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.

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

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

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

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

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.