Alpha Exchange
Dean Curnutt
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. The “price of risk” is an important topic. Here we engage experts in their assessment of risk premium levels in the context of uncertainty. Is the level of compensation attractive? Because Central Banks have played so important a role in markets post crisis, our discussions sometimes aim to better understand the evolution of monetary policy and the degree to which the real and financial economy will be impacted. An especially important area of focus is on derivative products and how they interact with risk taking and carry dynamics. Our conversations seek to enlighten listeners, for example, as to the factors that promoted the February melt-down of the VIX complex. We do NOT ask our guests for their political opinions. We seek a better understanding of the market impact of regulatory change, election outcomes and events of geopolitical consequence. Our discussions cover markets from a macro perspective with an assessment of risk and opportunity across asset classes. Within equity markets, we may explore the relative attractiveness of sectors but will NOT discuss single stocks.
Episodes
Mentioned books
Aug 26, 2020 • 42min
Raghuram Rajan, Katherine Dusak Miller Distinguished Service Professor of Finance at Chicago Booth and Former Head of Reserve Bank of India
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.
Aug 21, 2020 • 1h
Jay Pelosky, Co-Founder and CIO, TPW Investment Management
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.
Aug 8, 2020 • 53min
Michael Pettis, Senior Fellow, Carnegie-Tsinghua Center for Global Policy
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.
Jul 24, 2020 • 41min
Mike Novogratz, Founder and CEO, Galaxy Digital Holdings
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.
Jul 23, 2020 • 45min
Nathalie Texier Guillot, Head of Sales for the Americas, BNP
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.
Jun 22, 2020 • 37min
Jens Nordvig, Founder and CEO, Exante Data
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.
May 27, 2020 • 42min
Jake Doft, Founder and CIO, Highline Capital
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.
May 22, 2020 • 39min
Steven Englander, Head of G10 FX and North America Macro Strategy, Standard Chartered
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.
May 11, 2020 • 31min
Howard Marks, Founder, Oaktree Capital
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.
Apr 23, 2020 • 36min
Peter van Dooijeweert, Head of Institutional Hedging and Portfolio Solutions, Man Group
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.
