to other strategists around the Street to understand baseline expectation. This is some part of what he describes as his role as blindside tackle at Solus, working to identify areas of macro uncertainty that may be under-appreciated.
We talk about the current state of the economy and the stance of Fed policy. On the latter, Dan argues that while the impact of tighter policy on slowing has been much less rapid than anticipated, it has worked. And while he’s successfully faded the repeated calls that the consumer was going to crack over the past two years, he now sees signs worth paying close attention to. He points to simple measures like weekly jobless claims and also puts stock in Visa’s recent earnings call in which weakness was cited across multiple spending categories.
Dan’s study of prior Fed easing cycles suggests that rate cuts have typically come too late to offset broad-based economic weakness. Will this time be different? Perhaps, given the strength of both household balance sheets and fiscal spending. But, as with everything in the realm of markets and investing, Dan properly asserts that we must approach forecasts with humility.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Dan Greenhaus.

Lisa O'Connor, Head of Global Model Portfolios & Co-CIO for Multi-Asset Solutions, BlackRock Aug 03, 2024

With early career roots in both equity derivatives and relative value fixed income, Lisa O’Connor is now the Co-CIO of Multi-Strategy Assets and Solutions at BlackRock. Here she oversees her team’s development and delivery of a long only, systematic asset allocation process on behalf of the firm’s clients.
Our discussion first considers some of the lessons Lisa has derived from market risk cycles. In reflecting on vol episodes, she asserts that markets become very focused on relative value during times of crisis. That is, in higher risk environments, there’s much greater differentiation across risk categories, as investors evaluate which assets can truly be defensive or at least weather the storm.
We talk next about the model portfolio process and the mix of quantitative and fundamental factors that drive the asset allocation decisions. In contemplating the role of duration as a portfolio ballast, Lisa is concerned about risk premia in the back-end of the curve as a function of fiscal deficits. Instead, she sees value in diversifiers like gold, especially as China is increasing its holdings. We also spend time on AI and the challenges of being too little or too heavily invested. In looking for evidence that the roaring capex cycle may have peaked, she is following emerging signs of spending discipline from hyper-scalers and tracking the reported ROIs from investment out 18 months.
Lastly, we talk about the Fed easing cycle and its potentially positive implications for the market pricing of equities with more balance sheet leverage.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Lisa O’Connor.

Man and Markets On Wire Jul 30, 2024

“Walking on a tightrope” is an idiom that conjures the notion of danger – of exceptionally little margin of safety and of particularly significantconsequences should things not go as planned. Markets feel this way - asset prices are full, Sharpe ratios high, correlations low, political polarization intensifying.
In this discussion, we review the recent role of correlation in breaking the more than 500 day streak over which the S&P 500 failed to move down by 2% in one day. We also talk about out the highly unusual VIX curve, with some portions of it in contango and others in backwardation.
Hope you enjoy it and find it useful.

Vol Laundering and the Portrait of a Perfect Hedge Jul 12, 2024

If smoothing returns is the feature not bug of private equity and credit, what strategy fully embraces the virtue of honest mark to market risk? What strategy highlights price shocks and the resulting level at which a portfolio could be unwound in a hurry as the basis of thinking about its efficacy? In this short podcast, I make the case that exposure to vol – to the anti-fragile - is going to be a part of this strategy. That is, long exposure to options-based insurance.
I hope you enjoy and find this useful. As always, I appreciate your feedback.

Michelle Meyer, Chief Economist, Head of the Mastercard Economics Institute Jul 11, 2024

A Wall Street economist who served institutional clients at both Lehman Brothers and Bank of America, Michelle Meyer, transitioned to Mastercard two and a half years ago, now serving as the firm’s Chief Economist and Head of the Mastercard Economics Institute. I had the opportunity to catch up with Michelle back in May and while much has of course happened in the world since, there are some valuable insights shared in our discussion.

We first survey the similarities and differences in her new role at Mastercard versus the traditional sell-side economics role in which she served. Here, she says that in terms of process, markets were formerly the output but are now more of an input that informs her thinking on longer horizon economic trends and their implications. The audience, of course, is different as well, and hedge funds eager for insights on the most recent econ data release are not the priority they once were.

We spend the bulk of our conversation on the vast and rich data set of transactions being generated by Mastercard in real time and around the globe. Michelle and team harness this anonymized data to better understand consumer trends – in travel, in good versus services, across geographies, even across zip codes. On this last part, we talk about two “hyper-local” surges in demand captured by the data – the Swift Lift coming from Taylor Swift concerts and the increased demand along the April solar eclipse line of totality. Really fascinating data. I hope you enjoy this episode of the Alpha Exchange, my discussion with Michelle Meyer.

Cuban’s Collar is Jensen’s Alpha Jun 27, 2024

It’s been 25 years since Mark Cuban implemented an exceedingly well-timed and attractively priced hedge on shares of Yahoo. In this short podcast, we review the popular “zero cost collar” trade and discuss the factors that impact its pricing. Cuban is known for playing offense in investing, buying the Mavs and making deals on the Tank. But his defensive trade on Yahoo years ago has been critical in his wealth accumulation. We bring in Jensen Huang, the owner of a few shares of NVDA, and make the case that he ought to consider this risk reducing collar transaction. I hope you find the discussion informative. Feedback is welcome.

Correlation, Crowding and Convexity Jun 20, 2024

There’s been some decent ink spilled recently on the “dispersion trade” which has profited from the epically low level of realized correlation among stocks. If winning trades attract capital and erode the margin of safety in the process, is this exposure crowded and vulnerable to an unwind? In this short pod, I lay out a 5-part, informal framework for thinking about risk-off episodes. In the process, we consider the pricing of vol and correlation. While the spill-over risk from dispersion trades gone wrong doesn’t appear to be high, the pricing of index volatility that results from never seen before levels of implied correlation offers a uniquely attractive cost of macro insurance.

I hope you enjoy and find this useful.

Garrett DeSimone, Head of Quantitative Research at OptionMetrics Jun 18, 2024

Earning a Ph.D. in financial economics is no small feat. And not only did Garrett DeSimone do just that, but he would unknowingly embark on his future career in the process of doing so. His dissertation from the University of Delaware involved the study of event risk premia in single stocks ahead of earnings. And to perform the analysis he engaged with OptionMetrics, a firm specializing in implied volatility data. Now the Head of Quantitative Research there, Garrett leads the firm’s efforts to deliver carefully constructed data sets to its client base, while generating original empirical studies of option pricing and trading strategies.

Our discussion considers some of his work, starting with his dissertation and the finding that the earnings event risk premium for single stocks makes straddles punitive to own. We liken this to a more recent phenomenon at the index level – the inflated one-day S&P 500 implied vol levels that have occurred in days before 3 macro events – the CPI, the Nonfarm payrolls report and FOMC meetings. We talk as well about one day options and the risk of a blowup. At least at this point, Garret sees flows that are reasonably mixed, with no obvious risk of instability resulting from positioning. Lastly, we discuss recent work he’s done on implied dividends using a novel approach. Relative to years earlier, he finds that there is currently very little risk premium implied in dividends. That is, the market is charging almost nothing for bearing the risk that dividends wind up disappointing on the downside. It’s interesting work and a good example of the rich information that can be extracted from derivatives markets.

I hope you enjoy this episode of the Alpha Exchange, my conversation with Garrett DeSimone.

There’s No Crying in Correlation Jun 13, 2024

The study of correlation is valuable, informative and, likely an over-indulged in activity on Wall Street. That said, there are important risk considerations when it comes to how significantly assets move together or do not. The task at hand in this short podcast is to illustrate and contemplate the diverging paths of two important correlations: that between the stock market and bond market and second, between equities themselves. If the stock market is diversifying itself in real-time, there are reasons to think it cannot last indefinitely. I hope you enjoy.

The Zeroes…A Cross Asset Sequel Jun 05, 2024

With option prices in the doldrums, your host provides some thoughts on why and in the process reflects on the skinny levels of risk premia a decade ago. I finish with some cautionary observations around what might go wrong. I hope you enjoy this short pod!

Raghuram Rajan, Professor of Finance, Chicago Booth, and Former Head of Reserve Bank of India Jun 03, 2024

It was a pleasure to welcome Raghuram Rajan back to the Alpha Exchange. Raghu is currently a distinguished professor at the Chicago Booth School of Business and is the former head of the Reserve Bank of India. With a deep understanding of the intersection of markets, the economy and policymaking, he is among the most important voices on Central Banking.

With this in mind, our discussion explores his recent book “Monetary Policy and Its Unintended Consequences”, the title alone of which is entirely through provoking. Raghu shares his assessment of the tendency for policy towards increasing asymmetry – where the Fed acts as a lender of last resort during a crisis but finds itself unable to achieve normalization during non-stress periods. We talk as well about the distortions that result from forward guidance and asset purchase programs during non-emergency periods.

Lastly, we talk about policy spill-overs, specifically the impact that the Fed’s actions can have on emerging economies. As head of the RBI a decade ago and as India experienced the impact of Bernanke’s 2013 taper tantrum, Raghu has much to say on this subset of unintended consequences. He argues that the Fed’s remit will continue to target domestic growth and inflation, consideration of the international impact of policy decisions should conceivably be a part of the policymaking conversation.

The second half of our discussion focused on Raghu’s most recent book, “Breaking the Mold”, in which he reviews the progress and challenges in India. Here, he documents the diverging paths of India and China and makes recommendations for how India can learn from what China has done while recognizing both the constraints and opportunities associated with today’s global economy. He argues that India is uniquely positioned to provide high value-added services in a digital and remote work economy.

I hope you enjoy this episode of the Alpha Exchange, my conversation with Raghuram Rajan.

Harry Markopolos, "The Man Who Knew" May 28, 2024

Corporate Fraud is an unfortunate, costly and seemingly never-ending aspect of the world of business. In the best case, fraud is prevented or, at least caught before harm is done. All too often, however, these cases of deception lead to large financial losses, impacting the lives of many - shareholders, individuals and certainly those that are courageous whistleblowers.
A little more than 15 years after the unwind of the Madoff Ponzi scheme, I invited Harry Markopolos back to the Alpha Exchange. Harry is often simply referred to as “the Man Who Knew”. He chased Madoff for years, serving up a comprehensive slew of evidence to the SEC that was mind boggling in its degree of logic, rigor and scope. Our conversation looks back on the lessons of this Ponzi scheme and also zooms out to consider other examples of corporate fraud including Theranos and FTX. Throughout our discussion I seek to gather Harry’s insights on the commonalities in these cases, how to detect them and also, importantly, how to prevent fraud. He points to a few areas of progress on the enforcement front but makes a strong case that the penalties associated with being caught need to be considerably larger.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Harry Markopolos.

Kris Kumar, CIO, Goose Hollow Capital May 14, 2024

It was a pleasure to welcome Kris Kumar, CIO of Goose Hollow Capital, to the Alpha Exchange. Our conversation starts with Fed policy and the manner in which the 500bps of policy tightening is impacting the economy. To this, Kris argues that the propitious starting position for households and corporates in this cycle has been quite different than in previous ones, thus blunting the impact of rate hikes. He points as well to loose fiscal policy with the unemployment rate so low. For Kris, what happens next depends more on fiscal than monetary side.

We next consider the backdrop for valuations, starting with fixed income. Kris sees safety that comes from a coupon on 2’s that approaches 5%, noting that there are positive real yields generally in most of the world. From an earnings yield perspective, however, US equities have zero premium to bond yields and Kris points to the concentration of earnings growth coming from the top of the SPX, which, in turn, is a bet on generative AI. Should this growth not materialize, the lofty multiples currently awarded these stocks could be re-rated.

Within equities, Kris makes the argument that we’ve invested a lot in bits but not in atoms and, going forward, investment dollars may move away from tech into areas associated with energy demand. How else to satisfy all of the incremental power to run all of the data centers built?

We finish the discussion with an assessment of the price of vol. Kris points to the epically low implied correlation on the SPX, a result of the bifurcated market in which a small but valuable subset of the index is a bet on AI. He sees scope for the still elevated level of rate vol to come down but upside in vol on commodities like copper as a function of all the spending on infrastructure that will ultimately come as a function of the AI boom.

I hope you enjoy this episode of the Alpha Exchange, my conversation with Kris Kumar.

Jerry Peters, Managing Partner, Smithbrook, LLC Apr 17, 2024

The “rule of 72” tells us that a good approximation for the time it takes to double your money can be arrived at by taking 72 and dividing by the interest rate that capital can compound by on an annual basis. Implicit in the calculation is that the initial stack is left untouched and is not vulnerable to a drawdown. In this context, it was great to welcome Jerry Peters, the Managing Partner of Smithbrook to the Alpha Exchange. Providing a risk-managed equity solution to its high net worth clients, Jerry and team are focused on managing downside risk, utilizing an option overlay strategy to mitigate some of the invevitable swoons in equity prices.

Our conversation walks through how index put options – when acquired at the right price – can create gains that help offset portfolio losses during times of stress. Acknowledging that the long term expected value of buying insurance ought to be negative, Jerry walks through how a protective strategy can interact with long risk exposure to create long term return enhancement. Here, he points to how gains from insurance during sell-offs can underpin the “rebalancing bonus”, where capital is moved from winning to losing assets on a systematic basis. We also talk about some of the subtle aspects of financial asset taxation and efforts to maximize not just the pre-tax but also the after-tax return of investment decisions. Jerry walks through some straightforward tax loss harvesting strategies that can add meaningfully to investment outcomes on an after-tax basis.

I hope you enjoy this episode of the Alpha Exchange, my conversation with Jerry Peters.

Mandy Xu, Head of Derivatives Market Intelligence, Cboe Global Markets Apr 08, 2024

After a 13-year career at CSFB where she would ultimately head the firm’s equity derivative strategy effort, in 2023 Mandy Xu moved to the CBOE where she’s now Head of Derivatives Market Intelligence and swimming in interesting, complex data sets. Our conversation surveys product innovation, going back to the first option trade ever on the CBOE, call options on July 1973 Xerox, through today’s vastly electronified ecosystem of trading in cross-asset risk exposures.

We briefly review the unbelievable short squeeze in GME from 2021, and here Mandy asserts that today’s exposures are considerably more balanced than the Meme episode in which the retail stampede engorged on call option premium. Our discussion moves to the present-day backdrop for option pricing and the potential impact of mechanical flows resulting from vol being bought and sold in the market.

Noting the substantial increase in AuM for overwriting and option income generating funds in both the mutual fund and ETF complex, Mandy is skeptical that this growth is solely responsible for the low clearing price of measures like the VIX and put skew. Instead, she points to low risk readings in other asset classes, including credit implied vol, as more likely driven by stable macro fundamentals.

We spend the remainder of the conversation on the much debated topic of ODTE and whether there’s an accident waiting to happen. In Mandy’s role at the CBOE, she sees option flow data with great granularity and in the ultra-short-dated category, she sees considerable balance in use cases across hedgers, income generators and intraday traders. The result is a healthy mix of buyers and sellers and, at least for now, a low risk of Volmaggedon 2.0.

I hope you enjoy this episode of the Alpha Exchange, my conversation with Mandy Xu.

Kieran Goodwin, Consultant, Saba Capital Management Apr 02, 2024

Kieran Goodwin’s roots go back to the early days of both distressed debt investing and the credit default swap market, two classes of risk he has seen experience significant change over the last 25 years. Our conversation gets underway by exploring the notion of alpha decay in the distressed market, a diminishing opportunity set that has resulted from smarter capital entering the space, equipped with an understanding of the often complicated process around bankruptcy and reorganization. Kieran frames out the option characteristics of distressed investing in an interesting way, suggesting that the short or long profile of the exposure is about whether time is on your side or not while also arguing that it is arming yourself with a margin of safety in price that creates this runway, leaving the trade with more long vol attributes.
Distressed investing today, in Kieran’s view, is an adult swim only business, rife with creditor-on-creditor violence and requiring a large balance sheet to be in the room as indentures are changed or portions of a capital structure are being primed. We spend the remaining part of the discussion on the CLO business and the potential for a credit-widening cycle. Kieran describes the CLO machinery as a captive buyer base for loans that has served effectively as a quasi-index product that has facilitated market growth. While noting that the product has indeed been effective over the years, he points to concentration risk that can lead to a rapid rise in correlations and spreads. He also points to at least some early signs of an uptick in defaults.
Lastly, we touch on the electronification of credit trading and the factorization of credit exposure that technology has increasingly enabled. Involved as an investor in some of the initiatives to facilitate electronic trading, Kieran sees further growth here, accompanied by more continuous trading and price discovery.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Kieran Goodwin.

Lori Calvasina, Head of US Equity Strategy, RBC Capital Markets Mar 28, 2024

In Lori Calvasina's role as Head of US Equity Strategy at RBC Capital Markets, assessing the interaction between macro variables like rates with top-down factors like the equity market multiple is critical. But important as well is an evaluation of markets from the bottoms up. And here, she not only seeks to pull together the views of colleagues doing strategy work in sector verticals, but also to actually read earning transcripts during reporting season to get a sense of what companies are saying. Her broad assessment of the outlook for corporate America is generally optimistic as she sees companies having come out of multiple stress exercises - trade wars, the Covid shock, and the inflation and monetary policy response in the Pandemic's aftermath among them - with a stronger defensive plan. Companies are harnessing technology and managing costs more effectively, leaving them less likely to be forced to reduce headcount. The result is a consumer holding up quite well.
Our discussion touches on the Mag7 and how today's top-heavy portion of the market is similar and different to the highfliers of the tech bubble. For Lori, the valuation premium for names like NVDA and other mega cap tech stocks is justified by the premium of earnings growth they've been able to consistently deliver. We explore the impact of higher rates on the market's multiple and the relative performance of sectors as rates rise or fall. She likes energy, both for its high dividend yield, its strong relative performance as rates rise and the potential for a geopolitical tailwind. On this last front, asked about the market risks that she worries about, it is uncertainty on the global political front along with the US election. She also cites sentiment that may be too bullish and positioning that appears stretched. Lastly, we touch on Lori's recent recognition as one of Barron's Top 100 Most Influential Women in US Finance. Asked about industry efforts to empower female careers in finance, she's optimistic, arguing that it's critical to have not just a mentor but a sponsor as well to push you to the next level.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Lori Calvasina.

Jared Dillian, Author: “No Worries: How to Live a Stress-free Financial Life” Mar 19, 2024

George Orwell once said that writing a book is a “horrible, exhausting experience…that one would never undertake if one were not driven by some demon whom one can neither resist nor understand”. Ok then. Let’s all agree that writing a book is a heavy lift. Let’s also agree that the personal finance advice industry is littered with gurus making outlandish statements about profit opportunities and often giving unsound advice on wealth management.
With these in mind, it was a pleasure to welcome Jared Dillan back to the Alpha Exchange. Jared is the Founder and Editor of the Daily Dirtnap and the author of a recent book, “No Worries: How to Live a Stress-free Financial Life”. While many of the podcast discussions are in the weeds on high finance topics like monetary policy, hedging and correlation, my conversation with Jared emphasizes the basics: how to get the big decisions right and, in the process, enjoy more peace of mind. The foundations of our discussion are debt and risk, the two main sources of financial stress, in Jared’s view. On the debt side, he emphasizes three critical transactions, the house, the car and student loans.
On the risk side, he advocates for the “awesome” portfolio, a blend of stocks, bonds, gold, real estate and cash. While not returning what stocks have historically, this combination has considerably smaller realized drawdowns. Overall, Jared’s book is easy to consume with plenty of nuggets accessible to the non-Wall Street types.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Jared Dillian.

25 Sayings on Vol and Risk…Part 5 of 5 Mar 05, 2024

Our final segment of 25 Sayings on Vol and Risk is upon us, and with it, 5 fresh pithy principles that I often turn to in trying to make sense of this chaotic sport we call markets. Along the way, in typing out these more than 20,000 words over the series, I’m probably out more than 50 dollars in espresso inspired drinks from Starbucks lead by the dirty chai latte and the caramel machiatto. But I’ve learned some stuff and had some fun and I hope you have as well.
Sayings 21 through 25 are…

“When I see a bubble forming, I rush in to buy.” (George Soros)
“Vol is the only anti-fragile asset.”
“When financial markets implode, convexity can be found lurking at the scene.” (Harley Bassman)
“The correlation of vol and the vol of correlation are not your friend.”
“Vol has memory, vol mean reverts.”

Hope you Enjoy!

25 Sayings on Vol and Risk…Part 4 of 5 Feb 26, 2024

The task at hand is simple….make further progress on our 25 Sayings on Vol and Risk. I’ve certainly had some fun with the first 15. Somehow, in the context of this exploration of market risk philosophy, I’ve managed to quote both former President Ronald Reagan and Seinfeld hack comedian Kenny Bannia, summoned the wisdom of Wolf of Wall Street’s Mark Hannah and referenced both Morgan Stanley’s James Gorman and Optionseller.com’s James Cormier. My promise remains to get you in and out in under 30 minutes, less time than an episode of Curb Your Enthusiasm.
Sayings 16 through 20 are…

“The money money makes, makes more money.” (Ben Franklin)
“ROMO is the risk of missing out.”
“Risk-on and risk-off are curious cousins.”
“Accident-free finance promotes the selling of accident insurance.”
“Price is the only fundamental.” (Someone)

25 Sayings on Vol and Risk…Part 3 of 5 Feb 20, 2024

Our journey to 25 Sayings on Vol and Risk continues, folks…and as UFC’s Bruce Buffer is known to emphatically tells us…”It’s TIME!”… for our third segment…sayings 11-15. We’ve got some good ones ahead of us and, as always, I aim to share some of my thinking on markets, overlay a dose of history and pop culture and, perhaps, give you a chuckle in the process. We’ll be in and out in under 30 minutes, i.e., shorter than a Powell presser, a five-block cab ride from the east side to west side, and no doubt less time it takes Windows to update the drivers on your PC.

Sayings 11 through 15 are…

1. “If history is a foreign country, the history of risk is another planet.”

2. “By definition, there’s a winner to every back-test.”

3. “Price is a liar.”

4. “Volatility is an instrument of truth.”

5. “It ain’t what you don’t know that gets you in trouble. It’s what you know for sure that just ain’t so.”

25 Sayings on Vol and Risk…Part 2 of 5 Feb 07, 2024

Hello! You’ve reached part 2 of our 5 part series “25 Sayings on Vol and Risk”. Over the first half hour episode, we kicked off with the first 5. Over these 30 minutes, we shall explore sayings 6 through 10. The task at hand is to make headway on our sayings, and, hopefully, entertain you a bit in the process. My goal, share some of what I’ve written down on the back of napkins over the years to help me tie together what I’ve observed and experienced in markets. Through these aphorisms as one might call them, I’m hoping to give you some stuff to chew on and expand your thinking on matters of risk.
Here are our second five:

“The next crisis to occur is the one that happened longest ago”
“There are no bad securities, only bad correlations”
“Equities are short the straddle on rates”
“In markets, it’s move fast and things break”
“Greenspan was right, sort of”

Matt King, Founder, Satori Insights, LTD Feb 05, 2024

Efforts to understand the “why” of the motion in asset prices consume our time and attention in markets. To be sure, traditional sources of risk – namely the economy, the path of corporate profits and changes in the interest rate cycle – do matter. But, as Matt King argues, especially since 2012, we increasingly need to monitor what’s happening in the financial plumbing where Treasury and Central Bank driven fund flows can be responsible for powerful liquidity dynamics.

Serving sometimes as a headwind and at others a tailwind, flows like QE as well as changes in the TGA and Reverse Repo facilities influence the manner in which investors interact with risk assets. After a nearly two decade stint at Citi, Matt recently founded Satori Insights, an independent firm helping institutional investors navigate today’s uneven and complicated waters of risk. A main aspect of our conversation is his take on the resilience of the US consumer and broader economy in 2023, set against one of the fastest tightening cycles on record and the Fed’s QT program. Matt’s work suggests that tying favorable asset price results in 2023 to this resilience leaves out a critical point.

He states that while the Fed’s balance sheet was nominally reduced by roughly a trillion last year, markets wound up enjoying a trillion in new liquidity. His framework, tying a trillion dollar increase in reserves to roughly a 10% increase in the equity market, helps explain the dislocation between asset price performance like tighter credit spreads and traditional fundamentals like defaults. Through the lens of liquidity that Matt utilizes, the risk asset outlook for 2024 is less favorable. He cautions that the Fed may have done more on the hiking front than they should have, underestimated the impact of their balance sheet policies on asset prices.

I hope you enjoy this episode of the Alpha Exchange, my conversation with Matt King.

25 Sayings on Vol and Risk…Part 1 of 5 Jan 31, 2024

I wanted to share with you some of my thoughts about the current state of market risk as this new year is now sufficiently underway. A number of years ago, I created a list that I call “25 Sayings on Vol and Risk”. In the spirt of 7 minute abs and 12 holiday recipes, I think lists are an easy way to connect concepts. Twenty five is a lot to get through, so we are going to simply divide them into 5, creating a series of half hour episodes. I do hope I can keep your attention and, again, make a positive contribution to how you think about markets over 30 minutes.

Here are our first five:

“Big Moves Matter Most”
“Theta is the Rent on Gamma, and the Rent is Often Too Damn High”
“Hedge When You Can, Not When You Have To”
“Stock Returns, Like Politics, Are Not Normal”
“Financial Market Insurance is Not Like Hurricane Insurance”

Hope you Enjoy!

Danny Dayan, Founder and CIO, DWD Partners Jan 19, 2024

Danny Dayan has spent more than 2 decades in markets, developing a top-down process that seeks to find opportunity in derivatives markets. In his search for value in option trades, he marries a study of the macro landscape – including the economic backdrop, the evolution of inflation and the Central Bank reaction function to incoming data – with expertise in understanding how to implement and risk manage a derivatives portfolio. With experience across the major asset classes, but a long history in rate derivatives markets, Danny shares his perspective on the fascinating world of pricing in the US Government bond market and the giant options complex built around it.

We start by reviewing the launch of the hedge fund he founded, DWD Partners, in late 2020, a time of epically low rates and skinny option prices. We walk through key developments, including the expiration of the Fed SLR in 2021 that ultimately played a role in the implosion of SVB and an explosion of the MOVE index, which nearly reached 200 in March of 2023. We spend the bulk of the discussion on how Danny sizes up present-day prices and risks. Here, he sees the market priced for substantially more cuts than will materialize. In this context he outlines options trade to do in short-dated rates that both generate and require option premium. We talk as well about the back-end of the yield curve and the explosion of government debt. Here, he argues that the term premium for taking duration risk is insufficient. Lastly, he advocates for FX option trades, highlighting the potential that both the Euro and Canadian dollar decline as their respective Central Banks ease policy at a faster rate than currently anticipated relative to the Fed.

I hope you enjoy this episode of the Alpha Exchange, my conversation with Danny Dayan.

Nancy Tengler, CEO and CIO, Laffer Tengler Investments Dec 27, 2023

It was once said that we are “the sum total of our experiences”. In the world of investing, this rings especially true. For Nancy Tengler, the CIO of Laffer Tengler Investments, a career in money management that has spanned more than 3 decades has presented real world challenges and opportunities that have reinforced a philosophy on risk. First, she shares that her interest in money came from not having any of it, pushing her to first focus on savings and then on investing that savings.

She’s also come to believe that the biggest risk is not taking enough of it, a notion is a thread throughout our discussion. This idea dates all the way back to the crash of ’87, a harrowing episode during which Nancy was forced to look past the shocking volatility and argue that clients should put fresh money to work as part of a longer-horizon plan.

We talk about the stratospheric valuations of tech stocks in the late 1990’s and she contrasts that period with today’s the more reasonably valued market leadership. In the present, she sees a secular tailwind coming from developments in cloud computing and in generative AI that will benefit not just the tech companies that create these innovations, but the older economy stocks like Walmart that deploy them as productivity enhancement tools. Next, we discuss the balance between the macro and the micro within her process. While being highly macro aware and concerned about top-down factors like US government debt, Nancy’s process emphasizes a study of business fundamentals along with a strong focus on evaluating the strength of management teams. Lastly, we talk about the women in finance movement and the work that Nancy is doing to promote financial literacy for females, including her book, “The Women’s Guide to Successful Investing”.

I hope you enjoy this episode of the Alpha Exchange, my conversation with Nancy Tengler.

Alpha Exchange 5 Year Anniversary Podcast, Part II Dec 13, 2023

Welcome back, as we review some of the themes and insights that have been prominent over the first 5 years of the podcast. In Part II, we discuss inflation, stock-bond correlation as well as trend strategies. We finish with a not so optimistic take on the growth of US government debt and the strains emerging on the risk-bearing capacity of the Treasury market. The late Doris Day once said that “gratitude is riches”. I am full of gratitude for having the opportunity to host the Alpha Exchange. I sincerely thank both our guests and listeners for the ongoing support. 2023 has been a year of significant growth for the podcast and I hope that 2024 will bring more of the same. Wishing you an excellent end to this year and a relaxing holiday.

Alpha Exchange 5 Year Anniversary Podcast, Part I Dec 13, 2023

Welcome to Part I of a special, retrospective podcast, looking back on 5 years of the Alpha Exchange. It’s been a joy hosting these conversations with experts. I’ve had an opportunity to solicit their insights and bring to life the lens through which they evaluate risk and reward. In Part I, I highlight some of what guests have shared with respect to how risks materialize, with attention to the exposures that sometimes are forcibly unwound when assumptions about the state of the world change. We also touch on geopolitical risks, those that originate from elections, wars and even Tweets. I hope these perspectives shared deepen your own thought process on risk management.

Anthony Morris, Global Head of Quantitative Strategies, Nomura International Dec 08, 2023

Tony Morris, Global Head of Quantitative Strategies at Nomura International, has spent 25 plus years studying complex market pricing relationships across asset classes, with a focus on derivatives. Our conversation explores some of the factors that drive asset price outcomes, first, considering the vol risk premium. Observing the consistent shortfall of realized versus implied vol in the equity market, Tony details a similar circumstance in credit where realized defaults are lower than implied by spreads. He suggests that the existence of both the equity VRP and the credit risk premium are tied to fact that both have beta to the SPX, which in turn enjoys its own risk premium.

Our conversation shifts to the work that Tony and his team are doing within the larger Quantitative Investment Strategies, or QIS, business at Nomura. We touch briefly on the history of QIS, a business motivated by end user interest in systematic strategies that require substantial market access, modelling and operational infrastructure. At its core, QIS enables the outsourcing of these critical components to a dealer who can package complex exposures into a neatly delivered contract.

We talk broadly about the set of products that comprise the taxonomy of QIS. Here, Tony cautions that in constructing a portfolio, it’s important to carefully consider the way in which strategies interact, with attention to hidden co-movement. We spend the last part of our discussion on long-dated swaption straddles on long dated US rates, a topic Tony and team have done a deep dive on. Their work suggests that an overlay of 20y20y – that is 20 year swaptions on 20 year swaps – has very favorable correlation, carry and convexity characteristics. Along the way in sharing the results, Tony debunks a few commonly held assertions around the factors driving the returns.

I hope you enjoy this episode of the Alpha Exchange, my conversation with Tony Morris.

Retrospective Episode: Reflections on Women in Finance Nov 16, 2023

Welcome to a special Alpha Exchange Retrospective podcast in which I highlight discussions with female guests and their reflections on efforts to empower careers for women in the field of finance. I launched the Alpha Exchange back in 2018 to host conversations with prominent investors, strategists and policymakers that explored the world of market risk. Over the course of these last 5, most interesting years, I’ve been fortunate to engage with 135 individuals, soliciting their perspectives, uncovering their frameworks and asking them to detail the lens through which they evaluate the trade-off between risk and opportunity. Among my guests, 22 have been women. I’m pleased to say that 2023 is already a record year for female guests at 9. These guests are chief investment officers, heads of derivative strategy, hedge fund founders, heads of asset allocation and macro credit research. Female guests of the podcast are, almost always, mothers as well.
I enjoyed putting this together, hoping to highlight what leading women in our industry think about efforts to expand opportunities for females in the investment industry.

Dennis DeBusschere, Co-Founder and Chief Market Strategist, 22V Research Nov 03, 2023

Game 5 of the 1973 NBA finals would be the last one played by Wilt Chamberlain, as the Lakers lost to a NY Knick team that featured basketball legends Walt Clyde Frazier, Earl the Pearl Monroe and Willis Reed. A fourth hall of famer, Dave DeBusschere, donning the number 22, also played an instrumental role in what was the last championship for the Knicks. 50 years later, his son, Dennis DeBusschere, is a co-founder and the Chief Market Strategist at 22V Research, a firm advising institutional clients on risk and asset allocation.
My conversation with Dennis explores his process for uncovering the interaction between the economy, inflation and the Fed’s reaction function. He emphasizes the importance of the financial conditions channel, asserting that economic growth that proves too resilient will force the market to ultimately confront policy that is higher for longer. A large part of our conversation is around the linkages that Dennis and his team find in various equity factors to macro variables like the shape of the yield curve. Of these, one interesting assertion is that defensive stocks and factors like low vol have provided little safety in the context of bear steepening. Lastly, we talk about hedging in an environment of stock/bond correlation levels that remain unfriendly. Here he points to a customized short basket he’s developed comprised of stocks with deteriorating short-term debt levels and high cash flow volatility.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Dennis DeBusschere.

Darrell Duffie, The Adams Distinguished Professor of Management and Professor of Finance, Stanford University Oct 27, 2023

Over a distinguished 40-year career as an academician in finance, Darrell Duffie has made important contributions to our collective understanding of how markets work. Earning a PhD from Stanford in 1984, Darrell has taught finance there ever since and now serves as the Adams Distinguished Professor of Management and Professor of Finance at the Graduate School of Business. Along the way he has written several books, authored countless papers and provided guidance to policymakers who have sought his counsel in addressing complex regulatory questions.
We review some of Darrell’s research over the past 4 decades, starting with equilibrium models of asset pricing in the 80’s, termstructure models in the 90’s and work on default correlation post the GFC. We spend most of our time on his recent research on the US Treasury market, that risk-free asset class that recently appears anything but. Darrell shares some conclusions from analysis of the melt-down of the bond market in March of 2020 and the policy implications that result. First, he states that yield volatility explains a large proportion of the breakdown of liquidity in what should be the world’s most liquid asset class. Higher vol and compromised liquidity generally go hand in hand. Darrell and colleagues show that the bond market freeze could further be traced to dealers reaching their capacity to warehouse risk, a factor that impacts liquidity in a highly non-linear manner.
We shift to the policy recommendations that arise in light of his research. First, Darrell notes that a campaign of large-scale asset purchases is considerably more effective in combatting a volatility episode when dealer balance sheets are stretched as they were in March of 2020 than the market turbulence of 2022, when dealers had space to absorb more risk. He also points to a greater need for centralized clearing in the Treasury market, a mechanism that would provide much needed netting of risk exposures. Lastly, Darrell shares some new research he is engaged in, specifically, exploring the 2024 Treasury program to buy-back securities.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Darrell Duffie.

Amanda Lynam, Head of Macro Credit Research, Portfolio Management Group, Private Markets, BlackRock Oct 25, 2023

As head of Macro Credit Research within Private Markets at BlackRock, Amanda Lynam is responsible for assessing how the broad picture of risk impacts credit markets and the securities within them. In doing so, she marries the top down with an understanding of company fundamentals, a skillset developed during her time in a sell-side research role focused on the insurance and healthcare sectors. Our discussion takes stock of the current opportunity set in corporate credit, exploring Amanda's process for finding value amidst an environment of middling credit spreads, but high all-in yields. As most of the heavy lifting is currently being done by the risk-free component, her team sees this continuing, with a view that the bar is high for Fed rate cuts well into 2024.
Expecting a higher cost of capital to prevail for some time, Amanda expects more dispersion of returns across issuers in credit, with a view that certain capital structures that added considerable leverage when rates were low will struggle as they ultimately need to refinance. She notes that to some extent, higher rates are already biting, with defaults picking up and with the maturity wall beginning in earnest in 2025, corporates will need to engage markets on rolling paper in the not-too-distant future.
Next, we talk about the supply and demand for funds in credit markets. First, on the demand for capital side, she states that 2022 was the lowest issuance year in high yield since the GFC, a favorable technical backdrop that is fading as a tailwind this year and next. With respect to the supply of credit, a topic that has received more attention post the SVB debacle, Amanda shares her team's focus on opportunities in private credit, a market she sees as expanding amidst the contraction in bank lending and offering higher spread compensation.
We finish the discussion with some of Amanda's views on the progress of empowering careers for women in finance. She says it is important for females to have both a mentor who helps you in the day to day and a sponsor who can help you advance on a longer-term basis. I hope you enjoy this episode of the Alpha Exchange, my conversation with Amanda Lynam.

Anastasia Amoroso, Chief Investment Strategist, iCapital Oct 20, 2023

As Chief Investment Strategist at iCapital, a global alternatives platform, Anastasia Amoroso is responsible for helping the firm’s clients understand changes in the macro regime and how capital should be allocated in response. We start our discussion by considering the current state of affairs – of high interest rates, of correlated moves in stock and bond prices and resilient economic growth – and exploring where history is and is not relevant.
Here, Anastasia highlights the degree to which both consumers and corporations are far less sensitive to interest rate increases than they were in the pre-GFC era. Higher rates are a concern, but they need not derail the case for risk assets like stocks which have delivered good returns amidst higher rates in the past. For Anastasia, an instructive framework for evaluating opportunity is one that considers valuation, positioning and a catalyst. And in the context of this last factor, she notes favorable earnings revisions which are showing signs of recently bottoming and strong earnings growth, specifically in the tech sector. We spend the bulk of our time on the important topic of diversification and the faltering performance of the traditional 60/40 portfolio. She highlights exposure to global macro hedge funds, a strategy that delivered a 9% return in 2022 as both the stock and bond market lost nearly 20%.
We finish the conversation by having Anastasia reflect on the state of female careers in financial services. She states that the industry has become more inclusive and more representative of women in leadership roles. With this progress noted, she sees a gap in women serving in the middle, between junior and senior roles, potentially the result of the unique demands on females that often include family responsibilities. Ongoing attention to office/life balance and creating a degree of flexibility in work is likely one part of the remedy here.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Anastasia Amoroso.

Torsten Slok, Partner and Chief Economist, Apollo Global Management Oct 16, 2023

Armed with a PhD in economics, Torsten Slok spent several years at the OECD, doing deep dive analysis and making policy recommendations on big picture issues such as pension reform, tax systems and health care policy, before ultimately hitting Wall Street. He spent more than 15 years on the sell-side, a period that included the GFC and Pandemic and the lean rate years between them.
Now a Partner and Chief Economist at Apollo Global Management, Torsten is providing input on the macroeconomic backdrop and the implications for the firm’s investments. Our discussion primarily considers the joint states of the economy and inflation - where we’ve been, where we’re headed and the read through on Fed policy. On the economy, Torsten suggests that in this cycle, the transmission of changes in monetary policy to the real economy is especially lagged as both individuals and corporates have largely shielded themselves from rate increases.
On inflation, Torsten describes the ebbing and flowing of goods versus services inflation. The latter, which fell sharply during the Pandemic lock-downs has re-emerged as consumers travel, stay at hotels and attend concerts. We then talk about wages, which Torsten believes the Fed sees as still too high. Moderation here is a key part of reducing service sector inflation which, in turn, is needed to reduce the overall level of inflation.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Torsten Slok.

Cameron Dawson, Chief Investment Officer, NewEdge Wealth Sep 29, 2023

An undergrad econ major, Cameron Dawson got hooked on markets early, taking a class on securities and portfolio analysis in Business School which set her down the path of market study. She broke into the business as an industrials analyst on the buy-side, time that gave her an opportunity to develop an appreciation for how the macro landscape intersects with the micro business fundamentals within a cyclical universe of stocks.
In this context, we review the period from 2014 to 2016, a time of ebullience within the energy sector and a fracking supply boom. For Cameron, there are important lessons to be had in observing the speed with which this optimism gave way to a protracted downcycle by late 2014. And, in sharp contrast, when the sector appeared un-investable in early 2016, the stocks would turn, discounting the improving fundamentals that would only be visible by late 2016. Here, she sees lessons with how forward looking the market can be, noting that if you weren’t there early, you missed it.
We talk about her role as Chief Investment Officer at NewEdge Wealth, a firm delivering wealth management solutions to high-net worth investors, and I ask Cameron to reflect on how client needs are different now in a 5+% short rate. Noting that, all else equal, higher rates argue for rebalancing away from equities, she highlights the importance of taxes, especially for investors with low basis stock. We also talk about stock/bond correlation and the implications for portfolio construction. Here, Cameron suggests there is room for bonds to play a stabilizing role should the stock market run into trouble, especially in a disinflationary/flagging growth scenario.
Lastly, we review some of her recent work on reading the tea leaves of market prices. She notes the recent underperformance of high beta names versus the rest of the market as an early warning sign of flagging risk appetite. I hope you enjoy this episode of the Alpha Exchange my conversation with Cameron Dawson.

David Rogal, Managing Director, Global Fixed Income, Head of Total Return and Inflation Portfolios, BlackRock Sep 27, 2023

With a penchant for math and a degree in biology from Cornell, Dave Rogal landed at BlackRock in 2006. With the housing bubble in full sway, he was part of a group that provided asset liability management advice to large institutions. Three years later, as the dust settled from the financial crisis, he joined the fixed income division, mentored by industry experts, and quickly exposed to the world of pricing dislocations that populated the system well into 2009.
Now the head of Total Return and Inflation Portfolios, Dave shares some of the lessons learned on risk management through crisis periods. Reflecting on vol events like the Covid market shock, he asserts that simplification of exposures is critical as correlations can become unstable and unreliable. We spend most of our time learning about Dave’s framework for thinking about inflation, a variable he suggests must be approached with humility. On a forward-looking basis, he sees disinflation in autos, a component that was hot, but is now starting to feel the impact of higher rates.
We also discuss rents, and here Dave is generally sanguine as well. All in all, there is scope to return to month-on-month CPI readings of 0.2 and 0.3, welcome developments. On the risk front, he sees some potential that the Fed overtightens, based on comments that appear to focus more on the strength of labor market and activity data rather than embracing the progress on inflation. Lastly, we talk about the back-end of the yield curve and what Dave suggests are “daunting” supply dynamics set against the Fed’s QT program and less capacity for banks to absorb new paper.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Dave Rogal.

Karishma Kaul, Head of Systematic Fixed Income Strategies, Fidelity Investments Sep 22, 2023

To be sure, factor investing has been a thing in equities for some time now, with vast pools of capital managed by firms that employ a systematic approach to harvesting style factors like growth, value and momentum. In 2013, Asness, Moskowitz and Pedersen authored, “Value and Momentum Everywhere”, for the Journal of Finance, finding common factors in return attribution across 8 markets.
Still, a decade later, fixed income factor investing is a nascent strategy. Enter Karishma Kaul, Head of Systematic Fixed Income Strategies at Fidelity. With a masters in financial engineering from Cornell, she hit Wall Street in 2008, landing on a fixed income desk the day of the Lehman Bankruptcy. The ensuing financial crisis would provide valuable lessons on the limitations of theoretical models and the pitfalls that potentially arise from back-tests.
Our discussion shifts to fixed income factor investing. Karishma provides an overview of common factors, including value, momentum and quality. The latter, she argues can play an important stabilizing role during risk-off periods. She makes the point that each of these factors delivers incremental risk-adjusted return in isolation, but when put together, add further value due to favorably low correlation among them.
We discuss implementation, a process that can be complicated in fixed income where attention must be paid to trading frictions. Lastly, we touch on the risk of potential return dampening due crowding. Here, Karishma acknowledges this as a risk to monitor, but notes that the capital in these strategies is still small and there should be plenty of room for growth.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Karishma Kaul.

LTCM 25 Years Later, Dean Curnutt, Host, Alpha Exchange Sep 08, 2023

Welcome to a special retrospective edition of the Alpha Exchange, narrated by yours truly. I’m a big fan of consequential events in market history as they provide a great opportunity to learn about the conditions under which asset prices can become unruly.
Are there commonalities in these episodes that might allow us to develop a roadmap for why, how and when they might occur? From a risk management perspective, what are the key lessons of vol events?
In this context, it’s difficult not to reflect on the nearly unmanageable unwind of Long Term Capital that occurred 25 years ago. Over the next 50 minutes or so, I set out to take you through some of this important event from my own perspective and along the way bring in insights shared by guests of our podcast. I hope you enjoy it.

Kristy Akullian, Senior Investment Strategist, BlackRock Aug 25, 2023

For Kristy Akullian, an interest in economics during college was motivated by a need to learn about personal finance in order to make budget each month with student loans and other expenses. After a short stint at a boutique RIA, she joined the iShares division within BlackRock, where she is now a Senior Strategist supporting the firm’s clients on asset allocation.
Our conversation explores the development of ETF technology over the years and Kristy’s time as part of the delta one initiative in expanding the universe of investors in the product. Here we learn about her desire to be “in the weeds” on margin, clearing, taxes, dividends and funding in access products that enable synthetic replication.
We spend the balance of the conversation exploring Kristy’s role as Senior Investment Strategist and the analysis of flows and positioning that constitutes a portion of her framework. She sees extended positioning in futures contracts on broad indices like the S&P and NDX as a reason for caution. She notes, however, that investors are sitting on a tremendous amount of cash, given the much higher short rate of around 5% leaving a higher hurdle for taking on incremental risk.
With respect to the path for inflation, while she sees normalization occurring, there is a risk that the cuts implied by the yield curve do not ultimately materialize, putting more pressure on growth and leaving the potential for an accident. We finish the discussion with Kristy sharing some of her views on the state of progress on initiatives designed to expand opportunities for females in the field of finance. Here she states that it is important to think of women as investors and the work that BlackRock is doing to create model portfolios specific to unique circumstances encountered by females.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Kristy Akullian.

Mimi Duff, Head of NY Office, GenTrust, LLC Aug 11, 2023

With more than two decades of experience trading and managing risk in sell-side and buy-side roles, Mimi Duff has learned a thing or two about high finance. In the early 1990’s she cut her teeth writing research for agency and treasury securities at Goldman Sachs. She’d later move to trading, focused on making markets in the long end utilizing a framework for the relative value of securities across the curve.

We review some of the prominent risk events she’s traded through including September 11th and the reverberations of volatility in market prices that resulted. Mimi makes the point that the emotional response to an event so tragic tests a trader’s capacity to manage risk. We also explore the GFC and the front row seat that Mimi had to this event. Running the swaps trading desk at Barclays, she was responsible for the interest rate exposure that came about through the Lehman acquisition, calculating first and second order risks and then implementing a hedging program in the market.

Our conversation moves to her current role at GenTrust, a sophisticated wealth advisor catering to high net worth individuals, where she runs the NY Office. For Mimi, wealth management all starts with having a plan and a suitable client benchmark. In this context, we discuss the work that GenTrust does in delivering portfolio construction, diversification and tax planning services to ultra high net individuals and investment entities. In evaluating opportunities for clients, the team is willing to consider alternative, sometimes off-the-run risk exposures. But illiquidity risk is taken on only in instances where the expected return profile and diversification outcome is especially favorable. I hope you enjoy this episode of the Alpha Exchange, my conversation with Mimi Duff.

Rocky Fishman, Founder and CEO, Asym 500 LLC Aug 04, 2023

Market prices are the outcome of a myriad of factors. Geopolitical developments, the economy, the regulatory landscape and the actions of Central Banks all matter. So, too, do market participants and the set of products they utilize to assume or reduce risk exposures. For Rocky Fishman, the founder of newly formed derivatives strategy firm Asym 500, studying complex products and the mechanical flows they often generate is critical.
Our discussion is a review of market risk episodes and how risk management schemes that use volatility as a direct input can accelerate price moves in the broad equity market to both the upside and downside. In this context, we discuss the Feb'18 XIV event as well as the rapid repricing of risk in August of 2015 when China re-pegged its currency versus the dollar. Both events speak to the importance of the positioning that can become lopsided when realized volatility has been especially low.
We also talk about diversification and correlation. Here, Rocky makes the point that investors must respect the degree to which an impaired market can cause economically similar securities to become severely dislocated. Lastly, we talk about zero day to expiration options. Not seeing the case for Volmaggedon 2.0 at this point, his work at Asym500 will nevertheless be focused on carefully studying short-dated option flows. I hope you enjoy this episode of the Alpha Exchange, my conversation with Rocky Fishman.

Daniel Villalon, Global Co-Head of Portfolio Solutions, AQR Capital Management Jul 25, 2023

As Global Co-head of Portfolio Solutions at AQR Capital Management, Dan Villalon is primarily engaged in helping the firm’s clients address constantly evolving challenges around risk management. Central to these, of course, is the search for efficient sources of diversification. In this context, our discussion explores research his team has done in two primary areas.
First, we talk about defending against drawdowns that are both fast and slow and back-tests that compare options-based hedging with strategies like trend following that do not require explicit premium payments. For rapid market sell-offs, like those that occurred during the GFC and the Covid crash, explicit, premium based insurance works well. This approach can suffer, however, as the market bottoms and recovers even as option prices remain high. Trend following strategies, while not as effective for sudden market plunges, tend to be more effective in offsetting losses that occur during slower drawdowns, as occurred in 2022.
Dan makes the point that a robotic strategy that buys assets that have trended higher and sells those that have trended lower tends to work across asset classes and around the world, at odds with market efficiency. One possible explanation put forth is “under-reaction”. Here, investors respond to good news, but not initially by enough, leaving further gains on the table.
Lastly, we talk about AQR’s recent work on international diversification. Noting that US stocks have been the place to be for 3 decades, the firm sees an important place for international equities going forward given the view that the tailwind of rising relative valuations in the US may be behind. I hope you enjoy this episode of the Alpha Exchange, my conversation with Dan Villalon.

Corey Hoffstein, CIO, Newfound Research Jul 17, 2023

With an early passion for video games and teaching himself programming languages Q-Basic and C, Corey Hoffstein did not expect to ultimately wind up in money management. But exposure to various roles in the industry through an internship started him down the path, helping him see how to marry his love of computer science with markets.

Now the CIO of Newfound Research, a firm he co-founded more than a decade ago, Corey is focused on delivering to investors the one free lunch they are entitled to: diversification. We spend most of the discussion here, with an emphasis on “return stacking”, a strategy that Newfound embraces to expand access to diversifying assets. In this light, a topic we spend some time on is trend following, a strategy that has proven to deliver attractive low correlation to stock and bond returns.

Corey describes the manner in which the implementation of trend following is similar to the delta hedging of a long volatility position, allowing the strategy to provide some portfolio protection in risk-off events.

And with risk-off in mind, we talk as well about “liquidity cascades”, research that Corey and his team have done to highlight the manner in which trades that live and breathe within the market’s ecosystem of risk can create spill-over effects that amplify asset price movements.

I hope you enjoy this episode of the Alpha Exchange, my conversation with Corey Hoffstein.

Assessing Recent Dynamics in the World of Vol Jul 12, 2023

Your host is back again, providing some thoughts and commentary on the recent period of low volatility in the equity market. With SVB and the debt ceiling uncertainty mostly in the rear-view, markets embraced the calm, experiencing just a single 2% up move and a single 2% down move in the first half of 2023. I break down the causes and consequences of lower volatility. Along the way, you’ll hear some talk on the gamma/theta trade-off, stock bond correlation, the price of upside calls in the S&P 500 and what appears to be an attractive level of implied volatility for gold. Hope you enjoy!

Black Scholes Turns 50 Jun 26, 2023

As we cue up some new guests for the Alpha Exchange, some reflections from your host on the Black Scholes model and its 50th anniversary. No model is perfect and traders must grapple with real world frictions not entertained by the model. I discuss how option market participants make adjustments and why. Hope you enjoy!

Amy Wu Silverman, Head of Equity Derivatives Strategy: RBC Capital Markets Jun 02, 2023

In a world bubble for the Alpha Exchange podcast, the words vol, carry and convexity would be prominent. And in this episode, featuring Amy Wu Silverman, the Head of Equity Derivatives Strategy at Royal Bank of Canada, we dive into these concepts head on. First, we learn about Amy’s experience in structured rates when, in and around 2007, Fannie and Freddie were the go-to credit to which all kinds of complex instruments were attached.
Reflecting on how wrong this ultimately went, she tells us that it often takes the experience of crisis to help us appreciate ways in which market realities can deviate violently from the textbook. We explore some of Amy’s framework, which leans into the value of market prices in helping establish consensus and forming a starting point for investors to map their own distributions of outcomes versus that implied by the market.
We then talk about option prices and market risk dynamics today with attention to the huge surge in NVDA and the impact on both option vol surfaces and passive indexation. Amy sees risk in the exceptionally narrow breadth that the surge in NVDA is part of.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Amy Wu Silverman.

Nitin Saksena, Head of US Equity Derivative Research, BofA Securities May 26, 2023

There's always a bull market somewhere, and in today's climate of hyper short termism, both volume and commentary are thriving in the land of zero days to expiry options. While the risk characteristics of ODTEs are generally agreed on, the directionality of the flows and resulting positioning remain subjects of vigorous debate. With this in mind, it was a pleasure to welcome Nitin Saksena, the Head of US Equity Derivatives Research at BofA Securities, to the Alpha Exchange.
Before embarking on the work that Nitin and team are doing to better understand these ultra short dated options, we survey the landscape of cross-asset vol. Here, Nitin notes that options on certain currency pairs - for example in the Canadian dollar - score on the cheap side on a nominal basis. On a relative basis, rate vol remains substantially high compared to SPX vol as the MOVE index is just 20% off its Covid high while the VIX has declined by 80%.
Next, we turn to the risk implications of the substantial flows in daily SPX options. Given the convexity, there are scenarios imagined by some in the industry in which an unwind of wrong-way exposure can accelerate price movements in the index. While respecting the logic of the analysis, Nitin pushes back on the degree to which the flows are one-way, seeing a balance of trades on the long and short side of options. Still, he cautions that because these instruments and the resulting risk exposures are new, we should be carefully monitoring them. I hope you enjoy this episode of the Alpha Exchange, my conversation with Nitin Saksena.

Roni Israelov, President and CIO: NDVR May 05, 2023

The hedge that carries positively but delivers convex returns during a market panic is about as elusive as our lawmakers coming together in bipartisan fashion. As head of option strategies at AQR, Roni Israelov not only confirmed this but saw in the empirical data distinctly unpromising results for hedging strategies that utilized put options.
Trained with a PhD in Financial Economics from Carnegie Mellon, Roni has spent his career researching complex topics in markets. We explore his paper “Pathetic Protection” and the challenges that arise from paying option premium to reduce risk. Roni sites the path dependency of options as introducing sometimes significant variability in the effectiveness of a program. He also sites the equity risk premium and the vol risk premium as headwinds for success.
Our conversation shifts to another interesting topic, “rebalance timing luck”, work that Roni has done in collaboration with Newfound Research. The finding - that the performance of mechanically rebalanced strategies – can rest heavily on the date of rebalance, is especially the case for option strategies like the giant put spread collar on the SPX that is rolled each quarter.
Roni is now the President and CIO of NDVR, a firm providing optimized portfolio solutions to individuals, using academic research, technology and tax efficiency. I hope you enjoy this episode of the Alpha Exchange, my conversation with Roni Israelov.

Dean Curnutt: Ten Handy Facts on Vol Apr 28, 2023

Welcome to a special edition of the Alpha Exchange, one in which your host and guest are one and the same. Above all, our conversations on this podcast are aimed at helping you think about risk. After all, it was the Spanish philosopher George Santayana who famously said, “those who forget history are doomed to repeat it.”
This podcast has three parts. First, an update on a project I’ve been working on, MacroMinds. I created this foundation back in 2019 to raise funding for causes in the NY area focused on student education. Our “business model” is simple – host a once a year, highly differentiated symposium featuring industry leaders who share their insights on the remarkably complex world of investing. On June 7th in NYC, we are doing just that, and I could not be more excited about our incredible agenda.
Second, I review a couple of prices in the world of optionality and what they mean in the context of today’s risk dynamics. Specifically, I discuss the fast widening level of CDS written on the US as the reference asset. In the context of the unfolding debt ceiling drama, this instrument is worth keeping an eye on. Next, I review the change in the volatility surface on gold, specifically the emerging bid to upside calls.
Lastly, I review some work I did a number of years ago, which I call, simply, “Ten Handy Facts on Vol”. These are characteristics of the behavior of volatility in asset prices and the options that are written on them. I hope you find some value in this exercise and I thank you for listening.

Libby Cantrill, Head of Public Policy: PIMCO Apr 21, 2023

What has experience taught us about consequential market risk events? First, volatility in asset prices can materialize when a strongly held consensus view is shattered. Presented with “new news” – about defaults, about inflation, about earnings – investors may be forced to shed exposures, right-sizing their risk allocations to this new state of the world. Market vol episodes can be especially protracted when the attendant uncertainties do not fit neatly into an Excel spreadsheet.
Here, the US debt ceiling checks the boxes. And against the backdrop of an emerging standoff, it was a pleasure to welcome Libby Cantrill, the Head of Public Policy at PIMCO, to the Alpha Exchange. Our discussion explores the sometimes chaotic intersection of politics and markets and the way in which her work is utilized by risk takers at PIMCO. We spend the bulk of our conversation on the debt ceiling and here Libby lays out how the 2023 version has important differences from the 2011 version, specifically in the degree of leverage that the Republicans had then versus now. While of the view that a default is avoided, she sees it as a last minute agreement almost by necessity and with that some market disruption may occur.
We finish with a discussion on where 150 million Americans are spending their time, TikTok. Libby helps frame this out in the broader context of the intensifying geostrategic rivalry between the US and China. Noting that “tough on China” has become a bipartisan view, and with the recent spy balloon incident in mind, she sees more catalysts for decoupling on the way, further tension and the potential spillover into the market.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Libby Cantrill.

Roger Lowenstein, Author: "When Genius Failed" Apr 14, 2023

25 years post the chaotic unwind of Long Term Capital Management, there are lessons a plenty to be gleaned from this event. With this in mind, it was a pleasure to welcome acclaimed writer Roger Lowenstein, author of the famous book “When Genius Failed”, to the Alpha Exchange. His work is a compelling chronical of the vast success but ultimate failure of this storied hedge fund.
We discuss some of the philosophical underpinnings of the firm’s risk management framework, focusing on the influence of Nobel Prize winners Myron Scholes and Robert Merton. We review some of LTCMs favorite trades and how in reality they were far less diversified than they appeared. And we discuss the rescue, a messy episode involving banks, the Fed and Warren Buffet, kind of.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Roger Lowenstein.

The Alpha Exchange Q1 2023 Review Apr 03, 2023

Welcome to the Alpha Exchange Q1 2023 Review, in which we assess some of the trends in market risk that have recently been important. We discuss gold, the performance of VIX ETP strategies and the return of traditional risk on/risk off. We also spend time dissecting changes in the shape of the S&P 500 Index volatility skew and commenting on that well known put spread collar. We finish with some information on the MacroMinds Investment Symposium, an event taking place on June 7th in New York City that raises critical funding for education focused charitable organizations. Thank you for listening.

Nicholas Dunbar, Author: “Inventing Money” Mar 24, 2023

I like to say that you learn the most in markets by studying the periods when things go horribly wrong. And in this spirit, Alpha Exchange guests are often asked to reflect back on risk events of great consequence. 2023 marks the 25th anniversary of the LTCM fiasco, an event too long ago to matter for anyone under the age of 40, even as there are valuable lessons to be had from this giant portfolio unwind. As we look back on this vol event from 1998, it was a pleasure to welcome Nicholas Dunbar, author of “Inventing Money: The Story of Long Term Capital”, to the podcast. With a background in math and physics and with a long stint at Risk Magazine, Nick was well equipped to explain how the effort to conquer markets through the science of derivatives ultimately failed. Along the way, he provides a brief history of how option theory has developed, brings to life key players in the story and dives in to technical details of LTCM’s trades. We learn about the dangers of models, leverage, hubris and crowding all at once. I hope you enjoy this episode of the Alpha Exchange, my conversation with Nick Dunbar.

Adam Parker, Founder and CEO, Trivariate Research Mar 10, 2023

There are lies, damn lies and statistics as the saying goes, and about the latter, Adam Parker knows a thing or two. Armed with a Phd in stats, he began his Wall Street career as a semi’s analyst at Sanford Bernstein in 1999. Reflecting back on the deep dive research the firm was known for, he notes that today’s rapid fire information environment requires especially efficient communication to clients.
We look backward to gather some insights on how Adam’s framework and process came to be. Markets teach lessons and for Adam, it is the recovery periods – March 2009 and March 2020, for example – that illustrated the need to look past headline negativity and embrace risk when it was difficult to do so. He shares as well the challenges inherent in determining if change – in margins, in profits and stock price, for example – is structural versus cyclical.
We shift to Adam’s founding of Trivariate Research, a firm providing top down investment strategy to institutional clients. First, we review some of chaos that ensued 3 years back during the pandemic and learn of some of the factor work that isolated work from home versus re-opening, a theme further distilled by adding a high and low quality factor to each. Next we talk about crowding, an area of focus at Trivariate. Here the team collects data on ownership among a prominent group of stock pickers, aimed at identifying both conviction as well as bad crowding.
We round out the conversation by further exploring crowding, but in the context of hidden, overlapping factors. Here Adam talks about his work in the area of signal correlation and how factor sensitivities of sets of stocks can vary substantially over time. The result is a “handle with care” approach to interpreting model outputs. I hope you enjoy this episode of the Alpha Exchange, my conversation with Adam Parker.

Jonathan Golub, Chief U.S. Equity Strategist & Head of Quantitative Research, Credit Suisse Mar 06, 2023

With 3 decades in markets, Jon Golub’s career is split evenly between the buyside and sell-side. Reflecting on his early days in the industry, Jon notes the especially benign environment that characterized the 90’s, a period of post-Cold War geopolitical stability, with the trauma of 70’s inflation sufficiently in the rear view even as the tail wind of lower interest rates was still a positive force in markets. While analyzing time series of economic and financial data is a critical part of his team’s process, Jon is careful not to draw broad conclusions because in market cycles, “this time is actually different” probably applies more often than not. He points to the less debt heavy capital structure of key segments of the S&P 500 today versus decades ago as a ready example of the unique attributes of different time periods.
Our conversation shifts to Jon’s work as Chief US Equity Strategist and Head of Quantitative Research at Credit Suisse and his assessment of present day risks and opportunities. Here he makes the interesting point that the US economy is less sensitive to higher rates than it has been historically. But for stocks, the short rate does matter, especially in the context of what he expects to be a more challenging earnings outlook. He sees the impact of Fed policy at least partially blunted by a labor market that is even tighter than the headline unemployment rate suggests. Next, we talk about inflation and the various ways in which it impacts both corporates and the consumer. For the latter, inflation matters, but the healthy jobs market matters more, especially when set against the backstop of savings. For companies, margin compression, dwindling profit growth and a middling economy lead to what Jon characterizes as “stagflation light”. This less than rosy outlook is in the context of valuations that appear reasonably fair, especially when set against long term corporate bond yields.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Jon Golub.

Eric Liu, Co-Founder and Head of Research, Vanda Research Feb 17, 2023

Sketching out a business plan in 2012, Eric Liu and his Co-founders saw an opportunity to create a product that simplified the world of macro for investors. Vanda Research was born, a firm that seeks to connect the top-down with the bottom up and in the process, fill a gap by providing clients with shorter term tactical research ideas. A decade later, the evolution of Vanda leans heavily on the collection of and analysis of unique and often high frequency data sets. Making the point that “2020 was a year when alternative data sets went mainstream”, Eric reflects back on the Pandemic and the search for clues as to the speed of economic reopening, looking at various measures of supply chain disruption.
With the notion that price moves result not just from how investors process new developments but also by the stance of positioning, a large component of the Vanda product is looking for instances in which investors are either over or under-exposed to assets. With respect to the latter, Eric cites palladium and platinum, both of which had substantially short positioning readings in late 2021. Combining data from dealerships, the team built a car inventory index that showed activity was bottoming about the same time, helping identify a trade in which palladium rallied by 80%.
Much of our conversation also talks about the surge in retail activity in equity markets and how individual investor behavior can be aggregated for clues on market direction. Asserting that nearly all of the moves in the S&P 500 in 2022 can be explained by retail, Eric sees positioning a bit less stretched now than it was late last year. And while he sees some risk that the Fed needs to hike rates further, a glass half-full take is that the growth and profit environment that would motivate such moves would be a healthy one, giving further runway to the upside scenario.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Eric Liu.

Rebecca Patterson, Former Chief Investment Strategist Bridgewater Associates Feb 10, 2023

Rebecca Patterson has always sought out new career challenges, willing to take risks in the process. Amidst the Asian financial crisis in 1997, Rebecca was hired into a Strategist position within the asset management side of JP Morgan, giving her early exposure to one of those 100 year market storm events that seems to actually happen every 10 years. She began building out a macro, data driven framework that was underpinned by the vast array of complex linkages between the economy and markets. In 2012, she joined Bessemer Trust, serving as the CIO and overseeing $85 billion of client assets.
At the heart of our conversation is uncertainty, a reality in markets that Rebecca has considerable respect for. In this context she shares her risk management process going into the 2016 US election and the detailed work her team did to game out a number of scenarios and their potential impacts.
We shift to Rebecca’s time spent at Bridgewater Associates, where she served as the firm’s Chief Investment Strategist until recently, and learn about her assessment of the US macro climate. Here, Rebecca reviews the asset price damage that occurred in 2022 due to the fast rise in real rates and expresses a cautionary view on risk markets. On her mind is the potential that implied Fed cuts do not materialize as currently implied by the inverted shape of the yield curve. While the big picture - one in which overall growth is decelerating and monetary policy remains tight – leaves her cautious, Rebecca does see potential opportunities on the long side in emerging market debt, where countries like Brazil are close to done with their monetary policy hiking cycles.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Rebecca Patterson.

Deep Kumar, Co-CIO, III Capital Management Feb 03, 2023

Among the major asset classes, no market has experienced a sea-change in volatility levels more so than the US government bond market over the past few years. Consider that the MOVE index reached the low 40’s in 2019, spiked to 160 during the March’20 Covid market crisis, descended below 40 in late 2020 and then surged in 2022, again reaching 160. It is against this fast-changing risk backdrop, and exceptionally high vol of vol that I had the pleasure of welcoming Deep Kumar to the Alpha Exchange.
The Co-CIO of III Capital Management, Deep is engaged in finding value in global government bond markets, deploying relative value strategies across the curve and utilizing derivatives to seek out asymmetric return opportunities. Armed with a PhD in hypersonics, Deep hit Wall Street in the mid 90’s, building risk and pricing models that leveraged his understanding of the math that underpins derivatives pricing. Our discussion looks back on some of the formative events that Deep has encountered and how those have cemented the idea that volatility itself is volatile, a notion that matters in option pricing, especially when risk managing exposure to deep out of the money strikes.
The back half of our discussion considers the here and now and what Deep sess in the prices on hand. In Japan, we discuss the JGB yield curve “Kuroda Kink” and relate the importance of positioning – in this case by the price insensitive BoJ – in impacting market clearing prices. On the US front, he sees excess optimism reflected in the belly of the yield curve, where the meaningful inversion between 3-month bills and 2 year notes suggests an ongoing trend in disinflation that will enable the Fed to begin easing in 2023. Skeptical that this can occur perfectly according to plan, Deep is using OTC derivative trades that capitalize on a reversal of the negative term premium currently priced in the curve.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Dr. Deep Kumar.

Francois Trahan, Founder, Trahan Macro Research Jan 27, 2023

For Francois Trahan, early exposure to econometric models that sought to forecast business conditions illustrated the importance of changes in interest rates. Over a 25 year time frame, he’s developed a framework that utilizes variables that lead the business cycle and consistently have information content with respect to where markets are heading. We talk about challenging times for risk assets – distinguishing crisis episodes like the GFC in 2008 from bear markets experienced in 2001 and 2022. For Francois, these are all linked, with commonality in how interest rates created an economic slowdown which then left asset prices vulnerable.
Now the founder of Trahan Macro Research, Francois has a decidedly bearish outlook for US equities, very much a consequence of the exceedingly steep trajectory of short-rates, moving from essentially zero at the start of 2022 to 4.5% now. His set of macro leading indicators all point in unwelcome directions and his view is that the equity sell-off last year is just an appetizer for the challenging market conditions that approach. We walk through the specifics of his call and his recommendations that investors seeks refuge in style factors – like quality, profitability and low beta - that are typically more durable when growth is falling. If the 2022 decline in US equity markets was about a re-rating lower of the index multiple, 2023 will introduce flagging profits, largely a function of the lagged impact of rate increases that lower demand.
We finish by learning more about the efforts Francois is making in establishing the Macro Specialist Designation, an initiative designed to help professionals establish an understanding of markets and the economy from a top down perspective in a way similar to what the CFA designation seeks to offer from a bottoms up standpoint. I hope you enjoy this episode of the Alpha Exchange, my conversation with Francois Trahan.

Dylan Grice, Co-founder, Calderwood Capital Jan 20, 2023

A "beaten path" refers to a route that is frequently traveled. In markets, for years, this path led investors to be long both stocks and bonds in unison under the premise that duration exposure would mitigate losses during a sell-off in risk assets. In 2022, amidst sharply rising inflation, investors learned painful lessons that stock and bond prices can become highly correlated. For Dylan Grice, Co-founder of Calderwood Capital, the search for exposures that are off the beaten path has always been a natural pursuit.
Originally trained as an economist, Dylan realized early in his career that he was less geared towards making predictions. Instead, his focus is on evaluating the price of uncertainty, looking for opportunities to invest with hedge fund managers that emerge when the price of risk is favorable on either the long or short vol side of the ledger. In his search for cheap optionality, Dylan saw value in being short mortgages in 2021, a time during which interest rate volatility was exceedingly depressed by the forceful promises of the Fed, convinced that inflation was transitory.
He and team have also found opportunities to be well compensated to absorb risk, typically occurring when a market’s capacity to do so has been compromised. Such is the case in the reinsurance market now, where premiums post Hurricane Ida have increased substantially on the back of huge losses suffered. As catastrophe risk is fundamentally unique relative to market risk, adding exposure here is part of the low correlation set of strategies sought by Calderwood.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Dylan Grice. To learn more about Calderwood Capital, please visit www.calderwoodcapital.com.

The Alpha Exchange 2022 Year in Review Dec 31, 2022

Welcome to a special year-end episode of the Alpha Exchange where we look back on market risk dynamics that defined 2022, a painful year by nearly all counts. We’ll finish by looking forward, contemplating the set of uncertainties investor will be confronted with in 2023, sharing a few recommendations on the hedging, alpha generation and portfolio construction front. As 2022 is in the books, the Alpha Exchange podcast recorded 30 episodes this year. It’s been a rewarding experience and I am truly thankful to our guests for taking me up on the invite to share their insights with our listeners. We’ll continue this same pursuit in 2023 and have some interesting new initiatives planned as well. I wish you a safe New Years and a highly prosperous upcoming year. Thank you for listening!

Mary Childs, Author, “The Bond King” Dec 15, 2022

In the world of bonds, few firms are as powerful and enduring as PIMCO. And few investors are as storied as Bill Gross whose impact on active fixed income trading and risk management has been substantial. The “Bond King”, by Mary Childs, is a compellingly researched and written book on these two subject matters. Through hours of direct conversation with Bill Gross, discussions with many of the significant players at PIMCO and a careful recounting of some of the most consequential events in market history, Mary presents a story that began in the early 1970’s, reaching a tumultuous unwind in 2014.
Through our discussion, we learn of Mary’s first interaction with Bill Gross, finding herself at Bloomberg as a reporter and on the wrong side of communicating a p/l number he took issue with. Motivated to bring the less well understood world of fixed income to life, she set out to chronicle the founding of PIMCO and its tremendous growth under the leadership of Bill Gross. Along the way, we learn of clever arbitrage trades from the 1980’s, we revisit the global financial crisis and we get an inside look at the personalities that formed a culture both intense and deeply committed to research.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Mary Childs.

Scott Peng, PhD, Founder and CEO/CIO, Advocate Capital Management Dec 07, 2022

We next turn to Scott’s time at Secor Asset Management, running portfolio solutions and working with global pension plans on asset/liability risk. Scott shares his perspective on the recent blow-up in the long-dated Gilt market, stating that in some ways this was an accident waiting to happen given the mismatch in duration exposure required and that accessible through the cash Gilt market. The balance of our discussion is spent on Scott’s work as CIO of Advocate Capital, a firm he founded in 2016 to deliver risk mitigation solutions to investors. Part of this product suite is the RRH ETF, a vehicle designed to protect investors from rising rates through a combination of exposures that serve as cost effective proxies for being short duration. Scott shares his framework for implementing a multi-asset set of strategies that profits when interest rates rise.
With Scott’s view that inflation will prove sticky and that the terminal funds rate will be higher than currently priced by the market, investors need to be thoughtful around portfolio exposures like RRH that may cushion the blow of higher rates. I hope you enjoy this episode of the Alpha Exchange, my conversation with Scott Peng.
Please see rrhetf.com for more information on performance and disclosure data for the RRH ETF.

Seema Shah, Chief Global Strategist, Principal Asset Management Nov 29, 2022

Originally trained as an economist and now the Chief Global Strategist at Principal Asset Management, Seema Shah spends her time looking at the intersection of fundamentals, technicals and valuation. Our conversation first considers the low growth, low inflation era that persisted post GFC but pre-Pandemic and here Seema distinguishes between strong economic expansion and favorable market conditions. Of course, the opposite has been the case in 2022, as the Fed has been forced to tighten at an exceptional pace and asset prices have suffered amidst strong growth.
Noting the importance of watching Central Banks, Seema asserts that you have to recognize when they are in the process of making a mistake, something that became increasingly apparent as 2021 progressed. We turn to inflation. Seema stresses the importance of labor market tightness, how it leads to wage growth and how that imposes challenges on the Fed’s mission to reduce inflation.
With a view that price pressures will persist and that policy rates will remain higher for longer, Seema and her team are steering clients toward defensive positioning with respect to inflation, focusing on commodities and exposure to infrastructure plays like toll roads and airports. We close our conversation by considering China, where Seema asserts that the transmission of policy stimulus has been impaired by Covid Zero. While the path to reopening is surely uncertain, global growth could see a strong positive impulse at some point in 2023 if lockdown restrictions are eased.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Seema Shah.

Robert Dannenberg, Former Chief of Central Eurasia Division, CIA Nov 16, 2022

Market risks come in all shapes and sizes. A good starting point might be to categorize them as economic, financial, or monetary. But increasingly, and unfortunately, geopolitical risk is a threat that must be closely monitored and understood. And in this context, it was a pleasure to welcome Robert Dannenberg to the Alpha Exchange. Spending his entire career as an operations officer in the CIA, Rob served in various leadership positions, including as both chief of operations for the Counterterrorism Center and chief of the Central Eurasia Division.
With two tours of duty in Moscow, he faced off against Russian counterparts and in Rob’s words, his role was to ”steal their secrets and break their stuff”. Our conversation is primarily focused on the Russia/Ukraine conflict and in gaining a better appreciation for what drives Vladimir Putin. Here, Rob asserts that while perhaps deeply flawed, Putin has a highly convicted interpretation of history, citing a speech back in 2007 in Munich where he laid out a list of grievances about the West.
To gain a more complete picture of the conflict in Ukraine one must also understand the developing partnership between Russia and China. Rob tells us that Putin and Xi don’t just share a strong common worldview but are close friends committed to pushing back on Western hegemony. And with respect to China specifically, Rob absolutely sees the Taiwan situation coming to a head as Xi is determined to achieve what he views as a legacy issue of reincorporation with the mainland. If geopolitical risk is most often more bark than bite, Rob's perspective makes a strong case that global developments are increasingly complex and must be paid close attention to. I hope you enjoy this episode of the Alpha Exchange, my conversation with Robert Dannenberg.

Dan Corcoran, Founder and President, Volos Software Nov 13, 2022

For Dan Corcoran, a fascination with option pricing began in high school. By college, he was coding up pricing models and trading strategies in MatLab. Compelled by the multi-dimensional set of inputs driving prices, in 2014 Dan set out to found Volos, the financial backtesting and consultancy firm he is now President of. Dan shares with us his love for ski jumping and the manner in which dynamic calculations – of wind speed, snow quality and lighting pitch among them – must be made, sometimes instantaneously. Likening this to option trading, he notes how quickly investors must react to changing risk parameters in derivative securities. Our conversation explores both the power and pitfalls of harnessing data to generate insights on trading strategies. Dan asserts that no strategy can be static but rather investors must respond to the reality that the market’s risk profile evolves over time.
We turn to some of the results generated through the Volos engine as Dan shares the counterintuitive result that even through the GFC, investors would have been better off not engaging in certain hedging strategies like put spreads. The Warren Buffet saying, “price is what you pay, value is what you get” may be applicable as the sky-high price of options through that period reduced the value of the insurance payout. Lastly, we discuss benchmarking, a feature well entrenched in traditional markets like stocks and bonds, but nascent to option strategies. Dan is both optimistic and excited that efforts to create benchmarks can lead to asset growth in derivative-based investment strategies.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Dan Corcoran.

Maziar Minovi, CEO, Eurasia Group Oct 31, 2022

A teenager in Iran during the 1979 revolution, Maziar Minovi experienced first-hand how disruptive the impact of politics can be on economic security. Motivated by this personal experience he would pursue a Ph.D. in international finance and economic development and ultimately find his way to the investment industry in the early 1990s, just as the Tequila Crisis was underway. Maziar shares early lessons learned from navigating the complicated world of sovereign debt, recalling Russia’s decision to simultaneously default and devalue in 1998.
Our conversation shifts to present-day issues and the work Maziar is doing as CEO of Eurasia Group, where he spearheads a team delivering deep-dive analysis on geopolitical risks. Advising some of the largest investors and corporations globally, Maziar has sought to overlay experience gained over 25 years in markets, asking always, "what's priced in?". First, we talk inflation and the resulting election turnover of political parties that occurs more frequently when inflation is high.
We also discuss geopolitical hotspots around the world. Among them, Russia, China, and even the US. On China, Maziar worries that the commitment to Covid Zero will prove costly from a growth perspective and that debt sustainability considerations should not be overlooked. On the US, as midterms approach and the 2024 election cycle comes into view, he and team are concerned about vulnerabilities in the present-day framework of elections.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Maziar Minovi.

35 Years Later…Retrospective on the 1987 Stock Market Crash Oct 19, 2022

Welcome to a special episode of the Alpha Exchange, one where we look back on the historic event that was the 1987 stock market crash. We review the seismic crash in prices that occurred 35 years ago, on October 19th, 1987, when the DOW and S&P 500 fell by 22.6% and 20.4%, respectively. It was a day that the VIX, had it been a calculated index at that time, would have closed at 150, almost double the level reached during the GFC and Pandemic. It was the realization that selling could beget selling, not just because of the psychology of fear, but because of mechanical trading strategies that exist in markets. We review this truly important day in financial market history through the lens of podcast guests. Along the way, we’ll contemplate the lessons learned and the lasting impact of the crash.

Dennis Davitt, CIO, Millbank Dartmoor Portsmouth Oct 06, 2022

Dennis Davitt has spent more than 3 decades in option markets. Getting his start in the crude pit on the NYMEX, he soon thereafter moved to equity derivatives, a product he’s run risk in across both the sell-side and buy-side through many cycles. Through our conversation, we learn of the strong appreciation for liquidity – especially as it relates to dynamic products like options – that Dennis has gained through the many vol events he has traded through, especially during his long tenure running equity derivatives at Credit Suisse.
In his rendering, it is from these episodes that we see two consistent outcomes emerge. First that investors become overleveraged and second that books wind up mismarked in some way. Here he cites the concept of “liquidity delta”, a metric that incorporates the impact of one’s own presence and that of similar participants in markets. Impressed by the efficiency of prices in US-listed option markets, Dennis sees little obvious opportunity to extract arbitrage profits. Instead, he sees option markets as a vehicle to produce an intended risk outcome.
And here, we shift to the work that Dennis is doing as CIO of Millbank Dartmoor Portsmouth, a firm he founded in 2020 to provide a risk-managed equity alternative through an options overlay. We explore the factors driving the flat skew in S&P 500 options as Dennis contrasts today’s setup versus that which drove the famous XIV blowup in early 2018. I hope you enjoy this episode of the Alpha Exchange, my conversation with Dennis Davitt.

Hugh Hendry, Founder, Eclectica Asset Management Oct 02, 2022

We live in unique and highly uncertain times. Rates and FX markets - especially in the developed world -are experiencing volatility at levels associated with crisis. Central Banks are confronting an inflation problem not seen in decades and risk doing too much or too little. And the intersection of market prices and geopolitics is especially fraught. Against this backdrop, it was a pleasure to welcome Hugh Hendry to the Alpha Exchange.
The founder of Eclectica Asset Management, a fund he ran from 2005 to 2017, Hugh is now a developer of high-end properties. But he’s also spending a lot of time reading, thinking and reflecting. Our discussion reviews his time in asset management and his focus on original, uncorrelated trade construction. While sharing some of his success in spotting convex trade opportunities where the consensus broke, he also looks back on the long cycle of post crisis QE as a vol suppressor.
With respect to the set of risks today, Hugh is keenly focused on China and presents a sobering analysis of vulnerabilities associated with an overvalued property sector and FX exchange rate adjustments. On the latter, he believes a cross-rate that should be watched is that between the Japanese Yen and Chinese Yuan. Lastly, in contemplating extreme scenarios of "what-if", Hugh sees value in an extremely long-dated, far out of the money call on the S&P 500, a trade that could be explosive in a regime in which inflation, rates, volatility and nominal asset prices surge.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Hugh Hendry.

A Retrospective on the First 100 Episodes of the Alpha Exchange Sep 26, 2022

Welcome to the 100th Episode of the Alpha Exchange. Here we do a podcast retrospective, looking back at some of the themes and insights shared over the past 4 years. I want to thank you for listening. We’ve been fortunate to attract a substantial audience of accomplished professionals. And that’s really the result of the quality of our guests. I want to express sincere gratitude to our guests for taking me up on the invite to come on our show.
What I’ve sought to do through these discussions is to make a contribution to our industry’s understanding of risk. That, literally is the Alpha that I hope emerges from the Exchange. One way we do this is to look backwards, reviewing consequential periods of market disruption. There is an old saying, that “history is a foreign country”. If that is the case, I say that the “history of risk is another planet”. We learn the most by studying the periods when things went horribly wrong. But a human condition and weakness is simply that we forget. Risk management suffers from failure of the imagination. In discussing these events, my hope is to raise the antennae of our listeners, perhaps planting a seed for further investigation or alerting you to a vulnerability previously unappreciated.
Over the course of this retrospective episode, we highlight the thought process and perspectives of guests, looking back on crisis events like the ’87 crash, the LTCM unwind, the GFC and the Pandemic market disruption. We cover the Meme stock episode of 2021 and also the crypto crash of 2022 and more. I hope you enjoy our 100th episode and thank you again for listening.

Joanna Gallegos, Co-Founder, BondBloxx Sep 22, 2022

Launched in 1993, the S&P Depository Receipt, or Spider, will soon turn 30. Over these 3 decades, the ETF product landscape has grown tremendously both in assets under management and in the increasing breadth of risk profiles that can be accessed. Credit-focused ETFs have seen particularly robust growth, with products like the HYG reaching an asset size in the tens of billions. And with this in mind, it was a pleasure to welcome Joanna Gallegos, co-founder of ETF creator BondBloxx, to the Alpha Exchange.
Spending her 20 year career in the design and production of exchange traded funds, Joanna shares her perspective on the inputs that have been critical for providers to deliver products at such scale. Here, she cites the operational efficiencies developed by passive index money managers in the years preceding ETFs. Our conversation turns to fixed income ETFs and the founding idea of BondBloxx, a suite of products designed to provide more targeted credit exposure based on both industry and rating. Launching with 7 sectors that comprise the BofA high yield index, BondBloxx products may be to the HYG what ETFs like the XLF and XLK are to the SPY.
We finish our discussion with some of Joanna’s views on the efforts to motivate career development for females in finance. She’s benefitted a great deal from female mentorship in her career and now, in a very senior position, draws from these positive lessons in advocating for professional in the early parts of their career. I hope you enjoy this episode of the Alpha Exchange, my conversation with Joanna Gallegos.

BondBloxx Investment Management Corporation (“BondBloxx”) is a registered investment adviser. The content of this podcast is intended for informational purposes only and is not intended to be investment advice. The views expressed in this podcast are subject to change based on market and other conditions. Information about the qualifications and business practices of BondBloxx is available on the SEC’s website at www.adviserinfo.sec.gov._

Alfonso Peccatiello, Founder, The Macro Compass Sep 08, 2022

Fearing deflation and eager to sponsor growth post the GFC, Central Banks around the world became a near permanent fixture in markets, gathering vast stockpiles of risk free assets. Few were more impactful in determining clearing prices than was the ECB. With this in mind, it was a pleasure to welcome Alfonso Peccatiello, founder of the Macro Compass, to the podcast.
Our conversation is one part retrospective, looking back on the period between 2013 and 2019 when interest rates in the Eurozone descended to shocking low and negative levels. Alf shares his views on the trade-offs in seeking favorable risk-adjusted carry in such a low rate regime, making the point that it's important to identify and understand the capital that serves to sponsor the trade along with you. We touch on some of the unique political considerations for risk assets in Europe and here, Alf looks back on a shock to Italian markets that materialized in May of 2018 as fears advanced that a Euro-skeptic government coalition could seek to abandon the Euro.
We also survey the uncertainties today, focusing on the risks that may result from nominal yields in Italy approaching 4%. From Alf's perspective, while there is plenty of negative sentiment, one can argue that the price of risk does not fully reflect the degree of economic and financial vulnerability resulting from the combination of inflation and the risks of energy prices.
Lastly, we touch on Alf's efforts at the Macro Compass, the newsletter he launched to share his insights on the big picture of risk and to play a role in financial education. I hope you enjoy this episode of the Alpha Exchange, my conversation with Alfonso Peccatiello

Gargi Chaudhuri, Head of iShares Investment Strategy Americas, BlackRock Jul 28, 2022

Getting her start in 2001 as the TIPS products was just a few years old, Gargi Chaudhuri has been a market participant in inflation-linked securities for more than 2 decades, a time over which she’s developed expertise in a product that has become front and center to the unique risk dynamics of 2022. Our conversation first explores the evolution of the TIPS market, from its early days where even a small notional trade could impact pricing to today when large institutions are assuming and reducing inflation exposures and, of course, the Fed is non-trivial presence in the market. In this context, we discuss the relative prices of TIPS and nominal bond prices and the real yields and break-even levels derived from them.
Here, Gargi points to potential areas of distortion, citing the rapid rise in 10 year real yields from -100bps at the start of 2022 to as high as 80bps in early June. While disruptive, this repricing does pave the way for finding value in the asset class. We next discuss Gargi’s work at Head of Investment Strategy within IShares at BlackRock. With the mantra that “staying invested is the North Star”, she walks through the exposure shifts that can reduce volatility and drawdowns during bear market periods. Here, she discusses using “min vol” as well as other defensive sectors like healthcare that have good pricing power amidst the regime of elevated inflation.
We finish by exploring the topic of decision-making under uncertainty and hearing what Gargi is more and less confident about. While feeling good about the various frameworks her team has built to understand inflation and flows, she is less sure about the changing Central Bank reaction function to incoming data. I hope you enjoy this episode of the Alpha Exchange, my conversation with Gargi Chaudhuri.

Mr. Blonde, Independent Market Strategist Jul 22, 2022

Legendary investor Stanley Druckenmiller has said that the “best economist he knows is the guts of the stock market.” For Mr. Blonde, an industry professional who has served in both sell-side and buy-side roles focused on risk management and equity strategy, few statements ring truer. Our discussion explores the framework he has developed through various market cycles, one that evaluates a collection of metrics both across and within markets, ultimately aiming to gain an edge in the probability of future outcomes. In this context, we discuss his role on the buy-side at a large long/short fund where he was charged with helping the chief risk-taker to better understand the macro climate and how it might serve as either a headwind or tailwind for fundamental security selection. We review a few key events when the macro and micro diverged. Here, Mr. Blonde cites the very low vol period in equity markets during the first 7 months of 2015 that masked important signals at odds with this stability, specifically the ongoing sell-off in crude and a widening of credit spreads. In August of ‘15, this stability was quickly undone as the VIX ramped to 45 when China quasi floated its currency.
We finish our discussion with his assessment of present day risk and reward and the interplay between the Fed, rates, inflation and the relative performance of style factors. In his view, disinflationary forces could re-emerge on the other side and give rise to a new cycle in which benign Fed policy and low rates again support the growth stocks that worked well during the prior cycle. Before that, however, investors will need to contend with the potential that financial conditions need to tighten a good deal further. I hope you enjoy this episode of the Alpha Exchange, my conversation with Mr. Blonde.

Mike O’Rourke, Chief Market Strategist, Jones Trading, Jul 14, 2022

As Chief Market Strategist at Jones Trading, Mike O’Rourke spends his time studying price, flows and policy and the complex interaction among these factors. Getting his start in the mid 90’s as the tech bubble was gaining momentum and both the Asian Currency crisis and LTCM event would occur, he’s gained an appreciation for how impactful flows and crowdedness can be on asset prices in both directions. The study of markets is complicated by agents of price agnostic demand. Here Mike points to the era of activism and transparency among Central Banks in the post GFC era of disinflation. He makes the point that this period of inflation shortfall was likely driven by a 20 year cycle of globalization that has largely ended. In the aftermath is persistently high inflation and far less forward guidance from major Central Banks.
Presently, Mike sees the potential for more downside in markets, especially as financial conditions, while off their lows, could need to tighten considerably more in order for the Fed to push inflation lower. In terms of the tail risks on his radar, Mike worries about a multi-year unwind of excess resulting from the stimulus that went into the market in the period after the Pandemic. He also fears a potential showdown between Central Banks and market prices, especially the ECB and the BoJ.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Mike O’Rourke.

Bill Birmingham, Chief Investment Officer, Osprey Funds Jul 12, 2022

Amidst the ongoing tumult in the digital asset space, it was a pleasure to welcome Bill Birmingham, the Chief Investment Officer of the Osprey Funds, to the podcast. Originally trained as a lawyer and then transitioning to a role in portfolio management in the traditional hedge fund space, Bill shares his views on many aspects of the crypto landscape, at once excited by the potential in blockchain innovation but also on guard for a further leg down in prices.
Our conversation explores his early interest in digital assets a decade ago, fascinated by the programmable features of smart contracts and the similarities to what he'd observed in his study of law. We also spend time reflecting on the recent systemic risk in the meltdown of LUNA and the contagion impact of the 3AC default. There are lessons to be learned here and work to be done to create a more robust system. Specifically, the recursive leverage that is enabled through Bitcoin as an electronic bearer asset needs to be managed if the overall system is not to become too leveraged. Looking forward, Bill and his team at Osprey see promising innovations in the NFT space and opportunities to deliver exposures to end users on a cost-efficient basis. I hope you enjoy this episode of the Alpha Exchange, my conversation with Bill Birmingham.

Andy Constan, Founder, Damped Spring Advisors Jun 30, 2022

Market prices are impacted by a host of forces including changes in the economy, in earnings and in the stance of monetary policy. For Andy Constan, flows carry great import as well. Hitching a ride to Wall Street in 1986 at Salomon Brothers, Andy was part of a group that contributed to the Brady Commission Report, the post-mortem on the calamity that was the ’87 stock market crash. In this context, he shares his views on episodes in which flows into or out of an asset disrupted the equilibrium of supply and demand, leading to shocking movements in price. Among them, Andy describes the April 2020 negative price in front month crude, a short-lived but intense dislocation resulting from mechanical ETF flows. In furthering the discussion on liquidity, we explore the 2010 blow-up in the long dated SPX variance swap market, a trade that Andy ranks among the most attractive he has seen in his career, a result of an extreme imbalance in supply and demand. Our conversation then shifts to the present day of risk and the work that Andy is doing at Damped Spring Advisors, a research firm he founded in 2019. On his mind is the market’s capacity to adjust to a regime of higher rates, the factors that may leave QT more or less impactful and whether Fed policy ultimately leaves money tight or not. I hope you enjoy this episode of the Alpha Exchange, my conversation with Andy Constan.

Vishnu Kurella, Macro Portfolio Manager Jun 17, 2022

Trading convertible bonds on emerging market underlyings in the pre-GFC period, Vishnu Kurella quickly learned that even indices can experience enormous daily moves. A macro portfolio manager who evaluates opportunities through the lens of optionality, he shares the lessons learned from trading through the frequent episodes of crisis that characterize modern markets. In this context, Vishnu emphasizes liquidity and the implications for being able to unwind trades without excessive friction. In his rendering, open-mindedness is also a critical part of the risk management process.
Here, it becomes important to continuously look for shifts in the macro risk regime and to be prepared to re-underwrite existing exposures as appropriate. From here, we jump to considerations in trade implementation and seeking to overlay an expected distribution of outcomes relative to that which is implied by option prices. Lastly, we talk as well about the current risk climate, one in which equity markets have been punished by inflation and Fed policy uncertainty. Vishnu shares his views on the pressure points. Noting the incredibly favorable environment for corporates in 2021 in which both base rates and credit spreads were extremely low, he sees something considerably more fragile now. I hope you enjoy this episode of the Alpha Exchange, my conversation with Vishnu Kurella.

Devin Anderson, Co-Founder, Convexitas Jun 13, 2022

Over a 15 year career at Deutsche Bank, Devin Anderson watched the pendulum of risk swing. Developing solutions for clients during the ultra-low vol period before the GFC, through the crisis itself and then again during the relatively benign periods of its aftermath, Devin has observed the tendency for modern markets to lurch from quiet to chaos. In the process, he’s had a front row seat in how various hedging strategies have performed and why. We explore the poorly timed decision by Calpers to unwind its hedging program just before the Pandemic related market sell-off in 2020, a discussion through which we learn more about Devin’s co-founding of Convexitas, an overlay manager working with clients to efficiently hedge risk.
In Devin’s view, the “why” of tail hedging is clear: to realize explosive gains in down markets that can be used to fund purchases of newly cheapened assets. The hedge vehicle should generate and deliver cash at the right time and because of this, structure and implementation become important parts of the product. Next we explore the VIX, the ubiquitous but also poorly understood metric. Here, Devin differentiates between products like vanilla index options that have convexity with respect to spot prices and those, like VIX options, that are written on vol itself. Both serve important roles, but require different monetization game plans. I hope you enjoy this episode of the Alpha Exchange, my conversation with Devin Anderson.

Robin Wigglesworth, Editor, Alphaville Jun 10, 2022

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.

Jon Kalikow, President, Gamma Real Estate and AFC Gamma Jun 08, 2022

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.

Puneet Kohli, Assistant Vice President, Fixed Income and Derivatives, Healthcare of Ontario Pension Plan Apr 29, 2022

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.

Cameron Crise, Macro Strategist, Bloomberg Apr 22, 2022

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.

Vadim Zlotnikov, President, Fidelity Institutional Asset Management Mar 29, 2022

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.

Lindsay Politi, Head of Inflation Strategies, One River Asset Management Feb 25, 2022

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.

Dave Bizer, Co-Founder and Managing Partner, GCW Feb 16, 2022

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.

Robert Tipp, Chief Investment Strategist and Head of Global Bonds, PGIM Fixed Income Feb 12, 2022

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, Founder, Option Research and Technology Services Jan 18, 2022

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.

Ari Pine, Co-Founder, Digital Gamma Jan 14, 2022

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.

Kris Sidial, Co-CIO, The Ambrus Group Dec 23, 2021

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.

Dean Curnutt, Founder, Macro Risk Advisors Dec 03, 2021

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.

Andrew Lapthorne, Global Head of Quantitative Research, Societe Generale Nov 22, 2021

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.

Jared Dillian, Editor, The Daily Dirtnap Oct 22, 2021

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.

Campbell Harvey, Professor of Finance, Fuqua School of Business, Duke University Oct 19, 2021

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.

Victor Haghani, Founder and CIO, Elm Partners Oct 10, 2021

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.

Barry Knapp, Founder, Ironsides Macro Oct 06, 2021

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.

Subadra Rajappa, Head of US Interest Rate Strategy, Societe Generale Sep 21, 2021

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.

Denise Chisholm, Sector Strategist, Fidelity Investments Aug 24, 2021

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.

Jeff deGraaf, Founder and CEO, Renaissance Macro Aug 19, 2021

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.

Peter Cecchini, Head of Research and Strategy, Axonic Capital Aug 08, 2021

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.

Rick Bookstaber, Founder, Fabric RQ Jul 26, 2021

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.

Simon Ho, Founder and CEO, T3 Index Jul 14, 2021

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.

Colin Lancaster, Global Head of Macro, Schonfeld Strategic Advisors Jun 16, 2021

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.

Paul Kim, Co-Founder and CEO, Simplify Asset Management Jun 12, 2021

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.

Samara Cohen, Managing Director and Co-Head of EII Markets and Investments, BlackRock May 31, 2021

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.

Robert Bogucki, Co-Head of Global Trading and Head of Derivatives Trading, Galaxy Digital Holdings May 21, 2021

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.

Andrew Scott, Partner, Head of Client Solutions Bach Option Ltd. May 06, 2021

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.

Erin Browne, Portfolio Manager, PIMCO Mar 26, 2021

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.

Dave Puritz, Founder and CIO, Shaolin Capital Management Mar 15, 2021

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, Founder and CEO, Osprey Funds Mar 05, 2021

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.

Mark Friedman, Founder and CIO, DLD Asset Management Feb 11, 2021

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.

Benn Eifert, Founder and CIO, QVR Advisors Feb 01, 2021

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.

Mark Miller, Lessons on Selling and Leadership Feb 01, 2021

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.

Samantha McLemore, Founder and Managing Member, Patient Capital Management Jan 05, 2021

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.

Tania Reif, Investment Manager, Alphadyne Asset Management Dec 22, 2020

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.

Gordon Lawrence, Director of Global Derivatives, Wellington Management Dec 18, 2020

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.

John-Mark Piampiano, Founder and CIO, Engineered Portfolios Dec 09, 2020

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.

Troy Dixon, Founder and CIO, Hollis Park Partners Nov 21, 2020

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.

Anna Raytcheva, Founder and CIO, Sonya Capital Management Nov 17, 2020

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.

Josh Younger, Head of US Interest Rate Derivative Strategy, JP Morgan Nov 15, 2020

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.

Jordi Visser, President and Chief Investment Officer, Weiss Multi Strategy Advisers Oct 07, 2020

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.

Rich Rosenblum, Co-founder, GSR Markets Oct 02, 2020

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.

Kevin Warsh, Visiting Fellow at the Hoover Institute and Former FOMC Governor Sep 24, 2020

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.

Raghuram Rajan, Katherine Dusak Miller Distinguished Service Professor of Finance at Chicago Booth and Former Head of Reserve Bank of India Aug 26, 2020

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.

Jay Pelosky, Co-Founder and CIO, TPW Investment Management Aug 21, 2020

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, Senior Fellow, Carnegie-Tsinghua Center for Global Policy Aug 08, 2020

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.

Mike Novogratz, Founder and CEO, Galaxy Digital Holdings Jul 24, 2020

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.

Nathalie Texier Guillot, Head of Sales for the Americas, BNP Jul 23, 2020

Within financial markets, derivatives have always been the stomping grounds of those inclined to entertain probabilities and models. Delving further within this space, you will find simpler vanilla products like listed options but also a realm of considerably greater complexity where counterparties engage in the transfer of alternative risk exposures. For French banks like BNP, derivatives innovation has always been an important part of the value proposition. And as Head of Sales for the Americas at BNP, Nathalie Texier Guillot has been a driver of the bank’s mission to help clients solve complicated problem. My conversation with Nathalie considers the current state of the risk recycling business in light of the explosion of volatility during March of 2020. She provides insights on the need to properly size trades, her observations on dislocations that emerged earlier this year and the types of trades she and her team are spending time on now. We also discuss the challenges in leading a team during the work from home era and how technology is being used to enhance the experience. Lastly, we discuss the important mission of advancing the careers of women in finance and Nathalie’s views on how to best advocate for the cause. I hope you enjoy this episode of the podcast as much as I did and thanks for listening.

Jens Nordvig, Founder and CEO, Exante Data Jun 22, 2020

As our crisis series of the Alpha Exchange continues, I was pleased to have the opportunity to engage with Jens Nordvig, the founder and CEO of Exante Data. After stints at both Goldman Sachs and Nomura, Jens launched his independent firm in 2016 with an eye towards using a highly data driven approach to help institutional clients make sense of global economic developments and position portfolios accordingly. Our discussion focuses broadly on the notion of nonlinearity as it applies to asset markets, a key part of the investment philosophy Jens utilizes to evaluate risk and highly applicable to the current landscape of virus centric uncertainty. Harnessing new and extremely real-time data sets, Exante Data was decidedly early in understanding that Covid19 was going to be a big deal, globally, and that markets were failing to appreciate the risks. This disconnect and the potential troubles that lie ahead owe to the difficulty in appreciating the growth in processes like a virus that are exponential in nature. I think you will really enjoy this episode of the Alpha Exchange, my discussion with Jens Nordvig.

Jake Doft, Founder and CIO, Highline Capital May 27, 2020

The explosion in market volatility that resulted from the Covid crisis was all-consuming in March. Massive one-day moves in broad equity indices, correlations that approached 100% and a breathtaking crash in the price of oil were factors that left investors unable to consider much more than the wreckage in front of them. But for Jake Doft, the founder and CIO of Highline Capital, the crisis has provided a truly unique opportunity to step back and contemplate change and the investable implications thereof. The crisis has forced businesses and consumers to adapt, not just accelerating trends already in place, but also providing exposure to new technologies, new approaches to supply chain management, new ways to interact socially and potentially new preferences on where to live. My discussion with Jake is a compelling look into how an investor can “skate where the puck is going to be”, evaluating the long term opportunities that emerge from this challenging time. I hope you enjoy this conversation as much as I did. Please be well.

Steven Englander, Head of G10 FX and North America Macro Strategy, Standard Chartered May 22, 2020

As our crisis series within the Alpha Exchange continues, it was a pleasure to catch up with Steven Englander, the head of G10 FX and North America Macro Strategy for Standard Chartered. We review the fast moving aspect of the March dislocation and the manner in which pricing relationships typical of normal markets ceased to hold. As many of our listeners are steeped in equity volatility, it was great to solicit Steven’s views on risk as expressed through FX. His team’s work on the relative performance of haven versus carry currencies during the dark days of March illustrates the manner in which the crisis expressed itself – around the globe and across asset classes. On the Fed, Steven has much to say, beginning with how the speed and degree of its policy response has exhibited a strong impact on asset prices as investors firmly shake hands with the Central Bank. We talk as well about the outlook for inflation, the market’s capacity to absorb the coming tidal wave of US government debt and scenarios for the dollar. I really enjoyed Steven’s perspective and hope you do as well.

Howard Marks, Founder, Oaktree Capital May 11, 2020

As the economic collapse associated with the pandemic enters its second month, it was my distinct pleasure to have Howard Marks, the founder of Oaktree Capital, on the Alpha Exchange. A highly successful investor across many decades, Howard has prudently managed risk through a vast number of market cycles. His assessment of the complex mix of economic, financial and monetary aspects of the coronavirus crisis provides context for factors at work in market prices. A buyer of quickly cheapening assets in the middle two weeks of March, Howard sees a less compelling case on the long side now given the severity of the shock and the challenges to be faced in returning to a full speed economy. Please enjoy this episode of the Alpha Exchange, my conversation with Howard Marks.

Peter van Dooijeweert, Head of Institutional Hedging and Portfolio Solutions, Man Group Apr 23, 2020

As markets continue to grapple with the vast uncertainty resulting from the corona virus, it was excellent to have Peter van Dooijeweert, the Head of Institutional Hedging and Portfolio Solutions at Man Group, as a guest on the Alpha Exchange. Our “crisis series” is aimed at uncovering the unique elements of the 2020 vol event, the extent to which systematic strategies acted as amplifiers on the way down and the lessons learned from being long or short optionality. Addressing these questions, Peter has many insights to offer. As a market participant with 25 years of investing experience, he views volatility cycles as self-reinforcing on the way up and down. I enjoyed hearing his views on the clues from correlation break-downs, the usefulness of a blended, cross-asset approach to hedging and a risk management framework that uses volatility scaling. I hope you do as well. Thanks for listening and please be well.

Chris Cole, Founder and CIO, Artemis Capital Apr 09, 2020

On this special crisis series episode of the Alpha Exchange, I had the opportunity to solicit the insights of Chris Cole, the founder and CIO of Artemis Capital. Through a framework that gives much weight to the impact of financial products and the risk-taking built around them, Chris has a unique understanding of both low and high periods of volatility and the linkages between them. In a paper authored in October 2017, Chris stated, "The markets are not correctly assessing the probability that volatility reaches new all-time lows in the short term (VIX80 in 2018-2020)". Incredibly, he was right on both counts as the VIX dipped below 9 in December of 2017 and recently reached a new all-time high of 83, eclipsing the previous record level from the GFC. He explains his thesis, shares his research on an optimal portfolio, his views on buying options at high prices, and looks forward to what could be several years of a new, much higher volatility regime. This conversation gave me a great deal to think about, and I hope it does for you as well. Please be safe.

George Goncalves, Independent Bond Strategist Apr 06, 2020

As the special Crisis Series within the Alpha Exchange continues, it was a pleasure to catch up with former colleague, George Goncalves. A 20 year veteran on both the buy-side and sell-side, George most recently led the Fixed Income Strategy effort at Nomura Securities. Our discussion considers the post GFC regulatory landscape that emerged in the US Treasury market and how, over time, the Street’s capacity to bear risk was compromised even as the government’s appetite to run larger deficits grew. George walks through how we got to September of 2019, when repo market disruption fired a loud warning shot that market plumbing was vulnerable to crack. The increased prominence of the relative value investor, whose strategies are short liquidity and volatility, has figured prominently in the breathtaking explosion of volatility in the risk-free complex and the resulting role the Fed has needed to play to support market functioning. Looking forward, George sees the potential that rates are headed lower still, but, given the degree of government capital directed towards the economic sudden stop, ultimately see value in inflation protected securities like TIPS. Thanks for listening and be safe.

Eric Peters, Founder and CIO, One River Asset Management Apr 01, 2020

Our crisis series within the Alpha Exchange podcast continues and it was my pleasure to solicit the insights of Eric Peters, the founder and CIO of One River Asset Management. To be sure, this isn’t Eric’s first experience managing capital through a crisis, but in his words, “this is a unique one…amplified by a whole range of things including big flows into vol selling programs.” Seven percent return hurdles for pension plans, very low rates and the longest continuous economic expansion on record have all been complicit in a setup that was increasingly vulnerable. In Eric’s rendering, this is a much more concerning shock than the GFC given the global nature of the economic sudden stop. We talk as well about the liquidation dynamics that emerged in the Treasury market and risk taking going forward in an environment in which the entirety of the yield curve may be pulled lower still. Thank you for listening and please be well.

Vineer Bhansali, Founder and CIO, Long Tail Alpha Mar 31, 2020

Welcome to the second episode in our special Alpha Exchange series focused specifically on the 2020 economic and financial crisis. It was my pleasure to have Vineer Bhansali, the founder and CIO of Long Tail Alpha, back on the podcast and hear his framing of the conditions that gave rise to so substantial an asset price sell-off in so short a period of time. Calling the markets the most illiquid he has experienced in his thirty year career, Vineer cites the “sand pile effect” in describing the devastation to asset prices. Colloquially speaking, Covid19 is simply the straw that broke the camel’s back after years and years of accumulated carry trades. Vineer’s insights on the manner in which the system of risk taking may now be set to interact with the economic fundamentals in a negatively reinforcing manner is critical to appreciate. Thank you for listening

Benn Eifert, Founder and CIO, QVR Advisors Mar 30, 2020

Welcome to the first in a special series of the Alpha Exchange in which the 2020 economic and financial crisis is the specific focus. Amidst this protracted dislocation in markets, I am pleased to have Benn Eifert, the founder and CIO of QVR Advisors, share his views on the factors at work within the equity derivatives market and the important drivers of option prices. Benn’s insights on positioning in both vanilla and complex OTC products, his knowledge of the landscape of risk transfer trades that experienced substantial growth in recent years and his expertise in the surface of equity index volatility are all highly relevant in an environment of explosive daily moves in both the S&P 500 and implied volatility itself. Thank you for listening.

Stuart Kaiser, Head of Equity Derivatives Research, UBS Feb 20, 2020

The price of vol, in single stocks, in equity sectors and across asset classes is on the mind of Stuart Kaiser. Now the head of equity derivatives research at UBS, Stuart spends his time helping the firm’s institutional clients find value on both the long and short side of the derivatives market. Landing at Goldman Sachs a stone's throw away from the global financial crisis, Stuart developed his skill set by looking for opportunities in the single stock options market at a time of massive transition in implied volatility. During our conversation, we revisit the surge in option premia in US financials, from extremely low to unrecognizably high levels in a matter of a year. In this context, Stuart shares his views on the vol risk premia, noting that it can sometimes be compelling to sell vol at low levels, especially when markets are trending in muted fashion as they did in 2017.

As part of his process for supporting clients, Stuart continuously evaluates volatility surfaces. He shares the process he uses, describing how he utilizes back-tests and how he arrives at points on the curve that carry best and are optimal in the context of the risks being hedged. We also discuss 2018, a year book-ended by market disruption events of very different character that required unique trade construction in hedging. Lastly, Stuart shares his framework for evaluating cross-asset risk factors and how he looks for warning signs that sister asset classes like FX and rates may send to equity investors. Today, amidst a challenging environment for carrying options, he sees value in gold volatility. Please enjoy this episode of the Alpha Exchange, my discussion with Stuart Kaiser.

John Succo, Partner, SS Financial Feb 10, 2020

When it comes to equity derivatives, few individuals have traded more options than John Succo. Across a career in markets spanning more than 3 decades, John has managed convexity risk on both the sell-side and buy-side, through high and low vol periods and across single stock and index options. During the course of our discussion, John shares many rich stories. He brings to life the early days of career – one in which option pricing inefficiencies were significant across both strike and time. He describes one of the large, early hedging trades he orchestrated in 1989 – a collar on S&P 500 shortly before the UAL mini-crash in October. And he has plenty to say about the spectacular blow-up of LTCM, an outcome that surprised him very little. A theme throughout our conversation is John’s careful attention to sizing positions and his overall objective of remaining long gamma. While the lean periods for volatility make this challenging, John successfully managed decay through active position management, trading the range in volatility and offsetting some of the bleed from long single stock vol by selling index volatility. The result was that his hedge fund, Vicis Capital, became looked upon by institutional allocators as a valuable addition to a portfolio of generally correlated risk-assets. The orthogonal nature of the return stream from Vicis was of great value for investors in the period leading into and through the financial crisis. Today, John is a partner at SS Financial, and remains a keen and skeptical observer of markets. On his mind mostly is debt and the view that it is the sudden stop of unsustainable leverage that usually figures complicit in big vol events. Please enjoy this episode of the Alpha Exchange, my conversation with John Succo.

Michael Green, Chief Strategist, Logica Capital Advisers Jan 27, 2020

Managing portfolios over the course of two decades, Mike Green has developed a unique framework for assessing risk and opportunity. Trained in his early days to perform equity valuation, Mike came on the scene just as the tech bubble was imploding and the massive discrepancy between growth and value was coming undone. In a great seat to ride the small cap value wave during the post internet bubble, but pre-crisis period, Mike began to appreciate the force of market prices and their impact on behavior, narratives and how they become entangled in feedback loops. Our conversation is a retrospective on these situations of co-dependency – between profits, psychology and the economy. In this context we discuss left and right tail events – in valuations, in housing price appreciate and in events of extreme high and low implied and realized volatility.
Mike’s insights on market structure bring to life the motivations and market frictions that ultimately give rise to a transaction. Price, in his rendering, is less about valuation and more about the conditions that give rise to a trade to occur. The result can be option prices that clear the market considerably higher than what one would think possible and Mike references the near 100% bid to implied correlation in 2012 as an example.
Today, Mike is Chief Strategist for Logica Capital Advisers and, as usual, he has a lot on his mind. We talk a good deal about passive investing, a strategy increasingly embraced as simply a better way. For Mike, passive indexation is plenty active - there’s a specific decision being made to buy stocks in proportion to their market caps. At a time when both the SPX and NDX have become substantially top heavy, investors ought to question the efficacy of such a valuation agnostic approach.
Please enjoy this episode of the Alpha Exchange, my conversation with Mike Green.

Andy Redleaf, Principal, Park Financial Group Jan 14, 2020

The son of a physician and with a penchant for math, Andy Redleaf came upon options in high school, even before they were listed on the CBOE. Post college, Andy landed in an option trading role and was making markets on the CBOE during the 1987 stock market crash. In his rendering, the introduction of stock index futures dramatically increased correlation among stocks and the creation of portfolio insurance left some investors short a put that no other investors were long. In combination, this left the market vulnerable to such a sharp one day plunge in stock prices. Our conversation considers market stress periods in the context of the neat mathematical models and their simplifying assumptions that may be enablers of these seismic events.
We talk as well about Andy’s hedge fund career, first co-founding Deephaven and then founding Whitebox. Both ventures were focused on exploiting mispricings in complex securities such as convertible bonds and the relative value between equity and corporate credit securities. As the head of Whitebox for two decades, Andy oversaw the firm’s expansion into a global multi-strat fund that traded all asset classes and through periods of vol both high and low. Our discussion brings to life the instability that Andy saw lurking beneath the surface of calm markets in the period prior to the financial crisis. He shares his analysis of the wholesale mispricing of mortgage risk that was evident in the statistic that nearly 90% of the refinancings on New Century’s book increased the amount owed from the original mortgage. This, Andy suggests, is an indication of a more desperate borrower.
As we explore the important risk events that have helped shaped Andy’s philosophy on risk, we also pivot to the financial climate that is today. Andy is skeptical that ultra-low interest rates are stimulative and sees the decline in interest rate income as a headwind for consumers who are trying to reach a specific financial goal through savings. Today, Andy is principal of Park Financial Group, a firm finding opportunities to prudently lend in today’s climate of highly bifurcated credit allocation. I hope you enjoy this episode of the Alpha Exchange, my conversation with Andy Redleaf.

Scott Ladner, Chief Investment Officer, Horizon Investments Dec 12, 2019

In 1998, Scott Ladner hit the derivatives scene at First Union, just as LTCM was imploding and equity volatility was rocketing higher. No sooner would the Fed help contain that risk episode, then the tech bubble would be set in motion. An intense period of “stocks up, vol up” during which valuations expanded to unheard of levels, followed by an equally intense, “stocks down, vol up” characterized the period of 1999 through 2001 and provided hands on, sometimes painful experiences for Scott in managing convexity risk. Short airline volatility during the September 11th terrorist attack, Scott quickly came to appreciate the potential for significant gap risk and discontinuity in markets, a reality not contemplated in the textbook version of Black Scholes.
My conversation with Scott considers insights gathered over a career managing volatility exposure across asset classes and how he came to his role as CIO of Horizon Investments. Scott shares his views on how volatility can come and go, how many factors can come to impact the price of options and how important it is to have a number of little bets on versus being overly concentrated in a singular exposure. He points to the value, but also the dangers of option models, learning along the way not to take the output too seriously and to constantly re-examine the assumptions being made. Today, Scott’s dashboard consists of credit, liquidity and risk metrics with the goal of identifying incongruities that help him focus his research to better understand market dynamics. In this context, we discuss the early and late year vol events of 2018.
Lastly, we discuss Horizon’s efforts on behalf of its clients to manage wealth and reach retirement goals within the constraints of the low growth and low interest rate environment. His team is seeking to build risk management techniques that work specifically in today’s unique economic and financial climate. Noting that there is now “an ETF for everything”, he sees the last 10 years as the age of product. The next 10, in contrast, he views as the age of planning, where the focus should be on how to best utilize these new products to maximize the wealth and overall experience of retirement for individuals. Please enjoy this episode of the Alpha Exchange, my conversation with Scott Ladner.

Jon Havice, Founder and CIO, DGV Solutions Dec 04, 2019

A nearly 30 year career has given Jon Havice exposure to just about every strategy across the spectrum of asset markets. A freshly minted Wharton graduate with a major in engineering, Jon came upon O’Connor Associates in the early 1990’s where he cut his teeth trading listed currency option markets. Pre-euro, Jon would experience seminal FX vol events like the ERM unwind,Tequila crisis and Asian contagion in short order, gaining an appreciation for the impact of positioning on currency vol surfaces.
As his career progressed, Jon would manage the gamut of arbitrage strategies, focusing on exotic options, convertible bonds, capital structure and muni bonds and dispersion. Our discussion brings to life the lessons to be had from trading through market crisis periods, including the importance of counterparty risk and the degree to which asset prices can stray from fundamental value. We also dive into the vol risk premium, exploring its attributes and how it has evolved over the years in light of the heavy hand of Central Banks. In a world of exceptionally low rates, Jon worries about the glut of yield-chasing capital in private credit and the potential that valuation distortions have resulted.
Today, Jon is CIO of DGV Solutions, a firm he founded in 2014 to offer customized investment management products in a transparent and cost efficient manner. His firm deploys its expertise with a purpose, partnering with clients with inspiring missions that Jon and his team feel very connected to. Please enjoy this episode of the Alpha Exchange, my conversation with Jon Havice.

Alberto Gallo, Partner and Portfolio Manager, Algebris Investments Nov 27, 2019

Earning his chops as a macro economist on the sell-side, Alberto Gallo has seen the pendulum of risk swing from extreme fear to euphoria. During his tenure at Goldman Sachs and then at RBS where he ran the Global Macro Credit Research product, Alberto provided buy-side clients with key insights on seminal volatility events like the Global Financial Crisis and the Eurozone Sovereign debt crisis. Now, as a Partner at Algebris Investments, Alberto leads the firm’s Macro Strategy effort, a credit-oriented portfolio designed to navigate the ever tricky terrain of present-day markets. Our conversation considers portfolio construction in a world starved of yield, of low cross-asset risk premia, and one in which the potential for more drastic policy response may be on the horizon. Alberto’s views on today’s regime of monetary policy point to the side effects that result from negative rates, as the banking system suffers, and investors are deprived of income. On the changing nature of volatility in markets, Alberto provides thoughtful insights. He points to the increasing degree of forward guidance employed by the world’s large Central Banks, a factor that has depressed volatility and led to more days of sun for market participants. But since there’s no free lunch, days of rain, while fewer, have become more substantial storms. Alberto details the increased frequency of flash crashes and sharp risk-offs during the post-crisis period, perhaps the result of investors being forced to embrace carry at skinny margins for error.
On inflation, Alberto points to a bottoming of CPI in the US even as structural drivers of low inflation, like demographics and technology, are likely to remain going forward. As the view that monetary policy has lost some of its punch and may be responsible for increasing income inequality, Alberto considers the trend towards lower Central Bank independence and greater cooperation with governments on the fiscal front. Will this work? In Alberto’s rendering, it might, but it’s all about how a more unified version of fiscal and monetary policy is deployed. I hope you enjoy this episode of the Alpha Exchange, my discussion with Alberto Gallo.

Louis-Vincent Gave, CEO and Founding Partner, Gavekal Nov 13, 2019

In 1999, as a new century was nearly upon us, the Euro was born and the US tech bubble was in full sway, Louis Gave hung a shingle to start an independent research firm with his father, Charles. Twenty years later, Louis remains CEO of Gavekal, a firm that has helped institutional clients distill global market risk throughout different cycles. Our conversation focuses a good deal on China, an economy that Gavekal has carefully studied. Calling China the biggest macro story the world has ever seen, Louis and his team have had a front row seat on the economic transformation in China and the manner in which 400 million citizens have been lifted out of poverty. Through our discussion, we learn more about how China interacts with the global economy and specifically the stabilizing role that the country played during the financial crisis, as well as during the growth recessions of 2012 and 2016. Our conversation also focuses a good deal on inflation. Amidst the well-worn narrative that inflation shortfall is a global issue, Louis has interesting insights on the social tension that is resulting from higher inflation. He points to riots in Hong Kong, Chile and the Green Jacket uprising in France, all linked to inflation. In the US, Louis is skeptical that inflation is as hard to come by as commonly reported, noting that core CPI is essentially at a 10-year high. As fiscal and monetary policy are both working in the same direction around the world, is the price of inflation too low? Louis sees recency bias at work and a failure of market participants to appreciate the regime shift that may be in motion. He views the price of crude as critical to watch insofar as the outlook for inflation is concerned. We finish our discussion with Louis’ views on portfolio construction, citing caution for the long treasuries / long growth stocks allocation that has rewarded investors during the post-crisis period. Please enjoy this episode of the Alpha Exchange, my conversation with Louis Gave.

Ben Melkman, Founder and CIO, Light Sky Macro LP Nov 05, 2019

Fascinated by markets at a very young age, Ben Melkman has spent his investing career thinking through the intersection of politics, macroeconomics and the price of options. After earning a degree from the London School of Economics, Ben hit the FX desk at Morgan Stanley, quickly establishing himself as an invaluable resource for the largest macro hedge funds who sought his counsel on how best to structure trades in light of vol surfaces on offer across asset markets. After a highly successful run at Brevan Howard, Ben established Light Sky Macro in 2016. Our conversation is about large vol events. With respect to the Global Financial Crisis, Ben dove into the complexities of credit derivative markets, concluding that the price of insurance was outlandishly cheap relative to the actual risks and the potential for contagion. In our discussion, Ben makes highly insightful points around the inherent risks of over-reliance on modeling, the degree to which correlation assumptions can lead to gross underestimation of risk and the vast interconnectedness of the financial system. Ben’s views on the interaction between politics and markets and the manner in which investors sometimes fail to anticipate regime shifts is fascinating. He points to the onset of Abenomics in 2013, a massive campaign that aggressively pushed the yen down, Nikkei up and volatility up. In the period prior to this wholesale shift in policy, option prices were all skewed in the opposite direction. As we finish this excellent discussion, Ben looks forward to the potential that the combination of more aggressive fiscal policy in conjunction with accommodative monetary policy might cause a re-think of the inflation shortfall that has characterized the post–crisis era, at the very time when inflation is a highly unloved asset class. Lastly, Ben offers thoughts on the 2020 US election, excited about the potential market action that may arise from the starkly different views offered by the Democrats and Republicans. Please enjoy this episode of the Alpha Exchange, my conversation with Ben Melkman.

Jim Bianco, Founder and President, Bianco Research, LLC. Oct 14, 2019

In the mid 1980's, and recently graduated from Marquette University, a young Jim Bianco scored an accidental meeting for a position with First Boston. Most fortuitously, his resume wound up in the wrong pile, leading him to be mistakenly invited in to interview for a spot supporting a senior analyst. As luck would have it, Jim got the job and so was launched a more than 30 year career in markets. In 1998, amidst the chaos that was LTCM, Jim boldly launch his own firm. And more than two decades later, Bianco Research continues to provide differentiated advice on markets, Central Banks and the economy to its clients.
My discussion with Jim focuses on monetary policy, global disinflation and the unholy impact of negative rates on the banking system. Jim’s perspective on the big picture, slow moving yet powerful forces of demographics illustrates how the excess of global savings leads to greater demand for safe fixed income assets. He points as well to the downward pressure on prices due to technological advancement. In this context, he is skeptical that more of the same easy policy from Central Banks is the right medicine to address inflation and growth shortfall.
Lastly, I solicit Jim’s views on advancements in research being made possible by Neural Linguistic Processing. Jim and his team have used NLP, for example, to analyze word choices in Fed policy communications to score the degree of focus on growth, inflation, financial stability and other important variables. As data is made more available and at a cheaper price, new techniques like NLP provide exciting opportunities to gain insights on risk. Lastly, we touch on Modern Monetary Theory. While not a fan, Jim acknowledges the momentum of the MMT front, especially as the 2020 election comes into view.

Glenn Stevens, Former Governor, Reserve Bank of Australia Sep 27, 2019

On this episode of the Alpha Exchange, it was my distinct privilege to be joined by Glenn Stevens who resided over the Reserve Bank of Australia as Governor from 2006 to 2016. Considered one of the most gifted Central Bankers of our time, Glenn successfully navigated Australia’s economy through the crisis without a recession. A 36 year career at the RBA has imparted him with an appreciation for the inherent challenges in economic forecasting and in this context, we touch on Glenn's decision to tighten in early 2008 as inflation in Australia rose, only to sharply reverse course a few months later as the Global Financial Crisis began. Our conversation is a retrospective on the fast moving, unnerving time that was the GFC, a period that demanded and benefited from policymaker coordination. In Glenn’s view, the interconnected nature of markets and the economy during the crisis also forced Central Banks to view asset prices in a more endogenous light, assigning more weight to the impact of financial conditions on the real economy. I also solicit Glenn’s views on how the RBA’s goals and considerations may be shaped by unique attributes of the Australian economy. Lastly, we spend time - of course -on the puzzle that is Inflation and the related phenomenon of negative interest rates. I’m excited to bring you this episode of the Alpha Exchange, my discussion with Glenn Stevens.

Mark Spindel, Founder and CIO, Potomac River Capital Sep 23, 2019

The onslaught of Tweets regularly lobbed at Fed Chairman Powell assumes at least some part of the mosaic of today’s unique and vibrant risk climate. But is Trump much different from previous Fed Chairs? In “The Myth of Independence”, Sarah Binder and Mark Spindel provide an important account of the political history of the Fed. And in this episode of the Alpha Exchange, it was a pleasure to have Mark, the Founder and CIO of Potomac River Capital, share his expert views on this subject as well as the macro environment in which Central Banks operate today. Our conversation considers historical market stress events including the square off between Soros and the BoE, the Fed’s surprise tightening in 1994 and, of course the Great Financial Crisis.
Mark also provides valuable perspective on the early days of the Fed, from its post-panic creation in 1912 through the onset of WWI, the high inflation volatility of the 1920’s, and then of course the 1929 crash and Great Depression. Our conversation helps frame the chronology of how the Fed got to where it is today and the politics that inevitably influenced this path.
We wrap up the discussion with Mark’s survey of today’s growth, inflation and asset price outlook. His assessment of inflation shortfall and the risks of Japanification, lead him to the conclusion that the Fed must be vigilant and that Central Bank coordination with the fiscal arm is a theme that will likely be subject to growing consideration.
Please enjoy this episode of the Alpha Exchange, my discussion with Mark Spindel.

Nancy Davis, Founder, Quadratic Capital Sep 13, 2019

Nancy Davis, founder of Quadratic Capital, has spent her entire career trading options of all shapes and sizes and across all of the asset classes. She’s traded them listed, OTC, vanilla and complex in rates, FX, commodities, credit and equities. Over the course of nearly 20 years, Nancy has developed important perspective on risk cycles, trading through the dotcom era, the GFC, the 2011 sovereign crisis, the 2016 Brexit referendum and, more recently, the VIX unwind event of early 2018. Over these risk episodes and the quiet periods in between them, Nancy has developed a philosophy on utilizing optionality as a core vehicle to implement long or short directional exposure. Our conversation explores the fundamental question – “are options a good deal or not?” in light of the demonstrated premium of implied to realized volatility over time set against the numerous options blow-ups that have occurred in markets. As a prominent woman in the derivatives space, I also seek Nancy’s views on the state of female representation in the finance industry and work she’s doing to advance the cause of having more women on the investing side of the business. Lastly, we discuss IVOL, the Quadratic Interest Rate Volatility and Inflation Hedge ETF, an innovative product that Nancy recently launched. In a world in which options on the yield curve cost very little and next to no one sees the potential for appreciably higher inflation, Nancy sees IVOL as a valuable portfolio diversifier. Please enjoy this episode of the Alpha Exchange, my discussion with Nancy Davis.

Barry Knapp, Managing Partner, Ironsides Macroeconomics, LLC. Aug 19, 2019

A voracious reader and a market professional for more than 30 years, Barry Knapp has seen his share of bubbles and busts. Starting his career in the early 80’s, he soon after experienced the crash of ‘87 and the mini crash of ‘89. The experience of multi-sigma events like these, overlaid on his careful study economic history, armed Barry early on with an appreciation for the complex ways in which monetary, fiscal and regulatory policy interact with the financial cycle of risk taking.

In our conversation, Barry shares his recollections of covering institutional derivatives clients through the tech bubble and the growth of capital structure arbitrage trading in its aftermath. We spend some time on the financial crisis and I gather Barry’s perspective as a senior risk taker at Lehman during that time.

And lastly, I solicit Barry’s views on monetary policy in the post crisis era and just how we arrived at interest rates no one could have ever imagined would clear the market. His unpacking of the sell-off in Q4’18 reveals a fragility that may be present for years as Central Banks try to get off zero.

Now the founder and Managing Partner of Ironsides Macroeconomics, Barry is bringing his insights to clients weekly, helping investors better understand a truly unique time period in economics and finance. Please enjoy this episode of the Alpha Exchange, my discuss with Barry Knapp.

Benjamin Bowler, Managing Director and Global Head of Equity Derivatives Research at Bank of America - Merrill Lynch Jul 22, 2019

At first blush, market volatility and fragility would appear to be two sides of the same coin. But for Ben Bowler and his global team at BAML, the last 5 years has uniquely seen muted overall daily volatility punctuated by occasional but extreme market outbursts. In Ben’s role as global head of derivative research, he has studied this period - one in which market kurtosis, that pesky 4th moment, has been substantially high. Perhaps owing to the conditioning wrought by the heavy hand of Central Banks, investors have, in Bowler’s rendering, increasingly competed for “dip Alpha”. Thus, the market’s growing tendency to lurch from calm to calamity as crowded positioning is unwound and then ultimately re-established once the Central Bank asserts its desire to see easier financial conditions. The result is a remarkable change in the character of market volatility post crisis.

In addition to exploring the notion of market fragility, my conversation with Ben considers the volatility risk premium, the value of signals from the landscape of cross-asset vol, and the impact of vol selling on the market’s gamma profile and resulting level of realized index volatility. We also broadly discuss the impact of risk control funds, the speed with which exposures can be de-risked and the greater incidence of flash-crash type events.

Ben's insights are excellent. I hope you enjoy this discussion as much as I did, my conversation with Ben Bowler on this episode of the Alpha Exchange.

Robert Whaley, the Valere Blair Potter Professor of Management and Director of the Financial Markets Research Center at the Owen Graduate School of Management at Vanderbilt University Jul 16, 2019

Today’s derivatives markets – characterized by a vast array of complex OTC products, options with maturities as short as one day, and an ever increasing pool of non-equity ETFs – bear little resemblance to those of the 1970’s. In the earliest days of the listed options market, there were calls but not puts, limited expirations and just a sprinkling of single stock underlyings. It was in this era that Robert Whaley came on the scene and made an immediate impact. Armed with a PhD in finance from the University of Toronto, Professor Whaley quickly dove into the empirical study of derivatives markets, focusing on important topics such as the valuation of American put options, how option markets anticipate quarterly earnings announcements and the impact of program trading on the 1987 stock market crash. It was in 1993 that Professor Whaley published a paper that would fundamentally change the landscape of risk management. His Journal of Derivatives piece “Derivatives on market volatility: Hedging tools long overdue” described a brand new concept that sought to create a standardized metric for the cost of index options. More than 26 years later, the VIX is vastly a part of the language spoken not just by option market participants but by the investment community at large. Now, not merely a calculation, but a tradeable asset used for both speculation and hedging, the VIX index plays an important role in how investors read market risk dynamics and seek to profit from changes in volatility.

Today, Professor Whaley is the Valere Blair Potter Professor of Management and Director of the Financial Markets Research Center at the Owen Graduate School of Management at Vanderbilt University. I was honored to have the opportunity to speak with Professor Whaley and learn more about his long and successful career in academia, his wide body of financial research and his meaningful perspective on the evolution of the VIX index over the years. Please enjoy this episode of the Alpha Exchange.

Harley Bassman, The Convexity Maven Jun 13, 2019

There is but one Convexity Maven in the world, a moniker that belongs uniquely to Harley Bassman. A 35 year career in financial markets has left Harley steeped in all things relating to the price of and characteristics of optionality.

Our discussion on this episode of the Alpha Exchange starts with the early days of his career, including a position in Treasury option markets in the early 1980s. Juxtapose that experience - when rates and inflation were sky high - with his more recent market presence when rates and rate vol have rarely been lower - and one can appreciate the breadth of experience Harley has had.

Our conversation covers the term structure of rate volatility, the variance risk premium and the way in which option sellers convert potential future capital gains to present day income. Along the way, we discuss the MOVE index, a well-followed metric for bond option volatility that Harley designed, as he explains how the MOVE is tied the slope of the yield curve. Lastly, Harley shares his views on global disinflation and what Central Banks are up against. Please enjoy this episode of the Alpha Exchange, my discussion with Harley Bassman.

Ray Iwanowski, Co-Founder and CIO, SECOR Asset Management Jun 05, 2019

There’s not much natural intersection between the study of mathematics and Russian literature. But for the ever-curious mind of Ray Iwanowski, the Wharton School provided exposure to both. Ultimately, Ray’s interest in math and physics would lead him to finance where he came upon the Black-Scholes equation and option pricing theory. After a stint in fixed income research focused on modeling mortgage securities, Ray set upon the Ph.D. program at the University of Chicago in the early 1990s, a vibrant time for advancement in the empirical study of asset pricing. Utilizing the toolkit he developed, Ray landed at Goldman Sachs Asset Management where he ultimately co-ran the firm’s Global Alpha business. Today, Ray is co-founder and CIO of SECOR Asset Management, a firm that provides customized portfolio solutions to institutional clients around the world. My conversation with Ray considers the current state of factor investing in light of the increasingly competitive search for alpha. In the process, we look back on the 2007 quant crisis, exploring the questions of factor timing, crowding risks, and the correlation of momentum and value strategies. We also look forward as Ray shares his views on harnessing data and utilizing artificial intelligence and machine learning. Lastly, we delve into the volatility risk premium, how it has evolved over time, and the reflexive properties of volatility. I thoroughly enjoyed this conversation, and the perspective Ray offered through his experience as a quant investor. Now, my discussion with Ray Iwanowski on this episode of the Alpha Exchange.

Henry Schwartz, President and Founder, Trade Alert, LLC May 22, 2019

After a lengthy and successful tenure on the risk-taking side in equity volatility, Henry Schwartz decided the US listed options community would benefit from technology that made reading the tape easier. In 2005, he launched Trade Alert, a fintech innovation that does just that. Nearly 15 years later, Trade Alert is a tool employed by buy-side and sell-side market participants who value the functionality in piecing together the continuous and often complex flow within the US options market. My conversation with Henry is a meaningful retrospective on the changes in the derivatives markets that have resulted from technology. We look back to an era gone by – pre-ETFs, pre-electronic trading and before options were dually listed. Henry shares his perspective on the evolution and growth of the marketplace and the key events that led to the proliferation of exchanges, different fee structures, and new types of investors. Please enjoy this episode of the Alpha Exchange, my discussion with Henry Schwartz.

Gerard Minack, Founder, Minack Advisors May 06, 2019

When your very first day in the investment industry happens to coincide with a 20% plunge in the S&P 500 Index, your ultimate risk philosophy is likely to incorporate a strong appreciation for market psychology. Such is the case for Gerard Minack, who began his career on October 19th, 1987. Plying his trade throughout the 1990’s, Gerard would ultimately rise to lead Morgan Stanley’s macro strategy effort. In 2013, seeking to increase his PB ratio, he launched his own firm, Minack Advisors, focused on delivering his insights on markets, monetary policy and the global economy to an institutional client base. Our conversation is part retrospective on the history of important risk events, where we delve into both the tech bubble and the Global Financial Crisis and discuss the powerful role of psychology during both episodes. On a more current basis, Gerard shares his analysis of the extraordinary monetary policy regime including negative rates and QE, both of which he views as underwhelming with respect to their ultimate impact on growth and inflation. Gerard has strong views on structural secular stagnation, a thesis he lays out utilizing a framework that gives weight to slowing population growth and the mismatch between global savings and investment. I also solicit his views on disinflation, the Phillips Curve and Modern Monetary Theory. I find Gerard Minack’s insights highly compelling and I hope you enjoy our conversation in this episode of the Alpha Exchange.

Alex Kazan, Chief Strategy Officer, Eurasia Group Apr 04, 2019

Utilizing a framework built over two decades, Alex Kazan is keenly attuned to today’s complex world of geopolitical risks and the implications for markets. Argentina’s sovereign default episode two decades ago demonstrated the importance of institutional credibility with respect to managing through an economic and currency crisis. Years later, the Great Financial Crisis would further inform Alex of the interaction between policymaker goals and what markets would and could bear. Today, as a Managing Director at Eurasia Group, Alex and his team bring a rigorous combination of economics and an understanding of country risk to assessing the geopolitical chess game. Our excellent conversation covers European populism, Brexit, the US / China standoff on trade and the hollowing out of Centrism in America’s politics. Among the risks that keep Alex up at night is the potential for what he calls an “innovation winter” — a politically underpinned shortfall of the financial and human capital needed to drive the next generation of emerging technologies.

Christian Hauff, Co-Founder of Quantitive Brokers Feb 14, 2019

A native Australian, Christian Hauff capitalized on the financial crisis to co-found Quantitative Brokers with Robert Almgren in 2009. After working together on the development of agency algorithmic technology in equities and equity options, Christian and Rob saw an opportunity to apply some of that IP to the world of fixed income, where no such solutions existed at the time. Christian describes the “trader’s dilemma”, a challenge that every investor faces in whether to execute a desired trade instantaneously or to work this order over a period of time. He explains how his firm’s algorithms help its clients optimize this trade-off to minimize slippage and reduce their implementation short-fall. Our conversation provides insights on the early days of QB, where countless hours were spent in the lab studying the “rule book” of Eurodollar futures to better understand micro-structure mechanics that underpin Algo execution strategies. We also talk about research at QB, including its deep-dive into the Treasury Flash Rally of October 2014 and the VIX spike in February 2018. Lastly, Christian shares his views on the future of agency electronic execution including the trend toward more robust transaction cost analysis, improved access to more markets such as FX and centralized clearing. I hope you enjoy this episode of the Alpha Exchange, my wide-ranging conversation with Christian Hauff.

Michael Aronstein, President and CIO of Marketfield Asset Management Feb 08, 2019

Hitting the Street in the bear market days of the late 70’s, Michael Aronstein became quickly engaged in studying the Fed, interest rates and inflation. His perspective, enabled by managing capital through high and low inflation and volatility regimes, reminds us of the old adage “there are no bad securities, only bad prices”. A value-oriented investor with a taste for being contrarian, Michael’s research process blends an appreciation for market cycles, a respect for the power of Central Banks and a willingness to listen to what’s on peoples’ minds. Our conversation on the 1987 crash includes his effective use of put options to ensure the portfolio and the impact of fast-rising US rates on the trade-off between being in risk. We also cover the formation of Marketfield Asset Management in 2007, where Michael is Chief Investment Officer and how clearly he saw the excess of housing during that period. In present day, Michael is concerned that the big wealth creation of the new economy is at risk, vulnerable to a slowdown in the money needed to keep the machine running. Please enjoy this episode of the Alpha Exchange, my discussion with Michael Aronstein.

David Rogers, Founder and CIO of JD Capital Management Feb 01, 2019

In the market for global equity volatility, few investors have the magnitude of experience of David Rogers. Starting at Goldman Sachs in 1982, Dave was evaluating option strategies in the nascent period of the US derivatives market. His experience through the ’87 crash as well as his time in Asia in the early 1990’s, were formative in establishing a risk management philosophy that has proven critical during the many episodes of market turbulence of the past two decades.

Our conversation around the Long Term Capital unwind in 1998 and its exposure to short equity volatility, illustrates the importance that Dave puts on patience and position sizing. Founding JD Capital Management in the aftermath of the tech bubble, Dave has managed complex option exposures from both the long and short side through periods of high and low volatility.

Our discussion considers correlation dislocations during the Great Financial Crisis, the impact that structured products can have on volatility surfaces, and the changing regulatory landscape and resulting implications for risk intermediation. We finish by contextualizing the 2017 low vol tail event as Dave shares some of his thoughts on the recent bout of equity vol and what to expect next.

Please enjoy my conversation with David Rogers.

Tim Duy, University of Oregon Jan 23, 2019

Today’s guest on the Alpha Exchange is Tim Duy, the Professor of Practice in the department of economics at the University of Oregon. After earning a PhD in economics there, Tim worked at the United States Treasury and later with the G7 Group, a political and economic consultancy where he focused on monitoring the Fed for clients and market participants. Tim returned to the University of Oregon in 2002 and is currently the Senior Director of the Oregon Economic Forum. In an environment in which Central Banks have become a substantial presence in markets, Tim has gained prominence as a Fed Watcher and is the author of the highly followed “Fed Watch” blog. My conversation with Tim focuses on the state of the US economy, the thinking of the Fed and its messaging to markets, the outlook for inflation, relevance of the Philips curve and thoughts on the balance sheet. I hope you enjoy my conversation with Tim Duy.

James Grant, Founder of Grant’s Interest Rate Observer Jan 18, 2019

A gunner’s mate in the Navy and a graduate of Indiana University, Jim Grant ventured to the financial desk at the Baltimore Sun in the early 1970’s. He joined Barron’s in 1975 before launching his firm in 1983. For more than 3 decades, Grant’s Interest Rate observer has twice monthly landed on the desk top of its readers, providing analysis that is deeply insightful, often skeptical and written in Jim’s uniquely compelling writing style. My conversation with Jim covers the bad old inflation days of the early 1980’s and the courage of Paul Volcker, the many lessons learned through risk cycles, negative interest rates and his view on the damage done to the price discovery process wrought by the interventionist activities of the modern Central Banker. Jim even shares his views on the National Weather Service in the course of our excellent discussion. Gold enthusiast, Fed critic, entrepreneur, accomplished author and father of 4, Jim Grant is a legendary figure in the markets business. I hope you enjoy our conversation as much as I did on this episode of the Alpha Exchange.

Eric Peters, One River Asset Management Dec 21, 2018

Beginning his career in Chicago trading corn futures in the late 1980’s, Eric Peters moved into the sharp elbowed world of bond futures trading on the CBOT and then went to a bank, prop trading rates and derivatives through the 1990’s. His perspectives on the exchange rate mechanism crisis in 1992 and the bond market massacre in 1994 provide significant insight on the way in which policy frameworks invite risk taking that can ultimately lead to instability. Utilizing many of these lessons on risk, Eric founded One River Asset Management, a firm that delivers bespoke solutions to institutional investors, helping them navigate markets in the post-crisis era. As 2018 comes to a close, Eric sees a long period of adjustment to a higher volatility regime in both the risk asset complex as well as inflation.

Harry Markopolos, Certified Fraud Examiner Dec 11, 2018

In a matter of hours in 1999, Harry Markopolos determined that Bernard Madoff’s returns were not real. Over the course of the next 9 years, Harry and his team assembled a trove of compelling evidence supporting this claim. He spoke to investors and market participants, studied the web of feeder funds that raised capital and built option pricing models that cast doubt that Madoff could achieve anything close to the results he purported to achieve. “How do you have over a 3 Sharpe ratio in finance over many years? You can’t”, Markopolos stated. Ten years post the collapse of the largest Ponzi scheme ever, I am thankful to have had the opportunity to engage with Harry on the various red flags he spotted, the long arc of his pursuit of Madoff and the degree to which investors remain vulnerable to Ponzi schemes and fraud in the current period. I hope you enjoy our wide-ranging, candid conversation.

Vineer Bhansali, Founder and CIO of Long Tail Alpha Nov 20, 2018

Armed with a Ph.D. in Theoretical Physics, Vineer brings a deep understanding of financial mathematics to developing trading strategies in the derivatives market. At the same time, he’s learned real lessons over the years about the inherent uncertainties in markets – the surprise Fed tightening in 1994, and the LTCM meltdown in 1998 were formative experiences for Vineer that now guide a risk philosophy that pays careful attention to the tails. Our in-depth discussion on the extremely low level of market volatility in 2017 uncovers Vineer’s framework for evaluating the risks that can emerge when volatility collapses.

Arthur Kaz, Founder and CIO of Greenbriar Asset Management Nov 20, 2018

Distressed investing is about more than identifying undervalued securities that emerge when the default probability for a company rises. For Arthur Kaz, that’s just step one. Using valuable experience gained at a bankruptcy consulting firm, Kaz came to the hedge fund industry with a deep understanding of how to guide a company through the operational and financial challenges that result from default. Our conversation on industries that have experienced large scale distress, including the auto and airline sectors, illustrates the manner in which distressed investing is about playing a role in crafting the post-bankruptcy capital structure. Pivoting to macro considerations, I solicit Kaz’s view on the fragility of credit markets, the risk of higher rates and the impact of ETFs. A wide-ranging conversation that I hope you enjoy.

Christopher Cole, Founder and CIO of Artemis Capital Management Nov 20, 2018

On behalf of his investors, Chris has developed systematic and quantitative strategies that trade volatility. His long convexity approach enabled his investors to thrive through the 2008 Great Financial Crisis. And through his deep dive research publications, Chris has made a real contribution to the industry’s understanding of volatility. Chris was among the small number of investors that saw the instability that lurked beneath the market calm in 2017 and capitalized on it during the XIV meltdown in February 2018. Fundamentally geared investors seeking to understand the sudden bursts of market volatility that occur with greater frequency will benefit from listening to the perspective Chris brings on the reflexive nature of volatility.

Welcome to the Alpha Exchange Nov 16, 2018

The Alpha Exchange is a podcast series launched by Dean Curnutt to explore topics in financial markets, risk management and capital allocation in the alternatives industry. Our in-depth discussions with highly established industry professionals seek to uncover the nuanced and complex interactions between economic, monetary, financial, regulatory and geopolitical sources of risk. We aim to learn from the perspective our guests can bring with respect to the history of financial and business cycles, promoting a better understanding among listeners as to how prior periods provide important context to present day dynamics.

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