Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast.
Speaker 1: My name is Mike Reagan. I'm a senior editor at Bloomberg,
Speaker 1: and I'm val Donna, Higher, across asset reporter with Bloomberg.
Speaker 1: This week on the show. Well, obviously this is not
Speaker 1: an easy environment to invest it. Stocks are up big
Speaker 1: one day, down big the next day. Bond prices are
Speaker 1: rising some days but following most days. So what are
Speaker 1: the right asset classes to be in right now? While
Speaker 1: the Federal Reserve is fighting inflation with both fists. We'll
Speaker 1: get into it with an executive who focuses on multi
Speaker 1: asset portfolios and hedges at a major hedge fund firm.
Speaker 1: But first of all, Donna, I have to confess, um,
Speaker 1: if I drift off into outer space during this podcast
Speaker 1: and you have to bring me back hurt, it's only
Speaker 1: because I'm going on vacation in less than twenty four hours.
Speaker 1: I'm going to southern Californy. Yeah, because I hear that
Speaker 1: they have some beaches in southern California that are almost
Speaker 1: they do, almost as nice as the Jersey Shore. So
Speaker 1: I'm gonna look into that almost as nice. New Jersey
Speaker 1: is always number one, right, at least for me and
Speaker 1: you and a lot of our listeners. Maybe we'll see.
Speaker 1: We'll see. It depends if they have ski ball or
Speaker 1: not on these these so called California beaches. I think
Speaker 1: that's that's an important Where are you going in California.
Speaker 1: We're going to Santa Monica and uh for like three days,
Speaker 1: and then San Diego and the whole Reagan clan, all
Speaker 1: three kids, my wife, we're all we're all flying out
Speaker 1: in about twenty four hours. We're big ski ball players,
Speaker 1: so that lot's going to ride on how good the
Speaker 1: ski ball tables are out there. I don't know. You're
Speaker 1: gonna have a really great time. San Diego is my
Speaker 1: my number one favorite city, I think, is it? Yeah?
Speaker 1: I love it because it's sunny, like three hundred sixty
Speaker 1: four days of the year or something. You're well more
Speaker 1: traveled than me. I've I've been there once and it
Speaker 1: was I don't remember much of it, but maybe when
Speaker 1: you were there, you're you're a big jet setter, and
Speaker 1: so you gotta find someone to fill in for me
Speaker 1: next week? All right? Yeah, I do heads up for
Speaker 1: all the listeners. Mike won't be around. I'm gonna have
Speaker 1: fun on your behalf. I'm sure probably make fun of you.
Speaker 1: I can. I can feel the roasting already. Yeah, I
Speaker 1: do want to bring in our guests this week, and
Speaker 1: maybe he can enlighten us on where he's calling us from.
Speaker 1: But welcome to Peter van doye Ert. He's the managing
Speaker 1: director of Multi Asset Solutions at Man Group. Welcome to
Speaker 1: the show, Peter, thanks so much, thanks for having me on.
Speaker 1: I'm in New York for what it's worth. Um, oh
Speaker 1: there you go. Well, some some ugly beaches maybe best. Yeah,
Speaker 1: But Peter, maybe just to start off, can you tell
Speaker 1: us about your role at Main Group. Sure? So I
Speaker 1: sit inside Man Solutions and I worked pretty closely with
Speaker 1: clients who whatever problem they might have. For example, it
Speaker 1: starts off typically as I have a bunch of risky assets,
Speaker 1: how do I go about hedge them? And then it
Speaker 1: kind of morphs into this inflation thing scares me? So
Speaker 1: what do I do about that? And you know, maybe
Speaker 1: I should get out of bonds. So we spent a
Speaker 1: lot of time talking about risk mitigating portfolios, but we
Speaker 1: also spend a lot of time just talking about asset allocation,
Speaker 1: whether it's risk based, technical, asset allocation or you know,
Speaker 1: something broader like strategic asset allocation. Just for some background
Speaker 1: on the firm, Man Group is a hundred forty billion
Speaker 1: dollar hedge fund manager UM. In terms of assets center management,
Speaker 1: we do a lot of different things. We have discretionary managers,
Speaker 1: we've got systematic UH in form of c t A resparity,
Speaker 1: those sorts of things, and we've got a countimental kind
Speaker 1: of long only firm called Numeric. So we do a
Speaker 1: lot of different things, and all of those different things
Speaker 1: come to bear to this sort of market where it
Speaker 1: takes more than one one way to figure out what
Speaker 1: to do, more than just discretionary, more than just systematic,
Speaker 1: And I think that's what Man Solutions tries to help
Speaker 1: clients with, how to access different approaches to what seems
Speaker 1: to be a really big problem, you know, developing the
Speaker 1: market with a FED and what to do with bonds
Speaker 1: and those sort of things, Peter. It seems like especially
Speaker 1: tricky time to be involved in risk parity. You know,
Speaker 1: if you're if you're used to having a balanced portfolio
Speaker 1: of stocks and bonds and maybe even levering up one
Speaker 1: side or the other, how are risk party strategies reacting
Speaker 1: to this environment. Are they sort of abandoning their old
Speaker 1: uh playbooks? Are they? Are they thinking outside of the box?
Speaker 1: I mean, I don't know how much. You know, Uh,
Speaker 1: it's sort of coded into their DNA that they can't
Speaker 1: sort of stray too much from the main stocks and
Speaker 1: bonds strategy. But what's some of the discussions going on
Speaker 1: around risk parity these days? Yeah, I think there's It
Speaker 1: depends a little bit how you manage it, and it
Speaker 1: depends what the risk parity fund is set up with.
Speaker 1: So you know, for our own risk parity funds, they
Speaker 1: actually have waiting in commodities. So you start off the
Speaker 1: year if you're a sixty four manager and you're stuck
Speaker 1: with bonds and equities, they both went down the first corner,
Speaker 1: and what are you supposed to do about that? And
Speaker 1: it turns out if you have if you diversify your
Speaker 1: bonds and equities, And that's what risk parity tries to do, right,
Speaker 1: It tries to diversify first between bonds and equity, so
Speaker 1: it takes more bond risk. I think that's what you're
Speaker 1: alluding to. Problematically, Um, Secondarily, we might look at other
Speaker 1: asset classes. We do use tips for inflation we have commodities,
Speaker 1: and I think a lot of our peers as well,
Speaker 1: so there's a bit of you know, the huge spike
Speaker 1: up and commodities has been a big benefit for risk parity.
Speaker 1: So I don't think you see a substantially horrible underperformance
Speaker 1: versus say sixty forty UM. And it also goes about
Speaker 1: how you risk manage it. You know, there are very
Speaker 1: passive versions of this where you just own bonds and
Speaker 1: equities and you own too many bonds. The more actively
Speaker 1: you manage it, you start looking at correlations among these things. Right,
Speaker 1: what if it turned out that all of my assets
Speaker 1: were correlated and they all went down together, then my
Speaker 1: risk parity matrix is a bit wrong. Right, I'm trying
Speaker 1: to target at ten vall or kind of a consistent
Speaker 1: volatility in my fund. If everything goes down together, I
Speaker 1: have no diversification. That's problematic. So you know, firms like
Speaker 1: ours we have correlation overlays to help mitigate this. So
Speaker 1: between correlation and trend overlays, things that take you out
Speaker 1: of basically assets that aren't working. And I think in
Speaker 1: a way that's what man Solutions is about too, and
Speaker 1: how we talk to client. We take some of those
Speaker 1: approaches that we see in our disparity fund and say,
Speaker 1: why don't you start applaying this to your own portfolio.
Speaker 1: Even if you don't do it a risparity approach, you
Speaker 1: at least have something going on that, Hey, bonds and
Speaker 1: equities are correlated. They're not supposed to be correlated. That's
Speaker 1: bad for me. I'll cut some risk here and that's
Speaker 1: and that's that's that's how risparity. If you're if you're
Speaker 1: taking that approach, you're surviving. Um, you're probably in line.
Speaker 1: Nobody wants to be in line. But after years about performance,
Speaker 1: that's not bad. And maybe we'll talk about it a bit.
Speaker 1: You know, bonds are at a level where they might
Speaker 1: be useful again, and that's probably not in everyone's mindset
Speaker 1: because right now, I mean we've had clients, you know,
Speaker 1: last year, clients would say, you know, our bonds still
Speaker 1: any use Should we get rid of them? What should
Speaker 1: we do this year? Two basis points higher in bonds?
Speaker 1: Or should I just get rid of these? Should I
Speaker 1: sell these? There's a bit of a little panicky feeling,
Speaker 1: and I would say they're dead wrong. But when I
Speaker 1: see a CPI print of eight and a half percent.
Speaker 1: You can't blame them, right, there's a there's a little
Speaker 1: something that that you know, makes you feel awkwardly uncomfortable
Speaker 1: about that. Well, speaking of the sell off that we've
Speaker 1: seen in bonds and stocks, we've heard a lot of
Speaker 1: people say that sixty is dead and I'm wondering what
Speaker 1: you make of that and and actually where you might
Speaker 1: recommend people find diversification. Yeah, you always hate to say
Speaker 1: dead because then like next year we'll be back. And
Speaker 1: you guys, so you said always dead, And did you
Speaker 1: see the returns on sixty four last twelve months? And
Speaker 1: so I'm not gonna say dead just for others, But yeah,
Speaker 1: I guess my question is, you know, was it ever
Speaker 1: really alive in a sense that it was a It
Speaker 1: was kind of a random to begin with. I mean,
Speaker 1: if you think of waiting sixty equities and bonds on
Speaker 1: a risk basis, you're like equities most of the time, right,
Speaker 1: Occasionally bonds sell off, usually equities go up most of
Speaker 1: the time. For the last thirty years, you've just wanted
Speaker 1: to own a lot of equities, and that's what sixty
Speaker 1: pretended to let you do. So I think where we
Speaker 1: are now is a bit different. We're in a universe
Speaker 1: of equities and bonds going down together. There feels a
Speaker 1: lot there's a lot of instability. We could talk about
Speaker 1: evaluations and the interplay with bonds in a bid, I guess,
Speaker 1: but that instability is disconcerting if they're both going down.
Speaker 1: I need to find things that don't behave like bonds
Speaker 1: and equities, which means commodities. And so it's always great
Speaker 1: when a person like me tells your investors, you know,
Speaker 1: you feel, buy a bunch of commodities because that's diversifying.
Speaker 1: And your investor will say, but you know, crude was
Speaker 1: like a hundred and thirty two weeks ago, and it
Speaker 1: was minus fifty two years ago. So where am I
Speaker 1: supposed to live with that asset? I don't have any
Speaker 1: reasonable way to use it. But the truth of the
Speaker 1: matter is, if you're going to get out of this
Speaker 1: is sixty dead conundrum, or at least find a place
Speaker 1: to stay, you know, while you figure out what you're
Speaker 1: gonna do with sixty bonds, it's got to be multi asset,
Speaker 1: whether it's multi asset via commodities or real assets, infrastructure,
Speaker 1: hedge funds. You know, I work for hedge funds, so
Speaker 1: I have to say hedge funds. But you know, these
Speaker 1: sort of things, you need to find different ways to
Speaker 1: make money that aren't just beta and bonds and beta
Speaker 1: and equities. And I think that's the challenge that are
Speaker 1: in faced with right now. Is there anything popping out
Speaker 1: of you in that real asset space? Uh, you know,
Speaker 1: that's to a tractive in this environment, you know. So
Speaker 1: for us, we tend to focus on the liquid part
Speaker 1: of the curve of the asset classes. So you know,
Speaker 1: perhaps buying an airport works, um, but that's not what
Speaker 1: we do. So we're very much we take we we
Speaker 1: invest in liquid assets, we risk manage them, and we
Speaker 1: find ways to make them fit in portfolios, and using
Speaker 1: the risk control, we try to suck something more out
Speaker 1: of them. Right. So, last time I was on we
Speaker 1: had the bond problem conversation. We talked about using tail hedges,
Speaker 1: which are relatively cheaper than to hedge an equity portfolio.
Speaker 1: Instead of doing six just go all equities and hedge
Speaker 1: it pretty aggressively, and you kind of get rid of
Speaker 1: your bond risk and and you isolate what you're really
Speaker 1: after high yield and equities. It's kind of a risky
Speaker 1: portfolio today's universe. I think you do have to live
Speaker 1: in commodities. It's just you have to have some approach
Speaker 1: to it, right, There has to be some how do
Speaker 1: I get out of this? One of my you know,
Speaker 1: one of my is it as simple as a stop loss? Maybe? Right?
Speaker 1: You know you can stop in and out of position.
Speaker 1: I don't find that a very satisfying answer. So the
Speaker 1: way we tend to look at it is on two
Speaker 1: basic is one and a trend format. And that's something
Speaker 1: you should expect from Man Group. We have a big
Speaker 1: trend following firm. But it turns out in these big
Speaker 1: regime shifts, where markets go through six twelve month regime shocks,
Speaker 1: you have very long moves in asset classes. So we've
Speaker 1: seen it in bonds of steadily sold off. We've seen
Speaker 1: commodities steadily rally. Admittedly there's a bit of a war
Speaker 1: premium that's built in there, but that's a starting point
Speaker 1: of how you might go about using that. Now, maybe
Speaker 1: use trend or maybe use some other lead lag models. Right.
Speaker 1: It turns out when commodities start to go down aggressively
Speaker 1: before a big market correction, it's kind of a good
Speaker 1: signal that equities could be in trouble. So if you
Speaker 1: look back to COVID, commodities went down first and then
Speaker 1: equities tank. So the more you can deal cross asset
Speaker 1: and the more you can take signals from these cross assets,
Speaker 1: whether it's from emerging market to warn you about commodities
Speaker 1: or FX to warn you, the more integrated your portfolio
Speaker 1: can be. And into some extent it takes an asset
Speaker 1: manager to do it because you really have the time
Speaker 1: to chase all this stuff, right, are you gonna wake
Speaker 1: up tomorrow and say, so, where is this lattis today
Speaker 1: or where is the re I? And is that working
Speaker 1: for me? I think that's quite difficult, And so trend
Speaker 1: kind of goes after that by getting you not just
Speaker 1: multi asset commodities, but the FX markets are really fascinating, right,
Speaker 1: you know people have gotten accustomed to so I most
Speaker 1: of my career as of all, guy in a tail heager.
Speaker 1: Before before this role, people loved owning the end for
Speaker 1: every crash and so all of those yn options and
Speaker 1: we own some ourselves because you know, we're agnostic were tailhages.
Speaker 1: We don't try to outsmart the market. We just try
Speaker 1: to find cheap hedges, and you know, we struck them
Speaker 1: at one twelve and one thirteen in in in in
Speaker 1: the end and Jan Feb and the ends at one
Speaker 1: right now and just keeps going the wrong way. If
Speaker 1: you're invested kind of naively like us, we just say
Speaker 1: I lost very little premium. It's a good, you know,
Speaker 1: explosive tailheage. If you're someone who says, I'm an investor
Speaker 1: in the nique, but in a way that the yen
Speaker 1: helps me out, so I'll kind of dollarize my investment.
Speaker 1: You've been pretty shocked because the nique is down and
Speaker 1: the end is down, so it's just not working. And
Speaker 1: so those are the things where trend can help you
Speaker 1: out a lot, where you just simply say there's something
Speaker 1: new in the market. It's a re team that I
Speaker 1: don't understand. So when I see this kind of thing,
Speaker 1: I'll get out of the way, or I'll change my
Speaker 1: focus to be tighter. I guess, right, Bill, do I
Speaker 1: cancel my plans to buy an airport? I was thinking
Speaker 1: about buying an airport, But where would your airport? New Jersey? Yeah,
Speaker 1: that's the that's the other problem with it. Yeah, I
Speaker 1: don't know. I don't know where I would put it
Speaker 1: where it's It's pretty fascinating what people will ask you too.
Speaker 1: They'll say, can you model our portfolio? You know, see
Speaker 1: how your approach might change things. So what we often
Speaker 1: do is say, look, you have some liquid assets, We'll
Speaker 1: take some index proxies, like there's a private equity index
Speaker 1: proxy and really in the in the public markets, we
Speaker 1: can use rates for real estate, and there's an infrastructure
Speaker 1: index that uses all kinds of public empity proxies. So
Speaker 1: we tried to do that for a client. We just
Speaker 1: couldn't match the result. It turned out about eight of
Speaker 1: their infrastructure assets were in airports and travel, and so
Speaker 1: it's tricky to pick that up after COVID. We I'm
Speaker 1: not sure what we're missing because everyone's still you know,
Speaker 1: use a highway between now and the next six years
Speaker 1: and so pretty good. Yeah, the following questions you get
Speaker 1: like from that, is there anything I can do to
Speaker 1: hedge that? And you're kind of left non blust and Peter,
Speaker 1: just to wrap up that conversation we were having about
Speaker 1: bonds earlier, I think you wrote recently that for the
Speaker 1: first time in my career, I have investors increasingly asking
Speaker 1: me if they should be shorting bonds as part of
Speaker 1: their asset allocation. And I'm wondering what you tell them,
Speaker 1: So I'm I'm a bit reluctant to say short bonds
Speaker 1: as part of an asset allocation. So there's some there's
Speaker 1: a difference between tactical and strategic, right, So the first
Speaker 1: thing you're gonna get is fired by your board if
Speaker 1: you take a strategic bet short bonds. And there's the crash, right,
Speaker 1: So we know that bonds have a lot of benefits
Speaker 1: of the crash at these yields. I mean, if you
Speaker 1: hate bonds today at to seventy five, then I'm not
Speaker 1: sure why you like them at one fifty before COVID
Speaker 1: And admittedly there's a totally different inflation paradox. I'm not
Speaker 1: trying to be too glib about it, um. So I mean,
Speaker 1: I look at trend you know, most systematic managers inside
Speaker 1: trend funds are probably short bonds. Um. I don't think
Speaker 1: there's any secret there. You can see the open interests
Speaker 1: in some of the futures, So I think it's the
Speaker 1: right position. I just worry that, you know, people are
Speaker 1: going to manage it right, right, So when when that
Speaker 1: when bonds start to kind of you find a level
Speaker 1: and then you sort of get out of these trend positions.
Speaker 1: So there's some kind of process to getting out of
Speaker 1: it when you're maybe wrong or the the lack of
Speaker 1: utility has gone. For me, I'm much more focused on
Speaker 1: the correlation, and right now does seem like bond equity
Speaker 1: correlations aren't working well. So the idea of short bonds
Speaker 1: isn't crazy, right, it seems to be stabilizing your portfolio,
Speaker 1: but you need to do it in a pretty tight way.
Speaker 1: So I, you know, my general senses, is a bridge
Speaker 1: too far for a lot of passive managers. Right if
Speaker 1: you're if you have a big pension board with twelve
Speaker 1: fifteen trustees who are of mixed background, and you know
Speaker 1: between industries and hedge funds and finance, you're gonna get
Speaker 1: some really nasty questions and probably the terrific examples that
Speaker 1: the big pension that stuff tail hedge. You know, they
Speaker 1: caught a lot of flak in the press for that,
Speaker 1: but there are a lot of good reasons they have
Speaker 1: done it right to have tail hedges, and a lot
Speaker 1: of good reasons not to tail hedge. So people make
Speaker 1: kind of intellectual decisions. It's a question of how badly
Speaker 1: you get second guests. And I guess my example of
Speaker 1: that is you don't want to be the guy who says, well,
Speaker 1: what happened was this right? Because once you're saying that too,
Speaker 1: and I see you're sort of you know, you're already
Speaker 1: in trouble, just like if you said it to your spouse,
Speaker 1: you know you're in trouble with what happened was you know,
Speaker 1: a commentary? And so I think, you know, I think
Speaker 1: it's the right technical house at allocation. If you put
Speaker 1: some risk around it, great. If you can rely on
Speaker 1: a trend type manager, another type of you know, as
Speaker 1: a manager who has some clear quantitative signals around it,
Speaker 1: that probably helps you a lot more too, and it
Speaker 1: gives you some coverts saying you know what, the way
Speaker 1: they think about it is right. I like the signals
Speaker 1: they use, and it should keep me out of some
Speaker 1: big trouble if some big trouble comes up. Because after all,
Speaker 1: bonds were ballast for you for thirty years. So to
Speaker 1: turn around and say I'm not going to use it,
Speaker 1: I'm gonna go the opposite way. You know, most of
Speaker 1: the people you talk to aren't going to have experienced that,
Speaker 1: and including me, right, I'm not going to have experience
Speaker 1: to say, yeah, bonds are lethal, you know, get out
Speaker 1: of the way, no matter what real rates are. As recommener,
Speaker 1: I'd like to unpack the notion of trend trend following
Speaker 1: a little bit. You know. It's one of those um
Speaker 1: things that sounds simple enough on the surface, you know,
Speaker 1: but by it go along when the price is going up,
Speaker 1: short when it's going down. Um, you know, and typically,
Speaker 1: you know, if you're talking about trend following in a
Speaker 1: hedge fund context, you're talking about c t A s
Speaker 1: like you guys managed commodity trading advisors that are pretty
Speaker 1: much only involved in the futures market. Um. But I'm
Speaker 1: wondering about a year like this where we saw, you know,
Speaker 1: an obvious down trend inequities and then a quick snap back,
Speaker 1: and then now we're back to the down trend. I mean,
Speaker 1: does your typical ct A trend following strategy is it
Speaker 1: able to ride both of those trends or is it
Speaker 1: you know, the the quick snap back. Is that something
Speaker 1: you just take on the chin and and just hold
Speaker 1: on longer for the down trend? You know? I guess
Speaker 1: it all depends on on sort of how fine tune
Speaker 1: the strategy is. But you know, what's what you're thinking
Speaker 1: on that, you know, is it is that sort of
Speaker 1: sure snap back rally something you can actually you know,
Speaker 1: flip sides on and take advantage of or not. So
Speaker 1: it depends who you are and your speed. So it's
Speaker 1: a bit like saying I bought a one year tail
Speaker 1: option to hedge my portfolio, and another guy bought a
Speaker 1: three month one. If the market crashes in the first
Speaker 1: three months, he wins because he spent less money. So
Speaker 1: on the trend side, if you're a super fast trend guy,
Speaker 1: so you react to these kind of quick rebounds and
Speaker 1: then you chase the trend quickly, then you might pick
Speaker 1: up the sharp reversals very very quickly. You did well,
Speaker 1: you'd find in COVID and you've got the bounce back
Speaker 1: in COVID very well. The problem with fast trend guys,
Speaker 1: which is not a I shouldn't say problem, the thing
Speaker 1: there's a tradeoff. The tradeoff is that sometimes you make
Speaker 1: a mistake and you know, you know, a bunch of
Speaker 1: dealers come out in February, all these strategists trying to
Speaker 1: call the bottom and say we love stocks here. You
Speaker 1: should pile in, and then the trend reverses quickly. That's
Speaker 1: the faster guy might chase it, and so he may reverse.
Speaker 1: And then it turns out strategists are just trying to
Speaker 1: be on CNBC, so you know they're call to buy
Speaker 1: stocks wasn't a good one, and it all went down again,
Speaker 1: so you turned. On the other hand, if you're really slow,
Speaker 1: you missed Covid entirely. You started to sell COVID went
Speaker 1: to zero, and then you started selling on the way
Speaker 1: back up, which feels all backwards. And if you're in
Speaker 1: the middle, um, you can guess we're in the middle,
Speaker 1: because I'm gonna sound more friendly. If you're in the middle,
Speaker 1: you kind of try it to navigate that course. What
Speaker 1: I think is interesting about trend though, you know, there's
Speaker 1: mighty to be made in equities. There's no question it's
Speaker 1: a decent risk tool for controlling how your portfolio runs.
Speaker 1: You know. So if you have a lot of equity
Speaker 1: risk and you decide i'll trem it as trends you know,
Speaker 1: seem to be negative, it's probably reasonable and maybe it's
Speaker 1: a reason to rebalance at certain low levels in the market.
Speaker 1: But what's really valuable about is the fact that it's
Speaker 1: multi asset, so it's chasing things and doing things that
Speaker 1: you aren't going to be doing. And so when you
Speaker 1: look at what is it diversifier to my portfolio, Is
Speaker 1: it a trend program that trades only bonds and equities. Maybe,
Speaker 1: but it may go the same direction. If trends are up,
Speaker 1: it's gonna make me long everything, And that was what
Speaker 1: it would look like, and say two thousand matine long everything,
Speaker 1: you know, great, perfect world. And then other times it
Speaker 1: might be short of bonds like two eighteen and long equities,
Speaker 1: which feels very risky, and then you know, sometimes it
Speaker 1: might just be like now, kind of short of both.
Speaker 1: Depending on your speed, you're either short you're probably short
Speaker 1: bonds no matter where you are, and you're probably in
Speaker 1: between one equities anywhere on the map. But all the
Speaker 1: other asset classes are the really the fascinating ones. Because
Speaker 1: you don't have a view on nack, why shouldn't say,
Speaker 1: maybe you do have a view on that gas because
Speaker 1: you eat your home. But other than being piste off
Speaker 1: about it, your view is I don't know what it's
Speaker 1: gonna do, but I wish I had hedged it somehow.
Speaker 1: And so this is what trend is useful for, right,
Speaker 1: is to to develop a multi asset framework trading assets.
Speaker 1: There's nothing complex about it, right. You know, if you
Speaker 1: have great trading infrastructuring of good models, you should be
Speaker 1: able to develop something rudimentary. Um. You know, every every
Speaker 1: really great trend manager has a few other pieces that
Speaker 1: they think are uniquely There's maybe crossovers and things like that,
Speaker 1: but it's the access to those kind of asset classes,
Speaker 1: like the end going from one talented I have yet
Speaker 1: to find a person who in that move was like, no,
Speaker 1: this is totally logical. Now it's totally logical at one.
Speaker 1: And then everyone has a narrative and I think this
Speaker 1: is you guys face the same challenge, right, how do
Speaker 1: I put a narrative around something so wacky that it
Speaker 1: can't be explained? Right? Like, there was a day I
Speaker 1: remember I came in and like, futures down as you know,
Speaker 1: Russian invasion of Ukraine intensifies. The market recovered and it
Speaker 1: says futures higher as Russian invasion intensifies, and then it
Speaker 1: finally settled on you know, futures unchanged and I think
Speaker 1: it was mixed as well as futures mixed. And so
Speaker 1: at that point you're kind of like, Okay, let's stop
Speaker 1: making narratives. And trend kind of doesn't bother with narrative.
Speaker 1: It doesn't think about it. What it might do is
Speaker 1: just misfire, like it might see a trend and that
Speaker 1: trend reverses and just gets out of the way. And
Speaker 1: so if you look at the last two years, the
Speaker 1: inflation universe for trend has been phenomenal, like it's you're
Speaker 1: picking up on commodities, you're picking up on ffex crosses,
Speaker 1: all changes in regimes that we haven't seen in a really,
Speaker 1: really long time. Yeah, finally someone that feels our pain
Speaker 1: and trying to trying to annail that daily market narrative.
Speaker 1: I was I was going to say those headlines were
Speaker 1: probably mine Bomberg Markets wrap. In my defense, we only
Speaker 1: met today, so I didn't I would have filtered otherwise.
Speaker 1: Really great reporters suggested that are mixed. It just had
Speaker 1: a sense of like, I assume it's somewhat AI ish, right, like,
Speaker 1: as this thing gets changed again and again and again,
Speaker 1: maybe maybe I'm overcrediting AI and undercrediting you guys. But
Speaker 1: I could just see the machine going, you know, screw this,
Speaker 1: just I can't deal with this anymore. It was definitely
Speaker 1: it was definitely an editor pool I don't I don't
Speaker 1: belong to, so we can can blame people like Mike
Speaker 1: for those. Yeah. Actually, I'm really glad you brought all
Speaker 1: of this up because I wanted to ask you how
Speaker 1: difficult it's been to discern a message from the market recently. Yeah.
Speaker 1: I think that's that's really a great question because I think,
Speaker 1: you know, some people have mockingly said about us in
Speaker 1: finance that you know, in there were thousands of experts
Speaker 1: on virology, and then you know, in one there are
Speaker 1: tons of experts on inflation. There are you know, geopolitical
Speaker 1: and war experts and know exactly how all these things
Speaker 1: play out. And you get plenty of emails and maybe
Speaker 1: we're guilty of it at Man Group. I hope not,
Speaker 1: but we get plenty of emails for strategists saying I
Speaker 1: think this is how it plays out, and you think, yeah,
Speaker 1: it really never ever plays out like you think it
Speaker 1: does in these sort of you know, kind of broad
Speaker 1: based geopolitical issues. So if you go back. I remember,
Speaker 1: like Hurricane Katrina, oil was a driver of the market.
Speaker 1: Stocks went down. When oil is going up, I mean
Speaker 1: it's laughably forty dollars barrel, I think done. And so
Speaker 1: you kind of knew what you're supposed to look at.
Speaker 1: COVID You maybe you looked at case counts. There's some
Speaker 1: things to kind of some signal you could look at,
Speaker 1: but mostly for me, I like to look at, you know,
Speaker 1: which assets are moving. And so in the GFC we
Speaker 1: looked at, you know, kind of funding spreads, like is
Speaker 1: there stress in the market? Our banks able to borrow?
Speaker 1: So we have all these metrics we look at. This
Speaker 1: one kind of defies that, right. You know, there's a
Speaker 1: little period where oil was going up and then rates
Speaker 1: would sell off and the equities would sell off, and
Speaker 1: it was kind of a ripple each time, right, and
Speaker 1: then March just blew your whole theory out of the water. Right,
Speaker 1: there's this big run up in rates at the end
Speaker 1: of March, along with a big run up in equities,
Speaker 1: and you don't know how to grapple with that if
Speaker 1: you're trying to make a narrative, right, you know, the
Speaker 1: narrative that came out of the end of March, which
Speaker 1: felt a little contrived, was stocks are not so bad
Speaker 1: in inflation really because they have pricing power. And so
Speaker 1: the people who are spreading that narrative, you know, it's
Speaker 1: there's some there's some rationality behind it. But you know
Speaker 1: how many of those were saying last year, you know,
Speaker 1: with yields this low, you have to own stocks because
Speaker 1: they have earnings yield and so that's spread to the
Speaker 1: treasury is really valuable, and you know they should trade
Speaker 1: into multiple that's more in line with treasuries. To me,
Speaker 1: that's also laughable because if are of stocks making a
Speaker 1: four percent earnings yield with treasuries at fifty basis points
Speaker 1: is I mean, I should use the fifty basis point reference.
Speaker 1: And so if I own a hundred, you know, of
Speaker 1: treasury bonds, I can afford to own stocks all the
Speaker 1: way up to a hundred and pay up to a
Speaker 1: you know, something absurd like that. That doesn't really make
Speaker 1: a lot of sense. So I think that's the challenge
Speaker 1: of this market is getting your hand head around that
Speaker 1: there isn't a single line item what we can look at,
Speaker 1: and I think that's a it's a change from what
Speaker 1: we're kind of used to COVID was just unknowable, and
Speaker 1: we all made panicky, bad traits, even you know, the
Speaker 1: really brilliant man solutions people made some you know, some
Speaker 1: part rates um and that's about kind of dealing with
Speaker 1: risk and surviving it. Now it's it's a little bit
Speaker 1: you know, head scratching. So the more you can diversify,
Speaker 1: the less pain you get, as long as you understand
Speaker 1: the totality of the diversification, and you don't sit there
Speaker 1: and look at I told you not to buy that zinc,
Speaker 1: and you know, everyone looks around like, did you don't
Speaker 1: remember you saying anything about nickel? You always And then
Speaker 1: you know, you look at an email. You know, it's
Speaker 1: like a line somewhere on like page forty six of
Speaker 1: someone's deck that says, be cautious around real zinc and nickel.
Speaker 1: You know, Peter I Um. The narrative seems to have
Speaker 1: really shifted away from COVID. You know, it's like mission
Speaker 1: accomplished with COVID. And then you know, you look out
Speaker 1: around the world and you've got this situation in Shanghai,
Speaker 1: uh with the city, you know, in a pretty long lockdown.
Speaker 1: I'm reading yesterday Philadelphia is bringing back the mask mandates.
Speaker 1: Um are we done with COVID? Do you think is
Speaker 1: it still is that a tail risk or is that
Speaker 1: a regular old risk? How would how would you think
Speaker 1: about the risk of COVID And you know, sort of
Speaker 1: where would you rank it among our our the big
Speaker 1: risks out there? And what is that risk exactly? I
Speaker 1: mean it's me It's sort of raises the specter of
Speaker 1: this deflation story that you hear. You know, if if
Speaker 1: the supply chains in China are messed up, uh, and
Speaker 1: we still have war in Ukraine and Russia's and wheels
Speaker 1: over a hundred, you know that that's me sort of
Speaker 1: adds to the um stagflation risk that that a lot
Speaker 1: of people talked about. Is it as simple as that
Speaker 1: or how are you thinking about it? Well, I'll hearken
Speaker 1: back to my previous comment that I'm not a virologist,
Speaker 1: so I'm not gonna I'm not going to pretend to
Speaker 1: understand China's particular approach. But I think we're concerned a
Speaker 1: little bit that there's gonna be a supply chain disruption again.
Speaker 1: And what's funny is in the old day, supply chain
Speaker 1: disruptions were just bad for companies trying to make money,
Speaker 1: but now they're really bad for the inflation narrative, so
Speaker 1: that the market really doesn't need any more inflation stories.
Speaker 1: I mean, if I have to read more people talking
Speaker 1: about used car prices and then the impact on the
Speaker 1: federal reserves thinking because of used car prices, I mean,
Speaker 1: I can't believe Jake Powell was shopping for used car.
Speaker 1: But maybe he's got a grand kid or something that
Speaker 1: he's looking for, you know, somewhat beat up Nissan of
Speaker 1: some sort that he can get them and just can't
Speaker 1: get his hands on it. Um. So the COVID pieces
Speaker 1: a bit like that. You know, we I think that
Speaker 1: the real issue, and I think you you're sort of
Speaker 1: alluding to the idea I want to use commodities because
Speaker 1: of inflation, and I'm worried about bonds because of inflation.
Speaker 1: But then this Ukraine war thing, I thought war bad,
Speaker 1: so bonds good. And so if we figure out some
Speaker 1: way of kind of dealing with the energy shock, you know,
Speaker 1: does that mean bonds have a place or what if
Speaker 1: the energy shock is so extreme that you know, it
Speaker 1: causes some recession, Like let's start pricing two fifty barrel
Speaker 1: for whatever reason, I can contrive a scenario that comes
Speaker 1: up that way between an attack and Saudi and and
Speaker 1: and the Ukrainian war, and the same might be for
Speaker 1: COVID and and I'll say we got it in a
Speaker 1: sense wrong. In our trend funds. We were basically position
Speaker 1: and inflationary looking assets in November when a Macron hit,
Speaker 1: and it was a very big, fast deflationary shock, right,
Speaker 1: And so we do what we do systems, just close
Speaker 1: risk when it doesn't fit and and then rebuilds it.
Speaker 1: So you know, it looks a bit like that was
Speaker 1: a bit you know, quick to judge there on a
Speaker 1: on a half day Friday after Thanksgiving. But that's kind
Speaker 1: of how it risk managed itself, so you kind of
Speaker 1: know what what it's gonna do, you know. I think
Speaker 1: in the back of your mind, if you're an investor
Speaker 1: and you're saying I want to go from long bonds
Speaker 1: to short bonds, you probably need to have someone play
Speaker 1: that Devil's advocate piece and say, you know what, I
Speaker 1: hear you, but what about this COVID bit? You know,
Speaker 1: what about the war bit? What if what if the
Speaker 1: war expands into anything? You know, even an accident the
Speaker 1: accidents happen, right, and so what if that accidental bit happens.
Speaker 1: So I don't know why China so aggressive relative to
Speaker 1: everyone else. Sometimes I wonder if they know something about
Speaker 1: COVID redoubt in terms of the fifty year plan um.
Speaker 1: But at the end of the day, that's their approach.
Speaker 1: And so there may be some supply shocks. And we've
Speaker 1: certainly seen China growth numbers look different from ours, right,
Speaker 1: And so that's another interesting aspect of how the world
Speaker 1: is sort of developing, that we're now all on different cycles.
Speaker 1: You know, it used to be everyone went into deflation
Speaker 1: shocked together, and everyone kind of came out together more
Speaker 1: or less. You know, Now we definitely I don't know
Speaker 1: if it's a bipolar tripo or whatever. However, polls there
Speaker 1: are on on lots of bipolar Earth, But however many
Speaker 1: poles you want to stick in the world. UM. You know,
Speaker 1: there is a definite difference in the economic cycle in
Speaker 1: in China UM and versars. They're looking to stimulate demand
Speaker 1: and you know, we're trying to do the opposite. So
Speaker 1: there's there's some natural friction among uset classes. And I'm
Speaker 1: thinking that has to go into how you manage all that. So, yeah,
Speaker 1: it's not none of this is easy like that. You know,
Speaker 1: I'm supposed to come on and tell you it's all
Speaker 1: really easy. You call us, call us up, this is
Speaker 1: what you should do. It just isn't. So in some
Speaker 1: ways I feel like a therapist of times. So people
Speaker 1: will tell you this is what you think, and you
Speaker 1: kind of just listen to people struggle through it all
Speaker 1: and say, look, this is kind of what we think about.
Speaker 1: You know, take a few deep breaths, use this, use this,
Speaker 1: use this, and and then if you can develop that
Speaker 1: framework at least, then you have something that's working for you.
Speaker 1: So you can stop waking up at you know, four
Speaker 1: am and say, wow, the eight rs are down right now,
Speaker 1: or you know this social media company is down right now.
Speaker 1: That's an ellion dollar company. Can that happened to an
Speaker 1: eight D billion dollar company? And the answers yes, like
Speaker 1: can you know so? So, Peter, if you're trying to
Speaker 1: decide at this point whether you should be long tread
Speaker 1: areas or short them, it does at all basically hinge
Speaker 1: on whether or not you believe the Federal Reserve when
Speaker 1: it comes to quantitative tightening, or whether you think they're
Speaker 1: gonna sort of get scared away from the path that
Speaker 1: they're on and and and sort of readjust their plans
Speaker 1: for QT and and not be as aggressive. I mean,
Speaker 1: is that is that the only variable to worry about
Speaker 1: when you're long or short ponds at this point? You know?
Speaker 1: I I guess so for me, the FED is the
Speaker 1: conversation around the FED has been very much like last
Speaker 1: year is like, Wow, they might do something next year,
Speaker 1: and then by the end of the year, maybe three
Speaker 1: or four. Now it's nine. Now they're gonna start running
Speaker 1: off the balance sheet. So it feels like they've been
Speaker 1: pretty behind. The market has accepted them being pretty behind.
Speaker 1: I mean where we are in equities and bonds right now.
Speaker 1: Maybe it felt like a bad start to the year,
Speaker 1: but it's not catastrophically bad, right, We're not talking catastrophically bad.
Speaker 1: So I kind of look at the wings of the problem,
Speaker 1: you know, the far out tails, right and left tail
Speaker 1: to the problem, and if the FED can pulled off
Speaker 1: soft landing, that's probably a pretty good right tail, right.
Speaker 1: I don't think the market at this point is probably
Speaker 1: confident of a soft landing, whereas in two thousand eighteen,
Speaker 1: if you remember, you know, Yelling and Bernanke were on
Speaker 1: stage and you know Powell, I guess had no choice
Speaker 1: but to listen and turn from hawk Is to dublish
Speaker 1: really fast. And so two thousand nineteen was you know,
Speaker 1: all bets are on every empiles and you were confident
Speaker 1: the FED had your back COVID. You know, it wasn't
Speaker 1: easy to be confident, but the FED had your back.
Speaker 1: Here it's definitely different, right, the FED doesn't have your back.
Speaker 1: You don't know where the FED put is. So there
Speaker 1: is that chance if inflation just keeps printing these kind
Speaker 1: of numbers, and the job market stays tight, and we
Speaker 1: see wage inflation, house inflation, all of this, it is
Speaker 1: going to be pretty hard for them to have your back.
Speaker 1: And so you know, your confidence in bonds, well, if
Speaker 1: they have to hype ten, twelve, thirteen times and they
Speaker 1: really run off the balance sheet, I'm certainly not confident
Speaker 1: about thirty year bonds that you know a hundred fifty
Speaker 1: bass point and you know kind of uh, the difference
Speaker 1: to the front year to the two year. So there's
Speaker 1: a lot of moving pieces to it, and I think
Speaker 1: it just keeps going back to, you know, running your
Speaker 1: portfolio with some active risk management. That's just when it's
Speaker 1: not working, step away, and when it starts to work again,
Speaker 1: you know, sometime after the next fed hyke, you say, Okay,
Speaker 1: it's starting to stabilize. It makes sense to me. I
Speaker 1: kind of see where things are going. You might miss
Speaker 1: a few percent, right, but you miss a few percent
Speaker 1: on the way up. It's better than getting hit with
Speaker 1: on the way down. And I think that's by enlarge
Speaker 1: the challenge I think investor's face, because you're all benchmarked.
Speaker 1: You have to make as much as your peers make,
Speaker 1: and they may not always make the right decision. And
Speaker 1: so some of our systematic strategies I feel like, you know,
Speaker 1: it shouldn't really be cutting risk here. It seems fine
Speaker 1: to me, like and and the other. I guess the
Speaker 1: analogous piece I have to that, and a lot of
Speaker 1: people will say after the yield curve inverts, it's not
Speaker 1: a sign that you should sell. It's a recession signed.
Speaker 1: Everyone's got this blanket kind of thing, and then everyone
Speaker 1: rolls out for the next twelve months. You tend to
Speaker 1: make money in stocks, but the path of some of
Speaker 1: those twelve months, I mean, you know, depends what kind
Speaker 1: of roller coaster you like to ride, right, some of
Speaker 1: those twelve months were like, no, a nice uphill to
Speaker 1: the top and you get off at the top of
Speaker 1: the roller coaster and was nice. Others weren't exactly like that,
Speaker 1: And it seems to just ignore that. If you just
Speaker 1: take any random day, right, like I took Thursday and
Speaker 1: added twelve months, equities tend to be up. And so
Speaker 1: it's not a very useful benchmark to just tell me
Speaker 1: usually this happens because you know, I know a lot
Speaker 1: of us can't survive the stomach churning, you know, of
Speaker 1: minus on the way to up two percent at the
Speaker 1: end of the year. Yeah, especially with such an unusual
Speaker 1: environment that we're in, there's really not much of an
Speaker 1: analog in history to draw one and one you know,
Speaker 1: in action exactly yeah, exactly right. You know, Can I
Speaker 1: actually ask you to describe what you see are some
Speaker 1: of the factors behind the renewed equity sell off we're
Speaker 1: seeing in April, and how some of those factors or
Speaker 1: what's different between now and the first couple of months
Speaker 1: of the year, and whether or not we're continuing to
Speaker 1: see that valuation we set that everybody was talking about
Speaker 1: at the start of the year, or if it's more
Speaker 1: of growth scare in your view. Yeah, so there's a
Speaker 1: lot to unpack there actually. Um, you know, it depends
Speaker 1: what you think April ones valuation, whether it made sense
Speaker 1: or not relative to March, and so I think there's
Speaker 1: some liquidity issues in the market. I think this year
Speaker 1: has been very much defined by liquidity. So we see
Speaker 1: days where very low volume up a lot, recently high
Speaker 1: volume down a lot, but there's never a really confident
Speaker 1: update with very high volume. It's often down a lot
Speaker 1: and then back to flat with tremendous volume. Now you
Speaker 1: feel like, okay, there's some logic, there's some real buying there. Um.
Speaker 1: I think the end of March kind of equities have
Speaker 1: this cool inflation hedging potential. It felt a little bit
Speaker 1: like just an excuse. Retail was maybe piling, and we
Speaker 1: certainly saw money flowing in. So there are a lot
Speaker 1: of different forces pushing the market up and maybe overshade
Speaker 1: a little bit right because you know, some systematic strategy
Speaker 1: are short. There are people like us who run hedge
Speaker 1: mandates for clients who are monetizing hedges, taking profits kind
Speaker 1: of right sizing. So a lot of different things can
Speaker 1: kind of feed into that, you know, what caused the
Speaker 1: market to round, and so then you end up looking
Speaker 1: for a narrative what's caused April to start weekly? Well,
Speaker 1: rates have moved up a lot again, so you know,
Speaker 1: the big bug a boo of the market isn't really
Speaker 1: the war. The big bug a move of the market
Speaker 1: is is rates and valuation and multiples. And you've seen
Speaker 1: it in the growth stocks, right. Aztec still really hasn't
Speaker 1: gotten off of its own way just yet, and I
Speaker 1: think that can be heavily attributed to rates. Peter, one
Speaker 1: last thing before we get to our our crazy things
Speaker 1: of the week. In the notes you center I sent over,
Speaker 1: I noticed you said, uh, you know, cash isn't completely
Speaker 1: unattractive right now, which is kind of interesting to me
Speaker 1: because I don't know how many people we talked to
Speaker 1: who are who are like, whatever you do, you can't
Speaker 1: be in cash earning nothing. But but what is it
Speaker 1: about cash right now? Is it just waiting for you know,
Speaker 1: for all the selling in the other asset classes to end,
Speaker 1: or is it finally those money market rates or start.
Speaker 1: It's it's not so much that cash is going to
Speaker 1: make you a lot just not gonna lose you anything, right,
Speaker 1: So yeah, I think others would say you're just waiting
Speaker 1: for gott oh if you think you're to buy other
Speaker 1: assets on the cheap um. I just think people need
Speaker 1: to sit back and say, Okay, if I sell something,
Speaker 1: must I buy something? And so when a client comes
Speaker 1: to us and says, hey, you know, I'm i'm equities
Speaker 1: right now, what do you think they're my first nature?
Speaker 1: Because I'm a tailored guy, my first reaction is like, oh,
Speaker 1: you've been pretty lucky for the last years, so maybe
Speaker 1: it's time to feel less lucky and sell some Like well,
Speaker 1: what am I gonna buy? I should I should buy
Speaker 1: private equity? Like well maybe I don't know, but that
Speaker 1: doesn't seem like it's all that different from equity. And
Speaker 1: you get into these conversations where I don't want to
Speaker 1: own bonds. Okay, you don't want to own bonds, I don't.
Speaker 1: I don't know how to trade commodities. I can't trade commodities.
Speaker 1: Oils at minus forty at least equity goes to zero.
Speaker 1: And so at some point you can just say, you
Speaker 1: know what, put in cash? The right answer for me
Speaker 1: as a as an employee of men Group is just
Speaker 1: put in hedge funds because they can make lots of money.
Speaker 1: But the easy answer that doesn't require a lot of
Speaker 1: thought is put in cash and figure out where you're going.
Speaker 1: It's not meant to make you a ton of money.
Speaker 1: It's to simply say I don't understand everything that's going on,
Speaker 1: and the absence a brilliant scenario, I mean, I can
Speaker 1: give you our list of best ideas, you've got to
Speaker 1: go to an ic and I c has ten people.
Speaker 1: One person wakes up in a bad mood and just says,
Speaker 1: you know what, I'm don't want to do that, and
Speaker 1: so you end up in a muddle. And I think
Speaker 1: sometimes on the risk management side, people spend too much
Speaker 1: time reallocating because you need to beat your benchmarks and
Speaker 1: meet your peers. And you know, maybe cash isn't a
Speaker 1: terrible terrible thing. You know what it's worth. And now
Speaker 1: the counter argument to that is if you plan to
Speaker 1: do that for a really long time with this kind
Speaker 1: of inflationary environment, you will look like an idiot. And
Speaker 1: so so you know, my my note there is too
Speaker 1: It doesn't matter what you buy next. If you're worried
Speaker 1: about de risking d risk first, and then about where
Speaker 1: to put it right. And one I worked for stam Drug,
Speaker 1: a miller way back when, and he had a line
Speaker 1: once when he wanted people to de risk. He had
Speaker 1: some thoughts that the market might go down, and he
Speaker 1: said him, by d risk, I don't mean sell a
Speaker 1: bunch of stuff you don't own to make yourself market flat.
Speaker 1: I mean sell what you own so that you don't
Speaker 1: have any issue. Right, Just de risk, get rid of
Speaker 1: your lungs and your shorts, cut everything back down. And
Speaker 1: there are times where you should just do that. And
Speaker 1: I think that the desperate fear of you know, I'm
Speaker 1: not earning enough to match inflation or not, you know,
Speaker 1: getting caught out missing bonds, missing this missing that. You know,
Speaker 1: from a risk control standpoint, it isn't always a legitimate
Speaker 1: argument capital preservation over capital appreciation. I guess yeah, But
Speaker 1: it makes me a very unpopular person if you don't.
Speaker 1: I imagine, I imagine a rate dal You always say
Speaker 1: that guy's an idiot. It's very easy for him to
Speaker 1: allocate your assets because he's you know, and for us too,
Speaker 1: it's just harder sometimes when you have a different group
Speaker 1: of constituencies inside your framework that just have a different view,
Speaker 1: like the dollar is worthless, No, the dollar is king.
Speaker 1: And he's like, Okay, what do I do with that?
Speaker 1: Good stuff? Good stuff, Peter. Always a pleasure to catch
Speaker 1: up with you. But now we got to take you
Speaker 1: out of your wheelhouse and get to the crazy things
Speaker 1: of the week. Here, Uh, what's the craziest thing you
Speaker 1: saw this week? Well, I was going to go with
Speaker 1: the whole Twitter elon Musk drama where he was going
Speaker 1: to join the board. Then he rescinded and everybody was
Speaker 1: tweeting about the drama, and he's been he's been asking
Speaker 1: people about changes he should be making for Twitter. But
Speaker 1: I actually had a call in from our friend Max Kachman,
Speaker 1: who was on the podcast just a couple of weeks ago,
Speaker 1: and Mike, I'm sure you you know what the board
Speaker 1: apes are. The board ape. So the company behind the
Speaker 1: board apes it's called Yuga Labs, and Max went through
Speaker 1: their pitch deck. He was looking through it, he noticed
Speaker 1: one slide that has financials sort of like a breakdown,
Speaker 1: a pie of all the financials breakdown and the components
Speaker 1: are the craziest thing. So board Apes is one component
Speaker 1: land Sales is another, and then there's two sections, one
Speaker 1: for goblins and one for mechanical dogs land land sales,
Speaker 1: land sales, I think in the metaverse, Oh oh, of course,
Speaker 1: of course, yes, But it's a goblins and the mechanical
Speaker 1: dogs that are they n f T projects too? I
Speaker 1: don't know, We didn't know. So it was just really
Speaker 1: really interesting because the company raised four hundred and fifty
Speaker 1: million dollars. Peter, if someone brings you a pitchbook like that,
Speaker 1: I'm sure you're all in, right, and we were all in.
Speaker 1: We we find it very easy to invest in things
Speaker 1: that can only go up, so it's quite straightforward. That's great. Goblins,
Speaker 1: We've got to figure out how what allocation percentage to goblins.
Speaker 1: Uh one must go. But that pretty good build down.
Speaker 1: I like that one. How do you, Peter, you see
Speaker 1: anything crazy this week? You know, I was kind of
Speaker 1: at this point. I didn't get to do the Academy
Speaker 1: Awards week because you know, I like hockey and I
Speaker 1: didn't realize how how fun they could be the award shows.
Speaker 1: But you know, I'm gonna go back a touch. It's
Speaker 1: been a weird year where liquidity is all about random
Speaker 1: moves and every week day you kind of wake up
Speaker 1: with a random thing. And so the whole industry years
Speaker 1: ago had a short vol et F and it implode,
Speaker 1: exploiting miraculously, just beautiful fashion destroyed itself and you know,
Speaker 1: went from hundred to fifteen and disappeared. There's also a
Speaker 1: long Volley t F which also managed to implode over
Speaker 1: ten years and go to zero. So we've created, as
Speaker 1: an industry of all industry, a product that could be
Speaker 1: long and short the exact same thing, and both of
Speaker 1: them go to zero. So I thought that was impressive,
Speaker 1: but I found someone who did it faster, and so
Speaker 1: there was an Italian e t F on Nickel. It's
Speaker 1: absolutely fascinating how it turned out. It turns out if
Speaker 1: you close the exchange on the way up, the three
Speaker 1: x short Nickel et F gets liquidated. You close the
Speaker 1: exchange for whatever reason, you close the exchange, do you
Speaker 1: reopen it, it collapses. The three x long vault long
Speaker 1: Nicol e t F also goes out of business. So
Speaker 1: within a period of two weeks, the long et F
Speaker 1: and the short et F with the exact same underlying,
Speaker 1: you know, with three x leverage, managed to go out
Speaker 1: of business in two weeks. It took us about ten
Speaker 1: years to do that in the ball industry. So I
Speaker 1: give some credit to the Italians for being ahead of
Speaker 1: the game. Um, but maybe a slight warning to people
Speaker 1: using three X leverage that you probably want to just
Speaker 1: double check that the underlyings can't go negative or can't
Speaker 1: go up in a couple of hours. Oh my gosh. Absolutely,
Speaker 1: that's really good. That's really good. I think he wins.
Speaker 1: That's pretty good. Anytime you mix three X with anything
Speaker 1: traded on the LAMI I think, uh, I think you
Speaker 1: got a crazy thing. Yeah, I think that by definition
Speaker 1: that those days are over. But every time we say
Speaker 1: this won't happen again, you have someone who can't count
Speaker 1: the the open interest in the v x X note
Speaker 1: and says we're over my fifteen billion. And as Matt
Speaker 1: Levine wrote, like who's running that spread cheek exactly? Yeah,
Speaker 1: I think he said possibly it was an intern and
Speaker 1: they stopped tracking and and nobody else took it over.
Speaker 1: I think emailed it. I think, I mean, having worked
Speaker 1: in big places, it does have that sad feel of yeah,
Speaker 1: and it's like and then the three X nickel e
Speaker 1: t F was just handed off to some new junior trader, Like,
Speaker 1: all you have to do is just do this every
Speaker 1: day and then you know, this should be fine. Nothing
Speaker 1: should happen. Yeah, as long as the exchange is open,
Speaker 1: we'll be fine. We'll be fine. What could go wrong?
Speaker 1: As long as price doesn't go negative. It's like okay, yeah, yeah,
Speaker 1: it's not gonna go negative. Like no, no, that's good.
Speaker 1: It's cool. It's cool. You think I've got you you
Speaker 1: the intern this portfolio, if it has any serious risk
Speaker 1: to it, that's hilarious. That's so good. All right, well
Speaker 1: that is a good one. I think I might have
Speaker 1: to concede defeat to tow the three x uh nicole
Speaker 1: et F. But I'll give you mine. Of course. I'm
Speaker 1: gonna make you to play prices right with me? Here,
Speaker 1: I had two crazy things. I couldn't decide which one
Speaker 1: was better. So instead I'm gonna make you decide which
Speaker 1: one it gets a higher bid. And there are two
Speaker 1: pieces of very very important gen X memorabilia. So I
Speaker 1: don't know if if gen X, if you're comfortable with
Speaker 1: the gen X uh uh, you strike me as more
Speaker 1: of a millennial memorabilia type. All your memorability exists in
Speaker 1: the metaverse, but for jend X, our memorability is really
Speaker 1: there in the real world. So we've got two pieces
Speaker 1: of of jend X memorabil Before you say that, I
Speaker 1: note that you didn't have a millennial comment for me,
Speaker 1: or you assume that I'm a generation I just I
Speaker 1: take small offense for that. It's it's that maturity and
Speaker 1: wisdom isn't there disclaiming the use of the pronouns we
Speaker 1: are isn't necessarily we share the same view. That's exactly exactly. Well,
Speaker 1: let's see, Peter, maybe maybe you're you'll get the small
Speaker 1: one wrong too. Uh. Well, that it's not bad at
Speaker 1: the price is right, all right. Two pieces of memorabilia. One,
Speaker 1: it's the Tonic blue guitar that Kurt Cobain rocked out
Speaker 1: with in Nirvana's nineteen nineties smash. It smells like teen
Speaker 1: spirit music video. So that one's coming up for auction,
Speaker 1: uh by Julian's Auctions. So keep this in mind when
Speaker 1: you're pricing this is we only know what the auction
Speaker 1: house hopes to get for that item. We don't know
Speaker 1: what it's sold for. But it is a nineteen sixty
Speaker 1: nine blue Fender uh Mustang guitar. I believe it is
Speaker 1: UH seen in the smells like teen Spirit, the famous
Speaker 1: Nirvana breakthrough video in the nineties. That's coming up for sale.
Speaker 1: So what do you think the auction house UH is
Speaker 1: hoping to get for that? And the other one has
Speaker 1: already gone up for sale, and it is Tiger Woods
Speaker 1: golf Clubs that he used in the Tiger Slam. Now, VA,
Speaker 1: if you're not familiar with the Tiger Slam, what that
Speaker 1: was is typically if you win a Grand Slam and
Speaker 1: golf it means you want all four majors in one
Speaker 1: coun calendar year, and it's incredibly difficult thing to do.
Speaker 1: But what Tiger Woods did is he won two in
Speaker 1: one year and then the first two in the next year,
Speaker 1: so four in a row, but not in one calendar year,
Speaker 1: so they called it the Tiger Slam. Still still very impressive.
Speaker 1: So the Irons and Wedges, titlists irons and Wedges he
Speaker 1: used to win all four actually did go up for sale, UH,
Speaker 1: And so we know the the we have price discovery
Speaker 1: on the actual bid for that. So well, Donna will
Speaker 1: start with you, what do you think deserves a higher bid?
Speaker 1: The Kurt Cobain's guitar for Tiger Woods is irons and wedges,
Speaker 1: and as as a tiebreaker, give me the bid of
Speaker 1: the higher christ item the guitar. For sure, I'm going
Speaker 1: with four and a half million. We're a half million
Speaker 1: for the guitar. The data says with great confidence, Peter
Speaker 1: at atwater our confidence, uh Guru guests would be very
Speaker 1: proud of the confidence with which you uh stated that, Peter,
Speaker 1: how about you. I just want to say, for the record,
Speaker 1: I didn't see her hands to see what you know
Speaker 1: is in her hands. These questions were being asked. She's
Speaker 1: showing me them now this is the podcast. So she's
Speaker 1: a fast gourgler. She's a fast gurgler. So I will
Speaker 1: say my offer on the guitar was substantially below four
Speaker 1: and a half, which is problematic. My logic was, you know,
Speaker 1: golfers have lots of money they pay for things like this,
Speaker 1: but it wouldn't be interesting if they were worth more
Speaker 1: than the guitar. So I'm gonna lean with the guitar.
Speaker 1: I guess I only have to be a penny below
Speaker 1: her to win if in that case, but I'll be
Speaker 1: less jerky about it and we'll make it like three
Speaker 1: million UM pay on paper here is not that number
Speaker 1: of digits. Now, what I should do is make you, guys,
Speaker 1: turn off the other person's answers. I feel like hearing
Speaker 1: the other person's answers. So it's totally fine that you
Speaker 1: had let her go first. I have a lot more
Speaker 1: dignity because now I just look kind of a finance journey,
Speaker 1: just kind of undercut the price and that sort of
Speaker 1: thing like improving the opinion the general population house of
Speaker 1: people like us. So Tiger's clubs went for five point
Speaker 1: two billion, five two million, excuse me, Hill, they come
Speaker 1: with a certificate of authenticity, and not only that, they
Speaker 1: come with a polygraph test results from the guy at
Speaker 1: titlist who Tiger gave him back to at the end. UM.
Speaker 1: Now where you might be tripped up is that again,
Speaker 1: Kurt Cobain's guitar hasn't actually gone up for sales, so
Speaker 1: it very well could go up for more than what
Speaker 1: they expect, but they're only expecting eight hundred thousand. Basically,
Speaker 1: the reverse contrariant was the way to go there. Yeah,
Speaker 1: everything instead of just instead of just answering. The golfers
Speaker 1: have money and they spend money like idiots. Sometimes Trazer,
Speaker 1: you know something, Um, I was so, but I will
Speaker 1: say I do think Uh, Kurt's guitar is going to
Speaker 1: go more for more than that. His acoustic uh is
Speaker 1: that already went up for sale. Is the most expensive
Speaker 1: piece of rock memorabil you ever sold it like five millions,
Speaker 1: So you all I all I really need to do
Speaker 1: is find out if Elon Musk is a fan. And
Speaker 1: although we're right, I still lose. So so you had
Speaker 1: the lower end, So I think I lose either way,
Speaker 1: unless lower on the price. But if if if we're
Speaker 1: write an Elon less space whatever, If you can pay
Speaker 1: nine billion for a small social media steake, you can
Speaker 1: s a guitar. Yeah, hopf ever know one. You need it.
Speaker 1: It's handy to have around if you want to serenade someone.
Speaker 1: So that's true, that's true. Grimes his his uh, his
Speaker 1: lady friend Grimes might be able to write a you
Speaker 1: know and inflationary times he does. It's bring a full circle.
Speaker 1: It's a real asset, it's a real assets. Do really well.
Speaker 1: Absolutely absolutely. I was surprised by I was surprised for
Speaker 1: five million for Tigers Clubs. But I mean, you know,
Speaker 1: I think to your point, there's a lot of golfers
Speaker 1: with money out there, and uh, just someone just has
Speaker 1: to have it, if you just have to have it, Yeah,
Speaker 1: it was probably it was probably Phil Mickelson. Who will
Speaker 1: who will scalp them down break his knee. But with
Speaker 1: that said, Peter, always such a great opportunity to catch
Speaker 1: up with you. I hope we can have you back
Speaker 1: again soon. Um, I really appreciate your insights on everything
Speaker 1: going on it man. Yeah, thanks for having me. It's
Speaker 1: good fun. So yes, What Goes Up We'll be back
Speaker 1: next week. Until then, you can find us on the
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Speaker 1: We'd love it if you took the time to rate
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Speaker 1: Valbanna Hierrach. What Goes Up is produced by Stacy want.
Speaker 1: The head of Bloomberg Podcasts is Francesco Levi. Thanks for listening.
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