WEBVTT - AlphaSimplex on Embracing the 'Uncomfortable' 0:00:13.720 --> 0:00:17.000 Hello, and welcomes to What Goes Up, a weekly markets podcast. 0:00:17.040 --> 0:00:19.079 My name is Mike Reagan. I'm a senior editor at 0:00:19.079 --> 0:00:22.919 Bloomberg and I'm Madonna Across Acid reporter with Bloomberg. And 0:00:23.000 --> 0:00:25.880 this week on the show, Well, Stocks and Bonds got 0:00:25.920 --> 0:00:28.960 off to a huge start in January, sharp reversal of 0:00:29.000 --> 0:00:33.080 the trends we saw in two What exactly has caused 0:00:33.080 --> 0:00:35.800 the change of heart? And will it last? We're gonna 0:00:35.800 --> 0:00:38.639 get into it with a portfolio manager and strategist at 0:00:38.640 --> 0:00:41.120 a quant firm that had, let's just say, a very 0:00:41.240 --> 0:00:45.920 successful year in two despite or we're accurately because of 0:00:45.960 --> 0:00:50.519 all the market turbulence last year. But the first I've 0:00:50.560 --> 0:00:54.840 got offer condolences to your Buffalo bills. Oh my gosh, 0:00:54.880 --> 0:00:59.400 my heart hurts your heart? Yes, you know. Sports depression 0:00:59.480 --> 0:01:02.640 is a real thing. So where is you know, cardiac arrest? 0:01:02.680 --> 0:01:04.760 You better get that checked out. I honestly, they make 0:01:04.840 --> 0:01:08.959 me so depressed and um, actual chest paint. Yeah, Like 0:01:09.400 --> 0:01:12.000 you just get so like so sad and you're like, 0:01:12.040 --> 0:01:14.959 why didn't why if only they had done X, if 0:01:15.000 --> 0:01:18.360 only they had done why? Um, it's really sad. But 0:01:19.080 --> 0:01:20.680 let me ask, do you ever bet On the games. 0:01:20.680 --> 0:01:22.560 Have you downloaded any of these apps now where you 0:01:22.600 --> 0:01:26.039 can bet? Yeah? I did, like friends referred me not 0:01:26.200 --> 0:01:28.440 this year, last year, like when it first became available 0:01:28.520 --> 0:01:31.360 in New York. I did. And I want like two 0:01:31.520 --> 0:01:34.280 or three hundred dollars or something. Yeah, of course you did. 0:01:34.480 --> 0:01:36.119 I never bet on the bills though, because I feel 0:01:36.160 --> 0:01:40.600 like it's bad. Yeah, I bet on like other random Yeah, 0:01:40.880 --> 0:01:43.480 I'm too chicken. I know if I download one, I'll 0:01:43.480 --> 0:01:45.600 win one bet and then I'll be like, that's it. 0:01:45.920 --> 0:01:48.559 I'm a betting genius. I'm going to do it forever 0:01:48.600 --> 0:01:50.560 and I lose it all. No, No, I want money, 0:01:50.600 --> 0:01:52.920 thank you very much. But that's pretty good. I have 0:01:52.960 --> 0:01:57.520 good intuition, which is what every gambler says. They lure 0:01:57.640 --> 0:01:59.480 in with that free money. But this is all just 0:01:59.520 --> 0:02:03.520 a tease. My craziest thing week, which is uh, a 0:02:03.560 --> 0:02:06.600 guy who bet five dollars of that free money they 0:02:06.600 --> 0:02:09.400 give you, and you'll never guess what happened next? He 0:02:09.560 --> 0:02:13.800 want a million dollars? Don't don't. Oh my gosh, guess what. 0:02:14.080 --> 0:02:19.960 I'm an Eagles fan now, heywagon fly, Eagles fly, don't 0:02:20.000 --> 0:02:23.160 embarrass us Eagles please please. I don't know about our guests. 0:02:23.160 --> 0:02:25.600 I think she's finished. She's a Pats fan, which we 0:02:25.639 --> 0:02:31.520 can't talk about. Yeah they're losers. No, I'm just kidding, Okay, 0:02:31.560 --> 0:02:33.440 I do want to bring her in. It's Katy Kaminski. 0:02:33.560 --> 0:02:37.920 She's the chief research strategist and portfolio manager at Alpha Simplex. Katie, 0:02:37.919 --> 0:02:41.000 thank you so much for joining us. Thanks for having 0:02:41.040 --> 0:02:44.840 me got more of a Celtics fan, myself a basketball person. Well, 0:02:44.880 --> 0:02:47.400 I was gonna ask to uh, to quants like yourself 0:02:47.440 --> 0:02:48.880 bet on football or there are a lot of a 0:02:48.919 --> 0:02:52.240 lot of you know, fandels going on and off a Simplex. 0:02:52.880 --> 0:02:55.840 We do tend to have some pooling sometimes about sports, 0:02:55.880 --> 0:02:58.680 but for me personally, I feel like the markets provide 0:02:58.800 --> 0:03:03.200 enough volatility and certainty, uh for for these days for 0:03:03.919 --> 0:03:07.600 I love to watch make your heart race anyway, Yeah exactly, 0:03:07.760 --> 0:03:09.639 I have too much heart racing going on. I need 0:03:09.680 --> 0:03:13.680 to like give up sports and everything. Seriously. But anyway, Katie, 0:03:13.680 --> 0:03:15.639 you've been on the show before. But for anybody who 0:03:15.760 --> 0:03:17.919 who might not know about your background, I was hoping 0:03:17.960 --> 0:03:20.280 you could just start out telling us about your background 0:03:20.960 --> 0:03:24.720 because it's very interesting and just you know, your your 0:03:24.840 --> 0:03:28.639 role at Alpha Simplex as a quant researcher. So I 0:03:28.760 --> 0:03:32.640 spent most of my career studying systematic training strategies. I 0:03:32.680 --> 0:03:35.440 got a pH d at m I T and Operations Research, 0:03:35.480 --> 0:03:39.119 and I was really fascinated with rules that investors used 0:03:39.120 --> 0:03:42.840 to make decisions. So it's quite natural that eventually my 0:03:42.880 --> 0:03:47.040 career ended up to becoming a systematic trend follower, where 0:03:47.040 --> 0:03:52.040 our job is really about designing systems to follow markets 0:03:52.280 --> 0:03:58.600 and find opportunities using quantitative techniques UM. This is exciting 0:03:58.720 --> 0:04:02.560 because we're using math, which I love UM to find 0:04:02.960 --> 0:04:07.440 new trends and new new opportunities. And it's especially exciting 0:04:07.480 --> 0:04:10.160 after a year like last year. I know, the Mantaged 0:04:10.200 --> 0:04:14.760 Features fund did what something like that and the uh 0:04:14.880 --> 0:04:18.000 the with the alternatives funded broke even I think, which 0:04:18.000 --> 0:04:19.960 one year like last year you've got to ac count 0:04:19.960 --> 0:04:23.240 as a w I guess, so last year was phenomenal. 0:04:23.320 --> 0:04:25.279 I mean for someone like myself who's been in the 0:04:25.320 --> 0:04:29.280 managed future space for years, this space is a place 0:04:29.320 --> 0:04:32.480 where it's definitely a clumpy returns but we do really 0:04:32.480 --> 0:04:36.840 well when there's massive trends, when there's dislocation, when things 0:04:37.040 --> 0:04:42.159 are uncomfortable, and last year was definitely uncomfortable, particularly fixed income. 0:04:42.279 --> 0:04:45.000 And I've been really fascinated by fixed income last year 0:04:45.000 --> 0:04:47.880 as well, but other things were exciting too. Okay, So 0:04:47.880 --> 0:04:49.920 so tell us about this because you have a note 0:04:50.080 --> 0:04:53.760 that sort of reviews two I believe, and you said 0:04:53.880 --> 0:04:57.080 it was a manner year for trend and specifically for 0:04:57.120 --> 0:05:01.120 the pigs fly trade. Oh yeah, that's great. I mean, 0:05:01.160 --> 0:05:04.240 so if you think about fixed income, most people think 0:05:04.279 --> 0:05:06.520 of it as a tried and true investment. They think 0:05:06.839 --> 0:05:09.520 if things go wrong, fixed incomes there. For me, so 0:05:09.560 --> 0:05:13.080 that classic sixty last year was the first year where 0:05:13.120 --> 0:05:15.760 we had to think about the concept of rising rates, 0:05:16.040 --> 0:05:18.880 where we had to think about present value of bonds 0:05:19.000 --> 0:05:21.920 actually being affected. And so you saw a very very 0:05:22.000 --> 0:05:25.720 negative year for fixed income and this was a tremendous 0:05:25.920 --> 0:05:28.560 short trend. But I just have to say that this 0:05:28.720 --> 0:05:32.080 hasn't worked for almost forty years, and most of us 0:05:32.120 --> 0:05:34.320 haven't been trading in the markets for forty years, so 0:05:34.360 --> 0:05:38.360 it's basically an artifice of history. So for us who 0:05:38.440 --> 0:05:43.480 trade systematically, seeing those trends and actually trading short and 0:05:43.600 --> 0:05:46.719 fixed income was sort of doing something that most people 0:05:46.760 --> 0:05:50.159 wouldn't dare to do. But we're quants. We follow where 0:05:50.160 --> 0:05:53.360 the opportunities are, and that was a very very profitable 0:05:53.400 --> 0:05:57.400 opportunity last year, being able to short bonds as central 0:05:57.440 --> 0:06:01.240 bankers raise rates to find inflation. So then, kitty, you know, 0:06:01.400 --> 0:06:06.080 then the calendar turned to three. Everyone's staring at a 0:06:06.120 --> 0:06:09.200 fresh P and L for the year. We've seen you know, 0:06:10.480 --> 0:06:14.359 very strong strength inequities, treasuries as well, yields coming down. 0:06:14.920 --> 0:06:17.800 But yet I feel like there's the danger of sort 0:06:17.800 --> 0:06:20.359 of a fault, you know, interpreting that with a false 0:06:20.360 --> 0:06:23.400 signal that you know, the soft landing is a done deal, 0:06:23.640 --> 0:06:27.440 that inflation, that beast is tamed. But January is a 0:06:27.480 --> 0:06:30.440 weird month, you know. Obviously you can see these reversals 0:06:30.440 --> 0:06:33.280 in trend at the start of a year that that 0:06:33.320 --> 0:06:36.400 don't last. So how are you thinking about this month 0:06:36.839 --> 0:06:39.200 and is it setting a signal about what we can 0:06:39.240 --> 0:06:40.880 expect for the rest of the year. Is this kind 0:06:40.920 --> 0:06:44.479 of a head fake that's just uh, perhaps a result 0:06:44.600 --> 0:06:48.520 of the new P and L everyone has for so 0:06:48.600 --> 0:06:51.599 there's been so many positive things at the beginning of 0:06:51.640 --> 0:06:54.240 this year, people are not expecting things to be as 0:06:54.279 --> 0:06:57.040 positive as it's been. But if you really look at it, 0:06:57.120 --> 0:07:00.200 there's a couple of key factors. First of all, any 0:07:00.240 --> 0:07:02.800 investors got beaten up last year, they took their money 0:07:02.800 --> 0:07:05.919 out of the markets. They're waiting for that signal that 0:07:06.000 --> 0:07:08.320 things are okay and I gotta get in, so they're 0:07:08.400 --> 0:07:11.520 under invested coming into the beginning of the year. Number two, 0:07:11.640 --> 0:07:15.280 we're seeing some moderation in inflation, which is a positive 0:07:15.320 --> 0:07:18.520 signal that we're going to eventually find a way to 0:07:18.680 --> 0:07:22.600 go on hold and potentially stabilize some of the inflation 0:07:22.640 --> 0:07:25.680 situation that people are dealing with. And number three, we're 0:07:25.720 --> 0:07:29.920 seeing positive news in Europe and also in Asia, particularly China, 0:07:30.240 --> 0:07:33.160 which is suggesting that things can get back to normal 0:07:33.240 --> 0:07:35.800 at some point. So there's this optimism that kind of 0:07:36.240 --> 0:07:40.000 is flooded by several good factors. I think the thing 0:07:40.120 --> 0:07:43.200 to be aware of is that there are a lot 0:07:43.240 --> 0:07:47.320 of positive signals, but at the same time, inflation is 0:07:47.320 --> 0:07:51.000 still very, very very far from the target, which means 0:07:51.080 --> 0:07:53.600 that central bankers who don't always think like the markets, 0:07:53.600 --> 0:07:56.520 who think a little more long term, are still going 0:07:56.600 --> 0:07:59.160 to have to fight that fight, and that fight may 0:07:59.160 --> 0:08:01.360 not be over as quick as people think. And I 0:08:01.400 --> 0:08:04.240 think that's what we're seeing in terms of why it's 0:08:04.240 --> 0:08:08.760 such a positive January. I feel like there's a split between, uh, 0:08:08.800 --> 0:08:12.760 what strategists and others are expecting for the year, where 0:08:12.800 --> 0:08:17.520 a lot had been saying before three started that we 0:08:17.560 --> 0:08:21.440 would see a choppy first half than a better second half. 0:08:22.040 --> 0:08:27.680 Now we're seeing just about everything rallying, including crypto etcetera, etcetera. So, um, like, 0:08:27.680 --> 0:08:29.840 where do you fall in that camp of of like 0:08:30.000 --> 0:08:33.640 the breakdown between when which part of the year could 0:08:33.640 --> 0:08:38.040 possibly be the stronger part? So I agree with you, 0:08:38.120 --> 0:08:40.960 And what's happened is people have been a little nervous, 0:08:41.000 --> 0:08:43.319 perhaps it was what happened last year and just kind 0:08:43.320 --> 0:08:46.480 of getting over that expecting a choppy's first half and 0:08:46.800 --> 0:08:49.560 a positive second half. I think we're probably more of 0:08:49.600 --> 0:08:52.160 the camp that you may see the opposite, So you're 0:08:52.160 --> 0:08:54.680 going to see a choppy second half of the year 0:08:54.720 --> 0:08:57.640 when we actually realized that inflation doesn't fall as quickly 0:08:57.760 --> 0:09:01.080 as we like. So if we actually see inflation bottom 0:09:01.360 --> 0:09:03.760 and come back up, and we've seen some early indications 0:09:03.800 --> 0:09:08.640 recently that central bankers are holding but inflation isn't moving 0:09:08.880 --> 0:09:13.080 low enough, that's where that could be a more challenging 0:09:13.080 --> 0:09:15.320 second half of the year. The reality that this takes 0:09:15.360 --> 0:09:18.120 a lot longer than we would like you know, Katie, 0:09:18.120 --> 0:09:21.000 I know at Alpha Simplex, one of the foundations of 0:09:21.040 --> 0:09:24.280 the firm is this idea of the adaptive market hypotheses, 0:09:24.360 --> 0:09:26.640 which you know, to dump it down, the way I 0:09:26.679 --> 0:09:28.440 think of it is, you know, market rules aren't really 0:09:28.480 --> 0:09:30.560 written in stone. They're they're sort of written in pencil, 0:09:30.600 --> 0:09:31.959 and you have to erase them every now and then 0:09:32.000 --> 0:09:35.199 and rewrite them. And I think the one thing along 0:09:35.240 --> 0:09:38.920 those lines that a lot of people are wondering is 0:09:39.000 --> 0:09:42.440 the correlation between stocks and bonds. You know, typically we 0:09:42.559 --> 0:09:47.480 tend to think of them negatively correlated. If stocks are rallying, 0:09:48.040 --> 0:09:52.000 you know, history would suggest that bonds are falling and 0:09:52.080 --> 0:09:56.200 yields are rising. Uh, last year we saw bonds yields 0:09:56.320 --> 0:09:59.920 rise and stocks fall. I'm wondering what sort of condition 0:10:00.120 --> 0:10:03.040 you think need to be in place to sort of 0:10:03.160 --> 0:10:06.400 have that revert back to the historical trend of negative 0:10:06.440 --> 0:10:09.840 correlations between bond prices and stock prices. Is it as 0:10:09.840 --> 0:10:13.440 simple as just a normalization of inflation or is there 0:10:13.480 --> 0:10:15.319 more to it? Do you think? Well, I think the 0:10:15.440 --> 0:10:18.640 simple answer is inflation. The reason is if you look 0:10:18.720 --> 0:10:21.960 farther back in history, and a lot of investors don't 0:10:22.040 --> 0:10:24.600 think that way looking back and appeared where we had 0:10:24.800 --> 0:10:28.080 rising rates and we had higher inflation and changing inflation. 0:10:28.640 --> 0:10:32.920 You saw three key factors. First, you saw that bonds 0:10:33.200 --> 0:10:37.200 had higher volatility then typical and what were you're used to. 0:10:37.440 --> 0:10:42.080 You also saw that stock bond correlation was positive, and 0:10:42.120 --> 0:10:44.600 you saw that there was a lot more uncertainty in 0:10:44.640 --> 0:10:48.480 general about that relationship. And so if you look at 0:10:48.520 --> 0:10:51.679 what's happened recently, it's very, very similar to what you 0:10:51.720 --> 0:10:55.640 see in terms of asset price dynamics recently. And what 0:10:55.720 --> 0:10:59.920 that says to me is that inflation changes asset price dynamics. 0:11:00.800 --> 0:11:05.000 You now are focusing on fixed incomes relationship to inflation 0:11:05.160 --> 0:11:08.319 as opposed to fixed income as a safe haven asset, 0:11:08.840 --> 0:11:12.679 and that is how that negative correlation becomes the dominant factor. 0:11:13.080 --> 0:11:15.600 In a world where fixed income is no longer a 0:11:15.600 --> 0:11:20.320 safe haven, you lose that negative correlation, and that's exactly 0:11:20.320 --> 0:11:23.440 what we saw last year. Can you talk to us 0:11:23.480 --> 0:11:25.600 more about what you guys are projecting in terms of 0:11:25.600 --> 0:11:29.280 what we'll be seeing from the inflation front, because it 0:11:29.320 --> 0:11:32.240 sounds like you are saying it won't be falling as 0:11:32.240 --> 0:11:34.400 fast as a lot of people are expecting. And then 0:11:34.440 --> 0:11:36.280 at the same time, we have people coming out and 0:11:36.320 --> 0:11:39.720 saying the FED really should rethink it's two percent target. 0:11:41.000 --> 0:11:43.920 What do you make of all that? Well, the truth is, 0:11:44.000 --> 0:11:48.160 in general, markets like things to move quicker than especially 0:11:48.240 --> 0:11:52.120 uncomfortable things to be over faster than they are. And 0:11:52.200 --> 0:11:54.959 I think what happened throughout this entire last two or 0:11:55.040 --> 0:11:58.400 three years has been very clear trends and asset prices 0:11:58.720 --> 0:12:02.760 that were consistent with a very serious inflation problem. And 0:12:02.800 --> 0:12:05.800 then by the time we actually got into dealing with 0:12:05.840 --> 0:12:08.000 this problem this year, it's also going to take quite 0:12:08.040 --> 0:12:10.880 some time for things to moderate. I mean, I think 0:12:11.000 --> 0:12:14.480 a simple example would be wage inflation. We really don't 0:12:14.600 --> 0:12:17.760 know how much wage inflation is going to impact until 0:12:17.800 --> 0:12:20.480 we've really seen year end and we've seen what happens 0:12:20.960 --> 0:12:24.280 after companies are just what they're doing for this year. 0:12:24.720 --> 0:12:28.200 So I think those are very stale and slow moving estimates, 0:12:28.200 --> 0:12:31.240 and I think people tend to underestimate how long it 0:12:31.280 --> 0:12:35.080 takes for these type of very opaque forces to calm 0:12:35.120 --> 0:12:38.240 down um, which means that there's going to be a 0:12:38.240 --> 0:12:42.520 lot more trends with people underreacting to some and overreacting 0:12:42.520 --> 0:12:46.120 to other events. You know, Katie, if I look out 0:12:46.280 --> 0:12:48.080 for the rest of the year and try to you know, 0:12:48.559 --> 0:12:51.640 thick of what risks lie ahead. Politics springs to mind, 0:12:51.679 --> 0:12:53.520 and and the issue with the debt ceiling. And I 0:12:53.520 --> 0:12:56.360 imagine that's a hard thing for a quant to sort 0:12:56.360 --> 0:12:59.400 of put numbers attached numbers too, But how are you 0:12:59.440 --> 0:13:03.520 thinking about this potential conflict over the debt ceiling? You know, 0:13:03.600 --> 0:13:06.480 in uh, more than ten years ago, the last time 0:13:06.480 --> 0:13:08.360 we had a crisis like this, we did get the 0:13:08.440 --> 0:13:11.840 US credit rating downgraded and sort of have a counterintuitive 0:13:11.880 --> 0:13:15.240 reaction where Treasury is actually rallied after that, uh, you 0:13:15.280 --> 0:13:18.800 know for that safe haven haven u bid. Are you 0:13:18.800 --> 0:13:21.840 thinking much about that risk this year? And and so 0:13:21.880 --> 0:13:23.760 how do you how do you see it playing out? 0:13:24.480 --> 0:13:26.480 I mean, I have to be honest, we think more 0:13:26.480 --> 0:13:29.440 in terms of the pressure that's on the FED and 0:13:29.520 --> 0:13:32.520 what they'll do. And I think in general most investors 0:13:32.559 --> 0:13:35.960 out there looking at the fixed income markets are just wondering, 0:13:36.559 --> 0:13:38.600 you know, how far will the FED go and will 0:13:38.640 --> 0:13:42.800 these factors actually impact their choices? Um And I think we, 0:13:42.960 --> 0:13:46.720 just like everyone else, will be dissecting every commentary and 0:13:46.760 --> 0:13:51.679 trying to really understand how those different issues may impact 0:13:51.760 --> 0:13:55.480 FED policy. Because right now, FED policy has been at 0:13:55.520 --> 0:13:58.679 the center of many different asset class returns. I mean, 0:13:58.760 --> 0:14:01.600 let me give you a simple example, currencies as well. 0:14:01.880 --> 0:14:05.080 We've seen huge correlations between the US two year and 0:14:05.360 --> 0:14:08.680 the US dollar. We're seeing a lot of cross asset 0:14:08.720 --> 0:14:11.760 relationships that are very strong and all tied to the 0:14:11.760 --> 0:14:15.320 inflation rising rates narrative, which I feel like we're in 0:14:15.320 --> 0:14:19.440 the next phase of right now, what's next? What happens next? 0:14:19.520 --> 0:14:22.440 Now that we're seeing this inflation abates and we have 0:14:22.560 --> 0:14:25.800 these other issues, do they come front and center next? 0:14:26.520 --> 0:14:28.720 So it almost sounds like, you know, maybe the risk 0:14:28.880 --> 0:14:33.240 is that the FED reacts to the political chaos by 0:14:33.240 --> 0:14:37.080 easing up on its tightening campaign and quantitative tightening. Is 0:14:37.080 --> 0:14:39.920 that is that a real possibility you think, and my 0:14:40.000 --> 0:14:42.840 guests would be that the market won't care so much 0:14:42.880 --> 0:14:46.240 about the politics if the FED is easing precisely. And 0:14:46.280 --> 0:14:48.720 I think the challenge was if you look last year 0:14:48.760 --> 0:14:51.200 at a data point, I think what was the most 0:14:51.240 --> 0:14:56.760 surprising was when when the FED decided to hike amidst 0:14:56.760 --> 0:14:59.520 what was going on in Ukraine. There was an example 0:14:59.680 --> 0:15:03.920 of them not reacting to markets behavior and people's nervousness. 0:15:04.400 --> 0:15:06.880 So I think people have gotten a little used to 0:15:06.920 --> 0:15:09.800 the fact that the FED is going on its own path. 0:15:10.640 --> 0:15:12.880 If that were to change course and they were to 0:15:13.080 --> 0:15:16.480 react based on political or other reasons, I think that 0:15:16.520 --> 0:15:19.560 would create some new uncertainty in terms of this narrative 0:15:19.600 --> 0:15:22.800 of fighting inflation. So it's really a matter of hanging 0:15:22.840 --> 0:15:25.760 on every speech, I guess, and every Beige book and 0:15:25.840 --> 0:15:35.240 every every minute everything. Can you talk to us more 0:15:35.280 --> 0:15:38.200 about what else you're expecting for the rest of the year. 0:15:38.240 --> 0:15:40.080 I think in one of your recent notes you said 0:15:40.680 --> 0:15:43.080 energy prices have been subdued. I'm wondering how you're thinking 0:15:43.120 --> 0:15:46.360 about that and also how it relates to the stock 0:15:46.440 --> 0:15:50.040 market UM. But then also tell us maybe you can 0:15:50.080 --> 0:15:52.320 talk about some of the components that go into your 0:15:52.360 --> 0:15:54.400 models and what exactly you guys are tracking, and just 0:15:54.480 --> 0:15:57.680 how the secret sauce if I can say so, UM 0:15:57.800 --> 0:16:02.920 works behind UM predictions. So first I'll start with commodities. 0:16:02.960 --> 0:16:06.880 I mean, commodities were a major hot topic earlier last year. 0:16:07.160 --> 0:16:09.720 They have really been very mixed and back and forth 0:16:09.760 --> 0:16:14.160 since then. But we've seen more moves recently in industrial metals, 0:16:14.280 --> 0:16:17.720 and we've also seen in some sets of pause in 0:16:17.920 --> 0:16:23.160 energy markets because of some rather favorable weather conditions, So 0:16:23.200 --> 0:16:25.520 I think that has the potential to change over the 0:16:25.520 --> 0:16:28.000 next two to three months, so we should watch that 0:16:28.000 --> 0:16:32.040 that could That could also be a potential tailwind for 0:16:32.240 --> 0:16:35.360 decreasing inflation. Is if we start to see those assets 0:16:35.400 --> 0:16:38.960 increasing and value, that's something that will fight against this 0:16:39.320 --> 0:16:42.840 reducing inflation narrative. So that's very important and that's why 0:16:42.840 --> 0:16:45.520 it's something to watch in the next few weeks to 0:16:45.640 --> 0:16:49.400 months um and how those raw materials really do impact 0:16:50.000 --> 0:16:53.000 the entires of my process. But when it comes to 0:16:53.040 --> 0:16:55.760 our models, I think that's a fantastic question. I love 0:16:55.760 --> 0:16:58.800 that question. Tell us all the secret, the secret sauce. 0:16:59.360 --> 0:17:03.000 So the exciting part about being a systematic trader is 0:17:03.040 --> 0:17:06.639 that your job is to build the system that makes 0:17:06.680 --> 0:17:11.080 decisions based on data and as data driven. So as 0:17:11.200 --> 0:17:15.520 data and information come in, your adjusting your positions and 0:17:15.640 --> 0:17:18.320 your view on the markets as a function of what 0:17:18.480 --> 0:17:22.960 the market is doing. So more fundamental strategies focus on 0:17:23.000 --> 0:17:26.680 trying to understand what the market should do, and what 0:17:26.760 --> 0:17:29.399 we do is try and understand what the market is 0:17:29.480 --> 0:17:32.879 actually doing, because if you think about it, the market 0:17:32.920 --> 0:17:37.000 itself is made up of very very intelligent and why 0:17:37.119 --> 0:17:41.480 groups of people across the world, so really, oftentimes in 0:17:41.520 --> 0:17:45.960 a very distressful environment, aggregating the information there and following 0:17:46.000 --> 0:17:49.960 those prevailing trends can provide opportunities. And that's why you're like, 0:17:50.080 --> 0:17:53.800 last year provided a lot of great opportunities because it 0:17:53.880 --> 0:17:56.720 was very hard to understand how will the world react 0:17:57.119 --> 0:18:02.080 to a rising inflation, rising rate environment? Right, and that 0:18:02.200 --> 0:18:05.680 dollar is just such always a perennial, such an important 0:18:05.720 --> 0:18:08.760 component of of everything going on in markets. You know, 0:18:08.840 --> 0:18:11.520 part of this risk off action we saw last year 0:18:11.640 --> 0:18:13.720 was obviously at probably at least in part because of 0:18:13.760 --> 0:18:17.240 that strengthening dollar, or at least they you know, both 0:18:17.240 --> 0:18:20.159 occurred hand in hand. What are you expecting for the 0:18:20.200 --> 0:18:22.760 dollar this year? And it's part of this rally we've 0:18:22.760 --> 0:18:25.399 seen in equities because it's sort of come off the 0:18:25.440 --> 0:18:28.640 highs that we saw last year. So that's a good 0:18:28.680 --> 0:18:32.159 question because the dollar has been most highly correlated also 0:18:32.280 --> 0:18:34.800 with the two year and so what that means is 0:18:34.840 --> 0:18:37.760 that the US being stronger in terms of their monetary 0:18:37.800 --> 0:18:42.000 policy has actually led in terms of relative strength as 0:18:42.040 --> 0:18:45.800 a dollar for several reasons. One is, risk off behavior 0:18:45.880 --> 0:18:48.520 tends to be very favorable for the dollar. You also 0:18:48.600 --> 0:18:52.600 saw the US being tightening faster, which was also favorable 0:18:52.640 --> 0:18:55.720 for the dollar um and you saw the US looking 0:18:55.800 --> 0:18:59.600 economically somewhat ahead last year. That all sort of started 0:18:59.640 --> 0:19:02.840 to ravel in the last couple of months, and we've 0:19:02.880 --> 0:19:06.480 really steadily seen that trade unravel all the way the 0:19:06.480 --> 0:19:08.560 other directions. So it was a very strong trade that's 0:19:08.600 --> 0:19:13.560 unraveled since roughly September. Now we actually think that there's 0:19:13.600 --> 0:19:16.919 a possibility that you might see some resurgence of that 0:19:17.040 --> 0:19:20.439 narrative because you really did see a very very strong, 0:19:20.880 --> 0:19:25.479 coordinated move in the other direction for some substantial period 0:19:25.480 --> 0:19:28.120 of time, which means that if the US ends up 0:19:28.160 --> 0:19:32.240 being strong again in relative terms, or if tightening happens 0:19:32.240 --> 0:19:35.200 in the US in a faster pace, or they hold 0:19:35.200 --> 0:19:38.000 steady for longer, you might see some resurgence of that 0:19:38.080 --> 0:19:40.480 strong dollar at the bottom here, because it's really moved 0:19:40.520 --> 0:19:44.000 quite a long way. And what about textos, because I've 0:19:44.000 --> 0:19:48.160 heard conflicting views on what actually is behind the tech 0:19:48.240 --> 0:19:50.080 valley that we've seen at the start of the year, 0:19:50.119 --> 0:19:54.160 where I've even had some people say tex stalks used 0:19:54.160 --> 0:19:57.359 to act as defensive place almost during the pandemic, and 0:19:57.400 --> 0:19:59.880 maybe we can even start to think of them uh 0:20:00.080 --> 0:20:03.800 that way as well this year, just because people are 0:20:04.280 --> 0:20:08.840 expecting slower growth or even a recession. What are some 0:20:08.880 --> 0:20:11.680 of the factors behind the tech rally. So I think 0:20:11.680 --> 0:20:14.080 one of the key factors, especially for the first part 0:20:14.080 --> 0:20:15.840 of this year in terms of the rally of tech, 0:20:15.920 --> 0:20:19.360 has been the relative under performance as well. So it's 0:20:19.400 --> 0:20:22.520 definitely been a buying opportunity for a lot of investors 0:20:22.560 --> 0:20:25.400 that were sort of frightened by what happened last year. 0:20:25.920 --> 0:20:27.919 So you have buying at the bottom, You definitely have 0:20:28.000 --> 0:20:30.800 buying power. But there's also the issue that we have 0:20:30.880 --> 0:20:34.000 to think about with tech stops is interest rate sensitivity. 0:20:34.280 --> 0:20:37.239 They have been much more sensitive to rising rates, and 0:20:37.280 --> 0:20:40.719 the fact that rising rates might eventually be on hold 0:20:41.119 --> 0:20:44.640 is actually a positive signal for tech companies based on 0:20:44.640 --> 0:20:47.080 on sort of recent price movements. So I think you've 0:20:47.080 --> 0:20:50.160 got some technical factors that are sort of putting a 0:20:50.200 --> 0:20:53.760 tech companies already in the plus. Will those sustain, It's 0:20:53.760 --> 0:20:56.119 going to depend on what happens as earning season. It's 0:20:56.160 --> 0:20:59.080 going to depend on how we navigate the rising rates 0:20:59.400 --> 0:21:02.920 environment we continue or not, and also sort of how 0:21:03.400 --> 0:21:06.280 how those companies come out of this new sort of 0:21:06.320 --> 0:21:09.080 regime this year, Katie, you mentioned that to be getting 0:21:09.280 --> 0:21:11.440 uh sort of how important it is to be able 0:21:11.480 --> 0:21:14.680 to embrace uncomfortable situations. So I'm gonna give you a 0:21:14.960 --> 0:21:19.160 very uncomfortable hypothetical here. All right, you're ready. If I said, Katie, 0:21:19.480 --> 0:21:21.880 you've you get to make one trade for the rest 0:21:21.960 --> 0:21:26.040 of the year. It's either long US equities or short 0:21:26.160 --> 0:21:29.919 US equities, and you can unwind the trade on the 0:21:30.000 --> 0:21:35.320 first day of Which way are you going and why short? Yeah? 0:21:36.280 --> 0:21:38.160 I think it's going to hurt for the first part 0:21:38.160 --> 0:21:42.480 of the year being short. But I think that if 0:21:42.520 --> 0:21:46.000 we have a bottoming and inflation that people will be 0:21:46.320 --> 0:21:49.800 realizing the actual impacts of inflation um and I also 0:21:49.840 --> 0:21:52.080 think that will show up in earnings and that we 0:21:52.119 --> 0:21:55.320 have to have some sort of correction. I don't like it. 0:21:55.320 --> 0:21:57.800 It's not comfortable. I'm not sure i'd want to hold it. 0:21:59.000 --> 0:22:02.120 But I definitely have some some short views this year. 0:22:02.240 --> 0:22:06.439 And by bottoming in inflation, you mean bottoming somewhere significantly 0:22:06.480 --> 0:22:10.760 above that two percent targetized Yes, and we've seen some 0:22:10.800 --> 0:22:12.960 discussion of that. I mean, you just need a couple 0:22:12.960 --> 0:22:15.720 of tail winds. You need maybe commodity prices to start 0:22:15.800 --> 0:22:18.479 surging again, you need a couple of things to kind 0:22:18.520 --> 0:22:21.600 of go against that narrative because, like I said, it 0:22:21.680 --> 0:22:25.960 could take longer to dissipate some of the inflation pressure 0:22:26.160 --> 0:22:29.280 or some of the sort of many factors where inflation 0:22:29.400 --> 0:22:33.000 is moving. Is there any lesson from trend following in 0:22:33.040 --> 0:22:35.760 markets when it comes to trying to predict the trend 0:22:35.760 --> 0:22:38.320 and inflation, is there? You know? Is I feel like 0:22:38.359 --> 0:22:41.440 inflation is a lot trickier perhaps, or maybe I'm wrong, 0:22:41.440 --> 0:22:44.000 I don't know, but is is there you know, a 0:22:44.080 --> 0:22:46.679