Vineer Bhansali was recently among a small group of athletes who achieved the unthinkable, a 135 mile run in scorching heat, wind gusts and rain, all while traversing both the lowest and highest elevation points in North America. The Badwater 135 is considered the most difficult Ultra Marathon, an undertaking in which a guiding philosophy is, simply, “don’t die”.
As the CIO of LongTail Alpha, Vineer’s investment philosophy is also not to die – or, translated to markets – don’t get forced out at the wrong time. And in this context, he makes substantial use of derivatives, instruments that protect against the extreme events that markets all too often confront. Our conversation is a review of the August 5th risk event, exploring its causes and consequences. Unsurprisingly, Vineer sees the overconsumption of the Yen carry trade as a primary catalyst and he details the many ways in which printed, essentially free Yen made their way into risk assets of all shapes and sizes. He details how his firm navigated the flare-up, looking to trade VIX at incredibly elevated levels before the open.
With a view that the market price of insurance has come back to Earth too fast and with concerns that the recent risk-off may just be an appetizer for a larger unwind to come, Vineer argues that embracing insurance strategies is an important part of a long-term strategic portfolio plan. I hope you enjoy this episode of the Alpha Exchange, my conversation with Vineer Bhansali.
[00:00:01] Hello, this is Dean Curnutt and welcome to the Alpha Exchange where we explore topics in
[00:00:07] financial markets associated with managing risk, generating return, and the deployment
[00:00:12] of capital in the alternative investment industry.
[00:00:19] Vineer Bhansali was recently among a small group of athletes who achieved the unthinkable.
[00:00:25] A 135-mile run in scorching heat, wind gusts and rain, all while traversing both the
[00:00:31] lowest and highest elevation points in North America.
[00:00:34] The Badwater 135 is considered the most difficult ultramarathon, an undertaking in which a guiding
[00:00:40] philosophy is simply, do not die.
[00:00:43] As the CIO of LongTail Alpha, Vineer's investment philosophy is also not to die.
[00:00:49] Or translated to markets, don't get forced out at the wrong time.
[00:00:53] And in this context he makes substantial use of derivatives, instruments that protect
[00:00:57] against the extreme events that markets all too often confront.
[00:01:01] Our conversation is a review of the August 5th risk event, exploring its causes and consequences.
[00:01:08] Unsurprisingly, Vineer sees the overconsumption of the Yen carry trade as a primary catalyst
[00:01:13] and he details the many ways in which printed, essentially free Yen made their way into
[00:01:18] risk assets of all shapes and sizes.
[00:01:21] He details how his firm navigated the flare-up, looking to trade VIX at incredibly elevated
[00:01:26] levels before the open.
[00:01:28] With a view that the market price of insurance has come back to earth too fast and with concerns
[00:01:33] that the recent risk-off may just be an appetizer for a larger unwind to come, Vineer argues
[00:01:39] that embracing insurance strategies is an important part of a long-term strategic portfolio
[00:01:44] plan.
[00:01:45] I hope you enjoyed this episode of the Alpha Exchange, my conversation with Vineer
[00:01:49] Bonsali.
[00:01:53] My guest today on the Alpha Exchange is Vineer Bonsali.
[00:01:57] He is the founder and CIO of Long Tail Alpha, a firm doing lots of interesting stuff in
[00:02:04] the options and convexity space.
[00:02:06] Vineer, it's great to have you back on the Alpha Exchange podcast.
[00:02:09] Well, thanks for having me, Dean.
[00:02:11] I think I was one of the first three or four people when you first started this
[00:02:14] and it's great to see how much attention people are paying to this.
[00:02:17] It's a great show and you're reaching a lot of people that's very important, professional
[00:02:21] level stuff.
[00:02:23] I really appreciate it.
[00:02:24] I'm 173 episodes in and I believe you are the only three-time guest.
[00:02:31] Yes, great.
[00:02:33] I think that's really a function of just how much I value your insights and the
[00:02:38] timeliness of this conversation is hard to understate just given the tumult in
[00:02:43] asset markets, the spillover from one asset class to another and from one part of the
[00:02:49] world to another.
[00:02:50] So lots to discuss on the linkages.
[00:02:53] Just before we get underway because some listeners may be newer listeners, tell us
[00:02:58] a little bit about your career history and then specifically the objectives on behalf
[00:03:03] of your investors at Long Tail Alpha.
[00:03:05] I don't know if I reveal myself as one of the long-term dinosaurs or the pre-AI
[00:03:12] era investors in this space.
[00:03:14] So I've been doing daily risk related stuff now for close to about 30 something odd
[00:03:19] years.
[00:03:19] I started with a PhD in theoretical physics.
[00:03:22] I finished my PhD in 1992, went to Wall Street accidentally, got interviewed by
[00:03:27] Fisher Black.
[00:03:28] Didn't work for Fisher but later found out that my career would be defined by
[00:03:33] option trading.
[00:03:34] So I did that in Wall Street at Citibank and Solomon Brothers and other places.
[00:03:39] Citibank and the exotic options and hybrid options trader and then offered
[00:03:42] that Solomon Brothers as a proprietary trader in the famous post in Michael Lewis
[00:03:48] book that everybody's heard about or read about.
[00:03:50] But I was in the R group there, did that for multiple years and then came to
[00:03:54] PIMCO in 2000 when the market was actually similar to in many ways what's
[00:04:00] going on today with TechBoom and Dotcom and all that.
[00:04:04] I was in charge of analytics and also started the first hedge fund at PIMCO.
[00:04:08] Did that for about 17 years and then in 2015 left to start Long Tail Alpha,
[00:04:14] which basically focuses on risk mitigation strategies.
[00:04:18] Everything that has to do with convexly pretty much any lever that you can pull.
[00:04:23] So that's what we've been doing now for the last close to eight years.
[00:04:26] And the markets are obviously exciting every single day, every single week.
[00:04:31] Last week being a case in point.
[00:04:34] Absolutely.
[00:04:35] You've had your hands in different asset classes.
[00:04:37] You mentioned the Solomon Brothers days and of course the fallout from LTCM and
[00:04:42] things like gigantic swap spread widening.
[00:04:46] You were very active during the pandemic and printed some incredible returns
[00:04:51] from being long convexity during that insanely tumultuous, if not short
[00:04:57] lived episode because of all the intervention.
[00:05:01] So we're going to really focus on this last week, the causes of it,
[00:05:05] the implications of it, what we can expect going forward.
[00:05:09] Before we do that, I can't help but wanting to talk a little bit about your
[00:05:13] recent accomplishment, which is just tremendous.
[00:05:16] Just reading your piece in Forbes on the Badwater 135.
[00:05:20] So you've just run a 135 mile race, which in and of itself is kind of absurd.
[00:05:28] I ran a half marathon back in December and I said, I'm done.
[00:05:32] That's about all I'll do.
[00:05:34] So it's a tremendous, almost unfathomable accomplishment.
[00:05:38] But the set of circumstances around this particular run with respect to heat
[00:05:43] and elevation are so unique.
[00:05:47] Just take us through exactly what Badwater 135 is.
[00:05:52] I understand it was I think 65 entries and you've got to finish in 48 hours.
[00:05:57] You finished in 40 hours.
[00:05:58] So just tell us a little bit more about it.
[00:06:00] Ultra running is one of those things that I've been doing now.
[00:06:04] Well, I started late, so I guess I still have legs, but over the last 17 or 18 years,
[00:06:09] I've done all the big ultras, Western States and UTMB, Ultra Trail Du Mont Blanc
[00:06:13] and Angelus Crest and Leadville 100.
[00:06:17] And it really gives me a lot of time to think and the training itself is a lot
[00:06:22] of fun because it gives me a lot of time to what I call work because
[00:06:24] it allows me to process all my ideas without the constant interruption
[00:06:29] of emails and cell phones and market data and all that.
[00:06:32] So partly it's mental, actually most of it is mental and some of it is physical.
[00:06:36] And Badwater is one of those very exclusive races around the world
[00:06:42] where you have to have done at least three to five of the largest,
[00:06:47] biggest ones in the world.
[00:06:49] And you actually have to apply and get invited.
[00:06:52] And it's very hard to get in.
[00:06:54] And part of the reason is they really want people who get in
[00:06:58] to be pretty experienced because you're running in Death Valley.
[00:07:01] And Death Valley is recorded as the hottest place on Earth's.
[00:07:05] The race starts at Badwater Basin, which is 285 feet below sea level
[00:07:10] and then climbs over three big mountain passes and finishes at Whitney Portal,
[00:07:15] which is about 8300 feet.
[00:07:16] This leads to Mount Whitney,
[00:07:18] which is the highest point of the Continental United States,
[00:07:20] but it's three pretty vicious climbs.
[00:07:24] And I'm a trail runner for me, the biggest factor that required
[00:07:27] a lot of training was getting used to running first on the road.
[00:07:32] Secondly, the heat.
[00:07:33] It is incredibly hot when we started with about 125, 126.
[00:07:38] I just found out two days ago, according to one of the NASA satellite reports
[00:07:42] that July 22nd and 23rd, 2024 were the hottest recorded temperatures
[00:07:47] on Earth in recorded history at July 22nd and 23rd was the race
[00:07:51] and didn't break the Death Valley record of 134, I think, from 1917,
[00:07:56] but got very close to it.
[00:07:57] It was in the high 120s and it was storming.
[00:08:00] I started at 8 p.m. on Monday night on the 22nd
[00:08:04] and ran through all night the first night, all day the next day
[00:08:08] where the temps were about 110 to 120.
[00:08:12] And the crew is basically cooling you down with ice and water.
[00:08:16] And you get massive blisters from all the water and rubbing and friction,
[00:08:20] which I do have today. I'm recovering now.
[00:08:22] And then I ran through the second night
[00:08:24] and I finished right before noon on Wednesday.
[00:08:27] So 39 hours and 46 minutes.
[00:08:30] My target was 40 hours because it's an invitational.
[00:08:33] Everybody's quite experienced.
[00:08:35] They only allow 100 runners and 97 started.
[00:08:39] And because of the incredible heat and wind this year,
[00:08:43] only about 72 people finished.
[00:08:45] And I was 45th, I think, overall.
[00:08:48] My whole goal was just to finish in one piece.
[00:08:51] And I managed to do that.
[00:08:52] But the piece that you're referring to, Dean, is in the length of 39 hours
[00:08:57] of just moving forward, you reflect on life and reflect on your profession
[00:09:02] and how the two think kind of have a parallel.
[00:09:06] And the thing is, there's a lot of similarities.
[00:09:08] It's very much like investing.
[00:09:10] It's very much like investing for the long run.
[00:09:13] And there are always intense moments.
[00:09:16] One of my crews was an elite runner, said there's moments
[00:09:19] and the moments that my friend Charlie Engel suggested are high moments
[00:09:22] and low moments.
[00:09:23] And in markets like last week, last Sunday, you remember those high
[00:09:27] and low moments.
[00:09:28] And if you have a plan and the plan can be of many kinds in terms
[00:09:34] of portfolio allocation, using hedges, using options,
[00:09:39] using instruments, using derivatives, then you can actually manage those
[00:09:43] moments and you can actually come out on the other side in one piece
[00:09:47] or even better than one piece.
[00:09:48] So there's a lot of parallels to long distance running, especially
[00:09:52] out for running in intense conditions and being in markets.
[00:09:56] You mentioned in your article, which I really encourage listeners
[00:09:59] to access on Forbes under the New York Bonsali.
[00:10:03] This one's called Badwater 135.
[00:10:06] It's also on our website, by the way, at longtailalpha.com.
[00:10:08] If anybody doesn't want to pay the Forbes tax, you can just get it
[00:10:11] from the website.
[00:10:13] Better place to get it.
[00:10:14] You mentioned getting to the 100 mile mark around there.
[00:10:17] And that being the previous length of a lot of these ultra marathons
[00:10:24] and then having 35 miles left and that almost being a breaking point for you.
[00:10:29] Tell us just a little bit about that.
[00:10:31] So your body and your mind get conditioned.
[00:10:32] And that's very similar again to the parallel to investing.
[00:10:35] We have all seen events in our history and in our past where we're
[00:10:39] conditioned and we know sort of how to react to them.
[00:10:42] But the world changes.
[00:10:43] And in this race at 100 mile point, I've done a number of hundreds
[00:10:47] and I'm pretty used to them.
[00:10:48] I get my 90 or 95.
[00:10:50] It's like, oh, I feel like I've gone through the cycle and I am going to be done here.
[00:10:55] Your mind is saying, no, no, no, you still got 35 miles to go,
[00:10:59] especially the hardest 35 because the race finishes with a big 4,000 foot climb
[00:11:05] up to Whitney portal on these really steep switchbacks.
[00:11:08] But your body is trained and used to what you've done.
[00:11:11] So at 100 mile point, I'm like, OK, well, I'm going to be done here.
[00:11:14] No, no, no, you got 35 mile.
[00:11:16] 50 kilometer race, the hardest section at night.
[00:11:20] Very monotonous, just long rolling roads and a big climb still ahead of you.
[00:11:26] And at this point, given the heat and the friction, my feet were basically in
[00:11:30] tatters. I could feel that the skin was coming off.
[00:11:34] I wasn't the only one.
[00:11:36] And I still had to somehow survive.
[00:11:40] Now, guess it, right?
[00:11:41] You're not moving that fast at this point.
[00:11:42] You're moving at best four miles an hour.
[00:11:44] And so you still have about 10, 12 hours left before you finish in 35 miles to go.
[00:11:50] It is a lot of inclination to just give up like in markets.
[00:11:54] If you are getting close to retirement or you spent a lot of time accumulating money
[00:11:58] in your five or seven or 10 years from retirement and the market staying.
[00:12:03] The inclination is to throw in the towel and just exit and go to T bills,
[00:12:09] which may or may not work if inflation remains high.
[00:12:12] So you kind of need to keep moving and you kind of need to be in the race.
[00:12:16] Part of the reason I wrote that piece is because the parallels suggest
[00:12:20] if you think time is time to kind of give up and just go to cash,
[00:12:24] might be the best opportunities out there.
[00:12:26] It might be the best.
[00:12:27] And it turned out my wife was my pacer actually towards the very end.
[00:12:30] And I'm not an elite runner.
[00:12:32] She and I actually finished the race in a third fastest time recorded
[00:12:36] because we had managed my whole 40 something hours very well.
[00:12:40] So I had it left again.
[00:12:42] If you have managed your portfolio's risk well, then you have the option.
[00:12:47] You have the alternative.
[00:12:48] You have the choice that you can do those last few years or the best parts
[00:12:54] of your investing career in a better form and fashion than if you didn't
[00:12:58] have those things for a grand.
[00:13:00] Well, you mentioned in that article, your piece, some mantra,
[00:13:04] maybe it's from ultra marathons in general, but perhaps it's very specific
[00:13:08] to this run, bad water, a mantra of don't die.
[00:13:13] That's your goal.
[00:13:14] And then you make this analogy to markets, which is don't get forced out.
[00:13:19] That's sort of the death is the very untimely unwind.
[00:13:24] And I think that sort of speaks to, I think a lot of your philosophy.
[00:13:28] And I think my own as well about the value of really,
[00:13:33] really trying to imagine and plan for the unexpected markets are kind of never say
[00:13:40] never, that's the world of markets.
[00:13:42] I think we got a little whiff of that last week.
[00:13:44] And then another statement you make, and this I think is where we can shift
[00:13:48] to reviewing what's happened and the implications.
[00:13:52] You make the statement that markets are simply not prepared for regime change.
[00:13:57] And I think that's spot on as well.
[00:13:59] You shock a market from, let's say, a very low ball environment.
[00:14:05] Well, what happens in that environment?
[00:14:06] Trades get built around the expectation that it'll continue ad infinitum.
[00:14:11] And then the shock makes those trades really, really vulnerable.
[00:14:14] Why don't we get started there with how you would describe the setup going into
[00:14:20] that's probably more right to say it's the end of July.
[00:14:24] I mean, you might even go all the way back to, in my view, the US CPI day.
[00:14:29] The nine day kind of gave the Fed the right air cover to say, OK,
[00:14:34] we're basically ready to get started on this easing campaign.
[00:14:38] And then the soft NFP really solidified that.
[00:14:41] So it was not just August 5th.
[00:14:43] It was building into that.
[00:14:45] I'd love for you to give us the setup, describe from your vantage point
[00:14:50] what you saw in the preceding two weeks or so going into August 5th.
[00:14:55] Markets and humans have a tendency like the long race to remember the highs and
[00:15:00] lows, but also get conditioned to your current environment.
[00:15:03] And we start to think that the most recent things that we're seeing is normal.
[00:15:09] And in this particular case, we can point to one or two data points,
[00:15:12] which is the good inflation numbers and weak NFP,
[00:15:16] which basically convinced the market that the Fed would have to cut rates.
[00:15:19] And I indeed next month, they probably end up cutting 25,
[00:15:23] but maybe with some hawkish language just to keep the markets under check.
[00:15:27] But I think you have to go back, not just the two weeks,
[00:15:29] you have to kind of go all the way back to the 1980s and 1990s,
[00:15:34] because in my view, these cycles, the long term cycles of money movements
[00:15:41] play out with a very predictable rhythm and rhyme.
[00:15:45] And as you could used to participating in the market,
[00:15:49] you understand the ebb and flow of these long cycles.
[00:15:52] So if you go back to the real estate crisis in Japan,
[00:15:56] where easy money and speculation resulted in a massive increase
[00:16:00] in real estate prices few decades ago, and then of course,
[00:16:03] the real estate market collapsed.
[00:16:05] And that then led to Japan ending up in an almost call it 20,
[00:16:11] 30 years worth of deflation and low interest rates.
[00:16:14] And the reason I start there is because what's happening today,
[00:16:18] what happened two weeks ago is in my view, just a marker,
[00:16:22] some milestone, a moment which will determine what will happen
[00:16:26] over the next maybe decade or two decades,
[00:16:30] because we are in its specific regime whose origin goes back to the bust
[00:16:35] in Japan that resulted in low interest rates.
[00:16:38] So we have to understand how we got stuck in that regime.
[00:16:41] Now, how we're coming out of that regime.
[00:16:44] And locally, markets are very rational.
[00:16:46] Every participant is very rational.
[00:16:48] So the reaction function in the short term of individuals
[00:16:52] and individual investors is very rational because everybody does it
[00:16:55] for proper risk management reasons.
[00:16:57] But when you step back and look at the collective whole,
[00:17:01] you start seeing these mega patterns, which I'm going to get into now,
[00:17:05] which is why I believe that what we saw last week or last month
[00:17:09] was not the last of the story.
[00:17:11] Maybe it was just the first little rumbling in an earthquake
[00:17:15] that might trigger some bigger fault line.
[00:17:17] Living in California and knowing earthquake geology,
[00:17:21] I kind of have to bring into that analogy as well.
[00:17:23] So going back to Japan, so you have this crash.
[00:17:26] Japan has to cut rates aggressively.
[00:17:27] They try to raise it a few times.
[00:17:29] Doesn't quite work.
[00:17:30] So they cut it.
[00:17:31] They actually take interest rates negative.
[00:17:34] They were the first ones who came with this basically
[00:17:38] economic philosophy that low rates are good,
[00:17:41] the negative rates are even better, which is that the ECB adopted
[00:17:44] and many other countries adopted.
[00:17:46] It is a dogma quote unquote that really took place in Japan.
[00:17:51] And in my view, people don't know that I'm a physicist.
[00:17:54] There's a big difference between negative interest rates,
[00:17:58] zero interest rates and positive interest rates.
[00:18:00] These are three different regimes.
[00:18:01] These are three different phases.
[00:18:03] When you have water, you can have ice, you can have liquid
[00:18:07] and you can have steam.
[00:18:08] These are three different types of things
[00:18:10] and three different types of environments.
[00:18:12] Low interest rates in Japan first resulted in some investment
[00:18:17] in productive assets within Japan.
[00:18:19] But then those low interest rates resulted in Japanese investors,
[00:18:24] their institutions primarily going into foreign countries.
[00:18:27] So GPIF and Post Bank, who are effectively the largest investors
[00:18:31] in the world today, went out and started accumulating bonds globally.
[00:18:35] And by any standard today, the bond holdings of many of these
[00:18:40] Japanese investors is the highest, probably as high as China.
[00:18:44] And they're huge holders of foreign bonds and foreign equities,
[00:18:48] for that matter, but foreign equities started a little later.
[00:18:51] So foreign bonds.
[00:18:52] Now, if you think about it, you could print money at zero or negative.
[00:18:55] You're getting paid to print money and you buy these bonds.
[00:18:58] It's actually quite attractive because for all practical purposes,
[00:19:02] you can bring an annuity.
[00:19:05] So if your own population is getting orders, not as productive
[00:19:07] and you're under a depletionary cloud, so to speak,
[00:19:11] then you can effectively print money, yen, and you can buy dollar assets.
[00:19:16] You can buy euro assets and so on.
[00:19:18] Initially, the buying of these bonds, trillions and trillions
[00:19:21] of bonds was done in a defensive manner.
[00:19:24] It was done with currency hatching.
[00:19:26] So you buy a US dollar bond, your Japanese investor,
[00:19:29] you're taking US dollar risk.
[00:19:31] So to hedge it, you basically have to go out and sell the dollar.
[00:19:36] So you can sell the dollar using a currency hatch.
[00:19:40] As soon as your currency had you kind of taken two different trades
[00:19:44] onto your book, the first trader that you have bought a long term
[00:19:47] or even an intermediate term US bond and you're effectively financing it
[00:19:52] with the short-term interest rate in Japan.
[00:19:54] So you've taken kind of a youth curve bet across two different countries.
[00:19:58] Then secondly, when you come in and you immunize that currency exposure,
[00:20:04] you are using typically the currency hedges are short dated in nature.
[00:20:07] They might be one month forward, three months forward.
[00:20:09] And I feel lucky maybe a year long forward.
[00:20:12] OK, so if you do a forward, now you're effectively converting
[00:20:16] your currency risk using these short dated currency swaps into yen.
[00:20:22] You're selling the dollar forward to hedge your dollar risk
[00:20:25] and you're basically receiving yen on the swap.
[00:20:28] So now what you've effectively done is you have taken two different kinds
[00:20:31] of carry trade risk.
[00:20:33] And this is extremely important because this is in a nutshell
[00:20:36] the inner reason why we had this mega meltdown on Sunday night.
[00:20:41] So you're running a term structure carry trade, long bonds,
[00:20:44] long term assets versus short term funding.
[00:20:47] And you're running a cross currency carry because of dollar and yen.
[00:20:51] So this works really well as long as the two youth curves are sloped kind of similar.
[00:20:57] And I wrote a paper about 10 or 12 years ago on this topic
[00:21:00] was published in the general fixed income on the deep relationship
[00:21:05] between this carry trade and currency volatility, which I'll come to in a second
[00:21:09] with all the math and so on.
[00:21:11] Anybody's interested?
[00:21:12] The problem is that recently the US and Japan have gone in different
[00:21:17] directions because the central banks fell behind the curve.
[00:21:21] US short rates went up really sharply.
[00:21:24] Japanese short rates did not go up.
[00:21:26] They were still negative.
[00:21:27] So the short term currency differential was almost five and a half or six percent.
[00:21:32] Now, this is extremely important because if you are a Japanese holder
[00:21:35] and you're buying US dollar bonds and that short rate differential is that high
[00:21:40] by purchasing power parity, your currency hedge is only three months or six months
[00:21:45] in expiry.
[00:21:47] It actually costs you more carry by a quarter percent minus
[00:21:52] the yen, which is negative point one, oh, plus the basis swap or not
[00:21:56] added into the technicality of the cross currency basis swap, which is demand
[00:21:59] and supply, you basically losing six and a half, seven percent on hedging cost.
[00:22:03] So it makes no sense for you if you are a large investor
[00:22:07] to hedge your US dollar bond holdings.
[00:22:11] And that's basically what happened.
[00:22:13] And you can see in twenty twenty two or so it was a big inflection point.
[00:22:16] A lot of bonds that were bought by Japanese investors, including retail
[00:22:20] investors, including institutions were now being bought on an unhedged basis.
[00:22:26] How do you see that? Is that available in CFTC data or not?
[00:22:32] CFTC because that's exchange trade.
[00:22:33] But if you go and look at the IS data and there was an excellent report
[00:22:37] that I read a couple of days ago from one of our dealers, which actually
[00:22:40] aggregated and they said it's approximately 3.5 trillion, the total amount
[00:22:46] of the carry trade that's out there from retail investors, from institutional
[00:22:50] investors about four trillion in size and US dollars versus yen.
[00:22:55] But three to three and a half trillion is actually in this total.
[00:23:00] They think possibly half to more than half currency on a hedged basis.
[00:23:05] And it really picked up in twenty twenty two.
[00:23:07] So we can see that inflection point in the charts.
[00:23:11] I'll send it to you, Dean.
[00:23:12] I'm not sure if that's something we can post, but for your reference,
[00:23:15] you can look at the data and see that inflection point where the Japanese
[00:23:19] investors started to run their bond portfolio and to a high degree,
[00:23:24] their equity portfolio.
[00:23:25] What's an equity portfolio?
[00:23:27] Your funding with short term interest rates below zero.
[00:23:31] And you can buy these massive mega cap stocks that are bigger
[00:23:34] than the bond markets in most countries.
[00:23:36] Nvidia, Apple, Facebook, et cetera, et cetera.
[00:23:40] These stocks are massively large cap trillions.
[00:23:43] So you can buy these stocks.
[00:23:45] So as a largest usual investor who has to participate in global equity markets,
[00:23:50] you can buy US mega caps and you don't need to hedge them either because
[00:23:54] they are going up at the rate of 10 percent a day.
[00:23:57] Little bit facetious, but they can go up that much.
[00:23:59] So you fund money at negative point one oh, and you can buy US
[00:24:04] equities that can give you a hundred years worth of income in one day.
[00:24:08] Why wouldn't you do it?
[00:24:10] Because the money that you're printing is effectively a highly
[00:24:14] levered country's money, Japan, big debt to GDP ratio, big holdings
[00:24:19] off, et cetera, that effectively, and I call it in my somewhat joking way,
[00:24:23] but it's money, money, it's monopoly money that you're printing
[00:24:26] and the world is allowing you to take this money to buy mega cap
[00:24:32] tech stocks or treasury bonds for faith and credit of the US market.
[00:24:36] With the risk, of course, that there is a sharp change in the profile of the currency.
[00:24:42] That's the second part of the story.
[00:24:44] So that's the Japanese investor.
[00:24:45] Now you've got US investors.
[00:24:47] So when Warren Buffett started to buy the Japanese banks a couple of years ago
[00:24:51] and there was this whole talk about the governance changes and so on
[00:24:55] in the Japanese stock market, a lot of US investors, a lot of foreign
[00:24:58] investors went to the Japanese equity markets.
[00:25:00] The numbers that I hear are close to about between 60 to 100 billion
[00:25:04] in fund flows into Japan.
[00:25:07] Now, remember what they're doing now?
[00:25:09] We talked about the Japanese investors buying US assets
[00:25:12] more and more on a currency unhatched basis, being exposed to currency risk.
[00:25:17] Currency risk here being a stronger yen, a weaker dollar hurts their total
[00:25:22] portfolio. US investors are doing opposite.
[00:25:26] They're buying Japanese equities which are now back into fashion,
[00:25:28] the resurgence of Japan.
[00:25:31] They are actually on the same side when it comes to
[00:25:33] they are also selling the yen because when you buy a Japanese stock
[00:25:37] and you don't want to take the currency risk in Japan, you sell Japanese
[00:25:42] yen, you buy US dollar.
[00:25:45] That's how you currency it.
[00:25:46] So you can now see that everybody is running a big dollar long,
[00:25:52] whether it's a head basis or unhatched basis or a yen short.
[00:25:56] So yet in the funding currency, yet has weakened from 100 to 165.
[00:26:00] One clientele Japan is not hedging their risk in the currency market.
[00:26:05] The US clientele quote unquote is hedging.
[00:26:08] And I'll throw the last piece of this puzzle and then put the puzzle pieces
[00:26:12] together and kind of paint the composite for you.
[00:26:15] If you are a Japanese bondholder and you bought a US Treasury bond
[00:26:20] at let's say 1% yield, which was two or three years ago.
[00:26:23] And now your currency hedging costs are six and a half percent.
[00:26:26] You have two choices.
[00:26:27] You're basically upside down.
[00:26:28] You're losing money on the bond relative to your hedging cost.
[00:26:33] You have two choices.
[00:26:34] You can sell the bonds and take the losses immediately
[00:26:38] or you can decide not to currency hedge.
[00:26:41] So there's a huge incentive for you not to currency hedge
[00:26:44] if you're a Japanese investor because otherwise it means
[00:26:47] hedging and losing carry on a bond holding that has been marked down
[00:26:51] 20 to 30 points.
[00:26:53] So nobody's taking the losses today.
[00:26:55] And so you are forced into a corner where you are not hedging
[00:26:59] because that's the only way you can even realize that
[00:27:03] carry that you paid for very expensively a couple of years ago.
[00:27:06] On the other hand, the US investor, the risk is if the Japanese market
[00:27:10] tanks or if the yen becomes stronger, they have to readjust their head.
[00:27:16] They have to actually start to lower their dollar yen hedges
[00:27:21] because the value of the equities is lower.
[00:27:23] OK, so now we have all the pieces of the puzzle here put into the picture.
[00:27:27] So now we can explain what happened somewhat into last Sunday night.
[00:27:33] Let's come back to where you started.
[00:27:35] So you've got a week or inflation number, a nice payroll number.
[00:27:40] That's going to cut rates 25 basis points, maybe 50.
[00:27:44] The market saying, OK, September is a done deal, maybe 100 basis
[00:27:47] points for the rest of the year.
[00:27:48] At the same time, the Bank of Japan looks at their inflation rate,
[00:27:52] which is running between two and four percent, depending on how you count it,
[00:27:55] is almost 400 basis points higher than their short rate.
[00:28:00] So they have no choice.
[00:28:01] So they have to raise rates because otherwise the yen gets weaker
[00:28:06] and weaker and weaker.
[00:28:07] And at some point, the people who own these assets
[00:28:11] are going to start complaining that, look, yen's weaker is
[00:28:14] great for the exporters in Japan, but it's really bad for the folks
[00:28:17] who are basically exposed to that currency market weakness.
[00:28:21] So there's a lot of noise inside of Japan that, look, you've got to do
[00:28:23] something about this currency.
[00:28:25] So of course, the B.O.J. does what it has to do.
[00:28:28] It goes and baby steps from negative 10 first to positive 10.
[00:28:33] Couple of months ago, this is their overnight call rate.
[00:28:36] And then a couple of weeks ago, they go positive 10 to positive 25.
[00:28:41] And they also say that, A, we're not going to be buying
[00:28:45] JGBs as aggressively.
[00:28:47] They're the biggest buyers of all their bonds.
[00:28:49] And maybe we'll start to hold back on the equity purchases in Japan.
[00:28:55] They're also the biggest equity buyer in form of ETFs in Japan.
[00:28:59] So basically, the bid is gone.
[00:29:02] As we say, there is no bid.
[00:29:04] So you have Japanese rates coming up, US rates coming down that
[00:29:09] reduces the benefit of owning the yen.
[00:29:14] At the same time, the B.O.J. is not going to be buying their equity markets,
[00:29:18] scares the US participants.
[00:29:20] At the same time, they are now promising that they're going to raise
[00:29:24] interest rates to keep up with inflation, a perfect storm.
[00:29:28] What's fascinating in markets just teach us lesson after lesson.
[00:29:33] But it was always the narrative that fed tightening in the face of
[00:29:40] central banks like Japan.
[00:29:41] Let's use that as the prototype for an economy stuck at zero at
[00:29:45] infinite Japanification.
[00:29:47] That was the risk that the US exporting its tightening was going to be destabilizing.
[00:29:53] And here you're really describing the opposite, just really fascinating.
[00:29:58] All of these things evolve.
[00:30:00] We take in the data and then we react to the data.
[00:30:02] So as you said, Japan, they went 10 basis points than 25 and the rhetoric
[00:30:07] was more hawkish and they're getting inflation data.
[00:30:11] We're getting inflation data, growth data and so forth.
[00:30:14] Is there a scenario in your mind in which we get a repeat of this exact same thing?
[00:30:20] Where let's just say growth weakens in the US more than expected
[00:30:23] and the Fed does more than expected more quickly and Japan does the opposite.
[00:30:29] Is this setup cleaned out from the carry trade or is this something
[00:30:34] that could repeat itself?
[00:30:35] I'm going to hit the nail on the head here.
[00:30:36] So what's priced in is the tightening in the US is bad.
[00:30:41] And we know that that hasn't quite worked because shorter it had gone up 500.
[00:30:45] Long rates have barely budged and the market's are just rallying.
[00:30:48] They're ripping higher because again, what happened during covid was money
[00:30:51] got printed, that money got sent to the mega caps, mega caps made huge cash reserves
[00:30:56] and their net income situation is actually better now because they're
[00:31:00] recycling their profits into debills earning five and a half.
[00:31:03] The US Treasury just paid out about 600 billion worth of interest
[00:31:06] income to depositors, including the mega caps and they're just buying their stock back.
[00:31:11] So what's priced in or what people know from traditional economics
[00:31:15] is that short rates rising should result in a slowdown of the economy.
[00:31:19] But people forgot this thing that we just talked about for the last 10, 15 minutes
[00:31:24] is that the system itself is extremely levered to exactly the opposite phenomenon,
[00:31:29] which is an interest rate differential globally between Japan
[00:31:33] and the US. And any normalization of that interest rate differential
[00:31:39] is a bigger magnifier for volatility than any short rate increase.
[00:31:43] The market is immunized to short rate increases at this point
[00:31:47] because of the capital situation of the large companies,
[00:31:49] but the market is completely unimmunized and not even ready
[00:31:55] for rising Japanese interest rates from negative to positive.
[00:31:59] And that's the phase transition.
[00:32:00] So going back to the race, I was prepared very well,
[00:32:03] mentally for the distance for the road and for the heat.
[00:32:07] But guess what happened at the start line?
[00:32:10] Thunderstorms. The first day, the hottest place on the earth,
[00:32:13] one of the driest place on earth, I was not prepared for rainstorms
[00:32:17] and thunder and wind. It's like, where did this come from?
[00:32:20] And that's very similar here is that this small change
[00:32:25] in interest rates in Japan and small reduction in expectation
[00:32:29] in the US created absolute mayhem.
[00:32:33] Here's how you connect the dots.
[00:32:34] What is the mayhem that happened?
[00:32:36] It was complete evaporation of liquidity.
[00:32:39] So Sunday night, I have been conditioned for the last 30 years
[00:32:43] to wake up at least twice a night at check my bloomer.
[00:32:46] I just do it except when I'm on vacation.
[00:32:48] And at midnight or one o'clock California time,
[00:32:51] I looked at it and Nike was down about 12 percent.
[00:32:53] And I texted our team and said, hey, guys,
[00:32:55] I think we're going to have some opportunities to monitor the nation.
[00:32:59] In the morning. So we were in the pre-market with our elbows, basically.
[00:33:03] And when the Nike was down 10, 12 percent,
[00:33:06] one of the dealers sent us a report on the depth in the Nike futures market
[00:33:10] that night, it had completely evaporated.
[00:33:13] It was worse than the worst time during COVID.
[00:33:16] JGB futures, same thing.
[00:33:18] Japanese yen futures.
[00:33:20] Again, the futures market is only a small part of the currency market,
[00:33:23] but very low liquidity.
[00:33:25] So you could barely trade.
[00:33:27] You take that complex and now combine it with how many people
[00:33:33] need to possibly get out of it.
[00:33:36] So the culprits that people mentioned are CTAs.
[00:33:40] Everybody, net long equities, especially Nike futures,
[00:33:44] because Nike is rallying so much until last week
[00:33:47] that everybody, all systematic guys got drawn into it.
[00:33:50] Low volatility, rallying, trending, upside markets.
[00:33:53] Everybody was a Nike.
[00:33:55] Secondly, risk parity.
[00:33:57] Low ball inequities.
[00:33:59] VIX hit about a 12, drives people into risk parity type of portfolio.
[00:34:04] Everybody risk parity while targeting max long equities.
[00:34:08] Macro people trying to chase mega caps.
[00:34:10] Everybody long equities.
[00:34:11] So you have a max long positioning in the equity market
[00:34:15] and you get this illiquidity.
[00:34:18] You come in Monday morning and you found a complete breakage.
[00:34:22] The VIX index was at 65.
[00:34:24] The VIX futures were at 30 something, but you could barely trade anything
[00:34:28] to kind of summarize what happened there on the weekend is that we realized
[00:34:33] very quickly, we meaning market participant is that it looks like
[00:34:37] we have a lot of liquidity.
[00:34:38] It looks like it's all good.
[00:34:40] But actually when push comes to show the ecosystem has changed so much
[00:34:45] that there is no liquidity.
[00:34:47] And until this morning, the even futures depth was
[00:34:52] probably about as bad as it got during COVID.
[00:34:55] And that's why you're seeing these massive moves, 3, 4, 5% moves
[00:34:58] as everybody is now coming back into the market.
[00:35:01] Everybody who tried to be risk maybe dearest a little bit is saying, OK,
[00:35:05] VIX index is down at 15.
[00:35:07] The measure that people use as an indicator to scale their bets
[00:35:13] is now telling the models to be ethically re-risk.
[00:35:16] Everybody's coming right back in.
[00:35:18] Val is a statistic we look at and Val is a direct input
[00:35:24] that is mathematically scaling in and out of exposures.
[00:35:30] I think that's a new thing.
[00:35:31] And then you point to this idea about liquidity.
[00:35:33] Eli Ryan used to say liquidity is a mirage.
[00:35:37] He was sort of referring a little bit to liquidity transformation
[00:35:42] of essentially buying stuff that's illiquid with short dated,
[00:35:47] let's say, funding that could get pulled.
[00:35:50] That's the repo risk.
[00:35:52] But the mirage of liquidity, I think that you're referring to is a little different.
[00:35:57] It's electronified liquidity can look really, really impressive
[00:36:02] because that electronic engine, that algorithm can pull away instantaneously.
[00:36:07] You can be real tight and you can be real active in price discovery
[00:36:12] if your decision making is instantaneous to just pull away.
[00:36:17] The thing that I've always asked myself is,
[00:36:19] at some point the people writing this code,
[00:36:21] they're all kind of picking up on the same thing.
[00:36:24] And so if they're pain thresholds where the formula senses,
[00:36:29] hey, this is new, this is different, this is not the same regime
[00:36:32] and we're going to pull away, there's correlation in that decision,
[00:36:37] then you have the vacuum.
[00:36:38] And I think there's some version of that that we probably just experienced.
[00:36:43] I think it's exactly right.
[00:36:44] And I think what is happening, I thought the mega store Amazon effect is
[00:36:49] when they come in and they cut prices,
[00:36:51] they initially make it really good for consumers.
[00:36:54] They basically eliminate the small mom and pop shops
[00:36:58] and people who effectively provide you with that kind of robust underlying market.
[00:37:03] And once those small shops are gone,
[00:37:04] then it basically is a monopoly that depends on these one or two
[00:37:08] large providers in your hometown or the Amazon effect, if you want to call it that.
[00:37:13] And that's sort of what has happened to the derivatives market.
[00:37:16] I've been doing this like you have been doing this for about 30 years.
[00:37:18] And in the old days, it used to be who was on the top step of the exchanges
[00:37:22] and who was in the bottom step.
[00:37:24] And one human could take a lot of size from a dealer
[00:37:28] and literally turn the market around on the exchanges.
[00:37:31] We all heard about Tommy Baldwin and others when I was first
[00:37:34] out trading Bon futures.
[00:37:35] I mean, you basically get storied about this giant of the big trading
[00:37:41] who would basically stop the market and turn it around
[00:37:44] because humans have a tendency to bet on mean reversion
[00:37:48] when things get to extremes.
[00:37:50] In the last 10 or 12 years, algorithmic trading has resulted in algos
[00:37:56] who don't really have those kind of emotions to basically optimize for their own profit.
[00:38:00] And like you were just mentioning, Dean, when they see a surge coming
[00:38:03] and there's a signal like if I'm up at midnight and knowing that there's no
[00:38:07] liquidity in the Nikkei futures, I know because of the interconnectedness
[00:38:11] of markets that rising Nikkei ball is going to translate into rising global
[00:38:16] equity index fog is going to result in rising Vicksball will result
[00:38:20] in de-risking from these trend followers and disparity and more
[00:38:25] targetters and macro managers.
[00:38:28] And the tsunami is coming.
[00:38:30] Get out of the way, turn the algos off.
[00:38:32] Market depth just completely evaporates and there is nobody there.
[00:38:35] So what happened in that situation?
[00:38:37] I talked with my team because we were able to monetize early in the pre-market
[00:38:42] a fair amount and the idea is not you trade or put your trades in like you would
[00:38:48] in a typical algorithmic fashion where you show a little bit of size.
[00:38:53] You create the bid ask bounce and then you show more size behind it.
[00:38:57] When the algos are gone and it's mono a mano, it's person against person.
[00:39:02] It's two humans anonymous but making decisions.
[00:39:06] You have to show size to get that size clear.
[00:39:10] Do you show size?
[00:39:11] Somebody sees it and says their size there.
[00:39:13] I can get my trade done that I need to get done at that one price.
[00:39:17] And that's alive and well.
[00:39:19] I saw that last time during covid.
[00:39:21] I saw that last week Monday and Tuesday.
[00:39:24] It was very much a human trading market.
[00:39:27] Muhammad calls it the mirage of liquidity.
[00:39:30] I call it Latin liquidity and liquidity.
[00:39:33] It's there, but to harness it to harvest it underneath the surface,
[00:39:39] you need an approach that is extremely primitive by today's algorithmic standards.
[00:39:44] There's a veritable smorgasbord of risk asset prices that changed dramatically.
[00:39:52] I mean stock bond correlation went massively negative parts of the US yield curve
[00:39:57] three month two year disinverted by something like 30 or 40 basis points
[00:40:01] in the course of days.
[00:40:03] We had two cuts fully priced for me.
[00:40:05] The VIX is 65, the VVIX 180 were crazy break evens plummeted by 25 basis points.
[00:40:12] Yenval got to 21 the short dated one week Yenval.
[00:40:17] Anything that stood out to you most is the first question.
[00:40:21] And then let's just finish with where you see things now.
[00:40:24] And obviously you have a view that this could just be some appetizer for future disruption.
[00:40:29] But of course, the prices of these insurance contracts, it's critical getting the price right.
[00:40:36] The entry price is a big part of it.
[00:40:38] And we were talking about how quickly the VIX's decline, which to me is music to my ears.
[00:40:45] So first question just in terms of the violence of the moves, anything that kind of wins for you
[00:40:51] in terms of wow, that shocked me the most?
[00:40:53] I think what shocked me the most was the incredibly fast and furious sell off in the
[00:40:59] Nikkei followed by the fast and furious rally in the VIX.
[00:41:02] I wrote about this in another piece is back in the 2000s, it used to take quarters for things
[00:41:07] to spike and relax.
[00:41:09] And then in 2008, it took maybe a few months.
[00:41:11] And then during the Walnut Gettin, it took a few weeks and it took a few days and
[00:41:15] not took a few hours or minutes if you want to call it that.
[00:41:18] So the intensity is getting compressed into a shorter period of time and the decay is much
[00:41:24] faster.
[00:41:25] So if you take that speed, what sticks out to me is basically three things.
[00:41:29] One is that our approach to portfolio construction, portfolio management,
[00:41:33] monetization, etc. has to match the time scale at which the markets are reacting.
[00:41:38] If you wait for weeks and months, you're not going to get a chance to do it.
[00:41:41] Secondly, you have to have a plan.
[00:41:43] You have to have a plan in advance and be ready to do it, whether it was the Nikkei
[00:41:47] market that was astounding or the VIX futures curve and birding or the youth curve.
[00:41:52] There is so much money in the system that it is going to take the first shot at taking the
[00:41:57] other side when their extreme moves, which is I think what happened.
[00:42:00] If you step back from it and go to the second part of your question, okay, so what happens now?
[00:42:05] If you take my numbers, which I think come from fairly reliable providers,
[00:42:09] if there's four trillion worth of carry grade that's out there and maybe in this
[00:42:14] sell-off, let's just be very, very complimentary and conservative to the liquidity episode,
[00:42:20] let's even say half a trillion got out, which I don't think it did.
[00:42:24] There's still about 80% of this carry trade that has still not been unwell.
[00:42:30] Guarantee carry trade maybe yes. The Nikkei carry trade maybe partially yes.
[00:42:34] What about the credit trade? What about the wall selling trade and so on?
[00:42:38] It hasn't been cleaned out.
[00:42:40] So what that leads me to is what happened?
[00:42:42] Why did we reverse so quickly?
[00:42:44] And again, it goes back to the decisions of one or two or three individuals.
[00:42:49] So it was the deputy chief of the Bank of Japan who came out and said in some dog thing,
[00:42:55] when the markets are volatile, we will not do that.
[00:42:59] They have just given you the recipe now for what you've got to watch for.
[00:43:03] If the markets start to rally from here, then their statement is consistent with them
[00:43:09] doing the next 50 basis points or next 25 basis points.
[00:43:12] And I think you have to be prepared for the market to react in an even more vicious form.
[00:43:20] Because like you and I are having this conversation, I was with some Japanese investors
[00:43:24] a couple of days ago in New York and they're all looking at it and they're saying,
[00:43:28] what happens next? How do we get ahead of this now?
[00:43:31] So that next time around at the market, the Nikkei falls 10 and 10 and 10
[00:43:35] instead of going 10 and going up 10, we don't get completely stuck with our bad position.
[00:43:40] So today, like you said, Dean and I agree with it, the fact that the VIX
[00:43:44] spike showed us where the fault lines are and has come back down gives you an opportunity
[00:43:51] to basically robustify your portfolio. Either you de-risk based on the stress shock that you
[00:43:56] saw or you buy options because optionality is again on sale.
[00:44:02] And going back to the last four or five or six crises that I've been part of,
[00:44:05] the market always knocks once, twice, thrice, but then it doesn't. Then it'll basically punish you for
[00:44:12] not listening to it. And I think we just got an alarm bell and we're getting a second opportunity
[00:44:19] to robustify our portfolio. And if you don't do it now, you can't look back a year from now and say,
[00:44:24] we didn't get a chance. You are getting this chance.
[00:44:26] Once we have an event as you recognize and you properly state, you get this
[00:44:32] spike in the VIX. It goes up faster than it comes down. In this case, it came down incredibly fast.
[00:44:38] And I do agree that the decay is, the timeline is shortening. This one was really short, but
[00:44:44] it's probably the case. I always say probably. I'll never say anything with a lot of confidence
[00:44:49] in markets. That's the humility you have to have. But it doesn't feel like the 12
[00:44:55] handle that we had experienced maybe a couple of months ago is at hand real soon.
[00:45:01] So even as insurance costs have come down a lot from those recent highs, it's unlikely they're
[00:45:07] going to get back to where they were. And so I'd love for you to just frame out the balance of
[00:45:13] that, that you've had this shock, there's information about instability in the shock.
[00:45:18] The U.S. economy at least could be in a path here where the Fed overshot in terms of keeping
[00:45:25] the policy rate too high. How do you balance this system does feel less stable than it was?
[00:45:31] I've got some new information on hand, but I have to pay up a little bit more for the prices of the
[00:45:37] convexity instruments that I want to own. What happened last week is possibly some people thought
[00:45:44] this was the tsunami, this was a crash and maybe they overheaded. Maybe some of what we're
[00:45:49] seeing is not just monetization and liquidation, but just people reversing those positions.
[00:45:53] It's too murky right now to tell whether 65 was a high or 15 today is the low on the VIX,
[00:45:59] or maybe it gets back down to 10 because of positioning. But what it does tell you is one
[00:46:04] thing, the VIX move, it oscillated quite a bit, but long dated hedges. If you think about one
[00:46:09] year options, two year options, the CDX barely pushed. During the height of the crisis,
[00:46:13] the CDX index went from 52 or 50 on investment grade at the lows to maybe 65 or 66 at the
[00:46:21] peak and the market was watching. The market was watching when the equity cash market opened up,
[00:46:27] the cash market did not follow what had happened in the overnight and the VIX futures market.
[00:46:32] So the market just settled down and the credit market is relaxed for the time being.
[00:46:37] I think what that tells you is that if you believe that a regime shift that could be longer,
[00:46:43] a 4 trillion exit of the carry trade is not just going to be in currencies,
[00:46:48] it could be in equities, it could be in bond markets globally and so on.
[00:46:51] If that happens, you need to not just do a short-term hedge but you need to do a longer term
[00:46:57] planning for it. And the long-term pricing today of the credit markets is actually back
[00:47:04] to all five lows, almost at the lowest pre-financial crisis, COVID lows and so on.
[00:47:09] So it is possible if you step away from this idea that being in mega cap, large seven
[00:47:17] momentum stocks is the only way to make money and put the longer-term picture,
[00:47:21] close circle back to the bad water race, in that the idea is not to be a winner at the 50
[00:47:27] mile point or the 70 mile point or 90 mile point or 100 mile point. The idea is to actually
[00:47:31] finish the race to the 135 mile point. Then it tells you that the longer term asset allocation
[00:47:37] is what you need to do, which basically means that today you have the opportunity
[00:47:41] to create that robust long-term asset allocation. The VIX might not come back down to 10 or 9
[00:47:46] or 8 but a lot of other indicators, a lot of other tradable instruments.
[00:47:51] By the way, VIX is not tradable as we all know but other instruments are back to go of all time.
[00:47:56] Yeah, it's a great point on credit. Credit spreads really didn't participate all that much
[00:48:02] in this risk-off and this risk-off was much more of a financial technical
[00:48:08] unwind rather than something that had at its heart the durability of the U.S.
[00:48:13] economic expansion and corporate credit risk. The prices of those trades, many of which are
[00:48:18] long-dated five-year CDS type stuff is pretty sweet. It's pretty tight. It's interesting.
[00:48:25] Well, Vanir, this has been amazing to catch up. I really appreciate you taking
[00:48:28] my ass to do this on short notice. I knew you were in a great position to inform us about this.
[00:48:35] Congrats on the marathon. My understanding is you ran this marathon for
[00:48:41] charity called Laura's House, which is an organization focused on trying to help those who
[00:48:48] are victimized by domestic abuse. Tell us a little bit more about that.
[00:48:53] Thank you for bringing it up. My wife is a lawyer and she's a volunteer and she works for
[00:48:58] the organization. It's fairly underprivileged people in our area here locally. It helps them
[00:49:04] out. The other charity that we do contribute to is our local food bank, which again goes all
[00:49:09] the way down to grassroots, tries to get cans of food and delivers them to people who are in need.
[00:49:15] All of those things again, nothing much to advertise about, but those are good causes. Both me and my
[00:49:22] wife and our family support them and we're fortunate to be able to indirectly help them out a little bit.
[00:49:28] Well, congrats to you. It's a tremendous accomplishment and I do hope you recover well.
[00:49:35] So thanks again, Vanir. Thank you very much. Thanks for bringing me on, Dean.
[00:49:38] Love listening to your podcast. Keep doing it. Definitely when I was heat training and 190 degrees
[00:49:44] sauna, one of the things I was listening to before my phone would go out on a blink was your podcast.
[00:49:49] So thank you for that. Fantastic. Thanks again. You've been listening to the Alpha Exchange.
[00:49:55] If you've enjoyed the show, please do tell a friend. And before we leave, I wanted to
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[00:50:04] to the investment community's understanding of risk, your input is valuable and provides direction
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[00:50:16] Thanks again and catch you next time.