What Goes Up

Institutional investors are playing a more-influential role in crypto markets as retail traders retreat, and that explains much of the recent range-bound price action, according to Michael Safai of proprietary trading firm Dexterity Capital. 

“We might have been playing checkers two years ago,” said Safai, whose firm traded more than $1.2 trillion in crypto last year. “We’re playing chess now.” 

Safai joined the What Goes Up podcast this week to discuss the state of the digital-asset market and how high-frequency crypto trading strategies differ from the famous “Flash Boys” of the stock market. 

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UK Prime Minister Liz Truss triggered the latest wave of turbulence in global markets after announcing economic plans that include unfunded tax cuts. The move crushed the value of the pound while sending the already struggling country’s borrowing costs soaring.

To Julian Emanuel, chief equity and quantitative strategist at Evercore ISI, the move was reminiscent of US tax cuts imposed under Ronald Reagan in the 1980s, what came to be known as “Reaganomics.” In both cases, the policy was at odds with moves by other nations’ efforts to combat high inflation. Emanuel joined this week’s What Goes Up podcast to discuss the latest bout of volatility across asset classes, and the role the new Tory leader has played in causing it.

“It does represent a radical change in policy that is more evocative of Reagan,” he says. “And investors are going to have to get used to it.”

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Sometimes it feels like you need to be a rocket scientist to trade successfully in modern markets. Well, George Patterson used to be one, having began his career at NASA’s Jet Propulsion Laboratory before turning his attention to investing with quantitative strategies.

Now he’s the chief investment officer of PGIM Quantitative Solutions, which oversees about $91.5 billion of PGIM’s $1.5 trillion in assets under management. Patterson joined the latest episode of the “What Goes Up” podcast to discuss his approach and share his thoughts on inflation, the Federal Reserve’s efforts to fight it, and what it all means for markets. Normalization of inflation will be a “multi-year trend,” he says.

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George Cipolloni’s son is a video-game aficionado, and the teenager’s language has clearly worn off on his father. Indeed, the portfolio manager at Penn Mutual Asset Management jokes he’s found a “cheat code” in the bond market that’s helped his balanced strategy beat its benchmark with a heavy allocation to high-yield corporate debt. But don’t be alarmed: His “code” is really just fundamental analysis used to find bonds with attractive yields, but little risk. 

Cipolloni joined the latest episode of “What Goes Up” to discuss the strategy and offer his reaction to the wild ride in markets following the surprise inflation report on Sept. 13. Some highlights of the conversation: 

“So the ‘cheat code’ in the bond market for me and for our strategy is: Where can you limit risk or where can you lower risk in a high-yield security? Well, you can find certain smaller securities because we are a small fund at the moment and we can buy these smaller securities, smaller issues. And you can find companies that have more cash than debt on the balance sheet.”

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Selling bonds short—a trade that for decades hadn’t worked consistently—has helped fuel a 37% return so far this year for the managed-futures strategy fund at AlphaSimplex Group. And the trade looks like it has further to go, according to Kathryn Kaminski, chief research strategist at the quantitative-investing firm. She joined the “What Goes Up” podcast to discuss this and other market moves that have made trend following in futures markets such a lucrative strategy this year. 

“The short-bond trade has more legs to run,” Kaminski says. “A lot of the core problems that have driven [markets] to the point where we are now have yet to be completely solved.”

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Rising food prices have been one of the big drivers of inflation this year as farmers across America were hit with price spikes for fertilizer and fuel. They’ve also been forced to grapple with lingering supply-chain issues and labor shortages. Brian Duncan, operator of a family farm and vice president of the Illinois Farm Bureau, joins this week’s episode of “What Goes Up” to talk about the agricultural commodities markets and offer his perspective on the US economy as he plans for next year’s crops.

“I do not see our prices coming down anytime soon,” he says. “Remember how base-fossil fuel dependent agriculture is, both on the fuel side and on the fertilizer side. I don’t see a solution.”

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Jeremy Siegel, a longtime professor of finance at the University of Pennsylvania’s Wharton School and author of “Stocks for the Long Run,” joined the latest episode of the “What Goes Up” podcast alongside Jeremy Schwartz, global chief investment officer at WisdomTree, to discuss the state of the economy, inflation and markets. Siegel also threw in some advice for retail traders caught up in the meme-stock craze.

“I always recommend to young people, if you want to play with 10% or 15% of your portfolio in those games, fine. But, you know, put the other 85 into some sort of a long-term index fund that will have meaning for you when you finally become an adult,” he said. “Do not make that a big portion of your portfolio unless you have unbelievably excess money and you can afford to lose 80% of it.”

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By mimicking strategies common among some quantitative hedge-fund firms, the iM DBi Managed Futures Strategy ETF has surged 21% so far this year—beating the S&P 500 Index by about 30 percentage points. Andrew Beer, one of the managers of the active exchange traded fund, joined the latest episode of the “What Goes Up” podcast to explain the secrets of its success amid a brutal year for both stocks and bonds. 

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The chief investment officer of Morgan Stanley Wealth Management has a warning for investors who are chasing the latest rally in stocks: Don’t get too excited about a potential peak in inflation after the consumer price index cooled off a bit in July.

Lisa Shalett joined this week’s episode of the “What Goes Up” podcast to explain the firm’s cautious stance toward the market, and how CPI is still elevated enough that the Federal Reserve needs to continue lifting rates aggressively. “The direction is correct, but the levels are wrong,” she says of the latest inflation data. 

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Investors are turning to some thematic exchange-traded funds to hedge against inflation and take advantage of the renewed performance of value stocks this year, according to Jay Jacobs, US head of thematics and active equity ETFs at BlackRock. Jacobs joined the “What Goes Up” podcast to discuss how the firm is sizing up investing opportunities amid the uncertain economic outlook. 

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