Alpha Exchange

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.

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.

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. 

Analyzing the 1987 stock market crash, the podcast explores the role of mechanical trading strategies, portfolio insurance, and liquidity dynamics. Guests share their firsthand experiences and insights, while reflecting on the lasting impact of the crash on market behavior and the challenges of predicting future crashes.

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.

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. 

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.

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._  

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

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.