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With a background in math and an inclination to embrace complexity, Puneet Kohli has always found managing capital in the derivatives market both interesting and challenging. And at the Health Care of Ontario Pension Plan, Puneet is also finding meaning and purpose in his work. Sitting within the Fixed Income and Derivatives team at HOOPP, Puneet helps play a role in delivering the pension promise for hundreds of thousands of front-line workers within the 110 billion dollar defined benefit plan.In pursuing this, HOOPP employs a derivatives-centric risk management process that is quite sophisticated, more resembling a US hedge fund than a US pension fund. Through our conversation, we learn more about how Puneet thinks about capitalizing on risk dislocations, utilizing the edge in HOOPPs long-dated capital and strong balance sheet but also incorporating the lessons provided by markets that are subject to episodes of extreme volatility that result in a significant liquidity shortfalls. With this in mind, we talk about liquidity management and also about playing defense through the search for negatively correlated assets. Here Puneet discusses rate contingent puts on the S&P 500, a trade that embeds short equity, short bond and long volatility exposures, all while achieving a healthy discount to vanilla put structures.Lastly, we reflect on market vol episodes including the global financial crisis, the blowups experienced during March 2020 and also the Meme stock up-crash of early 2021. I hope you enjoy this episode of the Alpha Exchange, my conversation with Puneet Kohli.

Armed with the power of the terminal, and bringing together a gift for writing and a deeply curious mind, Cameron Crise is a macro strategist at Bloomberg, contributing pieces on the big picture topics investment professionals are wrestling with. The author of the Macro Man column, Cameron utilizes a framework developed over years on the buy-side in portfolio management roles in which managing interest rate and FX risk were among his primary responsibilities.Through our conversation, we gather Cameron’s views on some of the overarching areas of uncertainty, focusing on the US interest rate vol surface and what it tells us. In this context, Cameron emphasizes the degree of uncertainty – via elevated options prices – embedded in the shorter maturities of the curve, ultimately a result of how much work the Fed has ahead of it. We talk as well about pricing incongruities and here he notes that the equity market multiple has not contracted nearly to the degree elevated inflation would imply it should. Lastly, Cameron points to curious differentials in the Euribor versus Eurodollar curves. Here, he notes that even as forward prices suggest the US may shift from an aggressive tightening cycle to actually easing in 2024, the Euribor curve implies ongoing tightening during this period. According to Cameron, The ECB has never actually hiked rates as the Fed was actively cutting, as is priced in 2024. Something to think about.I hope you enjoy this episode of the Alpha Exchange, my conversation with Cameron Crise.

Over a 30-year career in markets, Vadim Zlotnikov has gained a strong appreciation for the value of time horizon in risk management and alpha generation. Noting that being sufficiently early in expressing a view on markets is not much different from being wrong, Vadim stresses the importance of implementation in achieving a successful outcome. Here we talk of trade construction that is not necessarily burdened by high carry costs. We also discuss the endogenous nature of many market risks, an area that Vadim has focused on considerably and has developed a view that crowding plays a role in market vulnerability.Now the President of Fidelity Institutional Asset Management, Vadim is highly focused on portfolio construction and the exposures that should comprise the strategic allocation of his firm’s clients. In this pursuit, he’s thinking about the mix of assets that, in combination, is diversifying and able to deliver attractive returns. In this context, we discuss the changing interaction between risky and risk-free assets and the need to include additional sources of diversification including strategies focused on commodities, long/short equities and potentially, digital assets.Lastly, Vadim shares some of his thinking on the importance of diversification through strategies that have unique time horizons. Here, he makes the point that the alpha generation found in value investing takes place over a much different time horizon than does the alpha that accrues from momentum-based strategies.I hope you enjoy this episode of the Alpha Exchange, my conversation with Vadim Zlotnikov.

Amidst a fraught backdrop for macro risk, uncertainty around inflation is a new and vexing challenge for investors. And with this in mind, it was my pleasure to host a conversation with Lindsay Politi, the Head of Inflation Strategies at One River Asset Management. Through our discussion, we learn about the framework she has developed over two decades in fixed income with an emphasis on trading inflation. In Lindsay’s rendering, inflation is not a single variable but needs to be understood through unique cycles and in specific geographies and economies. Fiscal and monetary factors matter in driving inflation, but so to do structural components of labor markets, like demographics, and the degree to which wage and price growth can become linked in how employees and employers think.Today’s environment is unique in the impact of Covid and how it has created supply chain risks that are not easy to reverse, leaving the potential that today’s elevated inflation levels will not soon recede. We next turn to the ecosystem of products that pay out specifically on realized inflation. Here, Lindsay comments that shorter-dated, income oriented products have done quite well as the realized level of CPI has far outstripped anything that was implied even a short time ago. Rounding out our excellent conversation, we explore the Fed and how it impacts market prices. Lindsay sees lots of manipulation in prices but still valuable information to be derived from metrics like the break-even inflation curve.I hope you enjoy this episode of the Alpha Exchange, my discussion with Lindsay Politi.

Armed with a PhD in economics and policy experience, Dave Bizer hit Wall Street, landing at Lehman Brothers in structured equity derivatives in the early 1990’s. A deep background in options pricing theory notwithstanding, he soon found that concepts like Ito’s Lemma were less important than helping clients solve practical problems like hedging equity risk in a tax efficient manner. Developing a keen understanding of the tax code as it pertained to derivatives, Dave was among the innovators in product development in this area. Leaving the US for London in the pre-GFC period, Dave was head of European and EMEA Fixed Income. Our conversation explores the investor appetite for European structured products and the manner in which risks can be recycled to hedge funds.Turning to Dave’s transition to the buy-side, we learn of the framework he utilizes at GCW, the wealth management firm he co-founded.  Dave shares his views on equilibrium option pricing, seeing the clearing price for insurance as generally reflecting a risk-averse investor’s desire to truncate the potential for unwanted outcomes. On the long side of the portfolio, Dave and team believe that there is tremendous price discovery already incorporated into liquid, on the run public equities and, as a result, finding real alpha is difficult. The search for superior risk-adjusted returns is better focused in understanding complex, difficult to value situations that may be found in smaller cap equities or in private markets.I hope you enjoy this episode of the Alpha Exchange, my conversation with Dave Bizer.

For Robert Tipp, Chief Investment Strategist and Head of Global Bonds at PGIM Fixed Income, an appreciation for financial market history matters. And in today’s fast moving environment, in which market prices are rapidly adjusting to expectations of Fed policy changes, Robert’s perspectives are especially relevant. Our discussion is a review of inflation and monetary policy cycles from many years prior and through this, Robert shares his insights on the drivers of inflation. Calling into question a very basic assumption, that nominal interest rates are highly connected to inflation risk premium, Robert points to the importance of demographics and the availability of capital in setting the risk-free rate. Thus, today’s longer dated Treasury yields, well below concurrent inflation, are in part due to the excess of capital looking for a home, hoping to lock in some return over a longer time frame.Through our conversation, we also learn of Robert’s views on Central Bank communication, contrasting the Greenspan era of “constructive ambiguity” with Powell’s focus on transparency. In this context, Robert sees some components of the emphasis on messaging as positive, and others, including “time dependent” forward guidance as recently abandoned by Australia as less effective. Lastly, we consider the implications of higher rates moves on the stability of the ecosystem of asset prices. Here, Robert cautions that the transition to a higher rate environment may lead to large shifts, micro flash crashes and a breakdown in liquidity with respect to the flow that wants to move.I hope you enjoy this episode of the Alpha Exchange, my conversation with Robert Tipp.

Matt Amberson is among those who have watched the steady and consequential evolution of the listed equity options market over the last 3 decades. Getting his start on the floor of the CBOE in the 90’s, he was in the trenches during the period of incredible single stock volatility that was tied to the original tech bubble. While markets were not nearly as efficient then as they are now, Matt sought to improve his edge in trading options, seeking enhanced methods for estimating a stock’s volatility and searching for instances where the market may have left value undiscovered.Using proprietary option valuation and hedging techniques, Matt backed traders who were tasked with implementing this systematic approach some 25 years ago. And while those days are past, the IP developed lives on in the form of the company founded by Matt, ORATS, Option Research and Technology Services. Throughout our conversation, we learn about the growth of the US-listed options market and how Matt and his partners have developed their data, analytics and option back-testing service. In the process, we consider risk events like GME and hear Matt’s perspective on risk-management protocol in light of the increasing frequency of up-shocks in stocks.  I hope you enjoy this episode of the Alpha Exchange, my conversation with Matt Amberson.

The still-nascent world of trading derivatives on cryptocurrencies requires more than just expertise in the math of options and trade construction. Pricing relationships can be driven by flows, by changes in sentiment and by regulatory tape bombs. For Ari Pine, Co-Founder of Digital Gamma, adeptness in financial technology is critical as well. Disparate venues, unique margin relationships and economic nuances in products across different exchanges all require a heavy lift with respect to creating a robust risk management infrastructure.Working with his partners at Digital Gamma, Ari is mining the raft of data that is emerging from the 24/7 trading of the many new assets in the digital sphere. Our conversation is part retrospective on the history of risk events. Through our discussions of the Orange County and LTCM debacles in the 1990’s, Ari shares lessons imparted by episodes of market volatility and the pitfalls of being overly wed to pricing models.  We spend the balance of time discussing the financial properties of bitcoin – both in the portfolio context and with respect to how its movements help shape the implied volatility surface of options. I hope you enjoy this episode of the Alpha Exchange, my conversation with Ari Pine.

For Kris Sidial, the Co-CIO of the Ambrus Group, trading and risk management is a passion. A self-professed math nerd in college, Kris began dabbling in sports betting using a statistical approach. He soon found his way into option markets, where is now an active participant and also a humble student continuously gathering knowledge from his interaction with the markets. Through our discussion, we learn of how Kris thinks about flows, his analysis of positioning and the complex poker game that leaves him always evaluating the why of the actions of others in the market. In his view, the market has become more reflexive over time.Here he cites not only the volatility of Meme but also the substantial growth in products written on volatility itself and the huge growth in short-dated options trading. Kris observes changes in market microstructure over the past few years that leave the market leaning heavily one way or the other and creating very large bursts of volatility that come suddenly. It is this dynamic that he and partners at Ambrus Group are trying to capitalize on.  We also spend time exploring the beta relationship between the VIX and the SPX. Here, again, Kris points to the proliferation of volatility products as playing a role in the outsized moves in the VIX that have become more common over the recent period. Lastly, we talk about managing the reality that options bleed premium. In this context, Ambrus engages in medium frequency strategies that seek to cover some of the theta bill.  I hope you enjoy this episode of the Alpha Exchange, my conversation with Kris Sidial.

On this special 3 year anniversary episode of the Alpha Exchange, we turn the tables and your host Dean Curnutt is the guest. In conversation with dear friend Arthur Kaz, Dean shares perspectives developed over 30 years in financial markets. Through the discussion we learn of a risk framework focused on understanding the why of volatility events and how this study led to Dean’s founding of Macro Risk Advisors in 2008.  Asked by Arthur to share a few war stories, Dean tells us of how a surge in implied volatility during the financial crisis caused certain call options to actually rise in value even as the stock plunged.  With regard to market risk today, Dean has strong views on the risks of an unfriendly Fed, especially given the many signs of valuation froth that are easy to see. Lastly, Arthur and Dean talk about MacroMinds, a charitable organization Dean created in 2019 to support causes that expand educational opportunities for students. With a very successful launch event in 2021, Dean is looking forward to hosting the 2022 symposium in person, bringing the investment community together to learn and make an impact. We hope you enjoy this episode of the Alpha Exchange, a conversation with Dean Curnutt.

Now the Global Head of Quantitative Research at Soc Gen, Andrew Lapthorne got an early taste in unconventional macro thinking from the likes of Albert Edwards and James Montier. Over a career spanning 25 years, Andrew has engaged in the study of market prices, seeking understanding in their levels and volatilities both on an absolute and relative basis. Out of this work comes a framework for helping investors identify, capture and defend against risk exposures. Our conversation considers some of the market vol episodes most formative to Andrew’s process. And here we travel all they way back to the late 1990’s when, post the Asian crisis, disinflation began to travel around the world, depressing bond yields and leading to increasingly active Central Banks. The result, a tech bubble and substantial de-rating of all assets cyclical. The GFC was, unsurprisingly, greatly instructive for Andrew as well, helping him appreciate the Merton “distance to default” risk that equity investors are subject to. In the balance of our discussion, we consider the here and now and learn of the work that Andrew and his team are doing for clients seeking refuge from inflation. In this context, he’s suggested that bond investors use “dangerous equity to hedge safe bonds”, an idea that identifies certain stocks, like those driven by an underlying commodity, as performing strongly during inflationary periods. I hope you enjoy this episode of the Alpha Exchange, my conversation with Andrew Lapthorne.

In 2008, as the global financial crisis unfolded and his employer, Lehman Brothers, descended into bankruptcy, Jared Dillian decided to go it alone. An ETF market maker with a gift for writing, Jared launched the Daily Dirtnap, a newsletter focused on identifying market themes and actionable trade ideas.  Thirteen years and 3,000 publications later, the Dirtnap is widely enjoyed by a loyal readership finding value in Jared’s unique insights. Our conversation is one part retrospective, exploring the fast days of the pre-crisis period when Jared committed risk capital at Lehman, locking ETF markets in pursuit of buy-side commission business. In the process, we get a window into the formation of the Dirtnap, that being his daily client communications over Bloomberg while at Lehman. We also discuss Jared’s active imagination and love of writing, learning more of his fiction book, “All the Evil of this World”, built around the Palm/3Com pricing dislocation.Lastly, we talk macro markets, covering gold, inflation and energy. With gold, Jared takes a contrarion and bullish view, seeing the vastly negative sentiment on Twitter as an ultimate upside catalyst and also placing value in the low correlation that gold has with risk assets generally. I hope you enjoy this episode of the Alpha Exchange, my conversation with Jared Dillian.

Our conversation focuses on his current work as an Investment Strategy Advisor at Man Group where he has done work on the idea of crisis alpha: strategies that can effectively offset portfolio losses suffered during risk-off events. Campbell and his colleagues find that both time-series momentum as well as a long/short portfolio focused on the quality factor both have insurance-like characteristics and can be valuable overlays for equity portfolios. He also shares his work on rebalancing, where he sees alpha destruction if done in traditional form, but the opportunity for much greater efficiencies by incorporating some of the findings on time-series momentum. Lastly, we discuss Campbell’s new book, “DeFi and the Future of Finance”. As the title may imply, he’s bullish on the breathtaking pace of innovation in the financial services industry.  I hope you enjoy this episode of the Alpha Exchange, my conversation with Campbell Harvey.

Graduating from the London School of Economics in the mid 80’s, Victor Haghani set sail on a career in the fixed income markets. Joining Salomon Brothers and assuming a position in bond portfolio analysis, Victor became steeped in the math of bond markets and derivatives and part of a team that sought to conquer markets with science. He was among those who joined John Meriwether in the founding of Long Term Capital Management in 1993 and as a Partner experienced directly both the early spectacular success and the ultimate failure of the fund.  Our conversation considers the lessons – on market liquidity, reflexivity, and trade sizing as well as the vulnerability of relative value trades to errant correlation assumptions.  By 2002, Victor took up the “the case of the missing billionaires”, wondering why there were so few now given that so many individuals had over a million dollars a century ago. He set out on a journey of inquiry focused on finding an asset allocation strategy that could preserve and grow wealth over time. Today, that work has come to life at Elm Partners, an asset management vehicle that Victor founded in 2011 and serves as CIO of. We discuss the premise of Elm – that passive indexation is generally effective but can be improved upon. In this context, Elm employs “dynamic index investing”, looking beyond market cap weighting to incorporate economic fundamentals like earnings yield and factors like value and momentum. With this approach, Victor and team hope to avoid busts that periodically occur while remaining exposed to the market such that wealth can compound over time.  I hope you enjoy this episode of the Alpha Exchange, my conversation with Victor Haghani.

For the landscape of elevated asset prices that defines today, nothing may be more consequential than changes in the inflation outlook. And for Barry Knapp, the founder of Ironsides Macro, the Fed is off-track with respect to its understanding of inflation in a post-pandemic world. While the Covid shock brought market volatility comparable to the breathtaking levels experienced during the GFC, the inflation aftermath of these two crises could not be any different. In Barry’s rendering, while the GFC left household and financial sector balance sheets in disarray amid a damaged credit channel, consumer leverage is extremely low and lending is unimpaired in the post pandemic period. By crafting today’s policy as a function of the disinflationary decade post 2008, the Fed also fails to account for the positive supply shock in energy that was the Shale revolution as well as the decades long period of goods disinflation that resulted from China’s admission to the WTO.  The result, especially as supply chains are being restructured, is the risk that the Fed runs consistently behind the curve over the coming year. As our discussion continues, Barry shares his views on the inevitability of a risk-off resulting from the Fed’s attempt to normalize policy, a consequence of the degree to which market prices have become increasingly sensitive to even small policy changes in the post-QE era.  I hope you enjoy this episode of the Alpha Exchange, my conversation with Barry Knapp. 

With a position in rate strategy at Salomon Brothers in the late 1990’s, Subadra Rajappa developed an early appreciation for how market risk can be transmitted from one part of the world to the other through the 1997 Asian FX crisis and the LTCM debacle a year later.  Over the course of a career spanning more than 25 years, she’s developed a macro framework that is underpinned by an assessment of growth and inflation variables that help drive interest rate fair value models. Derivative market pricing and fund flows also make their way into her framework.  Specifically, Subadra looks at the interest rate vol surface with special attention to the price of out of the money options, and, to track the money, keeps an eye on positioning in futures markets. Our conversation considers key recent events that shape where we are in the monetary policy cycle. In this context, Subadra shares her views on the integrity of market pricing signals amidst the large participation of the Fed in the market.  We also explore inflation and here Subadra points out that while some components of the rise in inflation will be transitory, others, like wages, tend to be more persistent. A vulnerability that results is a the potential of a less market friendly Fed in 2022. Lastly, I solicit Subadra’s perspective on the degree of progress in promoting the career growth for women in finance. To this, she sees more attention to recognizing women and hiring them but there remains a lot of work to be done on the retention front. I hope you enjoy this episode of the Alpha Exchange, my conversation with Subadra Rajappa.

If you asked yourself, “what are the odds?”, Denise Chisholm can probably tell you insofar as market outcomes are concerned. A Sector Strategist at Fidelity Investments, Denise leverages historical data as part of a probability framework that helps her evaluate risk and opportunity in the equity market. Our conversation explores episodes when her process uncovered overlooked relationships that were hiding in plain sight. During the GFC, for instance, Denise connected faltering housing prices with default implications on Country Wide’s mortgage portfolio. Her work on probability is sometimes multi-layered. For instance, in evaluating the reaction of the long end of the yield curve to Fed tightening cycles, Denise found that conditional on the Leading Economic Indicator Index falling the 10 year yield increased only 30% of the time when policy was tightened.More currently, we discuss what Denise sees in markets today. Here she observes a strong recovery in wages from the Covid bottom as correlated to outperformance of cyclicals over defensive. Lastly, she shares a strong view on the energy sector linked to a combination of low capital spending and high free cash flows. As we round out our discussion, I solicit Denise’s views on the state of progress for women in the field of finance. And here, unsurprisingly, she’s focused on the numbers, viewing plenty of upside in the 20% of women that comprise senior leadership roles in financial services. Progress here can result from showing women at a young age just how interesting and rewarding a career in finance can be. I hope you enjoy this episode of the Alpha Exchange, my conversation with Denise Chisholm.

For Jeff deGraaf, financial markets have always been about figuring out who moved the pieces in a chess match and why. Early exposure to the discipline of technical analysis and its focus on prices and probabilities helped Jeff begin to develop a framework that concentrates on finding bets with favorable odds. Our discussion considers the market events that have played a formative role in how Jeff thinks about risk. Particularly influential among the big risk-off events was the LTCM debacle, especially as it illustrated the power of the Fed to bring an end to a de-risking process.A decade after founding Renaissance Macro in 2011, Jeff and his team continue to view the policy response as both inevitable and critical and in this context, we discuss the evolution of the interaction between markets and the Central Bank. Today’s much more activist Fed is one example of how historical pricing relationships, while a valuable tool to understand the present, must be interpreted with care. The shifting correlation profile of the Treasury market to various segments of the equity market is a ready example of this change. For Jeff, predicting the future is difficult and time is better spent on the study of price. Here, his process leads him to a lengthy checklist of indicators that allow the market to speak. And while, in his words, the market "fibs often", a wide enough swath of charts across asset classes and geographies is bound to provide clues on where both value and vulnerability are hiding.Lastly, we talk about life on the sell-side and Jeff's perspective on running a client centric business through the pandemic. Here, the take is an optimistic one with Jeff and team deriving value from connecting with clients virtually in order to deliver insights in an efficient manner. I hope you enjoy this episode of the Alpha Exchange, my conversation with Jeff deGraaf.

Initially trained as a lawyer and consultant, Peter Cecchini's career spans a few decades across the buy side and sell side, focused on both bottoms up and top down analysis of risk and opportunity. Now the head of research and strategy at Axonic Capital, Peter shared his insights on the Merton model and the linkages between credit spreads, stocks prices and asset volatility. In the context of this discussion, we explore episodes of dislocation between equity and credit markets, how to spot them and the implementation of trades to capitalize on them. In Peter’s view, the better risk signal has traditionally emanated from the credit markets where bondholder obsession with being paid back dominated the sometimes lofty upside scenarios entertained by equity market investors. Over time, however, the degree to which the equity cushion has risen so markedly may lead to credit market complacency, leaving Peter sometimes more focused on stock price fluctuations as the cleaner risk signal.Our conversation, of course, covers the Fed and it’s ever increasing interactions with market prices. We consider the hard to ignore breakdown between nominal interest rates and the concurrent inflation and here Peter believes the Fed is in quite a difficult spot. Inflationary periods, in Peter’s view, result from inorganic demand surges, coupled with supply disruptions and a burst in M2. On these three metrics, the risk that today’s strong recent price increases may not be entirely transitory is real. Lastly, we touch on the Meme stock craze and Peter shares his work on opportunities in the capital structure in AMC.  I hope you enjoy this episode of the Alpha Exchange, my conversation with Peter Cecchini.

Few professionals have the depth of perspective on the many market risk events that were missed by the models as Rick Bookstaber. Trained at MIT where he received a PhD in economics, Rick would become Morgan Stanley’s first risk manager in 1984.  There, and also at Salomon brothers, Rick was among the quants on Wall Street that developed early pricing models for interest rate derivatives. In this capacity, he had intimate knowledge of the challenges that complex products created for dealers looking to hedge them.  And related to this, he also had a front row seat to the early debacles of modern markets including the crash in 1987 and the LTCM unwind in 1998.  Across two excellent books, Demon of Our Own Design and End of Theory, Rick explores the characteristics of markets that make them inherently fragile, including the notion of tight coupling.  Here, feedback between trading, price changes and subsequent trading based on the price changes can give rise to instability. Today, Rick is the founder of Fabric RQ, a firm delivering risk management solutions to the RIA community. Among the issues Rick worries about today include SPACs, NFTs and the concentration of richly valued tech stocks in indices like the S&P 500.  I hope you enjoy this episode of the Alpha Exchange, my discussion with Rick Bookstaber.