GM 78: The Market Risk Nobody’s Watching ft. Dave Dredge & Cem Karsan
Top Traders Unplugged
Navigating Bond Market Dynamics
This chapter explores the intricate factors influencing bond markets, including interest rate trends and the effects of recency bias. It discusses the potential long-term shifts in market dynamics and the challenges facing investors as they navigate rising interest rates and liquidity issues.
Today, we take you into the complexities of the current financial landscape, emphasizing the crucial theme of positioning in an environment marked by rising interest rates and shifting market dynamics. We explore how recent structured product issuance is significantly impacting market structure, particularly in the U.S., where the volume of callable bonds and equity-linked products has surged. They highlight the risks associated with reliance on historical correlations, which may not hold in times of market stress, and the implications for investors navigating these turbulent waters. The conversation also touches on the potential for a significant monetary regime shift, akin to what was seen in the late '90s, driven by geopolitical tensions and domestic economic policies. You will gain valuable insights into how to recognize and adapt to these evolving risks, to become well prepared for the challenges ahead.
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Episode TimeStamps:
01:34 - A quick catch up since last conversation
02:13 - Dredge's key takeaways from 2024
08:58 - When did things really start to move for Dredge?
15:41 - Cem's analysis of the recent global macro environment
22:51 - What has driven the S&P volatility?
24:44 - Positioning is all that matters
29:31 - "Correlation is a bitch"
33:31 - Portfolio Manager in legal trouble for following an ESG strategy
37:57 - The difference between credit and vol investors
42:07 - The good outcome is a recession
45:36 - All the things that you are not worried about is driving your performance
48:49 - The state of interest rates and FX trading
57:24 - Is the Fed losing its grip on the economy?
01:03:46 - The outlook of markets - where are we heading?
01:09:18 - Risk is on your balance sheet, not in the future
01:16:14 - Dredge's perspective on structural products issuance
01:27:22 - The recession might come sooner than we think
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