Alpha Exchange

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

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

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

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

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

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

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

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

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

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

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

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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 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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.