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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Hello and welcome to another episode of The Odd Lots Podcast.

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Speaker 2: I'm Tracy Alloway.

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Speaker 3: And I'm Joe Wisenthal.

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Speaker 2: Joe, I've been reflecting on this year. It's been a

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Speaker 2: busy year.

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Speaker 3: Yeah, go on.

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Speaker 2: In fact, we're recording this. We're on yet another trip.

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Speaker 2: We're in Huntington Beach for this year's future Proof conference,

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Speaker 2: which is always a fun time an event I always enjoy,

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Speaker 2: but we happen on the road a lot. Yeah, and

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Speaker 2: I feel like the entire year is starting to feel

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Speaker 2: very surreal for me. It feels just very different to

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Speaker 2: prior years for many different reasons. But I was also

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Speaker 2: thinking one of those reasons is because it seems harder

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Speaker 2: and harder to do portfolio construction nowadays. And I know

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Speaker 2: that sounds really weird, given that markets are still at

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Speaker 2: record highs and everything seems to be going reasonably well,

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Speaker 2: even though we had that terrible jobs number. But if

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Speaker 2: I think back to the big leg down that we

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Speaker 2: saw this year, it seemed really scary because basically everything

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Speaker 2: sold off at once.

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Speaker 4: Right.

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Speaker 3: You know what I really like. I like how you

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Speaker 3: started this with this philosophical thing like we're out on

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Speaker 3: the road and.

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Speaker 2: All this, and then I was like, how do I

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Speaker 2: protect my.

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Speaker 3: Portfolio and reflecting and then the surreality of the times

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Speaker 3: and now we bring it around to portfolio construction. But no,

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Speaker 3: that's true, and there's two a couple of things going on.

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Speaker 3: So one is the sort of like cross asset class moves.

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Speaker 3: The other thing is and is very related to that.

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Speaker 3: I mean it's the flip side of this, which is

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Speaker 3: correlation breakdown. And then there was still this other element

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Speaker 3: that I think there is a play where at least,

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Speaker 3: like I would say, there's two more things, which is

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Speaker 3: that one within us assets, the winners are still the winners, right,

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Speaker 3: especially a lot of these big tech names, so you

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Speaker 3: haven't gotten the sort of secular and people.

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Speaker 2: Have been talking about overvaluations for forever.

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Speaker 3: And then the fact that you know you're not getting

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Speaker 3: paid much to take on volatility risk or volatility measures

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Speaker 3: are still very low. So there's a lot of difficult,

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Speaker 3: unintuitive things going on.

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Speaker 2: And I don't even know what a tail risk hedge

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Speaker 2: actually looks like at this point, because I would have

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Speaker 2: thought like, well, obviously maybe you diversify into long duration

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Speaker 2: bonds or something like that. But then in April when

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Speaker 2: we had the big sell off long duration and not

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Speaker 2: do that well either. So it kind of has me

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Speaker 2: scratching my head about if you were worried about stuff

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Speaker 2: both literally and figuratively perhaps blowing up at this point

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Speaker 2: in time, what would you be doing, Like, what does

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Speaker 2: a tail risk hedge actually look like? Now?

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Speaker 3: You like buke gold that's already at record high. Yeah, yeah,

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Speaker 3: it's confusing.

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Speaker 2: Yes, Okay. So on that note, I'm very happy to

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Speaker 2: say we actually have the perfect guest to talk about

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Speaker 2: tail risk insurance and just tail risks in general, someone

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Speaker 2: who's been working on Wall Street for a really really

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Speaker 2: long time and has a very storied career, lots of

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Speaker 2: stories involving big names that you and I would definitely recognize.

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Speaker 2: We're going to be speaking with. Veneer Bensali is, of

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Speaker 2: course the founder of a long tail Alpha and again

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Speaker 2: has worked at many many firms previously. We'll get into

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Speaker 2: all of that. Veneer, thank you so much for coming on.

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Speaker 4: All thoughts, thank you for having me.

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Speaker 2: So I should just go ahead and ask you to

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Speaker 2: give a sort of five minutes summary of your career

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Speaker 2: because it is kind of amazing. But the important thing

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Speaker 2: is you didn't start out as a trader, You started

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Speaker 2: out as a mathematician.

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Speaker 4: Yep. I started out as a theoretical physicist. I was

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Speaker 4: finishing my PhD at Harvard, and this is nineteen ninety one.

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Speaker 4: The recession had just hit. I didn't know what a

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Speaker 4: recession was. I wanted to be a professor, but my

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Speaker 4: job evaporated because I was going to go work at

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Speaker 4: the super colliders. The Superconducting SuperCollider got canceled by Congress.

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Speaker 4: Nineteen nineties. I had a post dot lineup in France

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Speaker 4: and one I think it was in Texas and Austin,

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Speaker 4: and I got a call out of Wall Street, out

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Speaker 4: of Goldman. They were looking for quants like me to

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Speaker 4: work on options trading or options model building rather, I

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Speaker 4: should say. So I went and interviewed, mostly because of

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Speaker 4: the free trip in New York. I went there, got

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Speaker 4: interviewed by an elderly gentleman who was taking notes saying,

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Speaker 4: doesn't know any finance. For disclosure, I knew no finance.

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Speaker 4: I had no interest in it. It was Fisher Black

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Speaker 4: who was in Really Oh wow, I decided Black Scholes fame.

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Speaker 4: Little did I know when I turned that job down

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Speaker 4: from Goldman. I took another job at City Bank, trading derivatives,

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Speaker 4: because in my mind was a sabbatical. I was going

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Speaker 4: to do this for about six months to a year

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Speaker 4: and then go back to physics. Well, little did I

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Speaker 4: know that my whole life would become basically, very deeply

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Speaker 4: connected with ation trading. So that's what I've been doing.

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Speaker 4: And we'll talk a lot more about dail risk getting

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Speaker 4: in a second.

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Speaker 2: Wait, I got to ask why did you decide to

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Speaker 2: turn down Goldman? And given the Fisher Black himself was

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Speaker 2: doing the interview, and you chose to go to City

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Speaker 2: at that.

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Speaker 4: Time, Well, one was a research job at Goldman, and

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Speaker 4: the job at City was actually trading drivens. And since

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Speaker 4: trading was so far away from what I knew, and

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Speaker 4: this was really supposed to be a vacation for me

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Speaker 4: for about a year, like found like a good thing

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Speaker 4: to do, for a fun thing to do.

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Speaker 3: Rather, did you ever feel like always so curious about

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Speaker 3: stories from the early days of physicists going to Wall Street.

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Speaker 3: Was there a period where you felt like it was

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Speaker 3: a bit beneath I mean, you call it kind of

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Speaker 3: a vacation job. Did it feel intellectually beneath you for

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Speaker 3: a while, and then did it eventually become sort of

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Speaker 3: genuinely intellectually satisfying in the way that maybe you had

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Speaker 3: anticipated an academic career to become so interesting.

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Speaker 4: Though the modeling certainly at those days seemed a little

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Speaker 4: too naive. So for instance, I'll give you an example

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Speaker 4: very first trade that we did, large trade. I was

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Speaker 4: a city bank at the time, and it was an

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Speaker 4: interest rate gap on yen. Interest rates linked to the

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Speaker 4: dollar yen, so it was basically a two factor option

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Speaker 4: called hybrid option. And it turned out that at a physicist,

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Speaker 4: I was very easy. It was very easy for me,

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Speaker 4: and I was very able to write a Monte Carlo

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Speaker 4: to write this knockout gap, but for the finance people

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Speaker 4: it was kind of tough. So the math was very easy.

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Speaker 4: But I also learned that trading is not just math.

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Speaker 4: Trading is a lot of behavioral stuff and so on,

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Speaker 4: and that I just obviously had to learn. And I

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Speaker 4: have some great stories of stuff that I did really

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Speaker 4: badly back in nineteen ninety ninety four.

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Speaker 3: Tell us the story I did badly well, So nineteen ninety.

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Speaker 4: Four, if you remember, in a nineteen ninety three the

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Speaker 4: fed ad eased and rates were quite low, and everybody

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Speaker 4: was long the front end of the yeld curve and

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Speaker 4: buying year dollar features contracts.

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Speaker 3: Wait, didn't it talent around here go bankrupt?

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Speaker 4: Yes, yes, yes, we'll get to that exactly. So February

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Speaker 4: of nineteen ninety four, the Fed raised race by twenty

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Speaker 4: five and then very surprisingly April eighteenth of that year,

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Speaker 4: they did an inter meeting increase. And at that time

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Speaker 4: bond market has always sold off quite a bit, and

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Speaker 4: I just did what human beings you do, which is

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Speaker 4: that on mean reversion. So I tried to buy the

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Speaker 4: bond market, and tried to buy the bond market again

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Speaker 4: and again and again until I realized that there's something

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Speaker 4: called trend following and exit. And I think the bond

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Speaker 4: market sold off a good fifteen twenty points and finally

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Speaker 4: I recouped all that. It was a brutal few months

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Speaker 4: of literally getting my face ripped off.

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Speaker 2: So one other thing, I'm curious the sort of early

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Speaker 2: days of quants, But what exactly was the pitch to scientists,

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Speaker 2: whether they're you know, mathematicians or physics guys. When these

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Speaker 2: big banks or big trading firms are trying to recruit

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Speaker 2: back then, because you know, like quant was in the

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Speaker 2: I know we had nineteen eighty seven by them, but

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Speaker 2: it was still relatively in the early days. So I'm

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Speaker 2: really curious, like what they told you about what you

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Speaker 2: would be doing.

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Speaker 4: So from the modeling side is pretty straightforward, right, the

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Speaker 4: blactual equation and stochastic calculus. Stochastic finance is basically what's

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Speaker 4: called the eight equation or the diffusion equation in physics,

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Speaker 4: and that's something that every physicist learns when they're in

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Speaker 4: early graduate school. It's like solving a partial differential equation.

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Speaker 4: So the math is exactly identical the math of finance.

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Speaker 4: And maybe that's the problem actually in retrospect now that

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Speaker 4: having done this for thirty years and thirty plus years

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Speaker 4: and survived, maybe that's the problem because the beauty can

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Speaker 4: somehow hide the frictions underneath it. From the trading side,

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Speaker 4: when I first started crating, I think it was very

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Speaker 4: simply being mathematically sharp and quick and being able to

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Speaker 4: answer quizzes just made interviewers feel like they were getting

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Speaker 4: smart people on the desk that they could train right

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Speaker 4: the blank canvas, so speak.

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Speaker 3: So once people on these desks got armed with PhD

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Speaker 3: physicists and understanding of like Brownian motion and stuff like that.

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Speaker 3: Did that change how the actual markets traded from your perspective,

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Speaker 3: like sort of pre and posts that, did assets conform

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Speaker 3: more to as models anticipated because of the model effect

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Speaker 3: on them? Like what was your observation of actual existing

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Speaker 3: market behavior pre and post the physics revolution?

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Speaker 4: Oh? Absolutely, And this is a very important question because

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Speaker 4: if you fast forward to twenty eighteen, the Big XIV

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Speaker 4: debacle and the bottomagedin and a lot of things that

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Speaker 4: happen now and actually fundamentally, what we do now, what

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Speaker 4: I do now is related to this fact that there's

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Speaker 4: a very night feedback loop between models and markets and models.

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Speaker 4: So give you a very simple example, Right, you have

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Speaker 4: an option that you've sold to somebody, and you have

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Speaker 4: to manage the risk. Of course, when you sell the option,

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Speaker 4: you're getting a multimary premium. That's why you sell it.

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Speaker 4: You're getting an insurance premium, so to speak. But then

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Speaker 4: to manage the position, you have to delta hedge. But

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Speaker 4: delta hedging means that you have to buy and sell

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Speaker 4: the underlying asset and some higher order greeks as well,

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Speaker 4: Gamma vega data that you've all read about. But delta

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Speaker 4: hedging requires people to be able to buy and sell

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Speaker 4: so that they are the seller. The market maker is

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Speaker 4: locally flat of course, so the market maker, that's what

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Speaker 4: you do, and that's how you earn your keep, earn

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Speaker 4: your visa, so to speak. The problem is that there's

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Speaker 4: an idealization in mathematics or mathematical finance that you can

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Speaker 4: do this at an unlimited size, and size doesn't matter,

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Speaker 4: but it matters. Liquidity is actually not there. The basic

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Speaker 4: assumption of black shoals is that you can continuously trade

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Speaker 4: with almost zero transactions costs. Well, that's just not true

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Speaker 4: in real markets. As a matter of fact, in the

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Speaker 4: last maybe two years even you've seen liquidity in the

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Speaker 4: EMNI futures contracts, which are possibly the I would take

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Speaker 4: the zero to order hedging instrument for the equity markets

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Speaker 4: go down relative to the high levels, frequently go down

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Speaker 4: to maybe one twentieth or one fiftieth office level. So

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Speaker 4: people just can't get out. So what happens is that

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Speaker 4: people sell options, then they start delta hedging. Delta hatging

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Speaker 4: results in the options market reacting to the delta, then

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Speaker 4: results in new hedges coming in. So this feedback loop

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Speaker 4: gets tighter and tighter and tighter until something breaks. And

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Speaker 4: when something breaks and the box shut down, which is

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Speaker 4: today's environment, you actually have no liquidity and that's when

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Speaker 4: you get these crashes like Liberation Day on April second.

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Speaker 2: Vall Mageddon was definitely one of the more weirder events

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Speaker 2: in markets because everyone could see what was going to

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Speaker 2: happen when the VIX curve actually inverted, Like you could

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Speaker 2: see that all these products were going to go absolutely

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Speaker 2: belly up and no one, no one seemed to react

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Speaker 2: to it until it was like much, much too late.

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Speaker 2: That reminds me so one of the reasons that we

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Speaker 2: are interviewing you here in Huntington Beach is because you

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Speaker 2: used to work at Pimco with Bill Gross. In the

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Speaker 2: last time we spoke to Bill Gross, I think was

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Speaker 2: actually at Huntington Beach two years ago, and one of

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Speaker 2: the things we spoke to him about was volatility selling,

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Speaker 2: and Bill kind of became the poster child for a

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Speaker 2: little bit of volatility selling, at least in the bond

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Speaker 2: market in the sort of like Guesse. It would have

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Speaker 2: been twenty fifteen around then, mid sort of twenty tens area.

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Speaker 2: I'm really curious who's selling fall now and how has

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Speaker 2: it changed over the course of your career.

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Speaker 4: Yeah, so a great little site point there. So Bill

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Speaker 4: and I've been great friends. As a matter of fact,

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Speaker 4: I went to pimcoll because I heard Bill speak at

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Speaker 4: a talk when he was advertising in book back in

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Speaker 4: two thousand and Bill's an amazing genius, great investor, and

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Speaker 4: one of the best compliments I got. Recently, I was

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Speaker 4: communicating with him and he said, I have your paper

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Speaker 4: at the top of my reading list and I said,

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Speaker 4: wish paper, Bill, And he said, this paper that I

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Speaker 4: wrote with Larry Harris on the volatility selling ecosystem that

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Speaker 4: basically you grew up before twenty eighteen. So yes, So

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Speaker 4: Bill actually in a sense invented the sole idea of

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Speaker 4: selling volatility in fixed income, especially through buying mortgages or

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Speaker 4: explicit selling of straddles and strangles and what we realized.

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Speaker 4: And again I was head of analytics at pimcos, so

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Speaker 4: over the last or over fifteen years or so I

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Speaker 4: was there, I got to see and help him manage

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Speaker 4: the quantitative risks of those portfolios. We ended up educating

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Speaker 4: a lot of our clients at that time about volatility selling, harvesting,

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Speaker 4: wall premiums and so on, which did end up adding

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Speaker 4: quite a bit of as Bill calls its structural alpha

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Speaker 4: to the Pimco portfolios and twenty thirty forty basis points

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Speaker 4: every year. What happened is that everybody got educated and

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Speaker 4: it became part of the academic lore and everybody realized it.

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Speaker 4: There was a lot of crowding, and it's a little

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Speaker 4: bit like selling insurance, right, so when you find that

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Speaker 4: one insurance policy selling works, then you say, why don't

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Speaker 4: become multi line insurance provider, so you start telling insurance

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Speaker 4: policy and everything. And so what has happened now over

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Speaker 4: my career it have gone from institutional selling, where first

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Speaker 4: of it was hedge funds, then it was large sophisticated

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Speaker 4: mutual funds like Pinco, who could actually still fit it

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Speaker 4: inside of the mutual fund complex because selling naked options

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Speaker 4: is not really allowed unless you cash back it. And

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Speaker 4: then over time it has now gone to all the

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Speaker 4: do it yourselfers, so all the wealth offices and family

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Speaker 4: offices and large endowments, and this whole area which is

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Speaker 4: now called alternative risk premiums, is based on this idea

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Speaker 4: that you can go and sell volatility in various forums

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Speaker 4: explicit forms or implicit forms to generate income. So everybody's

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Speaker 4: doing it.

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Speaker 2: Yeah, that's the answer. Everyone. Even more people are doing it.

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Speaker 2: So when we see alternative risk premia, it's basically a

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Speaker 2: vall selling overlay. Is that it?

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Speaker 4: Yeah, I mean you can make it more or less sophisticated.

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Speaker 4: I mean it's a little bit naive to say it's

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Speaker 4: only wall selling, but wall selling is a very important

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Speaker 4: component of it. And there were some great papers by

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Speaker 4: people from AKR who took every asset class, so equities, bonds, credit,

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Speaker 4: foreign exchange, and then also sliced stray down in various

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Speaker 4: types of strategy, style and quality and momentum and so on.

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Speaker 4: They made like a sixteen by sixteen matrix, and then

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Speaker 4: they recreated this what I'd consider to be more sophisticated

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Speaker 4: sounding ball selling, But it really is ball selling. And

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Speaker 4: what people do, just to be very clear, is it's

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Speaker 4: not just ball selling. They also layer on other things

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Speaker 4: like trend following on top of it to create a

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Speaker 4: counterbalance to the ball selling, because trend following is naturally

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Speaker 4: a ball liking or ball long ball type of strategy.

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Speaker 3: Going back to I hadn't realized that about the declining

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Speaker 3: or the collapsing liquid within the many futures. But is

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Speaker 3: there some sort of I don't know, law of thermodynamics

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Speaker 3: or something. I don't know if that's the term or

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Speaker 3: that's the analogy in market where such that when some

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Speaker 3: instrument becomes the hedging instrument of choice, the more popular

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Speaker 3: that gets, the less capacity there is for liquidity in

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Speaker 3: that instrument. Is that sort of what's going on?

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Speaker 4: Yeah, So in this case, the even futures contract are

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Speaker 4: basically a speculation vehicle. They're a cash equitization vehicle, so

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Speaker 4: they serve a lot of different purposes. But I think

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Speaker 4: the biggest thing that's going on here is that, starting

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Speaker 4: maybe about ten years ago and somewhat surreptitiously, the market

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Speaker 4: morphed from human market makers. So when I started trading,

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Speaker 4: it was human market makers. I still remember when I was,

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Speaker 4: you know, in the nineteen nineties, Tommy Baldwin on the

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Speaker 4: pit of the CBOT floor chicagoboard to trade floor. You know,

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Speaker 4: you would do a trade and Tommy Baldwin, and he

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Speaker 4: was legendary obviously, he would lift his hand up and

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Speaker 4: the market would stop and turn and go the other

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Speaker 4: way humans could do that.

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Speaker 2: Yeah, but what.

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Speaker 4: Happened surrepticiously or very strangely over the last fifteen or

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Speaker 4: ten years maybe, is that the human beings have sort

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Speaker 4: of left this market making area and ninety plus percent

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Speaker 4: is being made by bots. And what bots know very

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Speaker 4: well self survival is extremely important to them is as

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Speaker 4: soon as they see a liquidity tidal wave coming so

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Speaker 4: nami coming at them, they just get out of the way.

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Speaker 4: Liquidity just becomes very episodic and muhammadalarians to call it

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Speaker 4: latent ill liquidity, which is just the fixture of the

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Speaker 4: markets today. It looks liquid and when you don't need it,

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Speaker 4: it's there, but if you need it, it's not there.

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Speaker 2: So how do you actually deal with that as a trader?

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Speaker 4: Yeah, so as a trainer. So this comes back to

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Speaker 4: the role of options fundamentally, right, So what do options

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Speaker 4: in the world of quantitative finance. You can take an option,

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Speaker 4: you can replicate it by doing delta hedging and so on,

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Speaker 4: basically looking at the partial derivatives of an option pricing equation,

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Speaker 4: or you can say I'll just buy the option. An

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Speaker 4: option is a contractual agreement between you and the option provider.

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Speaker 4: So if there's ill liquidity, and if you believe this

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Speaker 4: is a fixture of the environment that we're going to

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Speaker 4: live in, then there is no other way than to

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Speaker 4: actually have a contractual agreement with somebody where you're delegating

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Speaker 4: the illiquidity is to them, so you are buying it

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Speaker 4: when the premium is cheaper. But trying to delta heget

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Speaker 4: yourself is like literally trying to put an elephant to

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Speaker 4: the eye of a needle. It's just people just cannot

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Speaker 4: work out. I mean, I just can't. I just can't

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Speaker 4: imagine the market collectively trying to get to that needle.

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Speaker 4: These days, there is just nothing there.

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Speaker 3: Let's talk about April for a second, and maybe that

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Speaker 3: period like between April second and April ninth, because there

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Speaker 3: was a market event, for sure, and it was also

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Speaker 3: a real economic event with many things going on that

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Speaker 3: weren't just lines on a chart, et cetera. And we

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Speaker 3: know it sort of happened there with the tariffs and

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Speaker 3: then the reversal of some of the tariffs and what

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Speaker 3: so forth. Since then, we've seen some of these correlation

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Speaker 3: breakdowns that some of our previous guests have talked about.

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Speaker 3: From your perspect active, you know, whether it's April second

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Speaker 3: and three, April ninth, or April second through Now, what

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Speaker 3: happened then such that maybe some maybe is it a

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Speaker 3: new regime? What changed in that month?

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Speaker 4: Yeah, So I think one of the thing that is

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Speaker 4: going on is we are slowly undergoing a regime shift.

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Speaker 4: And I'd like to always paint this picture, and I'll

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Speaker 4: come to your question right after I give you this

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Speaker 4: big macro picture. From the sixties to the eighties. Sixties

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Speaker 4: to the mid eighties, you had this period of rising inflation,

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Speaker 4: rising volatility, non credible central banks, and stuff was kind

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Speaker 4: of breaking and people were behind the curve. Then you

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Speaker 4: had the vulker increase of interest rates starting in the

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Speaker 4: nineteen eighties and until the maybe late twenties twenty twenty

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Speaker 4: call it twenty twenty one, COVID was an accelerant. You

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Speaker 4: got negative yels and falling volatility, credible central banks and

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Speaker 4: so on. And I think we've actually turned the corner again.

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Speaker 4: So starting in twenty twenty twenty one, I think we

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Speaker 4: are probably going to look more like the sixties to

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Speaker 4: eighty than nineteen eighty seven to twenty twenty. Now, having

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Speaker 4: put that backdrop, you know, in front of US. I

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Speaker 4: think the issue really comes back to, yes, there is

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Speaker 4: a regime shift, both in terms of people's response function

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Speaker 4: and how quickly things happen. So one data point that

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Speaker 4: I can realize since I started trading is in the past,

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Speaker 4: when crises would happen, even including the GFC, which I

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Speaker 4: lived through and did fairly well, it used to take months,

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Speaker 4: maybe weeks for things to correct, and you had time

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Speaker 4: to plan and time to execute. Then Vollmageddon maybe took

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Speaker 4: a few days twenty twenty COVID it maybe happened in

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Speaker 4: a few days to few hours, and then starting this year,

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Speaker 4: it feels like things are actually happening on an hourly

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Speaker 4: to maybe minute basis. For instance, in April, when the

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Speaker 4: big crash happened and the correction happened, all the action,

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Speaker 4: including some of our trading, happened in the pre pre market,

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Speaker 4: so the markets had not even opened up, and if

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Speaker 4: you needed to do something, you had to do it

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Speaker 4: during the night session because that's where all the action was.

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Speaker 4: So I think that's one fixture of what's going on

400
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Speaker 4: right now, is that stuff is happening much faster, and

401
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Speaker 4: it does feel like the balance that's tilted in the

402
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Speaker 4: favor of more automated trading rather than human driven trading.

403
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Speaker 2: Let me ask a philosophical question about tail risk protection,

404
00:20:14,000 --> 00:20:16,760
Speaker 2: which is, whenever there's a blow up, we suddenly get

405
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Speaker 2: all these stories about tail risk funds that have done

406
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Speaker 2: phenomenally well out of last month's chaos or whatever it

407
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Speaker 2: might be, and then no one talks about them for

408
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Speaker 2: like the next three years.

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Speaker 3: You don't know how they're bleeding dry during those other months, right.

410
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Speaker 2: That's right, until we got another blow up, and then

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Speaker 2: the cycle repeats itself in your mind, What is the

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Speaker 2: purpose of tail risk protection?

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Speaker 4: Yeah, this is very simple, and I've been trying to

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Speaker 4: do this. This is actually one of my missions since

415
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Speaker 4: I started our firm, is not just managing the risk,

416
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Speaker 4: but also trying to educate people and what the purposes.

417
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Speaker 4: This purpose is very similar to insurance, and not everybody

418
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Speaker 4: needs it. If you don't live in California earthquake prone

419
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Speaker 4: zone or in Florida hurricane and prones on, you don't

420
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Speaker 4: need the insurance. But if you're going to run a

421
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Speaker 4: large equity heavy portfolio, and by the way equities have

422
00:21:03,119 --> 00:21:05,560
Speaker 4: demonstrated over the last hundred years and maybe going forward,

423
00:21:06,200 --> 00:21:09,560
Speaker 4: are the one way to create long term wealth because

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Speaker 4: people go to work. The first thing I learned when

425
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Speaker 4: I was a city bank from my boss told me

426
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Speaker 4: was just look at log GDP versus log SMP. The

427
00:21:16,640 --> 00:21:19,520
Speaker 4: charts are aligned. Basically, if people work, the market goes up.

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Speaker 4: So what that means is that you need to be

429
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Speaker 4: invested in the stock market. And the more you invest

430
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Speaker 4: in the stock market, the more likely it is that

431
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Speaker 4: you're going to make higher compounded returns over time. But

432
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Speaker 4: also you will suffer big drawdowns. And one of the

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Speaker 4: biggest problems with people's behavioral function is that when the

434
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Speaker 4: markets collapse, they forget their plans and they liquidate. So

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Speaker 4: what tail risk fundamentally does. It's not a fund that

436
00:21:42,880 --> 00:21:45,600
Speaker 4: you should look at isolation and say is this fund

437
00:21:45,880 --> 00:21:47,840
Speaker 4: a good performer or not? Just like you would not

438
00:21:47,920 --> 00:21:50,879
Speaker 4: go back home and say, well, what was the total

439
00:21:50,880 --> 00:21:55,760
Speaker 4: return on my home insurance policy? Right? It's just negative percent?

440
00:21:55,920 --> 00:21:59,480
Speaker 4: Right every single year? So would you quit buying insurance?

441
00:21:59,640 --> 00:22:02,719
Speaker 4: You won't, because home insurance or car insurance is not

442
00:22:02,800 --> 00:22:05,879
Speaker 4: an investment. It is the cost of doing business. So

443
00:22:06,000 --> 00:22:08,240
Speaker 4: that's the context in which one should think about dail

444
00:22:08,320 --> 00:22:12,080
Speaker 4: risk catching is it allows you to first protect yourself

445
00:22:12,119 --> 00:22:14,760
Speaker 4: from yourself in that events, and then secondly, when the

446
00:22:14,760 --> 00:22:18,680
Speaker 4: markets are down, the value of those hedges going up

447
00:22:18,760 --> 00:22:21,520
Speaker 4: allows you to buy assets on the cheap, which results

448
00:22:21,520 --> 00:22:22,359
Speaker 4: in compounded growth.

449
00:22:22,560 --> 00:22:26,119
Speaker 3: Why hasn't Wall Street created an instrument where you could

450
00:22:26,160 --> 00:22:30,720
Speaker 3: sell away your liquidity to protecting from yourself automatically. I'm

451
00:22:30,760 --> 00:22:33,880
Speaker 3: going to invest in this fund and I cannot sell

452
00:22:34,000 --> 00:22:35,280
Speaker 3: until the year twenty sixty.

453
00:22:35,520 --> 00:22:36,679
Speaker 2: Isn't that called lockups?

454
00:22:36,880 --> 00:22:39,399
Speaker 3: But to those funds that actually exist, could I buy that?

455
00:22:39,480 --> 00:22:43,000
Speaker 3: And then there's two things that intuitively seem that A.

456
00:22:43,160 --> 00:22:48,400
Speaker 3: You protect yourself from yourself. B You diversify automatically by

457
00:22:48,440 --> 00:22:51,960
Speaker 3: the fact that you're across time. And then see presumably

458
00:22:52,080 --> 00:22:55,320
Speaker 3: that would be more stable for securities, lending and collect

459
00:22:55,320 --> 00:22:58,640
Speaker 3: the little instrument? Has Wall Street created a fund that

460
00:22:58,680 --> 00:22:59,600
Speaker 3: one can't get out of?

461
00:23:00,000 --> 00:23:02,719
Speaker 4: I think, like Chrissie just mentioned, hedge funds like to

462
00:23:02,720 --> 00:23:03,679
Speaker 4: have lock ups, and.

463
00:23:04,600 --> 00:23:06,440
Speaker 3: I should just be able to buy an e TF

464
00:23:06,480 --> 00:23:07,120
Speaker 3: that I can't sell.

465
00:23:07,240 --> 00:23:10,040
Speaker 4: Yeah, I think that if you can get over the regulators.

466
00:23:10,040 --> 00:23:11,880
Speaker 4: I think that we are living in a world where

467
00:23:12,000 --> 00:23:14,560
Speaker 4: mark to market daily and av et cetera. For ETFs

468
00:23:14,640 --> 00:23:17,560
Speaker 4: and port transparency is required but I do think. I mean,

469
00:23:17,640 --> 00:23:20,720
Speaker 4: one one very sophisticated institutional investor who was a client

470
00:23:20,720 --> 00:23:24,439
Speaker 4: of ours actually said I would bay you more if

471
00:23:24,480 --> 00:23:26,360
Speaker 4: you sold me a product that actually had a longer lock.

472
00:23:26,480 --> 00:23:29,639
Speaker 3: Because this is a question I have about portfolios and

473
00:23:29,720 --> 00:23:32,399
Speaker 3: diversification in general, and it goes back to the point

474
00:23:32,400 --> 00:23:34,800
Speaker 3: that you made about how stocks have done very well

475
00:23:35,000 --> 00:23:38,720
Speaker 3: and the expectation is that as long as the economy growers,

476
00:23:38,720 --> 00:23:41,840
Speaker 3: stocks will continue to do well for a while. Sixty

477
00:23:41,960 --> 00:23:44,760
Speaker 3: forty was a craze, right, and this is a good

478
00:23:44,760 --> 00:23:48,000
Speaker 3: portfolio over your treasury is and your stocks balance out.

479
00:23:48,280 --> 00:23:51,720
Speaker 3: But why should like, what is the case for diversification,

480
00:23:52,080 --> 00:23:55,520
Speaker 3: Let's say, sitting aside the behavioral fact that people sell

481
00:23:55,560 --> 00:23:58,720
Speaker 3: it the lows, what is the case for diversification when

482
00:23:58,760 --> 00:24:01,520
Speaker 3: there is this asset class that does so well over time?

483
00:24:02,000 --> 00:24:04,160
Speaker 4: Yeah, so this is great. Though, if you could guarantee

484
00:24:04,160 --> 00:24:06,280
Speaker 4: that this asset class would keep growing always, then you

485
00:24:06,280 --> 00:24:09,080
Speaker 4: woul one hundred percent be on stuff. Now, what bonds

486
00:24:09,080 --> 00:24:12,640
Speaker 4: traditionally used to do was they provided you with income

487
00:24:13,080 --> 00:24:15,200
Speaker 4: that when the stock market wasn't doing well, at least

488
00:24:15,200 --> 00:24:17,399
Speaker 4: you wouldn't go completely broke because you would have some yield.

489
00:24:17,840 --> 00:24:19,359
Speaker 4: But I think it got taken to an extreme right,

490
00:24:19,400 --> 00:24:20,760
Speaker 4: I mean to the greatest example, and I wrote a

491
00:24:20,800 --> 00:24:23,680
Speaker 4: whole book on this topic is is the European Central

492
00:24:23,720 --> 00:24:26,160
Speaker 4: Bank followed the Japanese Central Bank and then they start

493
00:24:26,200 --> 00:24:28,600
Speaker 4: buying it negative yields. Yeah, and they convinced all the

494
00:24:28,640 --> 00:24:31,440
Speaker 4: indexers to keep buying bonds with them, right, I mean

495
00:24:31,440 --> 00:24:33,480
Speaker 4: think about this. You were buying bonds, meaning you were

496
00:24:33,520 --> 00:24:36,120
Speaker 4: lending somebody money and you were paying them interest. And

497
00:24:36,200 --> 00:24:38,600
Speaker 4: at that point, diversification is an insult. I mean, you

498
00:24:38,640 --> 00:24:42,399
Speaker 4: don't want to buy a negatively yielding bond along with

499
00:24:42,480 --> 00:24:45,040
Speaker 4: stocks because it does nothing for you. And we're living

500
00:24:45,080 --> 00:24:48,000
Speaker 4: the consequences of it today because the bond market over

501
00:24:48,000 --> 00:24:50,000
Speaker 4: the last five or seven or ten years even has

502
00:24:50,080 --> 00:24:52,639
Speaker 4: had absolutely dismal zero turns.

503
00:24:53,040 --> 00:24:55,840
Speaker 2: Joe, do you think people who want positive yielding bonds

504
00:24:55,840 --> 00:24:56,840
Speaker 2: are entitled still?

505
00:24:56,920 --> 00:24:59,600
Speaker 3: That was your tradition. Yeah, I still think that. I

506
00:24:59,600 --> 00:25:03,280
Speaker 3: still don't. Anyone is entitled to yield. No, I don't.

507
00:25:03,359 --> 00:25:04,879
Speaker 3: If you want to take the risk, go get it.

508
00:25:05,119 --> 00:25:07,720
Speaker 3: But the sort of moral demands that the government must

509
00:25:07,800 --> 00:25:10,760
Speaker 3: provide you yield for what for not spending and doing anything?

510
00:25:10,800 --> 00:25:11,280
Speaker 3: Give me a break.

511
00:25:11,520 --> 00:25:14,240
Speaker 2: Joe spent a good year making fun of yielding.

512
00:25:16,160 --> 00:25:19,080
Speaker 3: That's great, go out collect your yield. I'm happy for you,

513
00:25:19,240 --> 00:25:21,520
Speaker 3: But don't pretend that it's some sort of moral insult

514
00:25:21,600 --> 00:25:24,359
Speaker 3: that the government isn't providing you risk for yield. That

515
00:25:24,480 --> 00:25:26,359
Speaker 3: is my only that is my only stamp.

516
00:25:26,600 --> 00:25:30,560
Speaker 2: That's I would argue, the US government's most important role. Anyway,

517
00:25:30,880 --> 00:25:32,720
Speaker 2: Let's go back for a second. So it's not just

518
00:25:32,880 --> 00:25:35,280
Speaker 2: the insurance idea you touched on this, but it's also

519
00:25:35,320 --> 00:25:37,600
Speaker 2: the idea that, like, you can get a massive windfall

520
00:25:37,680 --> 00:25:39,840
Speaker 2: when there's a market crash, and then you can use

521
00:25:39,920 --> 00:25:42,560
Speaker 2: that money to actually go on a buying spree at

522
00:25:42,600 --> 00:25:45,639
Speaker 2: a time when markets are cheap and everyone else is

523
00:25:45,800 --> 00:25:47,960
Speaker 2: you know, short on cash and they can't do the same.

524
00:25:48,680 --> 00:25:51,320
Speaker 2: How do you actually deploy that into practice, and how

525
00:25:51,320 --> 00:25:54,919
Speaker 2: do you scale, for instance, and expected windfall against that

526
00:25:55,040 --> 00:25:57,560
Speaker 2: type of assets that you could potentially buy.

527
00:25:57,840 --> 00:26:01,080
Speaker 4: Yeah, I think this is where the principles thinking becomes

528
00:26:01,160 --> 00:26:03,600
Speaker 4: really important. So you have to look at every portfolio

529
00:26:03,680 --> 00:26:05,879
Speaker 4: is different, right. So one of the other mistakes I

530
00:26:05,920 --> 00:26:07,920
Speaker 4: think people make is they think you can just pick

531
00:26:08,000 --> 00:26:09,640
Speaker 4: up a finance one on one book and say every

532
00:26:09,640 --> 00:26:12,240
Speaker 4: portfolio is identical. It's all risk neutral, and everybody is

533
00:26:12,280 --> 00:26:15,399
Speaker 4: exactly the same. It's just not the case. Public fund

534
00:26:15,440 --> 00:26:18,320
Speaker 4: that has a forty percent or fifty percent funded ratio

535
00:26:18,440 --> 00:26:21,520
Speaker 4: is very different than a ninety percent or a bank

536
00:26:21,600 --> 00:26:23,719
Speaker 4: that's one hundred and twenty percent fully funded, right, so

537
00:26:24,000 --> 00:26:26,080
Speaker 4: everybody has different needs. The first thing that you do

538
00:26:26,200 --> 00:26:29,840
Speaker 4: is you look at the underlying portfolio's posture. How much

539
00:26:30,040 --> 00:26:33,600
Speaker 4: loss can you take, look at the systemic risk shocks

540
00:26:33,600 --> 00:26:35,800
Speaker 4: that they can actually withstand. So you run a shock,

541
00:26:35,840 --> 00:26:39,240
Speaker 4: you run a full distribution analysis and figure out what

542
00:26:39,400 --> 00:26:42,760
Speaker 4: is the outcome under which they will be under so

543
00:26:42,880 --> 00:26:45,320
Speaker 4: much distress or so much duress that they might end

544
00:26:45,400 --> 00:26:47,840
Speaker 4: up having to liquidate assets. And there are actually quite

545
00:26:47,880 --> 00:26:50,000
Speaker 4: a few like that right now, where if the stock

546
00:26:50,040 --> 00:26:52,840
Speaker 4: market went down twenty percent and privates went down about

547
00:26:52,840 --> 00:26:56,320
Speaker 4: twenty percent, in order to raise liquidity for distribution, they

548
00:26:56,359 --> 00:26:59,480
Speaker 4: would have to actually sell seed corn, right. So it's

549
00:26:59,560 --> 00:27:02,480
Speaker 4: really really bad. So that's an existential risk that you

550
00:27:02,840 --> 00:27:04,840
Speaker 4: want to quantify. So the first thing that you do

551
00:27:04,880 --> 00:27:06,520
Speaker 4: is you figure out what that risk is a full

552
00:27:06,560 --> 00:27:10,080
Speaker 4: distribution of outcomes, and then you look at the instrument

553
00:27:10,200 --> 00:27:12,919
Speaker 4: set that's out there in the marketplace. Starting from the

554
00:27:12,920 --> 00:27:17,480
Speaker 4: most reliable and surprisingly enough, like Joe mentioned already, the

555
00:27:17,560 --> 00:27:21,440
Speaker 4: cheapest one, which is equity option volatility. You can buy

556
00:27:21,440 --> 00:27:25,320
Speaker 4: those put options, but people who are not willing to

557
00:27:25,640 --> 00:27:28,360
Speaker 4: be a lot of continuous premium, you can do more

558
00:27:28,400 --> 00:27:31,639
Speaker 4: sophisticated tricks where you can buy indirect heages, for instance,

559
00:27:31,680 --> 00:27:34,320
Speaker 4: credit to false opts. Today, the CDX index, if you

560
00:27:34,320 --> 00:27:37,280
Speaker 4: don't see the charts, it's actually tighter than it was

561
00:27:37,600 --> 00:27:40,560
Speaker 4: pre the GFC. It's the tightest has ever been because

562
00:27:40,600 --> 00:27:43,439
Speaker 4: people are buying it for cosmetic yield reasons, so there

563
00:27:43,440 --> 00:27:46,600
Speaker 4: are a lot of derivative instrumental Cosmetic yield simply means

564
00:27:46,640 --> 00:27:49,119
Speaker 4: that the total yield, if you look at the yield

565
00:27:49,200 --> 00:27:52,520
Speaker 4: of a corporate bond today, it is basically treasury yield

566
00:27:52,880 --> 00:27:55,120
Speaker 4: plus some spreads. So the treasure yields are at quite

567
00:27:55,240 --> 00:27:58,080
Speaker 4: four and a half four percent, but the spreads are

568
00:27:58,080 --> 00:28:00,679
Speaker 4: actually very tight, only fifty basis points to see the X,

569
00:28:00,840 --> 00:28:03,879
Speaker 4: So you're getting a five percent six percent yield, which

570
00:28:03,920 --> 00:28:05,680
Speaker 4: in the context of where we were three years ago,

571
00:28:05,720 --> 00:28:06,240
Speaker 4: it looks.

572
00:28:06,000 --> 00:28:07,520
Speaker 3: Like it's cosmetic.

573
00:28:07,760 --> 00:28:11,439
Speaker 4: It looks good, it looks good, but actually you are

574
00:28:11,600 --> 00:28:15,160
Speaker 4: taking that risk. Okay, keep going that it's a cosmetic yield.

575
00:28:15,160 --> 00:28:18,000
Speaker 4: You're decorated yield, So to me, the yield is not

576
00:28:18,040 --> 00:28:20,600
Speaker 4: justified by the risks that I underlied. So there's various

577
00:28:20,600 --> 00:28:23,040
Speaker 4: instruments that you can use and create a portfolio of

578
00:28:23,080 --> 00:28:24,080
Speaker 4: these types of hedges.

579
00:28:39,760 --> 00:28:43,720
Speaker 3: Is tailor risk hedging like insurance from as from a

580
00:28:43,760 --> 00:28:46,880
Speaker 3: structure of how people buy it? Is it like insurance

581
00:28:46,880 --> 00:28:50,720
Speaker 3: where people sort of reload every year in a sort

582
00:28:50,760 --> 00:28:53,320
Speaker 3: of okay start of the new year. What is the

583
00:28:53,360 --> 00:28:55,680
Speaker 3: tail risk I want to put on et cetera, or

584
00:28:55,720 --> 00:28:57,560
Speaker 3: something that renews and they have to keep paying a

585
00:28:57,600 --> 00:28:59,959
Speaker 3: fee or is it just sort of something that can

586
00:29:00,200 --> 00:29:03,480
Speaker 3: be set it and forget it a permanent allocation. That's

587
00:29:03,520 --> 00:29:05,840
Speaker 3: sort of the tail risk heage. Like talk to us

588
00:29:05,880 --> 00:29:08,080
Speaker 3: about the business of selling a tail risk cage.

589
00:29:08,160 --> 00:29:10,560
Speaker 4: Yeah, definitely. So it goes up to the highest level

590
00:29:10,640 --> 00:29:13,760
Speaker 4: where this becomes part of where you guys started portfolio construction.

591
00:29:13,800 --> 00:29:16,680
Speaker 4: It's an acid allocation decision. It's not a trade. So

592
00:29:16,720 --> 00:29:19,280
Speaker 4: the context has to be that if the agents are

593
00:29:19,320 --> 00:29:22,760
Speaker 4: aligned up meaning boards and trustees and so on, they

594
00:29:22,800 --> 00:29:25,960
Speaker 4: think of this decision as protecting the portfolio or making

595
00:29:25,960 --> 00:29:29,600
Speaker 4: a more robust portfolio. As part of the DNA and

596
00:29:30,000 --> 00:29:31,440
Speaker 4: the tail risk becomes part of the how you re

597
00:29:31,440 --> 00:29:34,040
Speaker 4: balance your portfolio over the long term. Okay, so that's

598
00:29:34,040 --> 00:29:37,280
Speaker 4: how you set up the strategic portfolio. But then to

599
00:29:37,320 --> 00:29:41,960
Speaker 4: your point, every year, yes, you have to renew this policy.

600
00:29:42,000 --> 00:29:44,680
Speaker 4: You re have to have to recommit premiums. Now you

601
00:29:44,680 --> 00:29:47,040
Speaker 4: can prefund for the next five years if you wanted to.

602
00:29:47,560 --> 00:29:51,120
Speaker 4: But because options decay, in order to have this reliable heade,

603
00:29:51,160 --> 00:29:53,720
Speaker 4: you sort of have to buy new options.

604
00:29:54,520 --> 00:29:56,880
Speaker 2: What would be the worst kind of tail risk hedging

605
00:29:56,960 --> 00:29:59,440
Speaker 2: in your view? Is it, you know, too expensive or

606
00:29:59,480 --> 00:30:01,760
Speaker 2: does it not actually work when there is a big

607
00:30:01,800 --> 00:30:02,360
Speaker 2: market crash?

608
00:30:02,440 --> 00:30:02,480
Speaker 3: Like?

609
00:30:02,520 --> 00:30:06,080
Speaker 2: What is the ultimate sin of a tail risk strategy?

610
00:30:06,240 --> 00:30:09,240
Speaker 4: Ultimate sin absolutely is the one where promises to work

611
00:30:09,240 --> 00:30:11,120
Speaker 4: but doesn't work. Right, So a lot of people try

612
00:30:11,160 --> 00:30:14,560
Speaker 4: to reduce your costs by creating synthetic strategies.

613
00:30:14,640 --> 00:30:14,720
Speaker 2: Right.

614
00:30:14,760 --> 00:30:17,600
Speaker 4: I already mentioned futures markets aren't very deep when you

615
00:30:17,680 --> 00:30:20,360
Speaker 4: need them. But there's a lot of strategies which actually

616
00:30:20,680 --> 00:30:24,120
Speaker 4: use a future's replication strategy like the nineteen eighty seven

617
00:30:24,160 --> 00:30:27,320
Speaker 4: crash also purported to do. And those strategies typically don't work.

618
00:30:27,720 --> 00:30:30,320
Speaker 4: And so there's many that promise and they look like

619
00:30:30,520 --> 00:30:34,320
Speaker 4: they are cheaper and they don't cost any bleed, but

620
00:30:34,440 --> 00:30:36,840
Speaker 4: they also do not deliver, which, again going back to

621
00:30:37,000 --> 00:30:40,800
Speaker 4: April second, the only thing that worked during that April

622
00:30:40,800 --> 00:30:45,960
Speaker 4: second to April eighth period was reliable hedging using index options.

623
00:30:46,360 --> 00:30:48,760
Speaker 4: Not that duration didn't work. Tr and following didn't work

624
00:30:48,920 --> 00:30:52,000
Speaker 4: a lot of other ult eupremium strategies didn't work. So

625
00:30:52,080 --> 00:30:54,640
Speaker 4: that is the cardinal's sin. You just do not have

626
00:30:54,680 --> 00:30:58,480
Speaker 4: the luxury to go to the constituency of clients whoever's

627
00:30:58,480 --> 00:31:00,480
Speaker 4: bought it and said, you know, we're to be too

628
00:31:00,480 --> 00:31:01,880
Speaker 4: smart and oops, it didn't work.

629
00:31:02,240 --> 00:31:05,840
Speaker 3: Yeah, as you mentioned that, to even talk about buying

630
00:31:05,880 --> 00:31:08,440
Speaker 3: a tail risk, heade, you have to sort of understand

631
00:31:08,520 --> 00:31:11,600
Speaker 3: is what is the existential risk for the fund? And

632
00:31:11,640 --> 00:31:15,080
Speaker 3: different funds have different flavors of existential risk depending on

633
00:31:15,120 --> 00:31:18,320
Speaker 3: how funded they are, And so obviously an entity that's

634
00:31:18,320 --> 00:31:20,200
Speaker 3: one hundred and twenty percent funded is going to have

635
00:31:20,280 --> 00:31:23,440
Speaker 3: very different risk scenarios than one that's forty percent funded.

636
00:31:23,600 --> 00:31:25,920
Speaker 3: But you said something interesting, which is that and I've

637
00:31:25,920 --> 00:31:27,840
Speaker 3: been thinking about this a lot in a different context,

638
00:31:27,840 --> 00:31:31,120
Speaker 3: which is how levered is the financial system or the

639
00:31:31,120 --> 00:31:34,320
Speaker 3: real economy to an ongoing rise in the stock market.

640
00:31:34,400 --> 00:31:37,040
Speaker 3: How important is that? And at what point does even

641
00:31:37,040 --> 00:31:41,960
Speaker 3: a sideways stock market, let alone to decline, become risky

642
00:31:42,240 --> 00:31:44,600
Speaker 3: for something that could break. And you know, we used

643
00:31:44,600 --> 00:31:46,240
Speaker 3: to think credit is the thing that breaks, but I

644
00:31:46,280 --> 00:31:48,080
Speaker 3: wonder if it's in the stock area thing. Now where

645
00:31:48,120 --> 00:31:50,280
Speaker 3: you really get the problem with the equity values don't

646
00:31:50,280 --> 00:31:52,840
Speaker 3: go up? Tell us more about what you said about

647
00:31:53,120 --> 00:31:57,400
Speaker 3: what happens to various types of economically important players. If

648
00:31:57,640 --> 00:32:00,880
Speaker 3: the stock market one day stops going up for sustained

649
00:32:00,880 --> 00:32:01,720
Speaker 3: period of time.

650
00:32:01,760 --> 00:32:02,880
Speaker 4: I think you have a big problem.

651
00:32:03,000 --> 00:32:03,120
Speaker 2: Right.

652
00:32:03,160 --> 00:32:06,000
Speaker 4: So not only is the stock the whole system for

653
00:32:06,200 --> 00:32:08,520
Speaker 4: one ks and public pensions, they're all levered up to

654
00:32:08,520 --> 00:32:10,920
Speaker 4: the stock market because that's the only way you can

655
00:32:10,960 --> 00:32:12,840
Speaker 4: get to your seven and a half or eight percent

656
00:32:12,880 --> 00:32:15,520
Speaker 4: actual yield. So if the stock market doesn't keep going

657
00:32:15,600 --> 00:32:17,720
Speaker 4: up and keep delivering those kind of returns, it's very

658
00:32:17,720 --> 00:32:20,840
Speaker 4: hard to get to that point. Maybe if inflation rises,

659
00:32:20,840 --> 00:32:23,960
Speaker 4: at least again cosmetically, maybe the long bond gets up

660
00:32:23,960 --> 00:32:26,240
Speaker 4: to seven percent or eight percent and everybody can just

661
00:32:26,280 --> 00:32:29,080
Speaker 4: lock it in and immunize and you're there. But in

662
00:32:29,160 --> 00:32:31,120
Speaker 4: real terms, you're not going to have the income that

663
00:32:31,200 --> 00:32:33,000
Speaker 4: you need thirty years from now to retire.

664
00:32:33,320 --> 00:32:33,760
Speaker 1: I'm fine.

665
00:32:33,800 --> 00:32:36,440
Speaker 3: I have a Zurperer mortgage. Yeah, so I have a

666
00:32:36,520 --> 00:32:39,160
Speaker 3: mortgage that's locked in from that one keep week period

667
00:32:39,160 --> 00:32:39,440
Speaker 3: of time.

668
00:32:39,520 --> 00:32:41,840
Speaker 4: Yeah, exactly. So the system is very levered. And then

669
00:32:41,920 --> 00:32:44,920
Speaker 4: corporate credit clearly is very very concentrated. We all read

670
00:32:44,920 --> 00:32:47,720
Speaker 4: about pains and so on, but corporate credit, based on

671
00:32:47,760 --> 00:32:52,000
Speaker 4: the Mertin model again that connects equities to corporate credit spreads,

672
00:32:52,080 --> 00:32:53,680
Speaker 4: is also levered to the stock market. So if the

673
00:32:53,680 --> 00:32:56,960
Speaker 4: stock market suddenly had a big sell off, corporate credits

674
00:32:57,000 --> 00:33:00,760
Speaker 4: wide Now, which is the real problem, right, because if

675
00:33:00,760 --> 00:33:03,640
Speaker 4: corporate credit widens out and the cost of borrowing goes

676
00:33:03,720 --> 00:33:07,360
Speaker 4: up for all the corporations, maybe not the Fang stocks,

677
00:33:07,360 --> 00:33:09,880
Speaker 4: but the four hundred and ninety three other stocks, then

678
00:33:09,920 --> 00:33:12,920
Speaker 4: how does the system produce? Because our whole system is

679
00:33:12,960 --> 00:33:16,920
Speaker 4: based on borrowing and I don't think very many companies

680
00:33:16,960 --> 00:33:20,120
Speaker 4: in the US can function if your cost of operating

681
00:33:20,120 --> 00:33:21,440
Speaker 4: your business was ten percent a year.

682
00:33:22,640 --> 00:33:24,800
Speaker 2: Okay, Well, on that note, we would be remiss to

683
00:33:24,800 --> 00:33:27,400
Speaker 2: have a tail risk person here and not ask what's

684
00:33:27,440 --> 00:33:29,880
Speaker 2: the big risk that you see on the horizon in

685
00:33:30,160 --> 00:33:32,200
Speaker 2: let's just say the short to medium term.

686
00:33:32,840 --> 00:33:34,920
Speaker 4: So I think for me, The biggest risk right now

687
00:33:35,160 --> 00:33:37,720
Speaker 4: is what people have been talking about is, you know,

688
00:33:37,760 --> 00:33:40,480
Speaker 4: the so called and I call it so called the

689
00:33:40,480 --> 00:33:43,520
Speaker 4: FED independent paradigm shift, because I don't believe the FED

690
00:33:43,600 --> 00:33:46,560
Speaker 4: was ever really fully independent. But now it's coming to

691
00:33:46,600 --> 00:33:49,280
Speaker 4: the foe that the fiscal and monetary authority they're actually one.

692
00:33:49,360 --> 00:33:53,080
Speaker 4: So what happens in the aftermath if the FED actually

693
00:33:53,120 --> 00:33:57,160
Speaker 4: becomes part of the central government the fiscal authorities. I

694
00:33:57,160 --> 00:33:59,440
Speaker 4: think at that point all bets are off because that's

695
00:33:59,480 --> 00:34:04,200
Speaker 4: the one anchor that everybody, whether realistically or not, has

696
00:34:04,360 --> 00:34:07,920
Speaker 4: held onto. But if interest rates can change just based

697
00:34:08,040 --> 00:34:13,319
Speaker 4: on the need to finance something, that totally upside down

698
00:34:13,400 --> 00:34:15,360
Speaker 4: the financial system. So to me, that's the single biggest

699
00:34:15,440 --> 00:34:16,000
Speaker 4: risk right now.

700
00:34:16,040 --> 00:34:19,840
Speaker 2: So would that materialize into an inflationary risk for instance,

701
00:34:19,880 --> 00:34:22,120
Speaker 2: and then would you be focused on what you can

702
00:34:22,160 --> 00:34:22,960
Speaker 2: do to offset that?

703
00:34:23,320 --> 00:34:25,480
Speaker 4: Yeah, inflationary risk and I think one of the best

704
00:34:25,520 --> 00:34:28,000
Speaker 4: option traits. Again this is not a direct option. So

705
00:34:28,040 --> 00:34:30,200
Speaker 4: going back to what you were asking before, you don't

706
00:34:30,239 --> 00:34:34,040
Speaker 4: always just have to pay premium. The yield curve steepener

707
00:34:34,320 --> 00:34:37,239
Speaker 4: where you buy the short end of the yield curve

708
00:34:37,360 --> 00:34:39,359
Speaker 4: and you sell the long end of the yield curve

709
00:34:39,840 --> 00:34:42,040
Speaker 4: Today you can do it through using swaps and all

710
00:34:42,120 --> 00:34:44,760
Speaker 4: that for essentially zero net carry. So here's an option

711
00:34:44,920 --> 00:34:47,640
Speaker 4: very similar to shorting the negatively liding bond market in

712
00:34:47,680 --> 00:34:49,799
Speaker 4: Europe a few years ago, where if you put a

713
00:34:49,800 --> 00:34:53,359
Speaker 4: youth curve steepener on either in a hyper inflationary maybe

714
00:34:53,360 --> 00:34:56,880
Speaker 4: not hyper but a lot high inflationary scenario, or in

715
00:34:56,920 --> 00:35:00,719
Speaker 4: an aggressive FED cut, the yield curve steepens. So yes,

716
00:35:00,800 --> 00:35:03,000
Speaker 4: so that environment is the environment in which the curve

717
00:35:03,040 --> 00:35:07,640
Speaker 4: steeper could work. And yes, my zero to order prior

718
00:35:07,680 --> 00:35:11,239
Speaker 4: forecast would be that if we lose explicit independence of

719
00:35:11,280 --> 00:35:13,560
Speaker 4: the FED, the yield curve actually steepens a lot more.

720
00:35:13,960 --> 00:35:16,560
Speaker 3: Something I'm interested in. So, you know, you're talking about

721
00:35:16,680 --> 00:35:20,839
Speaker 3: the recent eras and the sixties and eighties and things

722
00:35:20,920 --> 00:35:22,520
Speaker 3: may have gotten a little on glued, and then the

723
00:35:22,640 --> 00:35:25,000
Speaker 3: Vulgar era and then the post COVID era, and now

724
00:35:25,200 --> 00:35:29,560
Speaker 3: this question about whether what's left of FED independence is

725
00:35:29,600 --> 00:35:32,239
Speaker 3: at risk. You know, you're a physicist, and are a

726
00:35:32,280 --> 00:35:34,920
Speaker 3: lot of people in your space are mathematicians. Is there

727
00:35:34,960 --> 00:35:37,719
Speaker 3: a limit to how much you can sort of math

728
00:35:37,760 --> 00:35:39,839
Speaker 3: it out, so to speak, Because a lot of these

729
00:35:39,960 --> 00:35:43,480
Speaker 3: questions are external to mathematics, and so how do you

730
00:35:43,560 --> 00:35:48,320
Speaker 3: think about the limits of quantitative analysis when we're dealing

731
00:35:48,360 --> 00:35:51,480
Speaker 3: with things like will the political system allow the Federal

732
00:35:51,480 --> 00:35:52,719
Speaker 3: Reserve to remain independent?

733
00:35:52,920 --> 00:35:55,480
Speaker 4: Yeah, I think a lot of it is actually non quantitative.

734
00:35:55,520 --> 00:35:57,000
Speaker 4: And what I've learned, even though I come from a

735
00:35:57,080 --> 00:36:00,440
Speaker 4: quantitative background, is not the math itself, but it's the

736
00:36:00,600 --> 00:36:02,680
Speaker 4: sequence of logical arguments that you can make to get

737
00:36:02,719 --> 00:36:05,000
Speaker 4: to a conclusion. Right. So, for instance, we knew even

738
00:36:05,000 --> 00:36:09,279
Speaker 4: before fancy mathematics was discovered, you know, Lagrongins and so on,

739
00:36:09,360 --> 00:36:13,120
Speaker 4: that gravity exists. Gravity's existence has been known before maybe

740
00:36:13,160 --> 00:36:16,319
Speaker 4: math was invented, but gravity has been there. And so

741
00:36:16,360 --> 00:36:19,480
Speaker 4: I think there's some central laws of finance which will

742
00:36:19,480 --> 00:36:23,600
Speaker 4: still continue to exist regardless of the mathematical modeling of them.

743
00:36:24,120 --> 00:36:25,800
Speaker 4: And you know, the Bill Grows When I used to

744
00:36:25,840 --> 00:36:28,440
Speaker 4: work with him, he used to say, some things we

745
00:36:28,480 --> 00:36:32,239
Speaker 4: can take for granted I'm paraphrasing it, but the steepness

746
00:36:32,239 --> 00:36:33,839
Speaker 4: of the youth curb, the fact that the youth curve

747
00:36:33,880 --> 00:36:37,400
Speaker 4: needs to be upward sloped for the financial system to function,

748
00:36:37,440 --> 00:36:39,960
Speaker 4: because people lend money in order to get something in return.

749
00:36:40,480 --> 00:36:43,480
Speaker 4: Those are not mathematical devices. Those are really just the

750
00:36:43,480 --> 00:36:46,200
Speaker 4: way the capitalist system works. So I think you can

751
00:36:46,280 --> 00:36:49,920
Speaker 4: take the quantitative modeling to its own limit. But there

752
00:36:49,960 --> 00:36:53,399
Speaker 4: are certain things that have happened in our system where

753
00:36:53,440 --> 00:36:56,360
Speaker 4: we are a point now where gravity so to speak

754
00:36:56,440 --> 00:36:58,520
Speaker 4: of the financial markets are going to have to take over.

755
00:36:59,239 --> 00:37:02,680
Speaker 2: But presumably also if you can't predict the politics, because

756
00:37:02,760 --> 00:37:05,760
Speaker 2: it's very difficult, especially nowadays, if you can't predict the politics,

757
00:37:05,760 --> 00:37:09,080
Speaker 2: then maybe right sizing your positions becomes more important, and

758
00:37:09,120 --> 00:37:12,880
Speaker 2: so the maths actually becomes one way of dealing with

759
00:37:12,960 --> 00:37:17,200
Speaker 2: the very uncertainty, non mathematical element of what's going on.

760
00:37:17,640 --> 00:37:19,560
Speaker 4: Yeah, exactly. And I think to take that point one

761
00:37:19,600 --> 00:37:24,160
Speaker 4: step further, so correlation has been the greatest gift since

762
00:37:24,200 --> 00:37:26,800
Speaker 4: the nineteen mid eighties to twenty twenty. Right, so you

763
00:37:26,880 --> 00:37:29,960
Speaker 4: got stocks and bonds to say sixty forty. Stocks went up,

764
00:37:29,960 --> 00:37:31,880
Speaker 4: bonds went up, and they were diversifying, which is what

765
00:37:31,920 --> 00:37:33,880
Speaker 4: a beautiful place to be in, right, sounds nice? Ye,

766
00:37:34,320 --> 00:37:36,399
Speaker 4: So that was a freebe And again this goes back

767
00:37:36,400 --> 00:37:39,600
Speaker 4: to financial gravity, so to speak, that state of affairs

768
00:37:39,719 --> 00:37:41,920
Speaker 4: that free lunch should not exist. So I think we

769
00:37:42,000 --> 00:37:44,720
Speaker 4: might be entering a phase where stocks and bonds maybe

770
00:37:44,800 --> 00:37:47,960
Speaker 4: are actually not diversifying, and you have to look at

771
00:37:47,960 --> 00:37:50,440
Speaker 4: other things gold, of course, as you mentioned, maybe bitcoin,

772
00:37:50,960 --> 00:37:54,720
Speaker 4: who knows. But I think the fact that reliable insurance

773
00:37:54,920 --> 00:37:59,200
Speaker 4: or portfolio protection is so available today using the options

774
00:37:59,280 --> 00:38:01,439
Speaker 4: market would be the place where I would look.

775
00:38:02,360 --> 00:38:04,640
Speaker 3: When you look at the long end of the yield

776
00:38:04,719 --> 00:38:08,319
Speaker 3: curve today in the US, is there an element in

777
00:38:08,360 --> 00:38:12,000
Speaker 3: which these concerns about the loss of FED independence are

778
00:38:12,040 --> 00:38:16,000
Speaker 3: being priced in right now? If suddenly you could snap

779
00:38:16,000 --> 00:38:19,560
Speaker 3: your finger and know for a fact that the federalill

780
00:38:19,560 --> 00:38:21,359
Speaker 3: operate it as it has been for the last twenty

781
00:38:21,440 --> 00:38:24,000
Speaker 3: years for the next twenty years, would there be a change?

782
00:38:24,040 --> 00:38:26,040
Speaker 3: Is there some margin that's concerned there?

783
00:38:26,080 --> 00:38:26,400
Speaker 4: You know what?

784
00:38:26,719 --> 00:38:27,880
Speaker 3: I don't know if the FED is going to be

785
00:38:27,920 --> 00:38:30,239
Speaker 3: a committed inflation fighter as well as it has been

786
00:38:30,320 --> 00:38:33,280
Speaker 3: in the past. Therefore I'm demanding extra yield today.

787
00:38:33,480 --> 00:38:35,319
Speaker 4: No, not yet, I don't think so. Maybe a slight

788
00:38:35,400 --> 00:38:37,040
Speaker 4: amount of premium has gone up. But one of the

789
00:38:37,120 --> 00:38:39,880
Speaker 4: most striking features of the system is that if you

790
00:38:39,960 --> 00:38:42,359
Speaker 4: look at the treasury yields, look at the thirty year

791
00:38:42,360 --> 00:38:44,640
Speaker 4: bond to day is four seventy, but you look at

792
00:38:44,680 --> 00:38:47,840
Speaker 4: the thirty year interest rate swap, it's straighting at believe

793
00:38:47,880 --> 00:38:51,080
Speaker 4: it or not, three eighty nine, right, so it's almost

794
00:38:51,120 --> 00:38:54,480
Speaker 4: eighty five basis points under the US Treasury. Now you

795
00:38:54,600 --> 00:38:58,840
Speaker 4: ask why would somebody take the swap market at a

796
00:38:58,880 --> 00:39:01,640
Speaker 4: lower yield, And I've been eating swaps its inception back

797
00:39:01,680 --> 00:39:04,560
Speaker 4: in the nineteen nineties. Swap spreads are negative eighty five

798
00:39:04,680 --> 00:39:08,239
Speaker 4: and that goes back to the receiving of interest rate

799
00:39:08,280 --> 00:39:11,840
Speaker 4: swaps to hedge liabilities by a lot of large institutions.

800
00:39:12,080 --> 00:39:17,000
Speaker 4: So they have certainly not priced in inflationary effects into

801
00:39:17,040 --> 00:39:19,480
Speaker 4: the swap market. But at some point this has to

802
00:39:19,520 --> 00:39:21,839
Speaker 4: also equilibrate, So in my view, it has not been

803
00:39:21,840 --> 00:39:24,360
Speaker 4: priced in. Maybe it's too early to price in, because

804
00:39:24,400 --> 00:39:28,239
Speaker 4: maybe the FED does not lose its independence and you know,

805
00:39:28,480 --> 00:39:31,319
Speaker 4: rises its phoenix from the ashes. But I'm a little

806
00:39:31,360 --> 00:39:32,440
Speaker 4: bit pessimistic about it.

807
00:39:32,960 --> 00:39:35,320
Speaker 2: Just going back to your storied career on Wall Street

808
00:39:35,320 --> 00:39:38,400
Speaker 2: for a second, how good were you at playing Liar's Poker?

809
00:39:39,040 --> 00:39:41,279
Speaker 4: I was actually pretty good, I think. I mean I

810
00:39:41,360 --> 00:39:43,359
Speaker 4: learned it after I joined Salomon Brothers as a good

811
00:39:43,400 --> 00:39:46,040
Speaker 4: group of people, and I think the first year maybe

812
00:39:46,080 --> 00:39:48,040
Speaker 4: I lost a bit, but I think in the third

813
00:39:48,120 --> 00:39:51,080
Speaker 4: year that I was there, I won it. And I

814
00:39:51,280 --> 00:39:54,399
Speaker 4: was actually, I think the one who took the biggest part.

815
00:39:54,480 --> 00:39:56,080
Speaker 4: And I also my boss gave.

816
00:39:55,920 --> 00:39:56,200
Speaker 1: Me his.

817
00:39:57,680 --> 00:39:59,960
Speaker 4: Eighteen foot fishing boat. He was buying a new one

818
00:40:00,239 --> 00:40:02,600
Speaker 4: as part of the settlement in.

819
00:40:02,600 --> 00:40:04,359
Speaker 2: Lieu of cash. He was like, here to take my.

820
00:40:04,600 --> 00:40:05,520
Speaker 4: Cash plus the boat again.

821
00:40:05,680 --> 00:40:07,879
Speaker 3: Wow, So yeah, it's a really big pot.

822
00:40:08,360 --> 00:40:10,160
Speaker 4: That was a big pot. Yeah, at that point you

823
00:40:10,280 --> 00:40:12,160
Speaker 4: used to spend after the trading day was over. Every

824
00:40:12,239 --> 00:40:16,040
Speaker 4: day we would print out randomized liars poker sheets, usually

825
00:40:16,080 --> 00:40:18,839
Speaker 4: about twenty four or thirty of them, and we'd play

826
00:40:18,840 --> 00:40:20,839
Speaker 4: about thirty thirty rounds every day.

827
00:40:21,000 --> 00:40:23,880
Speaker 2: Wait, liar's poker sheets. I thought you played with actual cash.

828
00:40:23,960 --> 00:40:26,319
Speaker 4: Yeah, so actual cash. Yet you play with dollar bills. Yeah,

829
00:40:26,320 --> 00:40:28,600
Speaker 4: but you know, if you're playing twenty four rounds, they're

830
00:40:28,640 --> 00:40:29,400
Speaker 4: not enough.

831
00:40:29,239 --> 00:40:31,319
Speaker 2: Dollar bills drawing around. I never thought of that.

832
00:40:31,440 --> 00:40:33,640
Speaker 4: Yeah, so you randomize based on how the dollar bill

833
00:40:33,800 --> 00:40:35,520
Speaker 4: numbers are generated.

834
00:40:36,280 --> 00:40:38,759
Speaker 3: Is there going to be a future in finance for

835
00:40:38,800 --> 00:40:42,399
Speaker 3: a young physics student or a math nerd in high

836
00:40:42,400 --> 00:40:44,880
Speaker 3: school today? You know people worry about this with AI

837
00:40:45,200 --> 00:40:49,320
Speaker 3: and so forth, But a young person who's quantitatively minded,

838
00:40:49,360 --> 00:40:51,000
Speaker 3: do you feel confident that there will be a role

839
00:40:51,040 --> 00:40:52,720
Speaker 3: for them? And finance in the future.

840
00:40:52,880 --> 00:40:55,560
Speaker 4: Absolutely. I think finance has existed from the very very

841
00:40:55,560 --> 00:40:58,719
Speaker 4: beginning because it's based on the two fundamental emotions, right,

842
00:40:58,880 --> 00:41:01,799
Speaker 4: greer and fear. Right, So as long as there's greed

843
00:41:01,840 --> 00:41:05,399
Speaker 4: and fear and they're smart people around. And again going

844
00:41:05,440 --> 00:41:08,080
Speaker 4: back to math and physics, it's not so much that

845
00:41:08,160 --> 00:41:10,799
Speaker 4: the DOUN kit itself is teaching you anything special. It's

846
00:41:10,840 --> 00:41:13,400
Speaker 4: just that teaches you think in a discipline logical fashion.

847
00:41:14,000 --> 00:41:16,040
Speaker 4: And I think with tools like what we're seeing with

848
00:41:16,120 --> 00:41:19,600
Speaker 4: AI and so on, encoding becoming completely democratized, I think

849
00:41:19,760 --> 00:41:24,280
Speaker 4: the ability to ask important questions rigorously becomes even more important.

850
00:41:24,320 --> 00:41:26,040
Speaker 4: I think it's going to be even better than it's been.

851
00:41:26,760 --> 00:41:29,759
Speaker 2: Vanir, that was absolutely fantastic. Thank you so much for

852
00:41:29,880 --> 00:41:32,280
Speaker 2: spending time with us at Huntington Beach at the future

853
00:41:32,280 --> 00:41:34,160
Speaker 2: Proof conference and that was great.

854
00:41:34,360 --> 00:41:36,000
Speaker 3: Yeah, thank you so much. That was fantastic.

855
00:41:36,239 --> 00:41:50,600
Speaker 4: Thanks for having me, Joe.

856
00:41:50,600 --> 00:41:52,560
Speaker 2: That was really fun. We should have a near back

857
00:41:52,600 --> 00:41:55,080
Speaker 2: and just do like stories from Wall Street in the

858
00:41:55,160 --> 00:41:57,160
Speaker 2: nineteen nineties episode, we just do that.

859
00:41:57,239 --> 00:41:59,200
Speaker 3: I love the stories. We could do a lot more

860
00:41:59,360 --> 00:42:03,160
Speaker 3: on the story. And I'm also interested in basically, you know,

861
00:42:03,200 --> 00:42:07,480
Speaker 3: the philosophy of portfolio construction. I mean, obviously there's the

862
00:42:07,520 --> 00:42:10,320
Speaker 3: math of portfolio construction. But I do have a certain

863
00:42:10,320 --> 00:42:14,360
Speaker 3: dissatisfaction with many conversations about portfolio construction, including this, what

864
00:42:14,480 --> 00:42:17,520
Speaker 3: sense well diverse? If I have stocks have almost always

865
00:42:17,520 --> 00:42:19,719
Speaker 3: gone up his every insurance I mean, I guess another

866
00:42:19,840 --> 00:42:22,600
Speaker 3: question that I could have asked is, has every insurance

867
00:42:23,120 --> 00:42:25,319
Speaker 3: contract on the stock market essentially so far been a

868
00:42:25,320 --> 00:42:27,880
Speaker 3: waste in human history? Because the stock market is at

869
00:42:27,920 --> 00:42:30,080
Speaker 3: all time high, I have questions about that.

870
00:42:30,120 --> 00:42:32,840
Speaker 2: But the counterpoint to that is, and I've come to

871
00:42:32,920 --> 00:42:35,279
Speaker 2: realize this as I get older in my life and

872
00:42:35,320 --> 00:42:38,200
Speaker 2: in my portfolio, is there is something nice about like

873
00:42:38,280 --> 00:42:41,720
Speaker 2: waking up during a cell off and going like, oh shoot,

874
00:42:41,880 --> 00:42:44,560
Speaker 2: my four oh one K has been absolutely decimated today.

875
00:42:44,640 --> 00:42:47,800
Speaker 2: But if I look at, you know, some other position,

876
00:42:48,080 --> 00:42:50,359
Speaker 2: some other tail risk hedge that I have, like that's

877
00:42:50,400 --> 00:42:52,319
Speaker 2: actually up a little bit, and it's offset some of

878
00:42:52,360 --> 00:42:55,640
Speaker 2: the pain. And if I actually had to cash out

879
00:42:55,640 --> 00:42:58,279
Speaker 2: of my portfolio on that day because of whatever I

880
00:42:58,280 --> 00:43:00,880
Speaker 2: had to make a mortgage payment or whatever, then I

881
00:43:00,920 --> 00:43:03,600
Speaker 2: would have some extra cash to spare, and you could

882
00:43:03,680 --> 00:43:06,560
Speaker 2: get an extra return by having that extra cash available

883
00:43:06,600 --> 00:43:08,279
Speaker 2: to you to then go into the market and buy

884
00:43:08,280 --> 00:43:09,080
Speaker 2: stuff on the cheap.

885
00:43:09,360 --> 00:43:11,759
Speaker 3: I think that we really should have an odd lot's

886
00:43:11,800 --> 00:43:15,919
Speaker 3: ETF that just advertises its illiquidity, that you can't sell

887
00:43:15,960 --> 00:43:18,200
Speaker 3: this if you need cash now, this is not the

888
00:43:18,280 --> 00:43:20,360
Speaker 3: instrument for you. If you are putting your money in this,

889
00:43:20,840 --> 00:43:23,279
Speaker 3: don't expect to see it again for thirty years. But

890
00:43:23,360 --> 00:43:25,280
Speaker 3: the plus side is it will keep you from making

891
00:43:25,320 --> 00:43:28,200
Speaker 3: baddi rational decisions on a day when everything is read.

892
00:43:28,360 --> 00:43:30,800
Speaker 2: I mean there's a value in that. There's a value

893
00:43:30,800 --> 00:43:32,720
Speaker 2: in that, and there's also a value in being able

894
00:43:32,760 --> 00:43:35,799
Speaker 2: to sleep at night a little easier because you have

895
00:43:35,880 --> 00:43:38,560
Speaker 2: different positions. But anyway, shall we leave it there.

896
00:43:38,600 --> 00:43:39,719
Speaker 3: Let's leave it there, all right.

897
00:43:39,840 --> 00:43:42,439
Speaker 2: This has been another episode of the Authoughts podcast. I'm

898
00:43:42,480 --> 00:43:45,360
Speaker 2: Tracy Alloway. You can follow me at Tracy Alloway and.

899
00:43:45,360 --> 00:43:47,480
Speaker 3: I'm Jill wisent Though. You can follow me at the Stalwart.

900
00:43:47,760 --> 00:43:51,480
Speaker 3: Follow our guest Vanier bon Sally He's at long Tail Alpha.

901
00:43:51,760 --> 00:43:55,480
Speaker 3: Follow our producers Kerman Rodriguez at Kerman armand Dashel Bennett

902
00:43:55,480 --> 00:43:58,400
Speaker 3: at Dashbot and kel Brooks at Keil Brooks. For more

903
00:43:58,440 --> 00:44:00,760
Speaker 3: odd Lots content to go to bloomber dot com, slash

904
00:44:00,800 --> 00:44:02,880
Speaker 3: od Lots. We have a daily newsletter and all of

905
00:44:02,920 --> 00:44:05,759
Speaker 3: our episodes. You can chat about these topics twenty four

906
00:44:05,760 --> 00:44:10,400
Speaker 3: to seven in our discord discord dot gg slash od Lots.

907
00:44:09,960 --> 00:44:12,080
Speaker 2: And if you enjoy odd Lots, if you like it

908
00:44:12,120 --> 00:44:14,920
Speaker 2: when we talk about portfolio construction, then please leave us

909
00:44:14,960 --> 00:44:18,520
Speaker 2: a positive review on your favorite podcast platform. And remember,

910
00:44:18,600 --> 00:44:21,120
Speaker 2: if you are a Bloomberg subscriber, you can listen to

911
00:44:21,239 --> 00:44:24,200
Speaker 2: all of our episodes absolutely ad free. All you need

912
00:44:24,280 --> 00:44:26,760
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913
00:44:26,800 --> 00:44:29,440
Speaker 2: and follow the instructions there. Thanks for listening.