Speaker 1: Hello, and welcomes to what goes up a weekly markets podcast.
Speaker 1: My name is Mike Reagan. I'm a senior editor at Bloomberg.
Speaker 1: My colleague Vildata Hirich is off on yet another fabulous vacation.
Speaker 1: I'm sure we'll hear all about it next week, but
Speaker 1: this week on the show, Well, for years, shorting bonds
Speaker 1: was a terrible trade, so bad that one researcher has
Speaker 1: referred to it as a trade that looked like it
Speaker 1: would work only when pigs fly. Well, look out above,
Speaker 1: because anyone who had the conviction to bet against the
Speaker 1: bull market in bonds has had a great year this year.
Speaker 1: I suppose we should have asked the hog farmer we
Speaker 1: had on last week for his take on the flying pigs.
Speaker 1: But we've got the perfect guests this week to talk
Speaker 1: about shorting bonds and whether it's not too late to
Speaker 1: get in on that trade. Her name is Katie Kaminski.
Speaker 1: She is the chief research strategists and portfolio manager at
Speaker 1: Alpha Simplex Group. Can you welcome to the show, hihike,
Speaker 1: Thanks for having me. Why don't we start Katie? Just
Speaker 1: for those who aren't very familiar with Alpha Simplex, Uh,
Speaker 1: when you talk a little bit about the firm, Uh,
Speaker 1: you know sort of what its strategies are, and I
Speaker 1: know that notion of adaptive markets hypothesis is very important,
Speaker 1: if you can talk a little bit about that, just
Speaker 1: to give us sort of the background of where you're
Speaker 1: coming from. Yes, Alpha Simplex is a quantitative investment manager
Speaker 1: who focuses on systematic trading strategies. In particular, we apply
Speaker 1: UM rules based and UM quantitative based approaches to trade
Speaker 1: in the markets. So in particular we follow the futures
Speaker 1: markets and we have been are one of our largest
Speaker 1: strategies as managed futures, which is a trend falling strategy
Speaker 1: using a pure, really systematic process. So of course trendfling
Speaker 1: is an exciting strategy because it's easy to explain but
Speaker 1: is a little complex to implement. So we buy things
Speaker 1: when they're going up and we sell things that they're
Speaker 1: going down, and we do it in a way that's
Speaker 1: very systematic. And so when it comes to thinking about
Speaker 1: the adapted markets hypothesis, and the idea is that you
Speaker 1: want to build systems and processes that adapt with markets
Speaker 1: as they change to find opportunities. And so what that
Speaker 1: means is that our models are looking at what's working now,
Speaker 1: not sort of sticking to sort of theory or what
Speaker 1: makes sense because of some narrative. And that's particularly important now. Um,
Speaker 1: if you look at a year like this year, I
Speaker 1: mean really a lot of things that have worked in
Speaker 1: the past aren't working, and so being able to adapt
Speaker 1: to that is really important. Yeah. Absolutely, And I know
Speaker 1: the managed features mutual funds having a tremendous here, it's
Speaker 1: up like thirty percent or something like that. Is that mainly, um,
Speaker 1: due to having the right call on Bob Runs or
Speaker 1: is it? Are there other explanations behind it too? What
Speaker 1: was the secret secret sauce this year for for having
Speaker 1: such a good year? So, I wish I could say
Speaker 1: it was one thing. It's been multiple. One of the
Speaker 1: best trades this year has been shorting bonds. Another great
Speaker 1: trade has been being long energies, especially in the first
Speaker 1: part of the year, and more recently, we've also seen
Speaker 1: tremendous opportunities in currency markets. As you've seen the US
Speaker 1: dollar really sort of you know, skyrocket in its in
Speaker 1: its strength rolled to to other currencies. So what that
Speaker 1: kind of shows you it's not really sort of a
Speaker 1: one trick pony it's not one as a class. It's
Speaker 1: really about adjusting to this current macro environment and using
Speaker 1: the information that we're seeing in market moves to adjust
Speaker 1: to positioning, which in many historical context is seems complicated,
Speaker 1: but actually in this environment makes a lot of sense,
Speaker 1: especially from a macro view. Absolutely well. I feel like
Speaker 1: if you had, you know, asked a discretionary macro UH
Speaker 1: fund manager UM, in what world would you be long
Speaker 1: both the dollar and oil? I think their head would
Speaker 1: have exploded. But I guess that kind of gets to
Speaker 1: the whole notion of adapting with the markets. Yeah, exactly,
Speaker 1: And I think you brought up the bonds and let's
Speaker 1: talk about that because that's fun um before, and we
Speaker 1: actually wrote a paper on shorting bonds recently because it
Speaker 1: is so sort of out of the scope of most
Speaker 1: investors that I talked to. If I asked a group
Speaker 1: of people, how many of you think that rates are
Speaker 1: going to go up, they'll all raise their hands. But
Speaker 1: if you ask them how many of you are willing
Speaker 1: to short bonds or have shorted bonds, nobody does. And
Speaker 1: that kind of highlights the fact that most of us
Speaker 1: are used to this idea that we only go long bonds.
Speaker 1: That bonds always help us. They're sort of like are
Speaker 1: tried and true safety trade. And so for the sixty
Speaker 1: forty and the typical investor, this year is sort of
Speaker 1: left them standing there going, I don't know to do UM,
Speaker 1: where someone like us who was really looking at what
Speaker 1: are the strategic tactical opportunities UM in the short run,
Speaker 1: and that's a fantastic trade, even if it's uncomfortable from
Speaker 1: sort of a historical perspective. UM, it's a strategy that
Speaker 1: hasn't worked since So you know, think about that. That's
Speaker 1: that's a long time. Yeah, absolutely, And so in managed futures,
Speaker 1: it's this is mostly shirting treasury futures, I imagine was
Speaker 1: that the main so in the futures markets. What's great
Speaker 1: is that futures markets have grown substantially throughout the years
Speaker 1: and now there's a very large range of different futures
Speaker 1: contracts that you can trade, whether it's the guilt in
Speaker 1: the UK or U S treasuries or also other government
Speaker 1: bonds globally. So there's actually a pretty large range of
Speaker 1: liquid futures contracts out there that many investors can use
Speaker 1: as a way to take a position short bonds UM
Speaker 1: as an example, right, And I'm curious, you know how
Speaker 1: sort of fast reacting trend following can be, because obviously
Speaker 1: we started the year with bonds doing terrible, yields going
Speaker 1: up UM. Then there was, you know, an interruption in
Speaker 1: that yields came back down over the summer quite a bit. UM.
Speaker 1: Are you able to sort of ride both ends of
Speaker 1: that trend or is it is it more important what
Speaker 1: the long term trend is. So treadfully is a pretty
Speaker 1: adaptive strategy and it's relatively quick in terms of relative
Speaker 1: positioning to long term investors. But what we saw this
Speaker 1: year is exactly what you're saying, is that there was
Speaker 1: different macro themes that were evolving over the course of
Speaker 1: the year. So in the first quarter we saw inflation
Speaker 1: rising rates as a theme that manifests itself across the
Speaker 1: long commodities and short fixed income. This particular trade man
Speaker 1: sort of shifted to a short bond and also long
Speaker 1: dollar trade later in the year as commodity started to dissipate,
Speaker 1: so we saw that sort of positioning and views on
Speaker 1: commodities moved much more to that recession versus non recession environment.
Speaker 1: And then in June, we saw sort of the markets
Speaker 1: made a pivot, as you suggested, where volatility increased, cross
Speaker 1: asset correlations increased, and sort of a general sentiment that
Speaker 1: this themes were in some sense consolidating UH came into
Speaker 1: the market and you started to see sort of a
Speaker 1: tremendous de grossing of some of those positioning that you
Speaker 1: saw earlier this year. And then we started to see
Speaker 1: a pivot this month and last month back to what
Speaker 1: we saw earlier this year. And I think some of
Speaker 1: that comes with the fact that the central bankers have
Speaker 1: remained steady, which has basically said, you know, this pivot
Speaker 1: towards I think this is over is a little preemptive.
Speaker 1: I think it's time to wait a little bit to see,
Speaker 1: you know, how we really do deal with this inflation
Speaker 1: problem and how we handle things going forward, right, right,
Speaker 1: And so you'll never try to sort of front run
Speaker 1: the trend at all. You know, if if you're watching
Speaker 1: drone pal speak and he says that's it, we're done
Speaker 1: cutting UH, we're done raising interest rates, um, unless the
Speaker 1: bond market reacts violently to at you, you're not going
Speaker 1: to try to trade those remarks at all. I imagine
Speaker 1: so there's a lot of noise in all of this
Speaker 1: and you guys, you you know this better than anybody,
Speaker 1: and that you know one day moves incorporate a lot
Speaker 1: of noise and a lot of overreaction under reaction, and
Speaker 1: part of what we try to do is be very
Speaker 1: systematic and smooth and the way that react to trends
Speaker 1: over longer horizons, so that you know, you can balance
Speaker 1: between what is real information what is noise um. And
Speaker 1: this is very important because over the long term, what
Speaker 1: you'll see is that we're capturing a lot of these
Speaker 1: macro themes that do on the margin have a lot
Speaker 1: of noise um, and that's sort of where we're seeing
Speaker 1: that we're not trying to sort of pick things based
Speaker 1: on one data point. We're trying to use a lot
Speaker 1: of data and use that data to come up with
Speaker 1: a view on where we should be in the different
Speaker 1: asset classes over time. Yeah, So what do you think
Speaker 1: has the short bonds trade sort of run its course
Speaker 1: for the years? There is there more to be had
Speaker 1: from it in your opinion? Yes, I do. I think
Speaker 1: the short bond trade has more legs to run, particularly
Speaker 1: with the commentary that we saw recently with the fed
Speaker 1: um in the recent period where they've really kind of
Speaker 1: hold steady um. The reason is a lot of the
Speaker 1: core problems that have driven to the point where we
Speaker 1: are now have yet to be completely solved, and I
Speaker 1: think we're gonna have to see inflation actually dissipate and
Speaker 1: we're gonna have to see that we're in a situation
Speaker 1: where things are much more stable before we can actually
Speaker 1: call this over um. And so in that sense, I
Speaker 1: think we could be in a rising rate environment for
Speaker 1: some period of time, and what we'll see, what we've
Speaker 1: seen using more longer term studies, is that we're going
Speaker 1: to be a lot more short in fixed income if
Speaker 1: we are in a truly secular rising rate environment then
Speaker 1: we've been in the last forty years. And that's something
Speaker 1: to kind of think about from an investor's perspective, and that,
Speaker 1: you know, how do you think about your bond exposure
Speaker 1: if we have a prolonged rising rate market for bonds? Yeah, yeah, absolutely.
Speaker 1: I mean, as you said, something no one has really
Speaker 1: experienced since the early nineties. I guess I think everyone thought,
Speaker 1: you know, this was it, this is the new normal
Speaker 1: for the bond market. So you know, on the other
Speaker 1: side of the pandemic. UM, it seems like you're not
Speaker 1: expecting a sort of a reversion to the to the
Speaker 1: pre pandemic world. It's it's going to be a brave
Speaker 1: new frontier where rising rates are are here to stay.
Speaker 1: Is that your main thing? I mean, I think what
Speaker 1: we've seen is that even though the narrative has shifted
Speaker 1: over time, the core issues related to inflation need to
Speaker 1: be solved before we can actually call it a win. UM.
Speaker 1: And I think you see that in the markets, and
Speaker 1: it's probably what surprising is that there is a lot
Speaker 1: of hope. I mean, people love things to go back
Speaker 1: to the way they were. And the truth is is,
Speaker 1: until we can actually see that inflation is really under
Speaker 1: control and that real rates have actually you know, gone
Speaker 1: more positive, UM, it's gonna be hard to imagine that
Speaker 1: someone can stab their fingers and we'll just go back
Speaker 1: to the world we're in. And I think for us
Speaker 1: as tactical traders, this is an interesting environment because tactical
Speaker 1: strategies and any sort of dynamic approaches haven't worked well
Speaker 1: until recently, because it's been very much a world where
Speaker 1: you have this put you have you know, you know,
Speaker 1: stocks always go up, but if they don't, then it
Speaker 1: will get better UM. And the same with bonds, like
Speaker 1: you know, if something goes bad, you've always got your bonds.
Speaker 1: And I think that investors are really going to have
Speaker 1: to grapple with the fact that it's a very different
Speaker 1: world when we add inflation to the problem and when
Speaker 1: we have to deal with what the impact of rising
Speaker 1: rates has on just different asset classes and different sectors
Speaker 1: UM in general. Yeah, you know, it's interesting. I was
Speaker 1: looking at the Bloomberg. We start getting the survey results
Speaker 1: trickling in for the CPI report for next week, and
Speaker 1: the last time I checked, the consensus is for I
Speaker 1: think month over month UM, you know, negative point one
Speaker 1: percent a year over year eight percent in cp I,
Speaker 1: So a little bit, you know, off of the boil
Speaker 1: to some degree, but I'm guessing that's not mission accomplished
Speaker 1: as far as you know, whether yields will keep going up.
Speaker 1: It's still a high number. I mean, the differential is
Speaker 1: still big, and I think that you're not seeing it
Speaker 1: in the commodity markets right now, but that's pretty typical,
Speaker 1: right so you see the commodity markets sometimes lead that
Speaker 1: process and then inflation is very insidious. It starts to
Speaker 1: go in different areas. So things like wage inflation and
Speaker 1: other areas of the economy is where we have to
Speaker 1: start looking real estates and other areas that aren't measured
Speaker 1: in some of these core materials. They're the after effects
Speaker 1: of that UM. And so for our view is when
Speaker 1: we see inflation numbers back closer to their target of
Speaker 1: two UM eight versus two is still a really big difference.
Speaker 1: It's a long way off. But I would imagine, you know,
Speaker 1: a lower than estimated CPI would still trigger some kind
Speaker 1: of rally in the bond market. But I would that
Speaker 1: just be noise, you think, not not anything that would uh,
Speaker 1: you know, really cause you to change your thinking. No,
Speaker 1: I'd say that, you know, we saw that this summer,
Speaker 1: we saw recently. You know, any sign of the good
Speaker 1: news is bad news. Bad news is good news. Situation
Speaker 1: where anything that confirmed that things were better was actually
Speaker 1: a good thing. Things were worse. It's a good thing
Speaker 1: is maybe they'd stop raising raids UM And so I
Speaker 1: think that you know, you're going to see that until
Speaker 1: this kind of dissipates and gets under control. And I
Speaker 1: think people like to think that things get fixed in
Speaker 1: a second by one print. I mean that's the way
Speaker 1: we are, Like, we love hoping and it's a great thing.
Speaker 1: But I think in terms of understanding financial markets, sometimes
Speaker 1: we're ready to be hopeful a little quick. Um, yeah,
Speaker 1: how about equities? Um? You know? Were they shorting equity? Future?
Speaker 1: Is part of what the fund did this year? Is
Speaker 1: that part of the success? And sort of where do
Speaker 1: we stand now? It's been such a choppy year. I mean,
Speaker 1: long term trend down for the year, but there's been
Speaker 1: so many little little rallies in the middle of it
Speaker 1: are not so little, you know. The last one was
Speaker 1: about how did you navigate through all that? You caught me?
Speaker 1: I have to be honest, equities have been just super noisy,
Speaker 1: and we've had almost no equity exposure. Uh. Signals and
Speaker 1: equities have been really weak and extremely noisy. So what
Speaker 1: that means is that there has been very very unclear
Speaker 1: trends and equities this year, despite the fact that they're
Speaker 1: down quite a bit. As you said, it hasn't ministrate
Speaker 1: line um and that has been very consistent with the
Speaker 1: idea that I don't think this is an equity story.
Speaker 1: I think this story starts with the bond market. And
Speaker 1: with inflation, equities is a bride product of a situation
Speaker 1: that we're in. And that's why it's so hard to
Speaker 1: call um because you know, we're trying what's really the
Speaker 1: focus is inflation. It is really sort of how do
Speaker 1: we manage that and how do we manage raising rates
Speaker 1: and balance sheets? And I think equity is just sort
Speaker 1: of gone back and forth in the wake of that
Speaker 1: theme um this year. So it's been very hard to
Speaker 1: call the equity markets and signals have been very mixed, right, right?
Speaker 1: And how about the dollar? How how have you played
Speaker 1: the rising dollar? I know we had a guy from
Speaker 1: Dynamic Beta, Andrew Beer, who's they have a mant of
Speaker 1: future c ETF that's done well too. They were very
Speaker 1: short the end um. Is that something you guys managed
Speaker 1: to do? So so that has been the biggest surprise
Speaker 1: to me this year because I tend to be pessimistic
Speaker 1: on currencies because currencies tend to rebound be somewhat range bound,
Speaker 1: and as you know, I mean, the dollar has not
Speaker 1: hit parody with the euro in a long time, and
Speaker 1: so I think the biggest surprise has been that the
Speaker 1: dollar strength and we've seen that across the board particularly
Speaker 1: against the end but also against the Euro and also
Speaker 1: against other core developed currencies. Just has been really really clear.
Speaker 1: And this makes a lot of sense sex posts in
Speaker 1: the sense that the dollar is much better positioned than
Speaker 1: other regions based on the fight for inflation and sort
Speaker 1: of how the central bank response has been UM. And
Speaker 1: so I think that is really coming out in those trends,
Speaker 1: and that you've seen that the dollar has come ahead
Speaker 1: as the winner in this environment, um, just as a
Speaker 1: relative positioning point as opposed to other things. I mean,
Speaker 1: also adding into the fact that there's just less energy
Speaker 1: dependence concerns. There are some, but they're not as severe
Speaker 1: as a Europe. So all of these things added up
Speaker 1: has really put the dollar in the win um for
Speaker 1: this year, and you expect that to continue. I mean,
Speaker 1: it seems like, you know, as long as Europe is
Speaker 1: struggling to keep the lights on and China's you know,
Speaker 1: locking down cities again today I saw, um, is that
Speaker 1: dollar strength just inevitable until these issues are cleared up.
Speaker 1: It seems to be the case, and signals in the
Speaker 1: dollar versus other currencies have remained strong and steady despite
Speaker 1: you know, as I said, I tend to be skeptical
Speaker 1: in the dollar, UM, just because currencies tend to be
Speaker 1: a little bit more complicated and more range found. But
Speaker 1: it is really looking right now going into the winter season,
Speaker 1: and with the news out of China that the dollar
Speaker 1: is still very much holding its own UM, despite the
Speaker 1: fact that it's really come quite a long ways this
Speaker 1: year already. How about this, you know, we've seen a
Speaker 1: pretty fierce reversal in oil over the last couple of
Speaker 1: months to UM, I'm curious if if you've played that
Speaker 1: at all on the fund or if it's you know,
Speaker 1: how you see oil fitting in to to all these
Speaker 1: other things. I mean, as you pointed out, I think
Speaker 1: that the initial inflation impulse was was mainly from watching
Speaker 1: the commodities markets UM. And you know now the bond
Speaker 1: market is sort of forgotten about oil. It seems like
Speaker 1: it's it's looking at rent and owners equivalent rent and
Speaker 1: all the other sort of lagging drivers of inflation. How
Speaker 1: do you see the oil developing for the rest of
Speaker 1: the years. This downtrend something that will concern you, do
Speaker 1: you think? So it's interesting you say that because we
Speaker 1: saw extremely strong signals in oil all the way until
Speaker 1: the conflict in Ukraine, and then we saw what would
Speaker 1: be sort of a perfect situation for a trend follower,
Speaker 1: and that oil volatility exploded, and then obviously oil went
Speaker 1: way up in value, and that created a lot of noise,
Speaker 1: which consolidates um your views, UM. And so we've really
Speaker 1: seen oil stay steady and as a long view, but
Speaker 1: much more muted UM. And so what I would think
Speaker 1: about this is that you've typically seen this even if
Speaker 1: you look in the seventies, during inflation cycles, commodities have
Speaker 1: sort of up and down periods. Um. We've consolidated an
Speaker 1: energy but we've seen some you know, but you have
Speaker 1: to remember it's September, like September and October is kind
Speaker 1: of in that low period before we know how serious
Speaker 1: the energy issues are in the winter. And so I
Speaker 1: think that that sort of to be expected that you're
Speaker 1: going to see a little lull in energies, but they
Speaker 1: could come roaring back um easily UM going into the
Speaker 1: end of the year. Considering sort of that the real
Speaker 1: problems that we had around white oil prices spiked haven't disappeared. Thus,
Speaker 1: you know, I would say that there's a good chance
Speaker 1: and we might see high oil prices again later this
Speaker 1: year in energy prices in general, UM particularly going into
Speaker 1: the winter season for north the northern hemisphere. Yeah, and
Speaker 1: how important is Europe to that story? Do you think?
Speaker 1: Is that is that the entire story more or less?
Speaker 1: I mean, I think I think it's gonna be. It's
Speaker 1: it's so complex, right because you have also demand in
Speaker 1: China that's part of this as well. That's another factor
Speaker 1: that's caused UM oil prices to to reduce as well.
Speaker 1: So I think it is complex. I'm sure that you know,
Speaker 1: given the issues with sanctions and other issues, there's going
Speaker 1: to be some issues related to that in the winter time.
Speaker 1: So that is one thing that is definitely a you know,
Speaker 1: a tailwind for for energy prices to be a potential
Speaker 1: problem later this year. But it is complex, like if
Speaker 1: those ones are complicated, Okay, I know correlations are are
Speaker 1: super importance to you and and alpha simplex and how
Speaker 1: you follow trends. What are you know, I'm guessing it's
Speaker 1: the stock treasuries correlations is the most important. But what
Speaker 1: else you know, what shifted, uh, what's going to shift back?
Speaker 1: You know, what sort of the lay of the land
Speaker 1: with all the correlations you have your eye on and
Speaker 1: markets across asset classes at the moment. So the biggest
Speaker 1: one you hit on, and I'll talk about the others
Speaker 1: in the second is the stock bond correlation. And an
Speaker 1: interesting point I might make is that if you look
Speaker 1: at rising rate environments, UM, stock bond correlation tends to
Speaker 1: be positive on average and bond volatility is higher. And
Speaker 1: that's exactly what we've seen this year. So that type
Speaker 1: of feature where stocks and bonds aren't in the same
Speaker 1: relationship in an inflationary environment, is there, and it's in
Speaker 1: the data. UM. We've seen over certain periods of time,
Speaker 1: particularly in the last month, we started to see that
Speaker 1: correlation in the short run spiking as well. UM. You
Speaker 1: can see it in the sense that stocks and bonds
Speaker 1: are trying to sell off simultaneously. And that's something that
Speaker 1: we are paying attention to, and that's an important factor
Speaker 1: in building a portfolio, because if you count on those correlations,
Speaker 1: you have a very different diversification level than you thought, UM,
Speaker 1: and that's something that people are experiencing this year, is
Speaker 1: that they're not experiencing that diversification that they thought. The
Speaker 1: other correlations that we have seen that are interesting is
Speaker 1: that you've also seen some interesting correlations between fixed income
Speaker 1: and currencies. Obviously, the dollars connection to the rising right
Speaker 1: narrative has also been something that we've been watching. Um
Speaker 1: And you've even seen very different correlations between energies and
Speaker 1: equities this year. So equities and energies are usually positively
Speaker 1: correlated because their risky assets. Look at the period in
Speaker 1: Q one, energies were up, well, equity markets are down.
Speaker 1: You starting to see negative correlation. And this kind of
Speaker 1: goes back to the issue that in this type of environment,
Speaker 1: structural relationships that we often count on can change, and
Speaker 1: it's important to be aware of that because your portfolio
Speaker 1: is going to behave very differently than sort of your
Speaker 1: longer term expectations in these type of environments. Yeah, are
Speaker 1: you able to sort of quantify when they change? You know,
Speaker 1: is it will once it gets into the eighties and
Speaker 1: nineties that that correlation flips, or when treasure yields get
Speaker 1: above a certain level or or rising at a certain speed.
Speaker 1: Um is you know? Is that too wishful thinking to
Speaker 1: think that you can sort of quantify when those relationships
Speaker 1: change or flip. I think it's more over a time horizon,
Speaker 1: so you can see for short periods of time that
Speaker 1: correlations and can be very different from a longer term behavior.
Speaker 1: And you're right, obviously it's going to depend a lot
Speaker 1: on the macro theme. So I mean, if you look
Speaker 1: at the first part of the year, this example I
Speaker 1: gave where energies and equities were, UM, you know, behaving
Speaker 1: differently under the backdrop of inflation being the core driver
Speaker 1: of the markets. UM. Those correlations changed UM. And this
Speaker 1: is something we've seen this year. What is the theme
Speaker 1: that is driving markets this year? It's rising rates and inflation,
Speaker 1: and thus those relationships that we usually think are there
Speaker 1: sometimes disappear UM and they become different. And I think
Speaker 1: that's exactly what we're seeing, is that in their more
Speaker 1: extreme environments, sometimes those correlations can change. I mean you
Speaker 1: brought up as a level of price. For me, it's
Speaker 1: more sort of the extremity, like how extreme the market is.
Speaker 1: And that's something like this UM crisis that we had
Speaker 1: in March, or at least the event that we had
Speaker 1: late February. March was really sort of a supply chain
Speaker 1: issue and an inflation issue at the same time, which
Speaker 1: really had a very different effect on how asset classes
Speaker 1: related to each other. Versus the longer term typical things
Speaker 1: that we would expect. Yeah, yeah, I want to get
Speaker 1: back to the shorting bonds idea. You know, I'm curious
Speaker 1: if you have a number in mind, like a yield
Speaker 1: that we should be bracing for, you know, is it
Speaker 1: four percent? Five percent? Saying the ten year or the
Speaker 1: two year? And to to pile one more question on
Speaker 1: top of that, you know, everyone's sort of bracing for
Speaker 1: a recession, which traditionally would have been bullish for bonds.
Speaker 1: Uh caused everyone to pile back in and bring those
Speaker 1: yields down. I don't get the sense that that's as
Speaker 1: given of a scenario as as it normally would be
Speaker 1: this time, given given the inflation problem. So to talk
Speaker 1: us through those two ideas, you know, what's that sort
Speaker 1: of you know, what what should I steal myself for
Speaker 1: as far as uh, you know, a peak interest rate,
Speaker 1: and whether or not a recession would would actually be
Speaker 1: bullish for bonds or not. So that's where I think
Speaker 1: trend flers have a different view. We think things will
Speaker 1: go as far as the market wants to go. So
Speaker 1: we don't have sort of a target like Okay, it's
Speaker 1: going to get to this level we're done, we think
Speaker 1: that the market is going to continue to go in
Speaker 1: the direction until the problem solved. And so the best
Speaker 1: way to think about that, and that's why I focus
Speaker 1: a lot on the differential between the inflation rate and
Speaker 1: interest rates, because that differential gives you an idea of
Speaker 1: how far they have to go across, and then that
Speaker 1: gives you some sense of like at what point the
Speaker 1: market might sort of say like, okay, this is over um.
Speaker 1: And so I think that's more the way I'm seeing
Speaker 1: it is that we're going to see those rates go
Speaker 1: up until we see that number go down. And the
Speaker 1: scary part is if the inflation number doesn't go down
Speaker 1: fast enough and the it's keep going up to try
Speaker 1: and catch it um. And so I think that's my
Speaker 1: view is more that we could continue to see um
Speaker 1: rates rise, perhaps even farther than people are willing to go.
Speaker 1: And your exactly point is right on. Everyone wants that anchor.
Speaker 1: They want to know like, if it hits there, we're there,
Speaker 1: it's over right, right, But sometimes the market sometimes that's
Speaker 1: not where the market ends up, right, So market could
Speaker 1: have to go farther and that's where you're actually going
Speaker 1: to see a big surprise and a very interesting trade
Speaker 1: in the markets as well. Yeah, and I think your
Speaker 1: your other question was about about whether a recession would
Speaker 1: would cause a bid for bonds or whether this sort
Speaker 1: of stagflation. Hi, Hi, you know, I think you've sort
Speaker 1: of answered it with that uh answering that you know,
Speaker 1: with inflation at eight percent, you know, you can't really
Speaker 1: expect bonds to settle down. I would think even even
Speaker 1: in a recession, if inflation is still that high. So,
Speaker 1: I mean, that's where this year has been so fascinating.
Speaker 1: Is the reason nobody ever wants to short bonds is
Speaker 1: because that's a really dangerous place to be because anytime
Speaker 1: the market sells off, you are in the wrong position. Um,
Speaker 1: but that is not what we've seen recently, And I
Speaker 1: think that shows you that this narrative is not driven
Speaker 1: purely by the recession narrative. It's the inflation narrative is
Speaker 1: number one. And so that's where the summer we did
Speaker 1: start to actually see the recession narrative come in a
Speaker 1: little bit and sort of the bond positioning and bond
Speaker 1: signals started to go more flat and to be less aggressive.
Speaker 1: And so what I've seen historically is that short signals
Speaker 1: are going to be very common when the curve remains
Speaker 1: inverted to flat. But if we start to see a
Speaker 1: recession type trade and of steepening of the curve, then
Speaker 1: we're actually might see long signals again because at some
Speaker 1: point that trade becomes a long trade um. And so
Speaker 1: I think that's where the dynamic approach is so important,
Speaker 1: is that these things are not you know, two or
Speaker 1: three year trades. They're sort of they happen over shorter
Speaker 1: horizons than how many investors think about sort of longer term.
Speaker 1: They're really more tactical type of events than strategic. Yeah,
Speaker 1: you know, could you see a situation where inflation comes
Speaker 1: down enough and fields go up that we're actually looking at,
Speaker 1: you know, positive real ills or is that is that
Speaker 1: crazy talk? I mean, I think we're going to get there.
Speaker 1: I just think it's going to take longer than people
Speaker 1: want it to take. And that's pretty typical, right, And
Speaker 1: so I think that people are easily hopeful and slower
Speaker 1: to deal with sort of challenging information. So I think
Speaker 1: it will take longer than we would like. And thus
Speaker 1: I think the trade will be around for a little
Speaker 1: bit longer unless we overshoot, and then we might end
Speaker 1: up in some cycles as well, which is you know,
Speaker 1: kind of why I say that it could take a
Speaker 1: while because it's not something that's easily solvable and you
Speaker 1: know one month print. Yeah, not a eight line either,
Speaker 1: I guess. And ah okay, I also wanted to ask
Speaker 1: you just about it's not only the drop in bonds
Speaker 1: this year that I think UM has been pretty alarming
Speaker 1: to a lot of people. It's the volatility. You know,
Speaker 1: you'll see you'll see yields moving ten fifteen basis points,
Speaker 1: usually on the upside. Maybe you know it's not as
Speaker 1: much on the down side when when bonds are rallying.
Speaker 1: Does that sort of volatility and rates affect your strategy
Speaker 1: at all? Or is that you know, have you looking
Speaker 1: at your chops to you know that that's the type
Speaker 1: of thing you'd like to see. I mean, for us,
Speaker 1: this is just a relative volatility positioning. I mean, if
Speaker 1: you look at how much ball stocks have and how
Speaker 1: much ball for you know, let's talk about energies have. UM,
Speaker 1: it's really for us just a relative sizing question. UM.
Speaker 1: If bonds are more volatile, you take smaller positions. UM,
Speaker 1: so on our side, it's really something you have to
Speaker 1: measure and you have to account for. But it's something
Speaker 1: that we're set up to do, and it's something that
Speaker 1: like I said before, which talked a little bit about
Speaker 1: asset class correlations of patterns, during rising rate environments, bonds
Speaker 1: have exhibited higher volatility, and that's exactly what we're seeing now.
Speaker 1: So for those of us who are much more on
Speaker 1: the quand side, this is not at all surprising. I
Speaker 1: think it is a new experience for investors who are
Speaker 1: used to thinking about bonds as being global. Um So
Speaker 1: I think for us it's more that's just the function
Speaker 1: of the environment as opposed to sort of something has
Speaker 1: changed or wrong. It's just the way that things are
Speaker 1: going to be. When rates rise, it's disruptive to assets
Speaker 1: that you own that have duration exposure. Yeah. Period. So
Speaker 1: so it's not sort of you know, there's been a
Speaker 1: lot of talk about, well, there's seems to be some
Speaker 1: sort of liquidity issue in the bond market, especially you know,
Speaker 1: after the Dot Frank reforms and all that, with banks,
Speaker 1: you know, committing less less of their balance sheet to
Speaker 1: market making and bonds. But it doesn't sound like necessarily
Speaker 1: you think, at least that's not the main driver. It's
Speaker 1: more just when rates rise, you know, rates get more violent,
Speaker 1: I guess, is the bottom line. I mean, if you
Speaker 1: think about it this way, most risk assets have more
Speaker 1: volatility on the downside. We just we just didn't know
Speaker 1: that bonds had downside, so so I mean that's that's
Speaker 1: a funny way to put it, is that you know assets,
Speaker 1: risk assets have more vol on the downside. Bonds just
Speaker 1: haven't had downside, so now they're having downside and someone
Speaker 1: says something's wrong. It must be liquidity, and that's where
Speaker 1: I say, I don't think so. I think it's just
Speaker 1: the fact that, you know, when rates rise, it's bad
Speaker 1: for cash flows that have duration exposure period and that
Speaker 1: has more volatility because it's a downside volatility. Yeah, that
Speaker 1: makes sense. It's the old take the stairs up in
Speaker 1: the elevator down, I guess type of situation. We thought
Speaker 1: that was only for equity markets. Maybe maybe maybe the
Speaker 1: same for treasuries. If I had to boil it down
Speaker 1: to a cliche, which I sort of have to do
Speaker 1: as a journalist, I guess this after came Kenny, what else?
Speaker 1: What else should we know about how to think about
Speaker 1: the markets? For the rest here, What am I messing here?
Speaker 1: What's some sort of top of mind for you? And
Speaker 1: I think the thing for me that I have have
Speaker 1: stressed with many of the clients that we talked to
Speaker 1: in Investors is like, if we're in a different regime,
Speaker 1: you have to think differently as the class properties have
Speaker 1: changed in an inflation environment, and then you need to
Speaker 1: just accept that and try and see what is there
Speaker 1: for you to do in that environment? How do you
Speaker 1: protect yourself against um inflation and other issues as opposed
Speaker 1: to just pretend it's not here um. And that's why
Speaker 1: I think so many people want to just go away quickly,
Speaker 1: because then they don't have to really sort of change
Speaker 1: the way they invest. And so I think that's probably
Speaker 1: the best lesson is to say, Okay, this is a
Speaker 1: different macro environment and we're going to see some interesting trends.
Speaker 1: I think for us, the biggest one to watch this
Speaker 1: fall is going to be what happens to the energy
Speaker 1: complex and what happens to bonds um And if we
Speaker 1: do actually have a recession, what does that mean? How
Speaker 1: deep is that recession? Is this something that that is
Speaker 1: going to be sort of a moderate one which we
Speaker 1: can wait out but just takes a while, or is
Speaker 1: it going to be something that's more drastic. I think
Speaker 1: that's what we'll be watching, probably like anybody else. Well,
Speaker 1: and it doesn't you know, I correct me if I'm wrong,
Speaker 1: But it doesn't sound like you think this new regime
Speaker 1: we're in is is transitory to use a dirty were
Speaker 1: these days. This is a new, a new sort of
Speaker 1: secular thing we're gonna be dealing with for several years.
Speaker 1: I guess I think I love the point transitory when
Speaker 1: people are talking about it, because we've never thought it
Speaker 1: was transitory. I don't think we ever did. UM the
Speaker 1: reason and as we were watching the commodity markets and
Speaker 1: the movements in those markets were you know, just unprecedented,
Speaker 1: and that is sort of a good worrying signal to
Speaker 1: any sort of crisis event. I find that these commodity
Speaker 1: markets really give you a good barometer of where we
Speaker 1: might be going. And we've seen short signals in the
Speaker 1: commodity markets recently that to me is a recession trade.
Speaker 1: That is a you know, a risk off trade. And
Speaker 1: so that's why I'm focusing on what might happen deputy
Speaker 1: markets following UM in the next couple of months. So
Speaker 1: I'd say transitory is definitely something that that we never
Speaker 1: were really thinking and I think people stopped talking about
Speaker 1: that anyways. Yeah. So well that's interesting though, because you know, sometimes,
Speaker 1: especially the oil market, it feels like a risk on,
Speaker 1: risk off type of market. Other times that's you know,
Speaker 1: we're supplied to demand dynamics, but um, you know, in
Speaker 1: the supply chain issues. You know, when we saw negative
Speaker 1: oil prices during the pandemic, um, it seemed obvious to
Speaker 1: me that you know, uh, drilling in exploration companies were
Speaker 1: not going to start spending a lot of their capital
Speaker 1: on on making new investments and that sort of thing. So, um,
Speaker 1: you're reading it as clearly a risk off signal at
Speaker 1: the moment. Yeah, at least for now, we've had more
Speaker 1: negative signals. You've seen it, particularly in the base metals
Speaker 1: more than the energies. Um. And that is sort of
Speaker 1: makes sense because commodities were the first part of the
Speaker 1: cycle and so but if you look at the seventies,
Speaker 1: let's just give that as an example period where we
Speaker 1: have high inflation rising rates. There were actually multiple waves
Speaker 1: of inflation and there are also multiple waves of energy prices.
Speaker 1: So I think that's something that I'm preparing myself for,
Speaker 1: and I think people should be prepared for, because overshooting
Speaker 1: and undershooting is sort of a phenomenon in all markets,
Speaker 1: not just equities um, and so I think that's something
Speaker 1: that we haven't really talked about for a long time,
Speaker 1: But we can easily have some cycles or supercycles coming
Speaker 1: in the commodity sector just as a function of demand
Speaker 1: destruction and supply chain disruption going back and forth. So
Speaker 1: it's definitely an interesting place to be looking at what's
Speaker 1: going on there um going forward? How about gold? Does
Speaker 1: gold makes ever make sense to for one thing, or
Speaker 1: as a trend follower, or I mean maybe as a
Speaker 1: trend follower it makes more sense than the rest of
Speaker 1: us trying to figure out sort of what the narrative
Speaker 1: behind gold is. You know, uh, for one thing, you know,
Speaker 1: this high inflationary environment, you would expect it to do well.
Speaker 1: But then again we have a super strong dollar. So
Speaker 1: is it a matter of those two are just canceling
Speaker 1: each other out? Do you think? Yeah? It's been interesting
Speaker 1: because the precious metal complex in particular has been not
Speaker 1: that reactive to the inflation narrative, which makes sense in
Speaker 1: some sense that they're kind of a fixed supply um
Speaker 1: and less affected by sort of weather and sort of
Speaker 1: supply chains and things like this. But where recently gold
Speaker 1: has been much more short in terms of its its signals.
Speaker 1: And I think that is always complicated because it has
Speaker 1: some to do with the dollar, but also has to
Speaker 1: do with interest rates and sort of the real rate.
Speaker 1: So that's that's been a tricky one, to be honest
Speaker 1: with you. But it has definitely been a short signal
Speaker 1: more recently, So we'll see maybe if the dollar comes off,
Speaker 1: might see some resurgence there. Yeah, And what are some
Speaker 1: of the signals you actually react to? Is it you know,
Speaker 1: things like moving averages? Is it you know month over
Speaker 1: month or trailing thirty day type of moves all the above.
Speaker 1: What what are some of the sort of most important
Speaker 1: signals for you as a trend follower. So we use
Speaker 1: a wide range of different methods to to measure where
Speaker 1: markets are moving, and it could be something as simple,
Speaker 1: you know, in explanation as a moving average, or could
Speaker 1: also be um other types of filtering techniques that try
Speaker 1: to understand the direction of prices. And I think sometimes
Speaker 1: for fundamental investors it's kind of seem strange because you know,
Speaker 1: you're following the prices. But to me, what it means
Speaker 1: is that in particularly an environments where we're not sure
Speaker 1: what's happening, oftentimes the market has a lot of information.
Speaker 1: It's aggregating all of the views, and when people make decisions,
Speaker 1: they incorporate that information. And so what we're doing is
Speaker 1: following the market as what the market is doing, not
Speaker 1: trying to determine what the market shouldn't do. And that's
Speaker 1: why this environment in particular is good because none of
Speaker 1: us as one individual know what the market should do really,
Speaker 1: or even if we think we do, it's a hard
Speaker 1: to it's a it's a it's a tall order to
Speaker 1: think that any one of us is going to be
Speaker 1: able to determine that. And so I think our strategies
Speaker 1: really complement more fundamental approaches because it's those moments where
Speaker 1: it's really difficult that it's actually good to try and follow,
Speaker 1: where the prevailing trends are us opposed to sort of saying, well,
Speaker 1: you know, rates should be four point five. Well, even
Speaker 1: if I think they should, that doesn't mean that they're
Speaker 1: going to And I think that's kind of how I
Speaker 1: think about it. Well, and it's you know, it's been
Speaker 1: the type of year where I think fundamental investors have
Speaker 1: been pulling their hair out trying to you know, reconcile
Speaker 1: all these issues, whereas you know, you're like, I'm gonna
Speaker 1: ride the bus this direction until it turns around, and
Speaker 1: then I'm gonna ride it the other way. And uh,
Speaker 1: you know, I'm not gonna ask too many questions about
Speaker 1: who's driving the bus. I'm just topping on. I mean,
Speaker 1: it's it's kind of as simple as that in a way. Yeah,
Speaker 1: and it's it works really really well when it's really difficult,
Speaker 1: and that's I mean, that sort of makes sense the
Speaker 1: two thousand and eight environments March this year. And it's
Speaker 1: nice because we have a plan, we have a process,
Speaker 1: we follow the plan, we follow the process, and the
Speaker 1: only times that are hard for us is when nothing's
Speaker 1: really happening, or if they're sort of v shaped, you know,
Speaker 1: recoveries or things like that, which is sort of just
Speaker 1: shocks to the market that those are harder for us
Speaker 1: because it's hard to figure out how to handle that
Speaker 1: with data. Um, but big secular macro themes that nobody
Speaker 1: likes are good. So yeah, yeah, well it's uh, congratulations
Speaker 1: on a heck of a year for the MANTAGE Tutures Fund.
Speaker 1: I mean it must I'm assuming it's the best year.
Speaker 1: I haven't looked it up. It must be the best
Speaker 1: year in the fund's history. And people beating a path
Speaker 1: to your door, phone ringing off the hook. Well, I
Speaker 1: think it's nice because people are trying to find solutions
Speaker 1: in a hard environment, and they're realizing that they need
Speaker 1: to be a little bit more tactical and a little
Speaker 1: bit more dynamic, and so they're you know, asking us
Speaker 1: questions and trying to understand, like what do we do
Speaker 1: if this keeps going and it changes um And so
Speaker 1: I'd say that it's been one of the better years
Speaker 1: for managed teachers in a while. But managed tuchers also
Speaker 1: has done well in other very disruptive environments, like two
Speaker 1: thousand and eight and also two thousand four teen when
Speaker 1: we had some major energy events. I mean it wasn't
Speaker 1: an equity event, but it was definitely an energy situation.
Speaker 1: So this type of disruptive and macro change, I've been
Speaker 1: waiting for bond you know, the bond bearer market for
Speaker 1: for like a decade, so so it's been very interesting
Speaker 1: this year to watch that actually happened. I guess your
Speaker 1: nightmare is just quiet, range bound markets, everything trading sideways.
Speaker 1: That it's big, big years like this, regardless of the
Speaker 1: direction or what you dream about. I guess, yeah, we
Speaker 1: do well when things are uncomfortable. So if things are comfortable,
Speaker 1: that's actually not good. So it's really sort of environments
Speaker 1: where there's nothing really happening and sort of things are
Speaker 1: very sort of range bound and there's no directional volatility.
Speaker 1: That's not a great environment because you're looking for trends
Speaker 1: and there aren't any. Um. What's good for us is
Speaker 1: that if you trade multiple asset classes, there's usually something
Speaker 1: going on most of the time. I was going to
Speaker 1: say that the futures market is so wide open there's
Speaker 1: always something to uh, although I guess you don't want
Speaker 1: to get too esoteric, you know, palm oil futures or
Speaker 1: something like that, or you know, you stick with the
Speaker 1: main big liquid futures contracts. I would imagine, yes, I mean,
Speaker 1: because liquidity is an important part about being dynamic. I mean,
Speaker 1: if you're going to trade a wide range of different
Speaker 1: asset classes at a fast you know, it's sort of
Speaker 1: a regular basis, it's important to have that liquidity. UM
Speaker 1: two thousand and eight was a perfect example of that,
Speaker 1: and even you know, as you look at COVID, futures
Speaker 1: markets were functioning very well. Um the liquidity is there
Speaker 1: versus cash markets, where you know you're sometimes OTC or
Speaker 1: doing more complex things. So I think futures market is
Speaker 1: a great way to get risk exposure to different asset classes,
Speaker 1: either long or short over time. And what we've seen
Speaker 1: in the last three years, sometimes it's good to be
Speaker 1: short energy, as you point out, Sometimes it's good to
Speaker 1: be long, Sometimes it's good to be long bond. Sometimes
Speaker 1: it's good to be shut um, and that's gonna vary
Speaker 1: depending on what the prevailing market. Themes are fascinating stuff.
Speaker 1: Katherine Kaminsky, she's the chief research strategist and a portfolio
Speaker 1: manager at Alpha Simplex Group. But Katie, I can't let
Speaker 1: you go until I hear the craziest thing you saw
Speaker 1: in markets this week. Hopefully it's something good. I gotta
Speaker 1: I have high hopes for you. Oh hard one. I mean,
Speaker 1: I think the craziest thing we've seen and we continue
Speaker 1: to see, it's just how incredibly week the yen is
Speaker 1: versus the dollar, and we keep getting questions like, at
Speaker 1: what point are they going to do something? And I
Speaker 1: don't know. I mean that to me is I think
Speaker 1: the craziest is that, um how you know, how far
Speaker 1: can that go? I think that's probably the craziest thing
Speaker 1: you've seen out there. So I wish I had some
Speaker 1: leak more crazy than that. That's good and I think,
Speaker 1: I mean, I think that's been one of the one
Speaker 1: of the most important stories of the year. And talk
Speaker 1: about a market where people have grown complacent in the thinking,
Speaker 1: you know, nothing's ever going to change, and uh, you know,
Speaker 1: well maybe it hasn't as much as they'd like, but
Speaker 1: it's been uh in general, it's been fascinating to see,
Speaker 1: you know, I worked with a lot of former f
Speaker 1: X traders who you know, those markets have gotten so
Speaker 1: boring for so long. Uh that this is you know,
Speaker 1: to see them come back to life in this this
Speaker 1: is why he is amazing. Well. And I also think
Speaker 1: the dollar going below parody and beating out the euro,
Speaker 1: that's another crazy thing. I did not expect that. I mean,
Speaker 1: I think earlier this summer, like I told you, I
Speaker 1: thought that was going to revert and because it always
Speaker 1: does um, but it didn't, and that just shows you, like,
Speaker 1: the trend sometimes goes longer than you think, and that's
Speaker 1: usually what surprises me is when it goes farther than
Speaker 1: I would expect. Yep, absolutely, well, my crazy thing is
Speaker 1: is an honor of you and your short bond trade.
Speaker 1: You know, earlier the year, when when you know, fixed
Speaker 1: income was really starting to look shaky. I remember having
Speaker 1: a discussion with someone at work about well, someone had said, well,
Speaker 1: predicted a bear market in bonds, and we were all like, well,
Speaker 1: what does that mean? You know, in stocks it's a
Speaker 1: twenty percent drop. You know, you can argue about intra
Speaker 1: day versus closing, but in general everyone agrees you're in
Speaker 1: a bear market. I don't think anyone ever really thought
Speaker 1: we'd see a twenty percent drop in bonds, but we
Speaker 1: had the headline just a few days ago, the Bloomberg
Speaker 1: Aggregate Index down from its peak, which to me is
Speaker 1: kind of it's kind of mind blowing in a way.
Speaker 1: I think like, if you were to, you know, remove
Speaker 1: yourself from this situation, and I were to tell you, Katie, uh,
Speaker 1: what's the world look like when the Bloomberg GAG index
Speaker 1: is down? I wish they could be a scarier scenario
Speaker 1: than we're in. You know, I'd expect a lot of
Speaker 1: bankruptcies on the corporate side and a lot of governments
Speaker 1: just you know reeling, you know, for for shrop in
Speaker 1: in uh, you know, global bonds. I don't know, it
Speaker 1: seems like it could have been worse. I feel like
Speaker 1: we could be dealing with an uglier environment than we are. Well.
Speaker 1: I think the challenge of bonds is bonds hurt from
Speaker 1: rates going up for what you already own. But it's
Speaker 1: actually a positive thing in some sense for having positive yield.
Speaker 1: So it is a little complicated with bonds versus stocks, right,
Speaker 1: I mean, I guess you could say the same thing
Speaker 1: for equities. When equities are down, that means they're cheaper, right, Um,
Speaker 1: I would say that to me, It's not at all
Speaker 1: surprising if you look at historical trendsit bonds. We've been
Speaker 1: in a very very artificial, very very long sustained um
Speaker 1: bull market for bonds, and maybe the bull market and
Speaker 1: bear markets are much much longer than what we experience
Speaker 1: in equities, and so for those of us in the industry,
Speaker 1: forty years it's a long time to wait for something, um.
Speaker 1: But if you do look at historical data, you actually
Speaker 1: will see that there are a lot of periods, and
Speaker 1: I think i'll give you a stat on this. During
Speaker 1: a falling rate environment, we're probably going to see short
Speaker 1: signals only twenties something percent of the time. And in
Speaker 1: a rising rate environment, we historically, especially the seventies, you
Speaker 1: see it's sixty percent of the time. So this type
Speaker 1: of environment, even though higher rates is good for future investments,
Speaker 1: but what it hurts is it hurts investments you have now, UM.
Speaker 1: And I think that's where to me, it's not at
Speaker 1: all surprising from sort of an empirical perspective that we
Speaker 1: can have an environment like that. I guess most of
Speaker 1: us don't remember environment like the seventies were interest rates
Speaker 1: went that high, but they could. I mean, it doesn't
Speaker 1: look like it now, but you know, like I said,
Speaker 1: it always goes far as they think, yeah, yeah, so
Speaker 1: that that's not off the table. You think that type
Speaker 1: of eighties type of interest rates point, I hope not
Speaker 1: like that. That's that's pretty far. That's a big let's not.
Speaker 1: I think I don't think so. UM. I think we're
Speaker 1: much more inclined to have it extend further than we
Speaker 1: would think. But I think that is a big move.
Speaker 1: I mean, that's a much much larger variation than what
Speaker 1: we have now. But you know, I think we just
Speaker 1: have to watch that and see how markets react. My
Speaker 1: guesses is probably much more in a range that seems reasonable.
Speaker 1: Of course, those started from higher levels as well, right, Yeah,
Speaker 1: especially if they know that we're really talking about when,
Speaker 1: when and if the Fed ever pivots, you know, if
Speaker 1: the unemployment rate starts going up and that you know,
Speaker 1: employment mandate is you know, back on center stage. I
Speaker 1: guess uh, you know, it's hard to imagine them letting
Speaker 1: it get that out of control, but who knows. Get
Speaker 1: your back one and if update next step. Katie Kamitsky
Speaker 1: of Alpha Simplex Groups. Such a pleasure to catch up
Speaker 1: with you. Congratulations on a great year. Thanks for having me, Mike. Yeah,
Speaker 1: what goes up? We'll be back next week. And so
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