WEBVTT - The Long Runway for Bond Shorts 0:00:13.760 --> 0:00:17.600 Hello, and welcomes to what goes up a weekly markets podcast. 0:00:17.960 --> 0:00:20.759 My name is Mike Reagan. I'm a senior editor at Bloomberg. 0:00:21.440 --> 0:00:25.439 My colleague Vildata Hirich is off on yet another fabulous vacation. 0:00:25.520 --> 0:00:28.040 I'm sure we'll hear all about it next week, but 0:00:28.520 --> 0:00:31.560 this week on the show, Well, for years, shorting bonds 0:00:31.680 --> 0:00:35.080 was a terrible trade, so bad that one researcher has 0:00:35.159 --> 0:00:36.920 referred to it as a trade that looked like it 0:00:36.920 --> 0:00:40.400 would work only when pigs fly. Well, look out above, 0:00:40.720 --> 0:00:43.000 because anyone who had the conviction to bet against the 0:00:43.040 --> 0:00:46.640 bull market in bonds has had a great year this year. 0:00:47.320 --> 0:00:49.320 I suppose we should have asked the hog farmer we 0:00:49.360 --> 0:00:51.760 had on last week for his take on the flying pigs. 0:00:52.200 --> 0:00:54.920 But we've got the perfect guests this week to talk 0:00:54.920 --> 0:00:57.600 about shorting bonds and whether it's not too late to 0:00:57.680 --> 0:01:01.120 get in on that trade. Her name is Katie Kaminski. 0:01:01.320 --> 0:01:05.039 She is the chief research strategists and portfolio manager at 0:01:05.080 --> 0:01:08.640 Alpha Simplex Group. Can you welcome to the show, hihike, 0:01:08.800 --> 0:01:11.679 Thanks for having me. Why don't we start Katie? Just 0:01:11.920 --> 0:01:15.400 for those who aren't very familiar with Alpha Simplex, Uh, 0:01:15.520 --> 0:01:18.479 when you talk a little bit about the firm, Uh, 0:01:18.600 --> 0:01:22.200 you know sort of what its strategies are, and I 0:01:22.280 --> 0:01:27.560 know that notion of adaptive markets hypothesis is very important, 0:01:27.600 --> 0:01:29.000 if you can talk a little bit about that, just 0:01:29.040 --> 0:01:30.920 to give us sort of the background of where you're 0:01:30.959 --> 0:01:35.640 coming from. Yes, Alpha Simplex is a quantitative investment manager 0:01:35.640 --> 0:01:40.800 who focuses on systematic trading strategies. In particular, we apply 0:01:41.280 --> 0:01:46.600 UM rules based and UM quantitative based approaches to trade 0:01:46.680 --> 0:01:51.640 in the markets. So in particular we follow the futures 0:01:51.680 --> 0:01:55.200 markets and we have been are one of our largest 0:01:55.200 --> 0:01:58.800 strategies as managed futures, which is a trend falling strategy 0:01:59.040 --> 0:02:02.400 using a pure, really systematic process. So of course trendfling 0:02:02.440 --> 0:02:05.880 is an exciting strategy because it's easy to explain but 0:02:06.160 --> 0:02:09.080 is a little complex to implement. So we buy things 0:02:09.080 --> 0:02:10.720 when they're going up and we sell things that they're 0:02:10.720 --> 0:02:12.680 going down, and we do it in a way that's 0:02:12.760 --> 0:02:15.280 very systematic. And so when it comes to thinking about 0:02:15.280 --> 0:02:18.600 the adapted markets hypothesis, and the idea is that you 0:02:18.639 --> 0:02:22.960 want to build systems and processes that adapt with markets 0:02:23.000 --> 0:02:26.040 as they change to find opportunities. And so what that 0:02:26.080 --> 0:02:29.640 means is that our models are looking at what's working now, 0:02:30.120 --> 0:02:33.280 not sort of sticking to sort of theory or what 0:02:33.760 --> 0:02:38.960 makes sense because of some narrative. And that's particularly important now. Um, 0:02:39.000 --> 0:02:40.720 if you look at a year like this year, I 0:02:40.760 --> 0:02:43.360 mean really a lot of things that have worked in 0:02:43.400 --> 0:02:46.400 the past aren't working, and so being able to adapt 0:02:46.400 --> 0:02:49.600 to that is really important. Yeah. Absolutely, And I know 0:02:49.639 --> 0:02:53.600 the managed features mutual funds having a tremendous here, it's 0:02:53.639 --> 0:02:57.440 up like thirty percent or something like that. Is that mainly, um, 0:02:58.120 --> 0:03:00.440 due to having the right call on Bob Runs or 0:03:00.520 --> 0:03:03.799 is it? Are there other explanations behind it too? What 0:03:04.000 --> 0:03:06.399 was the secret secret sauce this year for for having 0:03:06.440 --> 0:03:08.120 such a good year? So, I wish I could say 0:03:08.120 --> 0:03:10.800 it was one thing. It's been multiple. One of the 0:03:10.800 --> 0:03:14.400 best trades this year has been shorting bonds. Another great 0:03:14.440 --> 0:03:17.480 trade has been being long energies, especially in the first 0:03:17.480 --> 0:03:20.120 part of the year, and more recently, we've also seen 0:03:20.160 --> 0:03:23.880 tremendous opportunities in currency markets. As you've seen the US 0:03:23.960 --> 0:03:27.200 dollar really sort of you know, skyrocket in its in 0:03:27.240 --> 0:03:29.960 its strength rolled to to other currencies. So what that 0:03:30.040 --> 0:03:31.760 kind of shows you it's not really sort of a 0:03:31.760 --> 0:03:34.359 one trick pony it's not one as a class. It's 0:03:34.360 --> 0:03:38.560 really about adjusting to this current macro environment and using 0:03:38.600 --> 0:03:42.280 the information that we're seeing in market moves to adjust 0:03:42.360 --> 0:03:47.040 to positioning, which in many historical context is seems complicated, 0:03:47.280 --> 0:03:49.680 but actually in this environment makes a lot of sense, 0:03:49.920 --> 0:03:53.440 especially from a macro view. Absolutely well. I feel like 0:03:53.560 --> 0:03:58.920 if you had, you know, asked a discretionary macro UH 0:03:59.320 --> 0:04:03.000 fund manager UM, in what world would you be long 0:04:03.080 --> 0:04:05.680 both the dollar and oil? I think their head would 0:04:05.680 --> 0:04:07.520 have exploded. But I guess that kind of gets to 0:04:07.560 --> 0:04:11.520 the whole notion of adapting with the markets. Yeah, exactly, 0:04:11.520 --> 0:04:13.520 And I think you brought up the bonds and let's 0:04:13.560 --> 0:04:16.919 talk about that because that's fun um before, and we 0:04:16.960 --> 0:04:20.320 actually wrote a paper on shorting bonds recently because it 0:04:20.480 --> 0:04:23.600 is so sort of out of the scope of most 0:04:23.640 --> 0:04:25.680 investors that I talked to. If I asked a group 0:04:25.760 --> 0:04:27.920 of people, how many of you think that rates are 0:04:27.920 --> 0:04:30.200 going to go up, they'll all raise their hands. But 0:04:30.240 --> 0:04:32.360 if you ask them how many of you are willing 0:04:32.360 --> 0:04:35.920 to short bonds or have shorted bonds, nobody does. And 0:04:35.960 --> 0:04:38.400 that kind of highlights the fact that most of us 0:04:38.400 --> 0:04:40.880 are used to this idea that we only go long bonds. 0:04:40.880 --> 0:04:43.400 That bonds always help us. They're sort of like are 0:04:43.400 --> 0:04:46.919 tried and true safety trade. And so for the sixty 0:04:46.960 --> 0:04:49.880 forty and the typical investor, this year is sort of 0:04:50.160 --> 0:04:53.400 left them standing there going, I don't know to do UM, 0:04:53.400 --> 0:04:55.880 where someone like us who was really looking at what 0:04:55.920 --> 0:04:59.960 are the strategic tactical opportunities UM in the short run, 0:05:00.000 --> 0:05:03.760 and that's a fantastic trade, even if it's uncomfortable from 0:05:03.880 --> 0:05:07.680 sort of a historical perspective. UM, it's a strategy that 0:05:07.920 --> 0:05:11.839 hasn't worked since So you know, think about that. That's 0:05:11.880 --> 0:05:16.960 that's a long time. Yeah, absolutely, And so in managed futures, 0:05:16.960 --> 0:05:20.240 it's this is mostly shirting treasury futures, I imagine was 0:05:20.279 --> 0:05:24.559 that the main so in the futures markets. What's great 0:05:24.600 --> 0:05:27.679 is that futures markets have grown substantially throughout the years 0:05:27.720 --> 0:05:31.040 and now there's a very large range of different futures 0:05:31.080 --> 0:05:34.320 contracts that you can trade, whether it's the guilt in 0:05:34.360 --> 0:05:38.000 the UK or U S treasuries or also other government 0:05:38.000 --> 0:05:41.360 bonds globally. So there's actually a pretty large range of 0:05:41.480 --> 0:05:44.720 liquid futures contracts out there that many investors can use 0:05:44.839 --> 0:05:48.440 as a way to take a position short bonds UM 0:05:48.480 --> 0:05:53.200 as an example, right, And I'm curious, you know how 0:05:53.800 --> 0:05:57.080 sort of fast reacting trend following can be, because obviously 0:05:57.120 --> 0:06:00.880 we started the year with bonds doing terrible, yields going 0:06:00.960 --> 0:06:04.800 up UM. Then there was, you know, an interruption in 0:06:04.800 --> 0:06:07.880 that yields came back down over the summer quite a bit. UM. 0:06:07.960 --> 0:06:10.360 Are you able to sort of ride both ends of 0:06:10.400 --> 0:06:13.040 that trend or is it is it more important what 0:06:13.080 --> 0:06:17.800 the long term trend is. So treadfully is a pretty 0:06:17.839 --> 0:06:21.680 adaptive strategy and it's relatively quick in terms of relative 0:06:22.200 --> 0:06:25.840 positioning to long term investors. But what we saw this 0:06:25.960 --> 0:06:27.960 year is exactly what you're saying, is that there was 0:06:28.440 --> 0:06:31.599 different macro themes that were evolving over the course of 0:06:31.600 --> 0:06:34.800 the year. So in the first quarter we saw inflation 0:06:35.120 --> 0:06:39.520 rising rates as a theme that manifests itself across the 0:06:39.560 --> 0:06:44.080 long commodities and short fixed income. This particular trade man 0:06:44.520 --> 0:06:48.000 sort of shifted to a short bond and also long 0:06:48.080 --> 0:06:51.080 dollar trade later in the year as commodity started to dissipate, 0:06:51.120 --> 0:06:53.200 so we saw that sort of positioning and views on 0:06:53.320 --> 0:06:58.120 commodities moved much more to that recession versus non recession environment. 0:06:58.440 --> 0:07:01.480 And then in June, we saw sort of the markets 0:07:01.600 --> 0:07:06.760 made a pivot, as you suggested, where volatility increased, cross 0:07:06.800 --> 0:07:10.480 asset correlations increased, and sort of a general sentiment that 0:07:10.560 --> 0:07:14.880 this themes were in some sense consolidating UH came into 0:07:14.920 --> 0:07:17.000 the market and you started to see sort of a 0:07:17.200 --> 0:07:20.360 tremendous de grossing of some of those positioning that you 0:07:20.360 --> 0:07:23.280 saw earlier this year. And then we started to see 0:07:23.280 --> 0:07:26.400 a pivot this month and last month back to what 0:07:26.520 --> 0:07:28.240 we saw earlier this year. And I think some of 0:07:28.280 --> 0:07:30.760 that comes with the fact that the central bankers have 0:07:30.880 --> 0:07:34.640 remained steady, which has basically said, you know, this pivot 0:07:34.720 --> 0:07:37.440 towards I think this is over is a little preemptive. 0:07:37.720 --> 0:07:39.840 I think it's time to wait a little bit to see, 0:07:39.920 --> 0:07:41.960 you know, how we really do deal with this inflation 0:07:42.040 --> 0:07:46.800 problem and how we handle things going forward, right, right, 0:07:47.160 --> 0:07:49.200 And so you'll never try to sort of front run 0:07:49.240 --> 0:07:51.200 the trend at all. You know, if if you're watching 0:07:51.280 --> 0:07:54.040 drone pal speak and he says that's it, we're done 0:07:54.560 --> 0:07:58.240 cutting UH, we're done raising interest rates, um, unless the 0:07:58.240 --> 0:08:01.040 bond market reacts violently to at you, you're not going 0:08:01.080 --> 0:08:04.080 to try to trade those remarks at all. I imagine 0:08:04.160 --> 0:08:06.160 so there's a lot of noise in all of this 0:08:06.320 --> 0:08:08.640 and you guys, you you know this better than anybody, 0:08:08.680 --> 0:08:11.720 and that you know one day moves incorporate a lot 0:08:11.760 --> 0:08:14.960 of noise and a lot of overreaction under reaction, and 0:08:15.040 --> 0:08:17.640 part of what we try to do is be very 0:08:17.680 --> 0:08:21.360 systematic and smooth and the way that react to trends 0:08:21.400 --> 0:08:25.040 over longer horizons, so that you know, you can balance 0:08:25.080 --> 0:08:28.800 between what is real information what is noise um. And 0:08:28.840 --> 0:08:31.480 this is very important because over the long term, what 0:08:31.520 --> 0:08:33.880 you'll see is that we're capturing a lot of these 0:08:34.360 --> 0:08:37.440 macro themes that do on the margin have a lot 0:08:37.480 --> 0:08:40.480 of noise um, and that's sort of where we're seeing 0:08:40.480 --> 0:08:43.240 that we're not trying to sort of pick things based 0:08:43.240 --> 0:08:45.120 on one data point. We're trying to use a lot 0:08:45.160 --> 0:08:47.480 of data and use that data to come up with 0:08:47.840 --> 0:08:49.640 a view on where we should be in the different 0:08:49.640 --> 0:08:53.920 asset classes over time. Yeah, So what do you think 0:08:53.960 --> 0:08:56.400 has the short bonds trade sort of run its course 0:08:56.480 --> 0:08:59.000 for the years? There is there more to be had 0:08:59.040 --> 0:09:02.160 from it in your opinion? Yes, I do. I think 0:09:02.160 --> 0:09:05.320 the short bond trade has more legs to run, particularly 0:09:05.360 --> 0:09:07.800 with the commentary that we saw recently with the fed 0:09:08.320 --> 0:09:10.600 um in the recent period where they've really kind of 0:09:10.720 --> 0:09:13.679 hold steady um. The reason is a lot of the 0:09:13.720 --> 0:09:16.520 core problems that have driven to the point where we 0:09:16.559 --> 0:09:19.960 are now have yet to be completely solved, and I 0:09:20.000 --> 0:09:22.920 think we're gonna have to see inflation actually dissipate and 0:09:22.920 --> 0:09:25.599 we're gonna have to see that we're in a situation 0:09:25.760 --> 0:09:29.480 where things are much more stable before we can actually 0:09:30.040 --> 0:09:32.880 call this over um. And so in that sense, I 0:09:32.920 --> 0:09:35.080 think we could be in a rising rate environment for 0:09:35.160 --> 0:09:38.280 some period of time, and what we'll see, what we've 0:09:38.280 --> 0:09:40.800 seen using more longer term studies, is that we're going 0:09:40.840 --> 0:09:44.400 to be a lot more short in fixed income if 0:09:44.440 --> 0:09:48.480 we are in a truly secular rising rate environment then 0:09:48.559 --> 0:09:51.000 we've been in the last forty years. And that's something 0:09:51.040 --> 0:09:54.080 to kind of think about from an investor's perspective, and that, 0:09:54.720 --> 0:09:56.760 you know, how do you think about your bond exposure 0:09:56.800 --> 0:10:02.760 if we have a prolonged rising rate market for bonds? Yeah, yeah, absolutely. 0:10:02.800 --> 0:10:04.720 I mean, as you said, something no one has really 0:10:04.720 --> 0:10:09.080 experienced since the early nineties. I guess I think everyone thought, 0:10:10.000 --> 0:10:11.679 you know, this was it, this is the new normal 0:10:11.720 --> 0:10:14.880 for the bond market. So you know, on the other 0:10:14.920 --> 0:10:18.560 side of the pandemic. UM, it seems like you're not 0:10:18.640 --> 0:10:21.560 expecting a sort of a reversion to the to the 0:10:21.559 --> 0:10:23.760 pre pandemic world. It's it's going to be a brave 0:10:23.800 --> 0:10:26.800 new frontier where rising rates are are here to stay. 0:10:27.679 --> 0:10:30.280 Is that your main thing? I mean, I think what 0:10:30.320 --> 0:10:33.880 we've seen is that even though the narrative has shifted 0:10:33.920 --> 0:10:37.720 over time, the core issues related to inflation need to 0:10:38.120 --> 0:10:41.679 be solved before we can actually call it a win. UM. 0:10:41.720 --> 0:10:43.560 And I think you see that in the markets, and 0:10:43.559 --> 0:10:45.720 it's probably what surprising is that there is a lot 0:10:45.760 --> 0:10:48.200 of hope. I mean, people love things to go back 0:10:48.200 --> 0:10:50.599 to the way they were. And the truth is is, 0:10:50.720 --> 0:10:54.079 until we can actually see that inflation is really under 0:10:54.080 --> 0:10:57.760 control and that real rates have actually you know, gone 0:10:57.800 --> 0:11:01.520 more positive, UM, it's gonna be hard to imagine that 0:11:01.800 --> 0:11:03.960 someone can stab their fingers and we'll just go back 0:11:04.000 --> 0:11:06.480 to the world we're in. And I think for us 0:11:06.760 --> 0:11:11.199 as tactical traders, this is an interesting environment because tactical 0:11:11.280 --> 0:11:15.680 strategies and any sort of dynamic approaches haven't worked well 0:11:15.920 --> 0:11:19.600 until recently, because it's been very much a world where 0:11:19.960 --> 0:11:22.720 you have this put you have you know, you know, 0:11:22.800 --> 0:11:24.959 stocks always go up, but if they don't, then it 0:11:25.000 --> 0:11:27.760 will get better UM. And the same with bonds, like 0:11:27.840 --> 0:11:30.120 you know, if something goes bad, you've always got your bonds. 0:11:30.160 --> 0:11:33.720 And I think that investors are really going to have 0:11:33.880 --> 0:11:36.440 to grapple with the fact that it's a very different 0:11:36.440 --> 0:11:40.199 world when we add inflation to the problem and when 0:11:40.240 --> 0:11:42.520 we have to deal with what the impact of rising 0:11:42.600 --> 0:11:45.960 rates has on just different asset classes and different sectors 0:11:46.480 --> 0:11:50.000 UM in general. Yeah, you know, it's interesting. I was 0:11:50.040 --> 0:11:56.280 looking at the Bloomberg. We start getting the survey results 0:11:56.280 --> 0:12:00.559 trickling in for the CPI report for next week, and 0:12:00.960 --> 0:12:04.840 the last time I checked, the consensus is for I 0:12:04.880 --> 0:12:08.440 think month over month UM, you know, negative point one 0:12:08.520 --> 0:12:12.640 percent a year over year eight percent in cp I, 0:12:12.760 --> 0:12:15.040 So a little bit, you know, off of the boil 0:12:15.160 --> 0:12:18.439 to some degree, but I'm guessing that's not mission accomplished 0:12:18.800 --> 0:12:22.600 as far as you know, whether yields will keep going up. 0:12:23.320 --> 0:12:25.520 It's still a high number. I mean, the differential is 0:12:25.559 --> 0:12:28.800 still big, and I think that you're not seeing it 0:12:28.840 --> 0:12:31.480 in the commodity markets right now, but that's pretty typical, 0:12:31.600 --> 0:12:34.760 right so you see the commodity markets sometimes lead that 0:12:34.840 --> 0:12:38.640 process and then inflation is very insidious. It starts to 0:12:38.679 --> 0:12:41.320 go in different areas. So things like wage inflation and 0:12:41.400 --> 0:12:43.720 other areas of the economy is where we have to 0:12:43.720 --> 0:12:47.520 start looking real estates and other areas that aren't measured 0:12:47.520 --> 0:12:50.800 in some of these core materials. They're the after effects 0:12:50.800 --> 0:12:54.120 of that UM. And so for our view is when 0:12:54.120 --> 0:12:57.280 we see inflation numbers back closer to their target of 0:12:57.360 --> 0:13:01.280 two UM eight versus two is still a really big difference. 0:13:02.160 --> 0:13:04.960 It's a long way off. But I would imagine, you know, 0:13:05.040 --> 0:13:07.800 a lower than estimated CPI would still trigger some kind 0:13:07.800 --> 0:13:10.440 of rally in the bond market. But I would that 0:13:10.520 --> 0:13:13.439 just be noise, you think, not not anything that would uh, 0:13:13.600 --> 0:13:16.760 you know, really cause you to change your thinking. No, 0:13:16.840 --> 0:13:18.720 I'd say that, you know, we saw that this summer, 0:13:18.880 --> 0:13:22.120 we saw recently. You know, any sign of the good 0:13:22.160 --> 0:13:24.920 news is bad news. Bad news is good news. Situation 0:13:25.120 --> 0:13:28.760 where anything that confirmed that things were better was actually 0:13:28.760 --> 0:13:31.320 a good thing. Things were worse. It's a good thing 0:13:31.480 --> 0:13:34.440 is maybe they'd stop raising raids UM And so I 0:13:34.520 --> 0:13:37.440 think that you know, you're going to see that until 0:13:37.880 --> 0:13:40.480 this kind of dissipates and gets under control. And I 0:13:40.520 --> 0:13:43.600 think people like to think that things get fixed in 0:13:43.640 --> 0:13:47.400 a second by one print. I mean that's the way 0:13:47.880 --> 0:13:50.280 we are, Like, we love hoping and it's a great thing. 0:13:50.440 --> 0:13:54.559 But I think in terms of understanding financial markets, sometimes 0:13:55.720 --> 0:13:59.720 we're ready to be hopeful a little quick. Um, yeah, 0:14:00.000 --> 0:14:05.559 how about equities? Um? You know? Were they shorting equity? Future? 0:14:05.640 --> 0:14:08.040 Is part of what the fund did this year? Is 0:14:08.080 --> 0:14:10.320 that part of the success? And sort of where do 0:14:10.360 --> 0:14:12.480 we stand now? It's been such a choppy year. I mean, 0:14:13.360 --> 0:14:15.840 long term trend down for the year, but there's been 0:14:15.880 --> 0:14:18.079 so many little little rallies in the middle of it 0:14:18.120 --> 0:14:20.320 are not so little, you know. The last one was 0:14:20.320 --> 0:14:24.640 about how did you navigate through all that? You caught me? 0:14:24.960 --> 0:14:29.040 I have to be honest, equities have been just super noisy, 0:14:29.080 --> 0:14:32.840 and we've had almost no equity exposure. Uh. Signals and 0:14:32.880 --> 0:14:38.120 equities have been really weak and extremely noisy. So what 0:14:38.240 --> 0:14:41.160 that means is that there has been very very unclear 0:14:41.240 --> 0:14:43.840 trends and equities this year, despite the fact that they're 0:14:43.880 --> 0:14:47.200 down quite a bit. As you said, it hasn't ministrate 0:14:47.320 --> 0:14:50.480 line um and that has been very consistent with the 0:14:50.520 --> 0:14:53.520 idea that I don't think this is an equity story. 0:14:53.720 --> 0:14:56.760 I think this story starts with the bond market. And 0:14:56.800 --> 0:15:00.960 with inflation, equities is a bride product of a situation 0:15:01.000 --> 0:15:03.200 that we're in. And that's why it's so hard to 0:15:03.240 --> 0:15:07.440 call um because you know, we're trying what's really the 0:15:07.480 --> 0:15:10.160 focus is inflation. It is really sort of how do 0:15:10.200 --> 0:15:13.280 we manage that and how do we manage raising rates 0:15:13.280 --> 0:15:15.880 and balance sheets? And I think equity is just sort 0:15:15.920 --> 0:15:18.520 of gone back and forth in the wake of that 0:15:18.640 --> 0:15:22.160 theme um this year. So it's been very hard to 0:15:22.200 --> 0:15:26.800 call the equity markets and signals have been very mixed, right, right? 0:15:27.280 --> 0:15:30.000 And how about the dollar? How how have you played 0:15:30.320 --> 0:15:33.920 the rising dollar? I know we had a guy from 0:15:34.000 --> 0:15:37.400 Dynamic Beta, Andrew Beer, who's they have a mant of 0:15:37.480 --> 0:15:39.960 future c ETF that's done well too. They were very 0:15:40.000 --> 0:15:43.680 short the end um. Is that something you guys managed 0:15:43.720 --> 0:15:46.560 to do? So so that has been the biggest surprise 0:15:46.640 --> 0:15:49.200 to me this year because I tend to be pessimistic 0:15:49.240 --> 0:15:52.600 on currencies because currencies tend to rebound be somewhat range bound, 0:15:52.600 --> 0:15:55.920 and as you know, I mean, the dollar has not 0:15:56.080 --> 0:15:58.760 hit parody with the euro in a long time, and 0:15:58.800 --> 0:16:03.120 so I think the biggest surprise has been that the 0:16:03.240 --> 0:16:06.600 dollar strength and we've seen that across the board particularly 0:16:06.600 --> 0:16:09.360 against the end but also against the Euro and also 0:16:09.400 --> 0:16:14.480 against other core developed currencies. Just has been really really clear. 0:16:14.760 --> 0:16:17.440 And this makes a lot of sense sex posts in 0:16:17.440 --> 0:16:22.080 the sense that the dollar is much better positioned than 0:16:22.160 --> 0:16:25.160 other regions based on the fight for inflation and sort 0:16:25.160 --> 0:16:28.240 of how the central bank response has been UM. And 0:16:28.280 --> 0:16:31.760 so I think that is really coming out in those trends, 0:16:31.840 --> 0:16:33.960 and that you've seen that the dollar has come ahead 0:16:34.440 --> 0:16:37.600 as the winner in this environment, um, just as a 0:16:37.680 --> 0:16:40.840 relative positioning point as opposed to other things. I mean, 0:16:41.320 --> 0:16:44.680 also adding into the fact that there's just less energy 0:16:45.400 --> 0:16:48.840 dependence concerns. There are some, but they're not as severe 0:16:48.880 --> 0:16:51.520 as a Europe. So all of these things added up 0:16:51.520 --> 0:16:54.600 has really put the dollar in the win um for 0:16:54.680 --> 0:16:57.800 this year, and you expect that to continue. I mean, 0:16:57.880 --> 0:17:00.200 it seems like, you know, as long as Europe is 0:17:00.640 --> 0:17:04.639 struggling to keep the lights on and China's you know, 0:17:04.720 --> 0:17:08.240 locking down cities again today I saw, um, is that 0:17:08.760 --> 0:17:12.119 dollar strength just inevitable until these issues are cleared up. 0:17:12.520 --> 0:17:14.800 It seems to be the case, and signals in the 0:17:14.880 --> 0:17:19.200 dollar versus other currencies have remained strong and steady despite 0:17:19.359 --> 0:17:21.440 you know, as I said, I tend to be skeptical 0:17:21.440 --> 0:17:24.439 in the dollar, UM, just because currencies tend to be 0:17:24.440 --> 0:17:27.600 a little bit more complicated and more range found. But 0:17:27.720 --> 0:17:30.640 it is really looking right now going into the winter season, 0:17:30.920 --> 0:17:33.359 and with the news out of China that the dollar 0:17:33.440 --> 0:17:36.840 is still very much holding its own UM, despite the 0:17:36.880 --> 0:17:39.840 fact that it's really come quite a long ways this 0:17:39.920 --> 0:17:48.760 year already. How about this, you know, we've seen a 0:17:48.880 --> 0:17:52.159 pretty fierce reversal in oil over the last couple of 0:17:52.200 --> 0:17:56.159 months to UM, I'm curious if if you've played that 0:17:56.200 --> 0:17:57.919 at all on the fund or if it's you know, 0:17:58.560 --> 0:18:00.880 how you see oil fitting in to to all these 0:18:00.880 --> 0:18:03.040 other things. I mean, as you pointed out, I think 0:18:03.080 --> 0:18:06.879 that the initial inflation impulse was was mainly from watching 0:18:06.920 --> 0:18:11.400 the commodities markets UM. And you know now the bond 0:18:11.480 --> 0:18:13.919 market is sort of forgotten about oil. It seems like 0:18:13.960 --> 0:18:16.800 it's it's looking at rent and owners equivalent rent and 0:18:16.840 --> 0:18:21.320 all the other sort of lagging drivers of inflation. How 0:18:21.359 --> 0:18:23.879 do you see the oil developing for the rest of 0:18:23.920 --> 0:18:26.680 the years. This downtrend something that will concern you, do 0:18:26.720 --> 0:18:29.399 you think? So it's interesting you say that because we 0:18:29.440 --> 0:18:33.800 saw extremely strong signals in oil all the way until 0:18:34.080 --> 0:18:36.760 the conflict in Ukraine, and then we saw what would 0:18:36.760 --> 0:18:39.679 be sort of a perfect situation for a trend follower, 0:18:39.760 --> 0:18:44.400 and that oil volatility exploded, and then obviously oil went 0:18:44.440 --> 0:18:46.639 way up in value, and that created a lot of noise, 0:18:46.680 --> 0:18:50.880 which consolidates um your views, UM. And so we've really 0:18:50.880 --> 0:18:54.320 seen oil stay steady and as a long view, but 0:18:54.520 --> 0:18:58.120 much more muted UM. And so what I would think 0:18:58.160 --> 0:19:00.800 about this is that you've typically seen this even if 0:19:00.800 --> 0:19:04.199 you look in the seventies, during inflation cycles, commodities have 0:19:04.359 --> 0:19:07.959 sort of up and down periods. Um. We've consolidated an 0:19:08.080 --> 0:19:11.199 energy but we've seen some you know, but you have 0:19:11.240 --> 0:19:15.160 to remember it's September, like September and October is kind 0:19:15.160 --> 0:19:18.000 of in that low period before we know how serious 0:19:18.040 --> 0:19:21.479 the energy issues are in the winter. And so I 0:19:21.520 --> 0:19:23.920 think that that sort of to be expected that you're 0:19:23.920 --> 0:19:26.239 going to see a little lull in energies, but they 0:19:26.280 --> 0:19:30.640 could come roaring back um easily UM going into the 0:19:30.760 --> 0:19:34.119 end of the year. Considering sort of that the real 0:19:34.160 --> 0:19:39.160 problems that we had around white oil prices spiked haven't disappeared. Thus, 0:19:39.600 --> 0:19:41.359 you know, I would say that there's a good chance 0:19:41.359 --> 0:19:43.840 and we might see high oil prices again later this 0:19:43.920 --> 0:19:47.240 year in energy prices in general, UM particularly going into 0:19:47.240 --> 0:19:51.159 the winter season for north the northern hemisphere. Yeah, and 0:19:51.160 --> 0:19:53.360 how important is Europe to that story? Do you think? 0:19:53.400 --> 0:19:55.640 Is that is that the entire story more or less? 0:19:56.080 --> 0:19:58.960 I mean, I think I think it's gonna be. It's 0:19:59.000 --> 0:20:01.960 it's so complex, right because you have also demand in 0:20:02.040 --> 0:20:04.720 China that's part of this as well. That's another factor 0:20:04.760 --> 0:20:08.800 that's caused UM oil prices to to reduce as well. 0:20:08.880 --> 0:20:12.000 So I think it is complex. I'm sure that you know, 0:20:12.119 --> 0:20:15.520 given the issues with sanctions and other issues, there's going 0:20:15.560 --> 0:20:17.879 to be some issues related to that in the winter time. 0:20:18.000 --> 0:20:20.919 So that is one thing that is definitely a you know, 0:20:21.440 --> 0:20:24.800 a tailwind for for energy prices to be a potential 0:20:24.800 --> 0:20:28.000 problem later this year. But it is complex, like if 0:20:28.000 --> 0:20:33.200 those ones are complicated, Okay, I know correlations are are 0:20:33.240 --> 0:20:36.280 super importance to you and and alpha simplex and how 0:20:36.320 --> 0:20:40.000 you follow trends. What are you know, I'm guessing it's 0:20:40.040 --> 0:20:44.119 the stock treasuries correlations is the most important. But what 0:20:44.200 --> 0:20:48.080 else you know, what shifted, uh, what's going to shift back? 0:20:48.520 --> 0:20:52.280 You know, what sort of the lay of the land 0:20:52.320 --> 0:20:54.280 with all the correlations you have your eye on and 0:20:54.320 --> 0:20:58.479 markets across asset classes at the moment. So the biggest 0:20:58.520 --> 0:21:00.159 one you hit on, and I'll talk about the others 0:21:00.200 --> 0:21:03.119 in the second is the stock bond correlation. And an 0:21:03.240 --> 0:21:05.800 interesting point I might make is that if you look 0:21:05.800 --> 0:21:10.080 at rising rate environments, UM, stock bond correlation tends to 0:21:10.119 --> 0:21:14.080 be positive on average and bond volatility is higher. And 0:21:14.119 --> 0:21:17.200 that's exactly what we've seen this year. So that type 0:21:17.200 --> 0:21:20.040 of feature where stocks and bonds aren't in the same 0:21:20.400 --> 0:21:24.239 relationship in an inflationary environment, is there, and it's in 0:21:24.280 --> 0:21:27.560 the data. UM. We've seen over certain periods of time, 0:21:27.640 --> 0:21:29.560 particularly in the last month, we started to see that 0:21:29.600 --> 0:21:32.960 correlation in the short run spiking as well. UM. You 0:21:32.960 --> 0:21:34.800 can see it in the sense that stocks and bonds 0:21:34.800 --> 0:21:39.480 are trying to sell off simultaneously. And that's something that 0:21:39.640 --> 0:21:42.159 we are paying attention to, and that's an important factor 0:21:42.200 --> 0:21:46.800 in building a portfolio, because if you count on those correlations, 0:21:46.880 --> 0:21:50.840 you have a very different diversification level than you thought, UM, 0:21:50.880 --> 0:21:53.240 and that's something that people are experiencing this year, is 0:21:53.240 --> 0:21:56.560 that they're not experiencing that diversification that they thought. The 0:21:56.720 --> 0:21:59.639 other correlations that we have seen that are interesting is 0:21:59.680 --> 0:22:03.840 that you've also seen some interesting correlations between fixed income 0:22:03.920 --> 0:22:07.600 and currencies. Obviously, the dollars connection to the rising right 0:22:07.680 --> 0:22:11.040 narrative has also been something that we've been watching. Um 0:22:11.080 --> 0:22:14.919 And you've even seen very different correlations between energies and 0:22:15.119 --> 0:22:18.920 equities this year. So equities and energies are usually positively 0:22:18.960 --> 0:22:21.919