For Matt King, evaluating market risk is often about pinpointing vulnerabilities within the financial system. Over the many years he's been advising institutional investors, he's gone where the action is - in the dotcom era it was corporate balance sheets, in the pre-GFC period it was asset-backed CP and in the last decade it's been sovereigns and QE.

Now the founder of Satori Insights, Matt shared his current assessment of risk on this episode of the Alpha Exchange.  His materially bearish take is a function of what he views as US trade policy underpinned by both a misunderstanding of balance of payments math and a failure to appreciate the risks of chaotic implementation. On the latter, Matt worries that the US is earning itself a risk premium in the back end of its bond market, a troubling development especially set against the ever-growing pile of debt outstanding. Matt shows the spike in US real rates at a time when the VIX was also surging and the dollar falling as similar to the UK's "Liz Truss moment" in 2022, an event that forced the Bank of England to act quickly.

Matt argues that while Democracy ought to be mean-reverting - where bad policy leads to bad outcomes and declining popularity, ultimately motivating a change of course, today's setup in the US is one in which bad policies impact growth and further poison our politics, reinforcing bad policy. Stepping back, he sees value in gold, noting that both gold and FX vol are still too low.

I hope you enjoy this episode of the Alpha Exchange, my conversation with Matt King.

Market risk events come in all shapes and sizes, originating from unique sources of uncertainty. We've seen them all - valuation bubble unwinds, mortgage credit crashes, Fed policy shocks, even the shutdown of the US economy from Covid. Over the last month, investors have been forced to confront a new risk, that of the imposition of substantial tariffs by the US on its trading partners. With this in mind, it was great to welcome Steven Englander, Global Head of G10 FX Research of Standard and Chartered Bank, back to the Alpha Exchange. Our discussion begins with Steven's assessment of the setup coming in to 2025 and that was one in which the market was long dollars in anticipation of the Trump agenda.

We next talk about balance of payments identity math and how it is difficult to solve simultaneously for a lower trade deficit, higher direct investment from abroad and lower US interest rates. He suggests, however, that the speed with which asset prices moved in March and April, have complicated the decision-making process for investors thinking about making investments into the US. We next explore the factors driving the dollar lower. Here, in addition to noting that implied Fed cuts have increased by 50bps over the last month, Steven also suggests that a risk premium may be assigned by foreign investors to US assets. He points as well to pessimism about the US economy, noting that this is not yet showing up in the hard data.

There's much more to learn about Steven's framework in our discussion, which I do hope you enjoy.
 

Lenin purportedly said, “There are decades where nothing happens; and there are weeks where decades happen.” It’s difficult to understate how highly consequential these past few days have been. We live in an interconnected world of international rivalries, debt, trade, asset prices and economies. All kinds of tail probabilities become more live when a shock of this magnitude occurs. From a market standpoint, however, the higher vol goes, the greater likelihood that government officials blink in some way. The scars from the market chaos of the GFC and Covid remain and the lesson is not to create hard to fix but also urgent problems in the financial system. With this in mind, there could be an opportunity to fade the exceptionally high VIX level. I hope you find this discussion useful.

Best known for his seminal work on the information content of the US Treasury yield curve nearly 4 decades ago, Campbell Harvey has produced meaningful academic research in all corners of empirical finance. In this episode of the Alpha Exchange, I caught up with Campbell, now a Professor of Finance at Duke and Partner at Research Affiliates, on his recent work on gold, an asset near and dear to me. We discuss his piece “Is There Still a Golden Dilemma?", with Claude Erb that updates work they did back in 2013 on the yellow metal.

Our conversation explores the financial properties of gold, with emphasis on its capacity to hold its purchasing power and to help defend against equity market drawdowns. On the first, Campbell makes the point that over the past two decades, gold has easily outperformed inflation. He adds, however, that gold is considerably more volatile than inflation is. Thus, there are periods when gold can also underperform inflation. On the equity drawdown front, Campbell’s work shows that, while not an explicit hedge like an S&P 500 put option is, gold has proven durable during risk-off periods.

We move to the drivers of the gold price and here Campbell discusses the role of both ETFs and Central Banks. Lastly, and importantly, Campbell’s work shows that entry price matters. When the price of gold deviates from fair value, the forward return profile tends to be worse. Today’s substantial rally may easily continue, but investors must be mindful of the risks of buying at extended levels.

I hope you enjoy this episode of the Alpha Exchange, my conversation with Campbell Harvey.

In this discussion, I review the absolutely stunning level of volatility experienced by the S&P 500 right around this time 5 years ago, as the market crash resulting from the Covid shutdowns occurred. No asset – except volatility – can survive the liquidation that took place in March of 2020. I also focus on gold, which, to be clear and to repeat, is not a hedge. A hedge is an insurance contract that you must part money with in order to obtain. There are no positive carry hedges in the world. But there are assets that act considerably defensively for periods of time, are trending higher, have natural buyers (in the case of gold, we can sight Central Banks) and also possess the rare feature of "stock up / vol up"... Gold has all 4 of these right now. I hope you find this podcast interesting and helpful. Thanks for listening and keep the feedback coming.

Now a Portfolio Manager at Acadian Asset Management, Owen Lamont has had a long career in both the markets and in academic research on them. Earning a PhD in Economics from MIT in the 1990’s and then teaching at the University of Chicago shortly thereafter, Owen makes the point that these two storied institutions approach empirical finance from vastly different perspectives, with the MIT approach to explaining market anomalies utilizing behavioral finance and Chicago embracing market efficiency.

Our conversation is about some of Owen’s current work, starting with the observation that equity correlation has been exceptionally low, owing to the manner in which large cap growth stocks are disconnected from the rest of the market. As part of this, we explore the original tech bubble of the late 1990’s, contrasting it to present market leadership. Here, Owen makes the point that the original internet stock craze had dramatically more equity issuance than we see today. Owen puts equity issuance and short interest in a category of factors that have particular significance from an information content perspective, calling both firms and short-sellers smart money.

We talk further about the AI trend in markets and Owen’s concern that the massive corporate spend may be overdone. He points to research in the academic literature that shows that high capex firms have some history of underperformance and offers competing theories on why. He gravitates to explaining excess investment in AI from the lens of over-optimism among both investors and companies.

Among the other topics we cover is Owen’s take on the “min vol” factor – that is, the empirical finding that low volatility stocks outperform the market on a risk-adjusted basis. In a manner similar to the tech stock craze of the late 1990’s, the underperformance of the low factor over the past 5 years owes to the incredibly strong performance of the riskiest stocks during this time frame. On a going forward basis, Owen is optimistic that low vol stocks can deliver better risk adjusted returns.

I hope you enjoy this episode of the Alpha Exchange, my conversation with Owen Lamont.

“This is not your father’s ETF market” would be one statement used to highlight the ever-expanding product mix available to investors via exchange traded funds. Today’s suite of ETFs embeds derivatives, targets non-traditional assets like private credit and crypto and can offer daily resetting leverage as well. Add to this, efforts to deliver exposures to quantitative investment strategies via the ETF wrapper.

With this in mind, it was a pleasure to welcome Roxton McNeal, lead portfolio manager of the QIS product at Simplify Asset Management to the Alpha Exchange. Our conversation begins with a review of Roxton’s background at the UPS Pension and as an active client of the Street’s in utilizing QIS in the plan’s efforts to deliver returns above a fixed income bogey for retirees. We explore a broad taxonomy of types of quantitative investment strategies, rules-based trades that Roxton puts into two categories, defensive and carry.

We spend a fair amount of time exploring the concept of carry, which he suggests results from market frictions, risk aversion and liquidity premia.  He further breaks down the carry bucket into trend, absolute return and volatility carry. Here, and with the pitfalls of back-testing front and center, I ask him to share his thoughts on how he evaluates carry strategies. Stress testing and scenario analysis are critical, especially as they relate to properly sizing exposures. We finish the discussion on what might be coming next to the fast-moving ETF landscape. Here, Roxton volunteers the potential for the tokenization of assets in markets like commodities or real estate, bundled into an ETF via smart contracts.

I hope you enjoy this episode of the Alpha Exchange, my conversation with Roxton McNeal.

My process is about seeking out some alpha through analyzing a broad spectrum of prices, specifically the one’s that imply some probability. I will repeat that it is the options market, not the stock market that is the best economist in the world. Option contracts carry the dimensions of time – the expiration – and distance – the strike price and the resulting prices help us gauge two important questions for investors, “when and by how much?”.

So, in no particular order, a few things on my mind that I invite you to consider alongside me. First, I explore the overlap between geopolitics and market volatility – “GeoVolitics”. If there was an index of geopolitical risk, it’s on the upswing to be sure. At some point, this uncertainty may become so profoundly difficult to price that market participants throw their hands up and assign substantial levels of risk premia, a higher price for insuring against loss across the major asset classes. I then consider the price of gold and finish with some thoughts on the tight levels of credit spreads and low level of credit implied volatility.  I hope you enjoy and find this useful. Be well.

Recently, DeepSeek, tariffs and earnings news have caused large moves in some stocks but not others, leaving fluctuations at the equity index level relatively tame. Will this volatility moderating run of low correlation continue?  In this short podcast, I explore the recent history of extraordinary diversification in the US equity market along with the implications that may result. Is the market vulnerable to recency bias and assuming that ultra-low correlation is here to stay?  Further, how should we think about the presence of derivatives trades designed to profit from the anti-connectedness in stocks?  Is there risk of a plumbing problem in correlation? Lastly, I argue that playing defense through a rigorous search for diversifying assets as well as owning some market-based insurance is important. Bitcoin, gold and broad market put spreads are worth owning. I hope you enjoy the discussion and your feedback is welcome. Be well.

It is said that death and taxes are the only two certainties in life. Add to these, the enormous growth of the ETF industry as a third irrefutable occurrence. Covering the landscape of exchange traded funds for Bloomberg is Eric Balchunas, a man steeped in the most plain vanilla of products like the SPY to the newest flavors of underlying exposures and payout constructions which he calls “hot sauce”.

Our conversation starts with an overview of the massive ETF haul in 2024 and we learn that inflows were 1.1 trillion and each region set a record geographically. Eric stresses how effective the product has been in providing liquidity for end users and in the continuous decline in fees that the industry has successfully achieved. With this last point in mind we touch on Eric’s book, “The Bogle Effect”, which details his interactions with the pioneering founder of Vanguard, John Bogle. Eric estimates that on the very low side, Bogle’s impact has saved investors 1 trillion dollars through lower fees and increased competition in the industry.

We next talk about innovations in the ETF market including unique structures that embed both leverage and derivatives, touching on tail wagging the dog scenarios in which a leveraged ETF amplifies volatility in the underlying. Lastly, we talk about ETFs that provide access to crypto exposure. With the resounding success of IBIT, the spot Bitcoin ETF, Eric sees XRP, Solana and Litecoin among those that will hit the market at some point as well.  

I hope you enjoy this episode of the Alpha Exchange, my conversation with Eric Balchunas.