Anniversary Episode: Reflections on the Podcast

[00:00:01] Hello, this is Dean Curnutt and welcome to the Alpha Exchange, where we explore topics in financial markets associated with managing risk, generating return, and the deployment of capital in the alternative investment industry.

[00:00:19] Since 2018, Dean Curnutt has been hosting discussions with market professionals focused on topics such as portfolio construction, hedging, monetary policy, and the impact of financial products on markets. Central to these conversations has been the exploration of an expert's risk framework and how he or she goes about looking for opportunities. A little more than six years after its launch, the Alpha Exchange is celebrating its 200th episode.

[00:00:47] Along the way, Dean has been privileged to engage with hedge fund founders, investment strategists, fintech entrepreneurs, policymakers, and even authors. A wonderful community of sophisticated listeners has emerged in the process. In this special conversation, Arthur Kass asks Dean to reflect on the podcast and how it is a part of his own pursuit of a better understanding of asset price dynamics.

[00:01:10] Viewing the study of markets as quite humbling, Dean aims to have the Alpha Exchange contribute to the financial community's collective understanding of risk. Asked about what's on his mind with respect to today's risk landscape, Dean argues that both gold and Bitcoin have unique option-like characteristics that might prove valuable should confidence in the U.S. fiscal outlook further erode. What's next for the podcast?

[00:01:33] Dean shares some exciting ideas for expansion, including both short and long-form video, as well as working with university finance departments to deliver case studies that students can use to bolster their knowledge of real-world market events. Lastly, Arthur asks about MacroMinds, the charity that Dean founded in 2020 to bring the investment industry together to support student education.

[00:01:55] At the five-year anniversary of MacroMinds, he says that it's time to say thanks to the donors, to the speakers, and to those that have come together to help the initiative raise more than $1.3 million for students. We hope you enjoy this special 200th anniversary episode of the Alpha Exchange, a conversation with Dean Kurnutt. Thank you for listening. This is Arthur Kaz, and welcome to the 200th episode of the Alpha Exchange.

[00:02:25] My guest today for this milestone event is someone that our loyal listeners would agree needs no introduction. He is none other than the creator of the Alpha Exchange, Dean Kurnutt. Welcome to the show, Dean. It is a pleasure to be on, and we're 200 episodes and more than six years in to this project. And it's been a lot of fun.

[00:02:50] And my listeners are very familiar at this point with my abysmal dry sense of humor, but I'll keep trying. I'm not giving up just yet. You started your career working at Nomura, then University of Chicago, onto Lehman Brothers. You're building an OTC derivatives function right next to a massive listed options desk, right about the time that long-term capital management was happening.

[00:03:16] You've certainly spoken about that over the years as being a formidable impression, something that has had a lasting impact on your risk philosophy and your ideas about risk events. What are the things that still are relevant from that experience today? What we're all supposed to be engaged in is trying to find those opportunities that pay us the most in return for the least amount of risk.

[00:03:44] That's exactly what the search for Alpha is all about. It is as difficult as you might imagine. The investment business is highly trafficked. It's vastly efficient, not in the sense that markets don't go through crazy periods like the meme episode where things are vastly overvalued.

[00:04:05] When I think about market efficiency, I come back to the basic stuff that Gene Fama taught us, which is there aren't a lot of mutual funds outperforming the S&P. When you factor in transactions costs and fees and frictions, there's really not a lot of outperformance. We also might find strategies that outperform for a period of time. They look like they're delivering a high-sharp ratio, but it's really risk that's just being hidden.

[00:04:34] There's a famous paper by MIT professor Andy Lowe. I think he called the strategy decimation partners. Basically, he formed a fictitious hedge fund that just sold super, super far out of the money puts in the S&P. We're talking like three delta and sold them in giant size.

[00:04:58] What you saw in the period from, I don't know, 93 to 96 or 97 is this thing's delivering a sharp ratio of two, two and a half. It's wonderful. Then, of course, you run into a big vol event. It could have been Asian contagion in 97. It certainly was LTCM in 98. That's when decimation partners decimated. It's that up and to the right until it goes straight down.

[00:05:26] It actually looks almost identical to what the time series of returns for long-term capital looked like. When you peel away the onion on long-term capital, and really this is one of my first formative experiences in the markets, and it stayed with me, is that this was well before the era of the term risk on, risk off. But this was risk on.

[00:05:50] This portfolio was short every option in every permutation you could imagine. Danish mortgages, risk arb, swap spreads, long-dated vega, on and on and on it went. They didn't term it risk on, but that's really what it was. It was a giant portfolio of shortfall, short liquidity. It's only to say that sometimes, trades masquerade as delivering high-sharp ratios.

[00:06:19] They nominally do for a period of time, but they're short some factor that it took us a while to learn about. That's part of what I would just argue is the humbling nature of markets and finance. They're going to change over time. You've got to really be careful not to just buy into the backtest.

[00:06:38] For me, a formative experience was LTCM because it's really one of the earlier demonstrations of the portfolio of trades in the market becomes the risk in the market. It's just stayed with me the entire time in terms of how I think about risk. Well, certainly there are concepts of reflexivity. You can see that philosophy on display because it was not just the trades that mattered there, but it was who held them.

[00:07:08] LTCM, we'll talk about the risk events in 2024 and do a little compare and contrast, but it's been a long time since you've seen a situation like that that precipitates into a systematic event. Most of the risk-off events that I think, fortunately for us, we've seen in the last 10 years at least have been financial and not leading to economic. The mark-to-market insensitive investor is really hard to come by.

[00:07:34] Even the largest pension fund in the world cares about mark-to-market risk. They might be hedging LDI exposure. They're exposed to the low-rate regime of 2020 and 2021. Even these pools of capital that might be AAA rated are as long-dated as you can imagine, are staring at the prices that clear the market.

[00:08:02] You were kind enough to interview Cliff Asnes at my Macro Minds event in 2023. One of his many things that he focuses on and are annoying to him in markets is this notion of vol laundering, as he's called it. This idea that private equity, private credit, the ability to ride it out and market wherever you want has become not a bug but a feature.

[00:08:27] And that mark-to-market risk is just simply not paid attention to. And if you're in the derivative space, mark-to-market risk is everything. So I had done a podcast earlier in 2024. I called it Vol Laundering and the Portrait of the Perfect Hedge. And it was effectively to turn Cliff's vol laundering concept upside down and say, what if you, instead of running away from mark-to-market risk, fully embraced it? And that's really what long vol is.

[00:08:57] You care very much about what your asset is worth at any point in time, especially in the notion that long vol is that asset that gets stronger as everything else is breaking. In Taleb's rendering the anti-fragile asset. So as a derivative guy, you're always very focused on how mark-to-market risk can either benefit you or really, really hurt you,

[00:09:24] as in the case of certainly LTCM, as in the case of the GFC, as in the case of the XIV event. But strangely, all three of these equity vol events are 10 years apart, 98, 08, and 2018. So I guess we've got three more years till 2028. We'll see what happens. So the next Cliff Asnes vol laundering. I'm so happy that someone actually put a name to the feature because it deserves a title.

[00:09:51] You told me once a long time ago that vol was the ultimate Giffen good, something you have to desire more of the more expensive it gets. You need to own it. Looking back at the 200 episodes to draw from, there have been a lot of really good quotes that have come out of it. I've got a few in front of me, some of my favorites that we can talk about. I just want to throw them at you because I'm sure that there's something that resonated as it did for me.

[00:10:18] One of my favorites is one still with long term from Victor Higani, where he describes the difference between a financial crisis and a hurricane. And he's basically saying that the hurricane doesn't care how much hurricane insurance has been written. However, the financial market insurance is not like hurricane insurance is how he says it.

[00:10:42] It runs back to the trades matter who holds the matter and the reflexivity is a real concept. You probably still think that's a relevant point to make even today. Well, Victor is a incredibly intelligent investor, super smart. And if you believe what's in both books on LTCM, and I was lucky enough to have both Roger Lowenstein, who wrote When Genius Failed, and Nick Dunbar, who wrote Inventing Money.

[00:11:11] Dunbar's book was the more technical book. Lowenstein got more into the personalities at long term, at the banks, at the Fed, but both were really excellent and well done reads. But Higani's book of European trades is illustrated as really a very, very successful part of the firm. So I've gotten to know him actually more now than back in the LTCM days. I had him on the podcast a couple of times.

[00:11:39] And I just thought his quote was fascinating. This idea that financial market insurance is not like hurricane insurance. Let's examine a recent and very unfortunate event and tragic event where there's deaths, the fires in LA. Market didn't blink. It has nothing to do with the ecosystem of what we would generally call risk assets.

[00:12:03] Now, it doesn't mean it ultimately couldn't if you had something so catastrophic that large parts of the country got wiped out. I suppose that could become a financial market event. But the key here is that credit risk and equity risk. These are very related risks.

[00:12:22] One of the takeaways I had from that is when you think about your alpha sleeve, where you're trying to earn carry, you've got to understand and appreciate that. Vol itself is correlated across assets. Vol of FX, credit vol, credit spreads, equity vol. Vol. Maybe you get out to lean hog vol and vol on oat milk, probably a little less correlated.

[00:12:48] But it's generally the case when one vol pops, you're going to see a lift. That's what risk off is all about. So you've got to really, really press yourself on a diversification standpoint. What Higani was also talking about was this idea that the firm felt trapped in those trades, that they were large and everyone knew what they had on.

[00:13:10] So if a giant counterparty is teetering and they're short five-year S&P vol, well, that's got to figure into my calculus that if I was thinking about shorting it, I might have some giant entity that needs to buy it back at any price. And so that's a crowded trades risk that you really have to understand. And that's really what the LTCM portfolio became, one giant crowded trade that everybody was trying to get out of.

[00:13:37] Because remember, there was a lot of copycat capital that was trying to reverse engineer this heretofore very successful fund up until 1998. I want to overlay that idea onto 2024 and the two risk events in 2024.

[00:13:55] Specifically, the one I'm thinking of is the August 5th, something that started in Tokyo with the Bank of Japan and brought the Nikkei to its knees in 24 hours. I guess it's the modern version of that Asian contagion. Think about the magnitude of the yen carry trade. It's as large as any Thai bot trade that long-term could have had on, yet there were no knock-ons.

[00:14:22] Or at least it didn't seem as that prices came and left. The market seemed to absorb it quite well. We certainly didn't hear about hedge funds needing bailouts. Maybe you want to tell us why 25 years on, we have a similar setup, but by all appearances, a very different outcome. The August 5th event was super interesting, even as it faded very quickly.

[00:14:46] The increase in the VIX and then the subsequent decrease was one of the fastest on record. The speed with which not only we increased, but then it just came crashing back down. If you look at it, it's almost as if Roaring Kitty put out a buy recommendation on the VIX and then just got out. It's like a flash crash, but to the up. I just think that there's a lot there. Let's just think through a couple of things.

[00:15:15] You mentioned Japan and this yen carry trade. One of my little sayings I've come up with along the way is that risk on and risk off are curious cousins. What I mean by that is they're opposites, but they live right near each other. When you get a trade that is super successful for a long enough period of time, the motivation for re-implementing it,

[00:15:43] restaking your gains back into the same little feedback loop that gave you those gains to begin with, it's hard to get away from. What happens over time is that the margin of safety erodes, but this little machine keeps paying you back even though you have less safety. That yen weakness was a one-way train for a long time.

[00:16:07] You get a setup where everybody's got the same thing on, and the last number of people that have gotten in have gotten in at a skinny risk premium level. There's just not a lot left there, but it's been so consistent that you stay with it. I think a very similar thing happened in the VIX into 2018 after an incredibly low realized vol environment of 2017.

[00:16:34] You're sucking blood from a stone, but it's working. Now, how the yen trade, the unwind of that made its way into the VIX, it's kind of anybody's guess. My understanding is that there were some positions out there that got unwound in a hurry on an overnight basis. So you could trade VIX futures 24-7. It was a very sloppy execution, and it kind of destabilized the S&P options market.

[00:17:03] Remember, the VIX, as you know quite well, is just a calculation agent. It doesn't do anything except dutifully perform the calcs. It takes this wide swath of strikes as input, and it pops a number out for you at every second. For the VIX to get destabilized like that, it means that the S&P options market, I would just say, broke for a period of time. The bid offers got really wide.

[00:17:29] The price of deep out of the money, short-dated puts went sky high. And they went sky high not because people wanted to buy them. They went sky high because no one could sell them. So I think there's a difference there. There wasn't people actively bidding. The bid went up because the offer went up, but the bid offer got really wide. And if you went to smack that bid, you were probably going to be very unhappy.

[00:17:53] In fact, I can say for sure, having had a sizable number of VIX options on for clients that day, the experience of unwinding trades in the morning was pretty bad. Not a good day for the VIX or for the S&P options market that effectively creates the VIX. The market broke. And my takeaway from that, Arthur, is that this is the most consequential insurance market in the world.

[00:18:20] It's the risk asset insurance. It's the S&P. It's deep. It's liquid. It has to work. It came back pretty soon, but it did not work that day. Again, it didn't become something seismic or systemic because it was so short-lived. Four days later, the VIX was back at 16. So that was quite a round trip after closing at 38 on August 5th, printing north of 50 in the morning.

[00:18:48] And by the way, that's on a 3% down move in the S&P. So the VIX beta that day was on the order of 25. That's enormous. I mean, that's top four ever with the XIV day, February 5th of 18 being the biggest VIX beta day to the S&P. So this just kind of gets back to my core risk philosophy, how I think about markets, which is the trades matter, the exposures matter.

[00:19:17] And these products called derivatives can make or break you pretty quickly. They can be quite dangerous or quite helpful depending on which side of the risk you're on. Part of that story actually reminds me of another one of my favorite quotes from an earlier alpha exchange. And that's the one from Mike Nogradz, who said that a financial crisis will always unwind at the pace that it wants to.

[00:19:43] This is an example of where it wants to unwind as quickly as it wound. I was getting off a plane in Tokyo on August 5th, looking at these numbers on my phone, wondering, has my telecom provider messed up the transmission? Because I couldn't believe what I was seeing. There's a vignette that I want to offer to the alpha exchange, and it runs to the yen carry trade. The biggest widowmaker trade in anyone's careers was JGB's.

[00:20:11] I always bring up an episode of the Simpsons where Homer Simpson has decided that he is going to bet against the Harlem Globetrotters. And the Harlem Globetrotters, they always win and they always play this one team, some fictitious team called the Washington Senators. But this day, Homer's bet it all against the Harlem Globetrotters. And of course he loses. So they ask him, Homer, why did you bet everything against the Harlem Globetrotters?

[00:20:39] And his answer was, because I thought the Senators were due. That's what he said. There you go. Well, hopefully someone gave him extreme odds. Hey, maybe he had the trade on on August 5th. I don't know. To me, that says it all. When you think about, do you like shorting it at one? Well, how about you like shorting it at zero? That Globetrotters example is some version of a peg break. This has never happened. And the price is going to reflect it.

[00:21:07] It's buying vol on the Hong Kong dollar, as an example. The market has been overwhelmed by the authorities. And the price of the derivatives suggests that that will continue to be the case because it has been the case. It's money good. The breaking of the Euro-Swiss peg in Jan of 2015 was a fascinating example of something that's money good on Monday. And by Thursday, the head of the S&B has just decided, well, what I told you, Monday is no longer the case.

[00:21:36] We're walking away from the peg. And the vol literally goes from one and a half to 25 in a day. If you can imagine the convexity of an option that you're buying at one and a half implied vol is just breathtaking.

[00:21:50] I, too, love the Novogratz quote because, to me, what he's saying there is that the financial system can really overwhelm the policymakers' ability to understand how much they have to douse the flames. And this is very much the case of the 2008 crisis as well.

[00:22:13] There's a famous part of Too Big to Fail the movie where William Hurt playing Hank Paulson is having breakfast with Geithner. He says, we're late. We've been late. And he's just figuring out that this thing is moving fast, that this is a toxic brew of leverage, that it's going to take an enormous amount of firepower to prevent this thing from truly, truly unraveling.

[00:22:42] And it's hard to say it hadn't already truly unraveled. What Novogratz was referring to was the Southeast Asian crisis of 97. He was a big part of trading that at Goldman Sachs.

[00:22:54] It just was the case that the authorities didn't really recognize how toxic these exposures were, how wrong way the countries were and the currencies were and the exposures were to this idea that you could really get asymmetric moves and the amount of leverage that had been built on stability. Capital was flooding into Thailand, into Hong Kong, into Malaysia.

[00:23:22] And these countries were taking in the capital and borrowing a massive amount of money in currencies that were not their own. It was really wrong way leverage. That, too, was an example of a vast number of IMF meetings that were stingy in what they were providing in terms of rescue capital. It wasn't enough. It just took them a while to realize. And the way you realize is very simply, look at the VIX.

[00:23:51] If the VIX is going up, your rescue attempt is not working. Unless you're getting the VIX materially lower. We sort of go back to 2009. It really took them probably till March of 09 to get the VIX to 40. And it slowly worked its way lower. But you're not in the 60s and 70s anymore. So at some point, what you've done is enough. You still got to be very watchful.

[00:24:18] But if those risk indicators aren't going down, if those spreads aren't contracting, you're simply not doing enough. It's a hard lesson. I love this quote. It's basically saying that the system of exposures can be so big and unwieldy, it'll do what it wants. And you better come at it with everything you got. And that may not even be enough. That's been a reoccurring theme on your Alpha Exchange, the primacy of prices and the ability to hear what the market is trying to tell you.

[00:24:46] I also want to talk to you about the other significant risk event in 2024, the more recent one, December 18th. 2024, if I can offer my thoughts on it, it seems to have been a year of transition. Transition between different vol regimes and different valuation contexts. I mean, certainly, S&P up 25% with a 13 realized, I guess it was. That's phenomenal.

[00:25:14] But the concentration of that return in the MAG-7, I think the number was like 53% if you just own the largest seven stocks. This is against a pretty interesting year geopolitically. We had not just the super contango of the VIX because of the presidential, what was supposed to be a very close, but turned out not to be a very close presidential election. But there just seemed to be a lot of global events that did not materialize.

[00:25:39] But for these isolated incidents, I'm thinking about August 5th and December 18th specifically. Well, every one of these years is interesting. And that was the second straight year of, I want to say 1.7, 1.8 sharp, 26% return, 12 vol, take out 5% for the short rate. You got a pretty darn good return there for not doing much in the most transparent, low cost benchmark. That's very difficult to compete with.

[00:26:07] When I step back and I look at 2024, you have a number of periods. You have those two big VIX beta days, which I just think are days that we really have to focus on. They have left their imprint on how the VIX call skew is priced. So if I look at out-of-the-money calls on the VIX versus near-the-money calls, that premium, there's always going to be a vol premium because the VIX can skyrocket up. It's especially high right now.

[00:26:35] So the two days and the giant VIX beta has left its mark. It's there. So the call spreads price out a little bit more cheaply than they otherwise would have. I do think that one of the things that I find most troubling about 2024, and as we start 2025, it's still very much a consequential price in markets, is correlation or I should say lack thereof.

[00:27:03] It's still very much a lot of 12 realized vol, but also 12 realized correlation. That is super, super interesting. That is so strange that the US equity market, the average stock can deliver a correlation of just 12. That's in the zero width of zero percentiles. And that is dragging down vol at the index level by a substantial amount.

[00:27:30] My old rule of thumb is that four to five correlation points is worth a vol point. That 12 realized correlation historically in benign markets is a 30 to 40 realized correlation. That's in benign markets. Now, we can argue that the structure of markets has changed. We could argue that in 2007, it was a very financialized market.

[00:27:58] The financials were 25% and they're much more correlated. I understand that. But we have to also look at the top heaviness of the S&P. The triple Q is eight stocks is 50% of the index. In the S&P, eight stocks are 30 odd percent of the index. These are both records. These are all tech stocks.

[00:28:19] They're all nominally in some version of a different business, but they are vastly invested in AI, either creating the products, the chips, or buying them, or spending money on it. They're all benefiting from this new economy push. And they're exhibiting such low levels of correlation. I think this is the risk that hides in plain sight. You and I have talked a lot about this. It was Feb of 2024.

[00:28:49] So it was NVIDIA's fourth quarter earnings. The stock goes up 16%. Apple and Microsoft went up about a percent that day. When Apple made its AI announcement, I want to say that was July of 2024, it went up 7%. NVIDIA went down. This is so different than the old days of, let's say, the tech bubble 25 years ago. When Microsoft moved 4%, Intel and Cisco, for example, almost guaranteed to move 3% or 4%.

[00:29:19] I've done the work on this. The co-movement was so substantially greater back then. Tech was an asset class. Now, again, I know things are different now. But it will not take much for that 12 correlation to become something considerably higher. 12% to 30% is going to add four vol points to realize vol.

[00:29:43] And the reason that stocks become more correlated is very tied to the reason they become more volatile, which is a change in the business cycle, some geopolitical shock, some earnings shock, some Federal Reserve uncertainty. Inflation rears its head in a way that, holy cow, we weren't expecting this.

[00:30:05] And so I'll just say something I say all too often, which is the same set of economic, monetary, financial, geopolitical conditions that make stocks more volatile, make them more correlated too. And that, to me, is the risk hiding in plain sight. So as we price up S&P vol right now, the implied correlation is 15 or so for one month options. It's super low. It might even be lower.

[00:30:34] I think it's actually 11 for one month options. I just think that that is a risk that as we've started this year, I'm encouraging investors who I talk to, to just take a very strong look at your portfolio. And I like to say that hedging requires a budget. I remember asking people to hedge in 2017, and they're like, oh, there's just no budget for it. I don't have enough budget to pay for it, even though the vol was super low.

[00:31:04] Well, the queues are up 100% over the last two years. You've got to have some budget to pay for this stuff. And again, I think that gets back to my little premise of risk on and risk off can be curious cousins. And sometimes when things look the very best, you've really got to press yourself to think about wayward scenarios, unwelcome scenarios. Because when things are really good, that's when the price of insurance can be very low. I don't know if it's the recency bias that is very much a thing in markets and in life.

[00:31:33] We're just not apt to entertain bad scenarios until we are absolutely confronted with them. Let me take some of the comments you made and extend them a little bit. Recently, you have written a lot I've seen on Bitcoin, talked a lot about gold as an alternative asset class. I've read a number of pieces from MRA talking about levered ETFs, micro strategy. It's interesting stuff.

[00:32:02] Do the lessons we learn in equity vol apply to these newfangled services? Well, I am no expert at all in asymmetric cryptography or anything like that. I don't know much about hash rates, but I know a little bit about options and a little bit about vol surfaces. And count me as extremely excited about the launch of the IBT option complex.

[00:32:32] Say it's one of the most successful launches we've ever seen in listed options. The underlying ETFs got $60 billion of assets. The TLT, by the way, been around since 2002, has got $51 billion of assets. And the volumes and the spreads in IBT options are just really promising. You can learn a lot about an asset by just looking at its behavior on the worst days for the S&P.

[00:32:59] People would always show me different strategies for hedge funds and be like, how did it do in November of 08? It's like my first question. How did it do in May of 2010, the flash crash? How did it do in the Eurozone sovereign crisis? So I just want to understand its kind of risk-off properties. And so I'll run that same exercise. I'll run some assets through that, just looking at the worst days for the S&P.

[00:33:24] What I notice about gold, for example, and what I love about it, is that it's really stable through those days. It's not entirely, but for all of the 4% down days in the S&P since 2017. Gold is down about 70 basis points on those days. Bitcoin on average is down 6.3% on those days. So it is still what I would nominally call a risk asset.

[00:33:53] It's very speculative, but its vol surface is very different than what you'd expect for an index like the S&P. And that is what I find so promising. And I think also telling about what this asset may become. So yes, it's still speculative. It can go through periods of exuberance. It's a beta asset to the S&P.

[00:34:17] But it's got something else going for it, which I think is a little anti-system. If you read some of the earlier books on Bitcoin, one of its biggest days where it started to get prominence was not the Eurozone sovereign crisis. It was the crisis of the banks in Cyprus in the aftermath. And I want to say that was 2013, where they actually haircut depositors. They made that decision.

[00:34:48] That was a big day for Bitcoin or a big period for Bitcoin. It was still obviously in its infancy. Now I just look at it as an asset that has got some super interesting properties in terms of its return profile. So it's an asset that derives, I want to say about 60% of its realized vol from up days. Entirely different from an index like the S&P. It gains momentum on the way up.

[00:35:15] But if you told me Bitcoin vol is at 50 right now, implied vol, and the underlying is at 100, and I stipulated that in a pretty short period of time, the Bitcoin went to 150, I'll tell you that that vol went up a lot. That is unique. When the S&P rallies, vol goes down. We know about the negative correlation between the VIX and the S&P.

[00:35:38] But Bitcoin's capacity to rally violently and to take its vol up along with it is super, super interesting. You would ask me about 2024 and the risks. Well, we start 2025 with the same set of risks we ended 2024 with. We start with a new president now. We start with the promise to extend the tax cuts that otherwise will sunset.

[00:36:04] I'm not here to make a laugh or curve argument or to say that the tax cuts do or don't pay for itself. I think the US deficit problem is absolutely self-evident at this point. I do not think there's an adult in the room supervising this enormous market called the US Treasury that auctions itself all the time looking for vast sums of capital to be spent by the government. And count me as worried.

[00:36:32] Count me as a Paul Krugman deficit skull that thinks that this is an accident waiting to happen. And I'm not saying Bitcoin's the answer. I am saying that some folks are using Bitcoin as an asset that might protect them against these types of scenarios. And certainly gold, I believe, is in that category as well. So while Bitcoin is very speculative, we all know about the fraud in the market in 2022.

[00:37:00] I really dislike the number go up crowd that cheerleads for it. It's not helpful to the asset class for people rooting for it like the Winklevosses to just go up. But I do think there is some version of a psychological component to the asset that gold has had for years. Back to the Novogratz podcast I did, he said, Bitcoin has value because we say it does.

[00:37:28] That was four years ago I did that podcast with him. I think that's absolutely certainly more the case now than it was then. I like the concept of the optionality of Bitcoin as an asset that could conceivably explode should we really run into a malfunctioning episode in this incredibly important product called U.S. government bonds that, again, doesn't seem to have a business plan to right size itself.

[00:37:56] Well, certainly as Bitcoin gets more integrated into the market microstructure, when you see not just the Black Rocks of the world embracing it, but when you see the verticality of custody and clearing and all the plumbing that it's capable of just bolting itself into, the obstacles just fade away.

[00:38:18] And I absolutely agree with you that in a sense, gold and Bitcoin are both votes against fiat currency. Another one of your guests has said that on a podcast once or twice. In the time that we have left here, I'm going to ask you because 200 podcasts, that's quite an achievement. And when you look back at those 200, do you see a direction? Is it headed somewhere that maybe you didn't expect?

[00:38:48] What would we be doing in our 400th version of this conversation? It's certainly been a passion project, and I've been so lucky to meet some really, really sharp folks. I use it as a vehicle for myself to learn. One of the most fun parts of it is asking guests who have participated to recommend others. And so I feel like it's got some wind at its back in terms of reputational equity.

[00:39:15] It's easier for me to find really, really accomplished guests. And that's always fun to get to know people's styles. Each one is its own unique conversation because everyone approaches it differently. I would say I've learned a lot about how to host these conversations. So I've got a couple ideas on expansion. The first thing is it does feel like the podcast medium is going to stay an audio medium, but it's also very much going to video as well.

[00:39:45] So while you and I are just doing audio, a version of this might be an audio version, but also you and I appearing on a screen that becomes a YouTube video for folks that might want to watch it as well. So that's coming. I'm going to start to do that as well. I'll have to ask people to shower and shave beforehand for those. Clean up my desk. Exactly. So I'm excited to do that. And then I've got some other ideas.

[00:40:10] One is I don't think there's any substitute, even acknowledging that people want video. There's something about an interview that is on video where the interviewer and the participant are in the same room. That's a different dynamic. I've got some thoughts on hosting some really high-end conversations in person with perfect lighting, really well done in a studio that we can publish these in-person interviews.

[00:40:40] And I'll be shooting for the moon with regard to how significant the resume of the person I'm interviewing there is. That's a goal to make that a really high-end product. I also think that there's a product to be done, which is super short videos. We all know about people's attention spans. And so it's the five to seven minute could be an explainer.

[00:41:04] Maybe I have the head of rate strategy from a big bank talk about the wiggles in the swaps and vol curve and what it means. And we're in and out of there in seven minutes. And so those become short form videos that people can consume. I'm able to do a lot of them. I'd love to try that too. And that would be very chart focused. So we display a chart on the screen. I'd ask a couple of opening questions. Excited about that one. And the last one, it's a little bit of a different category.

[00:41:34] But first and foremost, I just love teaching. I've always thought about the Alpha Exchange as some form of allowing the guest to share his or her expertise, his or her craft with the audience. And hopefully there's some learning done. I was teaching a class on episodes of financial crisis at my alma mater. And this was back in 2019. And I'd gotten the podcast underway. I'd maybe done 25, 30 episodes.

[00:42:02] And I was asking the students to listen to some of the podcasts. And we would discuss the podcast. And I thought, oh, this is really interesting. This is an interesting way for students in college to learn. And that's a goal as well, which is try to work with some universities to create some audio and video curriculum and try to access the finance student.

[00:42:26] Give that student a chance to listen to what practitioners are thinking about markets. For me, when I was a student at St. John's, what really, really got me over the hump in terms of wanting to go after it and get onto Wall Street was I was taking the options class. And the professor would have an ex-student of his come in. And this practitioner was on the swaps desk at a Japanese investment bank, not Nomura, Daiwa.

[00:42:55] And he would come in and talk about receivers and payers. And I was just kind of blown away with this. And I said, if I could learn any of this stuff, I would be so happy. But that bridge between the theory and the practice was exceptionally valuable to me as a student. And I feel like I could do that with the Alpha Exchange and bring some of that through the practitioners. It might have to be a different format than the base podcast, but some version of a learning

[00:43:25] session that makes its way around the college campuses. I think that would be fun as well. I look forward to seeing it and maybe participating in it. That sounds fantastic. I think we could do quite a learning curve on distressed debt, on fulcrum assets. What everybody needs to know. Yes. And then, of course, on creditor on creditor violence. In today's world. Exactly. Wonderful.

[00:43:51] I look forward to seeing where the Alpha Exchange is headed in these ideas you have. I also want to not lose the chance to tell you what a terrific experience the most recent MacroMinds event in New York was. And I'm not just saying that because I got a chance to interview Cliff Asnes. But the event, your entire family was there. I think it really touched a lot of people for all the right reasons. And thank you for the feedback on MacroMinds.

[00:44:20] A truly wonderful project that launched in 2021. So we've done four events bringing the financial community together to raise money for student education. We've raised $1.3 million for 12 student-focused charitable organizations. And I think hosted four truly, truly special and impactful conferences.

[00:44:47] I was very, very lucky to have experts like Cliff Asnes, like Ross Stevens, our dear friend who runs Stone Ridge, like Paul Singer, the founder of Elliott, like Howard Marks, like Kevin Warsh. I mean, it's really been a wonderful experience to bring these folks together, all for the pursuit of raising money for students and also to bring the finance community together. You're as good as your network.

[00:45:15] And I just really relish in the opportunity to provide the forum for folks to meet each other and expand their networks and have fun in the process. That's been great. We're going to do something a little different this year. We're just going to host an event. We're still working on the venue late May. It's going to be a thank you. I have really been so lucky to run into the generosity of the donors.

[00:45:42] So many of the big banks, individuals, hedge funds have been generous. Arthur, you've been incredibly generous. And it's time to say thank you. And then also to give me a break on hosting the thing. We're going to host a wonderful party to say thank you in late May. I think we're going to produce some content along the way as part of that. And it's going to give us a chance to think about where we want to take the project.

[00:46:09] I just couldn't believe more in the finance industry's capacity to come together in support of student education. We're both parents. We know how difficult it is. And we also know that without certain resources, it would be much more difficult to play a small role in giving some of these students more access to educational opportunity. It's just wonderful.

[00:46:37] And to bring the content and to give folks a chance to interact along the way, it's just a very gratifying experience. So I'm really looking forward to bringing this thing together again in May. Well, that makes two of us. I can't wait to see what the next iteration is going to be. Dean, thank you very much. Thank you for your time here on the Alpha Exchange podcast. Please do come back. Perhaps we get you back for number 300. Mark your calendar now. All right.

[00:47:06] Thanks so much for hosting me. It was a lot of fun. Likewise. Thanks. Thanks. You've been listening to the Alpha Exchange. If you've enjoyed the show, please do tell a friend. And before we leave, I wanted to invite you to drop us some feedback. As we aim to utilize these conversations to contribute to the investment community's understanding of risk, your input is valuable and provides direction on where we should focus. Please email us at feedback at alphaexchangepodcast.com. Thanks again and catch you next time.