Speaker 1: Hello, and welcomes to What Goes Up, a weekly markets podcast.
Speaker 1: My name is Mike Reagan. I'm a senior editor at
Speaker 1: Bloomberg and I'm Madonna Across Acid reporter with Bloomberg. And
Speaker 1: this week on the show, Well, Stocks and Bonds got
Speaker 1: off to a huge start in January, sharp reversal of
Speaker 1: the trends we saw in two What exactly has caused
Speaker 1: the change of heart? And will it last? We're gonna
Speaker 1: get into it with a portfolio manager and strategist at
Speaker 1: a quant firm that had, let's just say, a very
Speaker 1: successful year in two despite or we're accurately because of
Speaker 1: all the market turbulence last year. But the first I've
Speaker 1: got offer condolences to your Buffalo bills. Oh my gosh,
Speaker 1: my heart hurts your heart? Yes, you know. Sports depression
Speaker 1: is a real thing. So where is you know, cardiac arrest?
Speaker 1: You better get that checked out. I honestly, they make
Speaker 1: me so depressed and um, actual chest paint. Yeah, Like
Speaker 1: you just get so like so sad and you're like,
Speaker 1: why didn't why if only they had done X, if
Speaker 1: only they had done why? Um, it's really sad. But
Speaker 1: let me ask, do you ever bet On the games.
Speaker 1: Have you downloaded any of these apps now where you
Speaker 1: can bet? Yeah? I did, like friends referred me not
Speaker 1: this year, last year, like when it first became available
Speaker 1: in New York. I did. And I want like two
Speaker 1: or three hundred dollars or something. Yeah, of course you did.
Speaker 1: I never bet on the bills though, because I feel
Speaker 1: like it's bad. Yeah, I bet on like other random Yeah,
Speaker 1: I'm too chicken. I know if I download one, I'll
Speaker 1: win one bet and then I'll be like, that's it.
Speaker 1: I'm a betting genius. I'm going to do it forever
Speaker 1: and I lose it all. No, No, I want money,
Speaker 1: thank you very much. But that's pretty good. I have
Speaker 1: good intuition, which is what every gambler says. They lure
Speaker 1: in with that free money. But this is all just
Speaker 1: a tease. My craziest thing week, which is uh, a
Speaker 1: guy who bet five dollars of that free money they
Speaker 1: give you, and you'll never guess what happened next? He
Speaker 1: want a million dollars? Don't don't. Oh my gosh, guess what.
Speaker 1: I'm an Eagles fan now, heywagon fly, Eagles fly, don't
Speaker 1: embarrass us Eagles please please. I don't know about our guests.
Speaker 1: I think she's finished. She's a Pats fan, which we
Speaker 1: can't talk about. Yeah they're losers. No, I'm just kidding, Okay,
Speaker 1: I do want to bring her in. It's Katy Kaminski.
Speaker 1: She's the chief research strategist and portfolio manager at Alpha Simplex. Katie,
Speaker 1: thank you so much for joining us. Thanks for having
Speaker 1: me got more of a Celtics fan, myself a basketball person. Well,
Speaker 1: I was gonna ask to uh, to quants like yourself
Speaker 1: bet on football or there are a lot of a
Speaker 1: lot of you know, fandels going on and off a Simplex.
Speaker 1: We do tend to have some pooling sometimes about sports,
Speaker 1: but for me personally, I feel like the markets provide
Speaker 1: enough volatility and certainty, uh for for these days for
Speaker 1: I love to watch make your heart race anyway, Yeah exactly,
Speaker 1: I have too much heart racing going on. I need
Speaker 1: to like give up sports and everything. Seriously. But anyway, Katie,
Speaker 1: you've been on the show before. But for anybody who
Speaker 1: who might not know about your background, I was hoping
Speaker 1: you could just start out telling us about your background
Speaker 1: because it's very interesting and just you know, your your
Speaker 1: role at Alpha Simplex as a quant researcher. So I
Speaker 1: spent most of my career studying systematic training strategies. I
Speaker 1: got a pH d at m I T and Operations Research,
Speaker 1: and I was really fascinated with rules that investors used
Speaker 1: to make decisions. So it's quite natural that eventually my
Speaker 1: career ended up to becoming a systematic trend follower, where
Speaker 1: our job is really about designing systems to follow markets
Speaker 1: and find opportunities using quantitative techniques UM. This is exciting
Speaker 1: because we're using math, which I love UM to find
Speaker 1: new trends and new new opportunities. And it's especially exciting
Speaker 1: after a year like last year. I know, the Mantaged
Speaker 1: Features fund did what something like that and the uh
Speaker 1: the with the alternatives funded broke even I think, which
Speaker 1: one year like last year you've got to ac count
Speaker 1: as a w I guess, so last year was phenomenal.
Speaker 1: I mean for someone like myself who's been in the
Speaker 1: managed future space for years, this space is a place
Speaker 1: where it's definitely a clumpy returns but we do really
Speaker 1: well when there's massive trends, when there's dislocation, when things
Speaker 1: are uncomfortable, and last year was definitely uncomfortable, particularly fixed income.
Speaker 1: And I've been really fascinated by fixed income last year
Speaker 1: as well, but other things were exciting too. Okay, So
Speaker 1: so tell us about this because you have a note
Speaker 1: that sort of reviews two I believe, and you said
Speaker 1: it was a manner year for trend and specifically for
Speaker 1: the pigs fly trade. Oh yeah, that's great. I mean,
Speaker 1: so if you think about fixed income, most people think
Speaker 1: of it as a tried and true investment. They think
Speaker 1: if things go wrong, fixed incomes there. For me, so
Speaker 1: that classic sixty last year was the first year where
Speaker 1: we had to think about the concept of rising rates,
Speaker 1: where we had to think about present value of bonds
Speaker 1: actually being affected. And so you saw a very very
Speaker 1: negative year for fixed income and this was a tremendous
Speaker 1: short trend. But I just have to say that this
Speaker 1: hasn't worked for almost forty years, and most of us
Speaker 1: haven't been trading in the markets for forty years, so
Speaker 1: it's basically an artifice of history. So for us who
Speaker 1: trade systematically, seeing those trends and actually trading short and
Speaker 1: fixed income was sort of doing something that most people
Speaker 1: wouldn't dare to do. But we're quants. We follow where
Speaker 1: the opportunities are, and that was a very very profitable
Speaker 1: opportunity last year, being able to short bonds as central
Speaker 1: bankers raise rates to find inflation. So then, kitty, you know,
Speaker 1: then the calendar turned to three. Everyone's staring at a
Speaker 1: fresh P and L for the year. We've seen you know,
Speaker 1: very strong strength inequities, treasuries as well, yields coming down.
Speaker 1: But yet I feel like there's the danger of sort
Speaker 1: of a fault, you know, interpreting that with a false
Speaker 1: signal that you know, the soft landing is a done deal,
Speaker 1: that inflation, that beast is tamed. But January is a
Speaker 1: weird month, you know. Obviously you can see these reversals
Speaker 1: in trend at the start of a year that that
Speaker 1: don't last. So how are you thinking about this month
Speaker 1: and is it setting a signal about what we can
Speaker 1: expect for the rest of the year. Is this kind
Speaker 1: of a head fake that's just uh, perhaps a result
Speaker 1: of the new P and L everyone has for so
Speaker 1: there's been so many positive things at the beginning of
Speaker 1: this year, people are not expecting things to be as
Speaker 1: positive as it's been. But if you really look at it,
Speaker 1: there's a couple of key factors. First of all, any
Speaker 1: investors got beaten up last year, they took their money
Speaker 1: out of the markets. They're waiting for that signal that
Speaker 1: things are okay and I gotta get in, so they're
Speaker 1: under invested coming into the beginning of the year. Number two,
Speaker 1: we're seeing some moderation in inflation, which is a positive
Speaker 1: signal that we're going to eventually find a way to
Speaker 1: go on hold and potentially stabilize some of the inflation
Speaker 1: situation that people are dealing with. And number three, we're
Speaker 1: seeing positive news in Europe and also in Asia, particularly China,
Speaker 1: which is suggesting that things can get back to normal
Speaker 1: at some point. So there's this optimism that kind of
Speaker 1: is flooded by several good factors. I think the thing
Speaker 1: to be aware of is that there are a lot
Speaker 1: of positive signals, but at the same time, inflation is
Speaker 1: still very, very very far from the target, which means
Speaker 1: that central bankers who don't always think like the markets,
Speaker 1: who think a little more long term, are still going
Speaker 1: to have to fight that fight, and that fight may
Speaker 1: not be over as quick as people think. And I
Speaker 1: think that's what we're seeing in terms of why it's
Speaker 1: such a positive January. I feel like there's a split between, uh,
Speaker 1: what strategists and others are expecting for the year, where
Speaker 1: a lot had been saying before three started that we
Speaker 1: would see a choppy first half than a better second half.
Speaker 1: Now we're seeing just about everything rallying, including crypto etcetera, etcetera. So, um, like,
Speaker 1: where do you fall in that camp of of like
Speaker 1: the breakdown between when which part of the year could
Speaker 1: possibly be the stronger part? So I agree with you,
Speaker 1: And what's happened is people have been a little nervous,
Speaker 1: perhaps it was what happened last year and just kind
Speaker 1: of getting over that expecting a choppy's first half and
Speaker 1: a positive second half. I think we're probably more of
Speaker 1: the camp that you may see the opposite, So you're
Speaker 1: going to see a choppy second half of the year
Speaker 1: when we actually realized that inflation doesn't fall as quickly
Speaker 1: as we like. So if we actually see inflation bottom
Speaker 1: and come back up, and we've seen some early indications
Speaker 1: recently that central bankers are holding but inflation isn't moving
Speaker 1: low enough, that's where that could be a more challenging
Speaker 1: second half of the year. The reality that this takes
Speaker 1: a lot longer than we would like you know, Katie,
Speaker 1: I know at Alpha Simplex, one of the foundations of
Speaker 1: the firm is this idea of the adaptive market hypotheses,
Speaker 1: which you know, to dump it down, the way I
Speaker 1: think of it is, you know, market rules aren't really
Speaker 1: written in stone. They're they're sort of written in pencil,
Speaker 1: and you have to erase them every now and then
Speaker 1: and rewrite them. And I think the one thing along
Speaker 1: those lines that a lot of people are wondering is
Speaker 1: the correlation between stocks and bonds. You know, typically we
Speaker 1: tend to think of them negatively correlated. If stocks are rallying,
Speaker 1: you know, history would suggest that bonds are falling and
Speaker 1: yields are rising. Uh, last year we saw bonds yields
Speaker 1: rise and stocks fall. I'm wondering what sort of condition
Speaker 1: you think need to be in place to sort of
Speaker 1: have that revert back to the historical trend of negative
Speaker 1: correlations between bond prices and stock prices. Is it as
Speaker 1: simple as just a normalization of inflation or is there
Speaker 1: more to it? Do you think? Well, I think the
Speaker 1: simple answer is inflation. The reason is if you look
Speaker 1: farther back in history, and a lot of investors don't
Speaker 1: think that way looking back and appeared where we had
Speaker 1: rising rates and we had higher inflation and changing inflation.
Speaker 1: You saw three key factors. First, you saw that bonds
Speaker 1: had higher volatility then typical and what were you're used to.
Speaker 1: You also saw that stock bond correlation was positive, and
Speaker 1: you saw that there was a lot more uncertainty in
Speaker 1: general about that relationship. And so if you look at
Speaker 1: what's happened recently, it's very, very similar to what you
Speaker 1: see in terms of asset price dynamics recently. And what
Speaker 1: that says to me is that inflation changes asset price dynamics.
Speaker 1: You now are focusing on fixed incomes relationship to inflation
Speaker 1: as opposed to fixed income as a safe haven asset,
Speaker 1: and that is how that negative correlation becomes the dominant factor.
Speaker 1: In a world where fixed income is no longer a
Speaker 1: safe haven, you lose that negative correlation, and that's exactly
Speaker 1: what we saw last year. Can you talk to us
Speaker 1: more about what you guys are projecting in terms of
Speaker 1: what we'll be seeing from the inflation front, because it
Speaker 1: sounds like you are saying it won't be falling as
Speaker 1: fast as a lot of people are expecting. And then
Speaker 1: at the same time, we have people coming out and
Speaker 1: saying the FED really should rethink it's two percent target.
Speaker 1: What do you make of all that? Well, the truth is,
Speaker 1: in general, markets like things to move quicker than especially
Speaker 1: uncomfortable things to be over faster than they are. And
Speaker 1: I think what happened throughout this entire last two or
Speaker 1: three years has been very clear trends and asset prices
Speaker 1: that were consistent with a very serious inflation problem. And
Speaker 1: then by the time we actually got into dealing with
Speaker 1: this problem this year, it's also going to take quite
Speaker 1: some time for things to moderate. I mean, I think
Speaker 1: a simple example would be wage inflation. We really don't
Speaker 1: know how much wage inflation is going to impact until
Speaker 1: we've really seen year end and we've seen what happens
Speaker 1: after companies are just what they're doing for this year.
Speaker 1: So I think those are very stale and slow moving estimates,
Speaker 1: and I think people tend to underestimate how long it
Speaker 1: takes for these type of very opaque forces to calm
Speaker 1: down um, which means that there's going to be a
Speaker 1: lot more trends with people underreacting to some and overreacting
Speaker 1: to other events. You know, Katie, if I look out
Speaker 1: for the rest of the year and try to you know,
Speaker 1: thick of what risks lie ahead. Politics springs to mind,
Speaker 1: and and the issue with the debt ceiling. And I
Speaker 1: imagine that's a hard thing for a quant to sort
Speaker 1: of put numbers attached numbers too, But how are you
Speaker 1: thinking about this potential conflict over the debt ceiling? You know,
Speaker 1: in uh, more than ten years ago, the last time
Speaker 1: we had a crisis like this, we did get the
Speaker 1: US credit rating downgraded and sort of have a counterintuitive
Speaker 1: reaction where Treasury is actually rallied after that, uh, you
Speaker 1: know for that safe haven haven u bid. Are you
Speaker 1: thinking much about that risk this year? And and so
Speaker 1: how do you how do you see it playing out?
Speaker 1: I mean, I have to be honest, we think more
Speaker 1: in terms of the pressure that's on the FED and
Speaker 1: what they'll do. And I think in general most investors
Speaker 1: out there looking at the fixed income markets are just wondering,
Speaker 1: you know, how far will the FED go and will
Speaker 1: these factors actually impact their choices? Um And I think we,
Speaker 1: just like everyone else, will be dissecting every commentary and
Speaker 1: trying to really understand how those different issues may impact
Speaker 1: FED policy. Because right now, FED policy has been at
Speaker 1: the center of many different asset class returns. I mean,
Speaker 1: let me give you a simple example, currencies as well.
Speaker 1: We've seen huge correlations between the US two year and
Speaker 1: the US dollar. We're seeing a lot of cross asset
Speaker 1: relationships that are very strong and all tied to the
Speaker 1: inflation rising rates narrative, which I feel like we're in
Speaker 1: the next phase of right now, what's next? What happens next?
Speaker 1: Now that we're seeing this inflation abates and we have
Speaker 1: these other issues, do they come front and center next?
Speaker 1: So it almost sounds like, you know, maybe the risk
Speaker 1: is that the FED reacts to the political chaos by
Speaker 1: easing up on its tightening campaign and quantitative tightening. Is
Speaker 1: that is that a real possibility you think, and my
Speaker 1: guests would be that the market won't care so much
Speaker 1: about the politics if the FED is easing precisely. And
Speaker 1: I think the challenge was if you look last year
Speaker 1: at a data point, I think what was the most
Speaker 1: surprising was when when the FED decided to hike amidst
Speaker 1: what was going on in Ukraine. There was an example
Speaker 1: of them not reacting to markets behavior and people's nervousness.
Speaker 1: So I think people have gotten a little used to
Speaker 1: the fact that the FED is going on its own path.
Speaker 1: If that were to change course and they were to
Speaker 1: react based on political or other reasons, I think that
Speaker 1: would create some new uncertainty in terms of this narrative
Speaker 1: of fighting inflation. So it's really a matter of hanging
Speaker 1: on every speech, I guess, and every Beige book and
Speaker 1: every every minute everything. Can you talk to us more
Speaker 1: about what else you're expecting for the rest of the year.
Speaker 1: I think in one of your recent notes you said
Speaker 1: energy prices have been subdued. I'm wondering how you're thinking
Speaker 1: about that and also how it relates to the stock
Speaker 1: market UM. But then also tell us maybe you can
Speaker 1: talk about some of the components that go into your
Speaker 1: models and what exactly you guys are tracking, and just
Speaker 1: how the secret sauce if I can say so, UM
Speaker 1: works behind UM predictions. So first I'll start with commodities.
Speaker 1: I mean, commodities were a major hot topic earlier last year.
Speaker 1: They have really been very mixed and back and forth
Speaker 1: since then. But we've seen more moves recently in industrial metals,
Speaker 1: and we've also seen in some sets of pause in
Speaker 1: energy markets because of some rather favorable weather conditions, So
Speaker 1: I think that has the potential to change over the
Speaker 1: next two to three months, so we should watch that
Speaker 1: that could That could also be a potential tailwind for
Speaker 1: decreasing inflation. Is if we start to see those assets
Speaker 1: increasing and value, that's something that will fight against this
Speaker 1: reducing inflation narrative. So that's very important and that's why
Speaker 1: it's something to watch in the next few weeks to
Speaker 1: months um and how those raw materials really do impact
Speaker 1: the entires of my process. But when it comes to
Speaker 1: our models, I think that's a fantastic question. I love
Speaker 1: that question. Tell us all the secret, the secret sauce.
Speaker 1: So the exciting part about being a systematic trader is
Speaker 1: that your job is to build the system that makes
Speaker 1: decisions based on data and as data driven. So as
Speaker 1: data and information come in, your adjusting your positions and
Speaker 1: your view on the markets as a function of what
Speaker 1: the market is doing. So more fundamental strategies focus on
Speaker 1: trying to understand what the market should do, and what
Speaker 1: we do is try and understand what the market is
Speaker 1: actually doing, because if you think about it, the market
Speaker 1: itself is made up of very very intelligent and why
Speaker 1: groups of people across the world, so really, oftentimes in
Speaker 1: a very distressful environment, aggregating the information there and following
Speaker 1: those prevailing trends can provide opportunities. And that's why you're like,
Speaker 1: last year provided a lot of great opportunities because it
Speaker 1: was very hard to understand how will the world react
Speaker 1: to a rising inflation, rising rate environment? Right, and that
Speaker 1: dollar is just such always a perennial, such an important
Speaker 1: component of of everything going on in markets. You know,
Speaker 1: part of this risk off action we saw last year
Speaker 1: was obviously at probably at least in part because of
Speaker 1: that strengthening dollar, or at least they you know, both
Speaker 1: occurred hand in hand. What are you expecting for the
Speaker 1: dollar this year? And it's part of this rally we've
Speaker 1: seen in equities because it's sort of come off the
Speaker 1: highs that we saw last year. So that's a good
Speaker 1: question because the dollar has been most highly correlated also
Speaker 1: with the two year and so what that means is
Speaker 1: that the US being stronger in terms of their monetary
Speaker 1: policy has actually led in terms of relative strength as
Speaker 1: a dollar for several reasons. One is, risk off behavior
Speaker 1: tends to be very favorable for the dollar. You also
Speaker 1: saw the US being tightening faster, which was also favorable
Speaker 1: for the dollar um and you saw the US looking
Speaker 1: economically somewhat ahead last year. That all sort of started
Speaker 1: to ravel in the last couple of months, and we've
Speaker 1: really steadily seen that trade unravel all the way the
Speaker 1: other directions. So it was a very strong trade that's
Speaker 1: unraveled since roughly September. Now we actually think that there's
Speaker 1: a possibility that you might see some resurgence of that
Speaker 1: narrative because you really did see a very very strong,
Speaker 1: coordinated move in the other direction for some substantial period
Speaker 1: of time, which means that if the US ends up
Speaker 1: being strong again in relative terms, or if tightening happens
Speaker 1: in the US in a faster pace, or they hold
Speaker 1: steady for longer, you might see some resurgence of that
Speaker 1: strong dollar at the bottom here, because it's really moved
Speaker 1: quite a long way. And what about textos, because I've
Speaker 1: heard conflicting views on what actually is behind the tech
Speaker 1: valley that we've seen at the start of the year,
Speaker 1: where I've even had some people say tex stalks used
Speaker 1: to act as defensive place almost during the pandemic, and
Speaker 1: maybe we can even start to think of them uh
Speaker 1: that way as well this year, just because people are
Speaker 1: expecting slower growth or even a recession. What are some
Speaker 1: of the factors behind the tech rally. So I think
Speaker 1: one of the key factors, especially for the first part
Speaker 1: of this year in terms of the rally of tech,
Speaker 1: has been the relative under performance as well. So it's
Speaker 1: definitely been a buying opportunity for a lot of investors
Speaker 1: that were sort of frightened by what happened last year.
Speaker 1: So you have buying at the bottom, You definitely have
Speaker 1: buying power. But there's also the issue that we have
Speaker 1: to think about with tech stops is interest rate sensitivity.
Speaker 1: They have been much more sensitive to rising rates, and
Speaker 1: the fact that rising rates might eventually be on hold
Speaker 1: is actually a positive signal for tech companies based on
Speaker 1: on sort of recent price movements. So I think you've
Speaker 1: got some technical factors that are sort of putting a
Speaker 1: tech companies already in the plus. Will those sustain, It's
Speaker 1: going to depend on what happens as earning season. It's
Speaker 1: going to depend on how we navigate the rising rates
Speaker 1: environment we continue or not, and also sort of how
Speaker 1: how those companies come out of this new sort of
Speaker 1: regime this year, Katie, you mentioned that to be getting
Speaker 1: uh sort of how important it is to be able
Speaker 1: to embrace uncomfortable situations. So I'm gonna give you a
Speaker 1: very uncomfortable hypothetical here. All right, you're ready. If I said, Katie,
Speaker 1: you've you get to make one trade for the rest
Speaker 1: of the year. It's either long US equities or short
Speaker 1: US equities, and you can unwind the trade on the
Speaker 1: first day of Which way are you going and why short? Yeah?
Speaker 1: I think it's going to hurt for the first part
Speaker 1: of the year being short. But I think that if
Speaker 1: we have a bottoming and inflation that people will be
Speaker 1: realizing the actual impacts of inflation um and I also
Speaker 1: think that will show up in earnings and that we
Speaker 1: have to have some sort of correction. I don't like it.
Speaker 1: It's not comfortable. I'm not sure i'd want to hold it.
Speaker 1: But I definitely have some some short views this year.
Speaker 1: And by bottoming in inflation, you mean bottoming somewhere significantly
Speaker 1: above that two percent targetized Yes, and we've seen some
Speaker 1: discussion of that. I mean, you just need a couple
Speaker 1: of tail winds. You need maybe commodity prices to start
Speaker 1: surging again, you need a couple of things to kind
Speaker 1: of go against that narrative because, like I said, it
Speaker 1: could take longer to dissipate some of the inflation pressure
Speaker 1: or some of the sort of many factors where inflation
Speaker 1: is moving. Is there any lesson from trend following in
Speaker 1: markets when it comes to trying to predict the trend
Speaker 1: and inflation, is there? You know? Is I feel like
Speaker 1: inflation is a lot trickier perhaps, or maybe I'm wrong,
Speaker 1: I don't know, but is is there you know, a
Speaker 1: lesson to be applied from from market trend following and
Speaker 1: trying to gauge the trend for inflation. So the one
Speaker 1: thing I would say is inflation is uncomfortable. Everyone hates it.
Speaker 1: It's it's painful, it's it's difficult in multiple aspects. It
Speaker 1: provides opportunity. But I think for trend falling, why it's
Speaker 1: such an interesting environment. Finally for us is that when
Speaker 1: you have inflation, by definition, things are moving, things are inflating,
Speaker 1: and then if it dissipates, you have you might even
Speaker 1: have deflation. And so I think for us it's a
Speaker 1: sign that sort of things are influx. And so I
Speaker 1: think looking at as surprise movements. There's a lot more
Speaker 1: opportunities for dynamic strategies and active management in a world
Speaker 1: where inflation is higher. So I think that's something that
Speaker 1: investors have to think about because for the last ten
Speaker 1: or fifteen years, sixty was all you needed to do.
Speaker 1: That's no longer the case, and that is definitely a
Speaker 1: frightening proposition for many investors. What, in your view do
Speaker 1: you think the FED does if we do have the
Speaker 1: downturn and inflation topping out at four or five percent,
Speaker 1: let's say, Well, the challenge for the FED then is
Speaker 1: do they say, hey, we can't get to our goal
Speaker 1: or do they say, well, let's just change the goal.
Speaker 1: And so either of those are not very positive. I
Speaker 1: think the more positive one, which everybody would like, is
Speaker 1: to go back to two and have things sort of
Speaker 1: be stable. But I think the challenges the likelihood is
Speaker 1: we're gonna end up it for or so, and then
Speaker 1: the question is the Feed either has to say well,
Speaker 1: we're no longer going to try, or we're gonna have
Speaker 1: to keep trying, and people are not gonna like that either.
Speaker 1: So I think that that's the that's the challenge I
Speaker 1: think that was facing us in the next few months. Yeah.
Speaker 1: And of course, the the other side of the Fed's
Speaker 1: mandate comes into play, the job market. You know, does
Speaker 1: does that bottoming of inflation? Will that go hand in
Speaker 1: hand with a rising unemployment? You think? And then then
Speaker 1: we're really getting into this sort of uncomfortable territory. No,
Speaker 1: I agree, I mean, especially if we're thinking stagflation or
Speaker 1: or some of those big long words, right, And I
Speaker 1: guess you can find cycles of that in history to
Speaker 1: look at, but they're so different from today, especially with
Speaker 1: technology and other things, that it's really hard to know.
Speaker 1: And I think that means that there's gonna be a
Speaker 1: lot of uncertainty about where things are going, especially if
Speaker 1: we could go into one of those type of scenarios. Katy,
Speaker 1: can I just if we can go back to the
Speaker 1: macro discussion, we were having another sort of point of contention.
Speaker 1: I hear from just talking to people on a daily
Speaker 1: basis is we always hear good news is bad news
Speaker 1: because the FED skulls aren't working. Now I'm hearing bad news.
Speaker 1: Actually it's just bad news. So is bad news? Bad news?
Speaker 1: Is good news? Bad news? Like? Where what do you
Speaker 1: make of it of this discussion? Yeah? You're exactly right.
Speaker 1: Last year, everything that was good was bad, and everything
Speaker 1: that bad was good. This year, from the beginning of
Speaker 1: the year, we're starting to see good is good for now,
Speaker 1: and so we'll have to see how that evolves. I mean,
Speaker 1: I think for us it's very counterintuitive because if you
Speaker 1: imagine trying to predict what to do from a fundamental perspective,
Speaker 1: if you have good news, usually think that's a positive signal.
Speaker 1: But for us, as trend followers, we don't really care.
Speaker 1: I hate to say that. What we care about is
Speaker 1: where are we going? And if bad news being good
Speaker 1: news creates a big trend, that's an opportunity. And maybe
Speaker 1: that's actually a great environment for us because nobody can
Speaker 1: figure out what is really going on um and there's
Speaker 1: a lot of things that are up in the air.
Speaker 1: What about bad news is bad news where we are
Speaker 1: getting economic data to the point where people are super
Speaker 1: worried about what's happening with the economy. So if it's
Speaker 1: bad news as bad news, as long as we see
Speaker 1: sort of a sustained negative trend, that would also be
Speaker 1: an interesting environment for us. So I think for us,
Speaker 1: it's more about how extreme things are and how much
Speaker 1: things move, and so in environments where there's a lot
Speaker 1: of good news or bad news either way, but things
Speaker 1: are actually happening across assets, that's a good environment for
Speaker 1: trend falling. A very calm, sort of smooth flow of
Speaker 1: information both good and bad is not really the environment
Speaker 1: where trend falling performs as well. I miss those times,
Speaker 1: I know. Well, you know, Katie, we tend to be
Speaker 1: fixated on the US markets here, um and for good reason.
Speaker 1: You know, the largest, most liquid markets UH often correlated
Speaker 1: with the rest of the world. But I'm wondering as
Speaker 1: you look out there opportunities elsewhere in the world that
Speaker 1: looked like more attractive to you, either on the long
Speaker 1: or the short side, compared to the US, you know,
Speaker 1: and especially because we have seen some really strong performance
Speaker 1: from the rest of the world equities this year, even
Speaker 1: though you know, the US markets doing great, but you
Speaker 1: know some markets are even doing better. Is there you know,
Speaker 1: do you dive into some of the foreign markets, you know,
Speaker 1: are there any sort of trends you're seeing there that
Speaker 1: that we should know about. Yeah. The two biggest trends
Speaker 1: we've seen that are more cross sectional have been a
Speaker 1: relative play on E M Asia versus US, and you've
Speaker 1: seen massive movements in Asia in relative sense more recently.
Speaker 1: But hey, again this comes to the fact that they
Speaker 1: had a much larger attraction than we did last year,
Speaker 1: so let's see if it continues. We've also seen in
Speaker 1: the currency markets a definite tilt towards long em currencies
Speaker 1: versus the dollars, so those have strengthened even more relative
Speaker 1: to the US dollar as well. So those are both
Speaker 1: some good indicators as well that sort of there's good
Speaker 1: potential in the m there's also potential um in Asia
Speaker 1: versus US. How long that last is going to depend,
Speaker 1: but it definitely is an interesting trade at the beginning
Speaker 1: of this year. Is that, you know, all related to
Speaker 1: the China reopening story. I guess do you think? I
Speaker 1: think it's both. I think some of it's a sort
Speaker 1: of an under investment and sort of a undervaluation relative
Speaker 1: valuation story, but it's also a question of reopening potential
Speaker 1: for economic activity and sort of recovery um that we
Speaker 1: have already seen in the US that you're now starting
Speaker 1: to see. I mean, I think it will take a while,
Speaker 1: but it is a positive there's some positive signs that
Speaker 1: that's moving in that direction. Well, Katie Kaminski, chief research
Speaker 1: strategist and portfolio manager at Alpha Simplex, it is always
Speaker 1: such a pleasure to pick your brain. We we really
Speaker 1: appreciate it. But we, as you know, we cannot let
Speaker 1: you go just yet. We've got our little traditional, exciting
Speaker 1: games to play. Well, why do you get us started?
Speaker 1: What's the craziest thing you saw this week? Okay, I'm
Speaker 1: going with something that is very dear isn't the right word,
Speaker 1: but something I've been covering for months now and I've
Speaker 1: devoted in my life to it basically, and then finally
Speaker 1: we saw it happened last week, which was the Genesis
Speaker 1: bankruptcy Genesis, the lending arm of it within the DCG Empire,
Speaker 1: the Digital Currency Group Empire in crypto, so minuscript are related.
Speaker 1: We saw the finally after months of anticipation where a
Speaker 1: lot of people have been expecting it to come through,
Speaker 1: we finally saw it come in last week. And what
Speaker 1: did bitcoin do? I think? Yes, I mean people were
Speaker 1: really anticipating this for such a long time, so that
Speaker 1: helps explain part of it. But we've seen this huge
Speaker 1: rally in bitcoin and crypto to start the year. It's
Speaker 1: huge so market spot them on bad news. I guess
Speaker 1: the old cliche. Maybe I don't know, I don't who
Speaker 1: knows what happens, but yeah, so far at least, Katie,
Speaker 1: how do you think of crypto? Is it just sort
Speaker 1: of a higher beta version of the riskiest parts of
Speaker 1: the equity market? A lot a lot of people seem
Speaker 1: to think that's the case. It was interesting, is crypto
Speaker 1: used to be something they thought as a sort of
Speaker 1: a safe haven asset or something that's uncorrelated equities. But
Speaker 1: the last two or three years, I think most of
Speaker 1: the people that I know in crypto see that it's
Speaker 1: very much a risk asset, just basically highly levered and
Speaker 1: such that. So it's you know, so high flying risk assets.
Speaker 1: And so I think we tend to as quant managers,
Speaker 1: it's all about measuring VALL and the VALL of bitcoin,
Speaker 1: and these assets are significantly higher than what you see
Speaker 1: in traditional assets. So I think for us, it's definitely
Speaker 1: not something that we're ventured in yet, but you know,
Speaker 1: we're evaluating it. Yeah, Well, it's hire violin. Is it
Speaker 1: also sort of a more hard to predict violatilty? Well,
Speaker 1: it's higher VALL, more hard to predict I'm not sure
Speaker 1: yet because I haven't tried to predict it, but it
Speaker 1: definitely in terms of volatility, is much much higher than
Speaker 1: things like oil or even some of the more knack
Speaker 1: ass makes knack Us look pretty calm. So that that
Speaker 1: to me is you know, not gas is one of
Speaker 1: the big movers, so so I think that that kind
Speaker 1: of puts Bitcoin in perspective. Alright, Katie, how about you,
Speaker 1: Have you seen anything crazy in the last week? I think,
Speaker 1: you know, one of the things that surprised me in
Speaker 1: the last couple of days is seeing a peak in
Speaker 1: Australian inflation. And the reason I say this is that
Speaker 1: Australia has a phenomenal equity market return, right and to
Speaker 1: see that initial sign that they're having a little bit
Speaker 1: of an uptick again in inflation, I think is something
Speaker 1: that investors need to pay attention to. And that goes
Speaker 1: back to the narrative that we were talking about earlier
Speaker 1: in this program, is that you know, I think that
Speaker 1: we can find some surprises um going forward, not just
Speaker 1: going to be a straight walk down. What is causing
Speaker 1: that Australia inflation pick up? Can you can you tell? It?
Speaker 1: Says mostly electricity prices and other costs, and so I
Speaker 1: think that's sort of the headline view. But I would
Speaker 1: say that that's where my question about looking at commodities
Speaker 1: is important. So if we start to see commodity prices
Speaker 1: or other prices increasing, that will sort of give some
Speaker 1: fuel to the narrative that inflation doesn't go away, that critique,
Speaker 1: And there's so many variables that could cause energy to
Speaker 1: you know, Vladimir Putin could wake up some morning and uh,
Speaker 1: you know I have some news along those lines. Who knows. Uh,
Speaker 1: definitely something to keep an eye out for. All right,
Speaker 1: my turn, As I said, I'm treating the gambling markets
Speaker 1: just like any other markets. That's okay. So this guy,
Speaker 1: this is a story courtesy of USA Today, This guy
Speaker 1: Cameron Craig Um. He got placed a five dollar bet,
Speaker 1: but again he got one of those bonuses. I have
Speaker 1: to read the full story, but I think free bet
Speaker 1: for this guy. And the reason I think I'm gonna
Speaker 1: eventually get lured into sports betting on one of these
Speaker 1: apps is the sheer insanity of the bet you can place.
Speaker 1: So he placed a bet on who the first person
Speaker 1: to score a touchdown would be, not just of one game,
Speaker 1: but of all four games this past weekend, So you
Speaker 1: had to identify the player in each game who would
Speaker 1: be the first to score a touchdown. And he now,
Speaker 1: how does it work if somebody doesn't score one at all?
Speaker 1: What if it's like a string of field Well, then
Speaker 1: you lose your five bucks? Okay, I think, yeah, Well
Speaker 1: it's still someone's bound to score that first touchdown, you right,
Speaker 1: even if there's a field goal. First person who scores
Speaker 1: the first touchdown of the game, that's who you got
Speaker 1: a name, right? So he now at five bucks? He
Speaker 1: placed on four games, got it right on all four.
Speaker 1: What do you suppose the winnings were, Donna? Are we
Speaker 1: playing prices precisely? Yes we are, Katie, You are now
Speaker 1: a contestant on the prices is precise? How much do
Speaker 1: you think this guy won? I'll explain it again. Four games?
Speaker 1: He named the player that scored the touchdown the first
Speaker 1: touchdown in each of the four games, five dollar free bet?
Speaker 1: What do you think you want one three million dollars
Speaker 1: with that? Pretty quick? I saw you. You're like doing
Speaker 1: some math over there when you carry the one and
Speaker 1: one point three million? Yeah, I guess a hundred No, wait,
Speaker 1: it's way more, way more. I gotta give it to
Speaker 1: Katie on the spot. How much was it sent? Thousand?
Speaker 1: I thought that was pretty good for a three dollar
Speaker 1: five bet. You're like, I wouldn't touch it for less
Speaker 1: than a million three one one point three? All right? Wow,
Speaker 1: I mean okay, that's especially for the five dollars being
Speaker 1: a giveaway. Yeah, it's pretty good. He said his life
Speaker 1: changing money, and people were arguing with him, saying, how's
Speaker 1: seventy three thou dollars life change the money? He's like, look,
Speaker 1: I paid off all my bills, I paid off my loans,
Speaker 1: my credit cards. My life's changed. Let's say the word
Speaker 1: bills that was entirely unintentional. Did not me to twist
Speaker 1: that it hurt because you got to see a cardiologist.
Speaker 1: I would have thought I would have thought way more.
Speaker 1: I'm sorry. I just hear of these like crazy, it's
Speaker 1: your fault, you you always Yeah, I don't know about
Speaker 1: seventy three grand for five bucks. How often can you
Speaker 1: find me a stock, Katie that I can place five
Speaker 1: bucks on and get us to seventy three? Maybe a
Speaker 1: meme stock? Yeah, crypto, crypto, sure that there's high ball there.
Speaker 1: I'm gonna go. I like the Sam coins, any coin
Speaker 1: linked to Sam, the surging. They're surgery. Of course they are,
Speaker 1: of course, of course. Anyway, Katie Kavinsky again, can't thank
Speaker 1: you enough. I hope we can have you back again
Speaker 1: sometime later in the year and see how it's all going.
Speaker 1: Thanks for having me. Thank you, Katie, What Goes Up.
Speaker 1: We'll be back next week. Until then, you can find
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