Clear as Mud

the Federal Reserve is fighting inflation with both fists. We'll get into it with an executive who focuses on multi asset portfolios and hedges at a major hedge fund firm. But first of all, Donna, I have to confess, um, if I drift off into outer space during this podcast and you have to bring me back hurt, it's only because I'm going on vacation in less than twenty four hours. I'm going to southern Californy. Yeah, because I hear that they have some beaches in southern California that are almost

they do, almost as nice as the Jersey Shore. So I'm gonna look into that almost as nice. New Jersey is always number one, right, at least for me and you and a lot of our listeners. Maybe we'll see. We'll see. It depends if they have ski ball or not on these these so called California beaches. I think that's that's an important Where are you going in California.

We're going to Santa Monica and uh for like three days, and then San Diego and the whole Reagan clan, all three kids, my wife, we're all we're all flying out in about twenty four hours. We're big ski ball players, so that lot's going to ride on how good the ski ball tables are out there. I don't know. You're gonna have a really great time. San Diego is my my number one favorite city, I think, is it? Yeah? I love it because it's sunny, like three hundred sixty

four days of the year or something. You're well more traveled than me. I've I've been there once and it was I don't remember much of it, but maybe when you were there, you're you're a big jet setter, and so you gotta find someone to fill in for me next week? All right? Yeah, I do heads up for all the listeners. Mike won't be around. I'm gonna have fun on your behalf. I'm sure probably make fun of you.

I can. I can feel the roasting already. Yeah, I do want to bring in our guests this week, and maybe he can enlighten us on where he's calling us from. But welcome to Peter van doye Ert. He's the managing director of Multi Asset Solutions at Man Group. Welcome to the show, Peter, thanks so much, thanks for having me on. I'm in New York for what it's worth. Um, oh there you go. Well, some some ugly beaches maybe best. Yeah, But Peter, maybe just to start off, can you tell

us about your role at Main Group. Sure? So I sit inside Man Solutions and I worked pretty closely with clients who whatever problem they might have. For example, it starts off typically as I have a bunch of risky assets, how do I go about hedge them? And then it kind of morphs into this inflation thing scares me? So what do I do about that? And you know, maybe

I should get out of bonds. So we spent a lot of time talking about risk mitigating portfolios, but we also spend a lot of time just talking about asset allocation, whether it's risk based, technical, asset allocation or you know, something broader like strategic asset allocation. Just for some background on the firm, Man Group is a hundred forty billion dollar hedge fund manager UM. In terms of assets center management,

we do a lot of different things. We have discretionary managers, we've got systematic UH in form of c t A resparity, those sorts of things, and we've got a countimental kind

of long only firm called Numeric. So we do a lot of different things, and all of those different things come to bear to this sort of market where it takes more than one one way to figure out what to do, more than just discretionary, more than just systematic, And I think that's what Man Solutions tries to help clients with, how to access different approaches to what seems to be a really big problem, you know, developing the market with a FED and what to do with bonds

and those sort of things, Peter. It seems like especially tricky time to be involved in risk parity. You know, if you're if you're used to having a balanced portfolio of stocks and bonds and maybe even levering up one side or the other, how are risk party strategies reacting to this environment. Are they sort of abandoning their old uh playbooks? Are they? Are they thinking outside of the box?

I mean, I don't know how much. You know, Uh, it's sort of coded into their DNA that they can't sort of stray too much from the main stocks and bonds strategy. But what's some of the discussions going on around risk parity these days? Yeah, I think there's It depends a little bit how you manage it, and it depends what the risk parity fund is set up with. So you know, for our own risk parity funds, they

actually have waiting in commodities. So you start off the year if you're a sixty four manager and you're stuck with bonds and equities, they both went down the first corner, and what are you supposed to do about that? And it turns out if you have if you diversify your bonds and equities, And that's what risk parity tries to do, right, It tries to diversify first between bonds and equity, so it takes more bond risk. I think that's what you're

alluding to. Problematically, Um, Secondarily, we might look at other asset classes. We do use tips for inflation we have commodities, and I think a lot of our peers as well, so there's a bit of you know, the huge spike up and commodities has been a big benefit for risk parity. So I don't think you see a substantially horrible underperformance versus say sixty forty UM. And it also goes about how you risk manage it. You know, there are very passive versions of this where you just own bonds and

equities and you own too many bonds. The more actively you manage it, you start looking at correlations among these things. Right, what if it turned out that all of my assets were correlated and they all went down together, then my risk parity matrix is a bit wrong. Right, I'm trying to target at ten vall or kind of a consistent volatility in my fund. If everything goes down together, I have no diversification. That's problematic. So you know, firms like

ours we have correlation overlays to help mitigate this. So between correlation and trend overlays, things that take you out of basically assets that aren't working. And I think in a way that's what man Solutions is about too, and how we talk to client. We take some of those approaches that we see in our disparity fund and say, why don't you start applaying this to your own portfolio. Even if you don't do it a risparity approach, you at least have something going on that, Hey, bonds and

equities are correlated. They're not supposed to be correlated. That's bad for me. I'll cut some risk here and that's and that's that's that's how risparity. If you're if you're taking that approach, you're surviving. Um, you're probably in line. Nobody wants to be in line. But after years about performance, that's not bad. And maybe we'll talk about it a bit.

You know, bonds are at a level where they might be useful again, and that's probably not in everyone's mindset because right now, I mean we've had clients, you know, last year, clients would say, you know, our bonds still any use Should we get rid of them? What should we do this year? Two basis points higher in bonds? Or should I just get rid of these? Should I sell these? There's a bit of a little panicky feeling,

and I would say they're dead wrong. But when I see a CPI print of eight and a half percent. You can't blame them, right, there's a there's a little something that that you know, makes you feel awkwardly uncomfortable about that. Well, speaking of the sell off that we've seen in bonds and stocks, we've heard a lot of people say that sixty is dead and I'm wondering what you make of that and and actually where you might recommend people find diversification. Yeah, you always hate to say

dead because then like next year we'll be back. And you guys, so you said always dead, And did you see the returns on sixty four last twelve months? And so I'm not gonna say dead just for others, But yeah, I guess my question is, you know, was it ever really alive in a sense that it was a It

was kind of a random to begin with. I mean, if you think of waiting sixty equities and bonds on a risk basis, you're like equities most of the time, right, Occasionally bonds sell off, usually equities go up most of the time. For the last thirty years, you've just wanted to own a lot of equities, and that's what sixty pretended to let you do. So I think where we are now is a bit different. We're in a universe of equities and bonds going down together. There feels a

lot there's a lot of instability. We could talk about evaluations and the interplay with bonds in a bid, I guess, but that instability is disconcerting if they're both going down. I need to find things that don't behave like bonds and equities, which means commodities. And so it's always great when a person like me tells your investors, you know, you feel, buy a bunch of commodities because that's diversifying.

And your investor will say, but you know, crude was like a hundred and thirty two weeks ago, and it was minus fifty two years ago. So where am I supposed to live with that asset? I don't have any

reasonable way to use it. But the truth of the matter is, if you're going to get out of this is sixty dead conundrum, or at least find a place to stay, you know, while you figure out what you're gonna do with sixty bonds, it's got to be multi asset, whether it's multi asset via commodities or real assets, infrastructure, hedge funds. You know, I work for hedge funds, so

I have to say hedge funds. But you know, these sort of things, you need to find different ways to make money that aren't just beta and bonds and beta and equities. And I think that's the challenge that are in faced with right now. Is there anything popping out of you in that real asset space? Uh, you know, that's to a tractive in this environment, you know. So for us, we tend to focus on the liquid part

of the curve of the asset classes. So you know, perhaps buying an airport works, um, but that's not what we do. So we're very much we take we we invest in liquid assets, we risk manage them, and we find ways to make them fit in portfolios, and using the risk control, we try to suck something more out of them. Right. So, last time I was on we had the bond problem conversation. We talked about using tail hedges, which are relatively cheaper than to hedge an equity portfolio.

Instead of doing six just go all equities and hedge it pretty aggressively, and you kind of get rid of your bond risk and and you isolate what you're really after high yield and equities. It's kind of a risky portfolio today's universe. I think you do have to live in commodities. It's just you have to have some approach to it, right, There has to be some how do I get out of this? One of my you know, one of my is it as simple as a stop loss? Maybe? Right?

You know you can stop in and out of position. I don't find that a very satisfying answer. So the way we tend to look at it is on two basic is one and a trend format. And that's something you should expect from Man Group. We have a big trend following firm. But it turns out in these big regime shifts, where markets go through six twelve month regime shocks, you have very long moves in asset classes. So we've seen it in bonds of steadily sold off. We've seen

commodities steadily rally. Admittedly there's a bit of a war premium that's built in there, but that's a starting point of how you might go about using that. Now, maybe use trend or maybe use some other lead lag models. Right. It turns out when commodities start to go down aggressively before a big market correction, it's kind of a good signal that equities could be in trouble. So if you look back to COVID, commodities went down first and then

equities tank. So the more you can deal cross asset and the more you can take signals from these cross assets, whether it's from emerging market to warn you about commodities or FX to warn you, the more integrated your portfolio can be. And into some extent it takes an asset manager to do it because you really have the time to chase all this stuff, right, are you gonna wake up tomorrow and say, so, where is this lattis today or where is the re I? And is that working

for me? I think that's quite difficult, And so trend kind of goes after that by getting you not just multi asset commodities, but the FX markets are really fascinating, right, you know people have gotten accustomed to so I most of my career as of all, guy in a tail heager. Before before this role, people loved owning the end for every crash and so all of those yn options and we own some ourselves because you know, we're agnostic were tailhages.

We don't try to outsmart the market. We just try to find cheap hedges, and you know, we struck them at one twelve and one thirteen in in in in the end and Jan Feb and the ends at one right now and just keeps going the wrong way. If you're invested kind of naively like us, we just say I lost very little premium. It's a good, you know, explosive tailheage. If you're someone who says, I'm an investor in the nique, but in a way that the yen helps me out, so I'll kind of dollarize my investment.

You've been pretty shocked because the nique is down and the end is down, so it's just not working. And so those are the things where trend can help you out a lot, where you just simply say there's something new in the market. It's a re team that I don't understand. So when I see this kind of thing, I'll get out of the way, or I'll change my focus to be tighter. I guess, right, Bill, do I cancel my plans to buy an airport? I was thinking

about buying an airport, But where would your airport? New Jersey? Yeah, that's the that's the other problem with it. Yeah, I don't know. I don't know where I would put it where it's It's pretty fascinating what people will ask you too. They'll say, can you model our portfolio? You know, see

how your approach might change things. So what we often do is say, look, you have some liquid assets, We'll take some index proxies, like there's a private equity index proxy and really in the in the public markets, we can use rates for real estate, and there's an infrastructure index that uses all kinds of public empity proxies. So we tried to do that for a client. We just couldn't match the result. It turned out about eight of their infrastructure assets were in airports and travel, and so

it's tricky to pick that up after COVID. We I'm not sure what we're missing because everyone's still you know, use a highway between now and the next six years and so pretty good. Yeah, the following questions you get like from that, is there anything I can do to

hedge that? And you're kind of left non blust and Peter, just to wrap up that conversation we were having about bonds earlier, I think you wrote recently that for the first time in my career, I have investors increasingly asking me if they should be shorting bonds as part of their asset allocation. And I'm wondering what you tell them, So I'm I'm a bit reluctant to say short bonds

as part of an asset allocation. So there's some there's a difference between tactical and strategic, right, So the first thing you're gonna get is fired by your board if you take a strategic bet short bonds. And there's the crash, right, So we know that bonds have a lot of benefits of the crash at these yields. I mean, if you hate bonds today at to seventy five, then I'm not sure why you like them at one fifty before COVID And admittedly there's a totally different inflation paradox. I'm not

trying to be too glib about it, um. So I mean, I look at trend you know, most systematic managers inside trend funds are probably short bonds. Um. I don't think there's any secret there. You can see the open interests in some of the futures, So I think it's the right position. I just worry that, you know, people are going to manage it right, right, So when when that when bonds start to kind of you find a level and then you sort of get out of these trend positions.

So there's some kind of process to getting out of it when you're maybe wrong or the the lack of utility has gone. For me, I'm much more focused on the correlation, and right now does seem like bond equity correlations aren't working well. So the idea of short bonds isn't crazy, right, it seems to be stabilizing your portfolio, but you need to do it in a pretty tight way. So I, you know, my general senses, is a bridge

too far for a lot of passive managers. Right if you're if you have a big pension board with twelve fifteen trustees who are of mixed background, and you know between industries and hedge funds and finance, you're gonna get some really nasty questions and probably the terrific examples that the big pension that stuff tail hedge. You know, they caught a lot of flak in the press for that, but there are a lot of good reasons they have done it right to have tail hedges, and a lot

of good reasons not to tail hedge. So people make kind of intellectual decisions. It's a question of how badly you get second guests. And I guess my example of that is you don't want to be the guy who says, well, what happened was this right? Because once you're saying that too, and I see you're sort of you know, you're already in trouble, just like if you said it to your spouse, you know you're in trouble with what happened was you know, a commentary? And so I think, you know, I think

it's the right technical house at allocation. If you put some risk around it, great. If you can rely on a trend type manager, another type of you know, as a manager who has some clear quantitative signals around it, that probably helps you a lot more too, and it gives you some coverts saying you know what, the way they think about it is right. I like the signals they use, and it should keep me out of some big trouble if some big trouble comes up. Because after all,

bonds were ballast for you for thirty years. So to turn around and say I'm not going to use it, I'm gonna go the opposite way. You know, most of the people you talk to aren't going to have experienced that, and including me, right, I'm not going to have experience to say, yeah, bonds are lethal, you know, get out of the way, no matter what real rates are. As recommener, I'd like to unpack the notion of trend trend following

a little bit. You know. It's one of those um things that sounds simple enough on the surface, you know, but by it go along when the price is going up, short when it's going down. Um, you know, and typically, you know, if you're talking about trend following in a hedge fund context, you're talking about c t A s like you guys managed commodity trading advisors that are pretty

much only involved in the futures market. Um. But I'm wondering about a year like this where we saw, you know, an obvious down trend inequities and then a quick snap back, and then now we're back to the down trend. I mean, does your typical ct A trend following strategy is it able to ride both of those trends or is it you know, the the quick snap back. Is that something you just take on the chin and and just hold

on longer for the down trend? You know? I guess it all depends on on sort of how fine tune the strategy is. But you know, what's what you're thinking on that, you know, is it is that sort of sure snap back rally something you can actually you know, flip sides on and take advantage of or not. So it depends who you are and your speed. So it's a bit like saying I bought a one year tail option to hedge my portfolio, and another guy bought a three month one. If the market crashes in the first

three months, he wins because he spent less money. So on the trend side, if you're a super fast trend guy, so you react to these kind of quick rebounds and then you chase the trend quickly, then you might pick up the sharp reversals very very quickly. You did well, you'd find in COVID and you've got the bounce back in COVID very well. The problem with fast trend guys, which is not a I shouldn't say problem, the thing

there's a tradeoff. The tradeoff is that sometimes you make a mistake and you know, you know, a bunch of dealers come out in February, all these strategists trying to call the bottom and say we love stocks here. You should pile in, and then the trend reverses quickly. That's the faster guy might chase it, and so he may reverse. And then it turns out strategists are just trying to be on CNBC, so you know they're call to buy stocks wasn't a good one, and it all went down again,

so you turned. On the other hand, if you're really slow, you missed Covid entirely. You started to sell COVID went to zero, and then you started selling on the way back up, which feels all backwards. And if you're in the middle, um, you can guess we're in the middle, because I'm gonna sound more friendly. If you're in the middle, you kind of try it to navigate that course. What I think is interesting about trend though, you know, there's

mighty to be made in equities. There's no question it's a decent risk tool for controlling how your portfolio runs. You know. So if you have a lot of equity risk and you decide i'll trem it as trends you know, seem to be negative, it's probably reasonable and maybe it's a reason to rebalance at certain low levels in the market. But what's really valuable about is the fact that it's multi asset, so it's chasing things and doing things that

you aren't going to be doing. And so when you look at what is it diversifier to my portfolio, Is it a trend program that trades only bonds and equities. Maybe, but it may go the same direction. If trends are up, it's gonna make me long everything, And that was what it would look like, and say two thousand matine long everything,

you know, great, perfect world. And then other times it might be short of bonds like two eighteen and long equities, which feels very risky, and then you know, sometimes it might just be like now, kind of short of both. Depending on your speed, you're either short you're probably short bonds no matter where you are, and you're probably in between one equities anywhere on the map. But all the

other asset classes are the really the fascinating ones. Because you don't have a view on nack, why shouldn't say, maybe you do have a view on that gas because you eat your home. But other than being piste off about it, your view is I don't know what it's gonna do, but I wish I had hedged it somehow. And so this is what trend is useful for, right, is to to develop a multi asset framework trading assets.

There's nothing complex about it, right. You know, if you have great trading infrastructuring of good models, you should be able to develop something rudimentary. Um. You know, every every really great trend manager has a few other pieces that they think are uniquely There's maybe crossovers and things like that, but it's the access to those kind of asset classes, like the end going from one talented I have yet to find a person who in that move was like, no,

this is totally logical. Now it's totally logical at one. And then everyone has a narrative and I think this is you guys face the same challenge, right, how do I put a narrative around something so wacky that it can't be explained? Right? Like, there was a day I remember I came in and like, futures down as you know,

Russian invasion of Ukraine intensifies. The market recovered and it says futures higher as Russian invasion intensifies, and then it finally settled on you know, futures unchanged and I think it was mixed as well as futures mixed. And so at that point you're kind of like, Okay, let's stop making narratives. And trend kind of doesn't bother with narrative. It doesn't think about it. What it might do is just misfire, like it might see a trend and that

trend reverses and just gets out of the way. And so if you look at the last two years, the inflation universe for trend has been phenomenal, like it's you're picking up on commodities, you're picking up on ffex crosses, all changes in regimes that we haven't seen in a really, really long time. Yeah, finally someone that feels our pain and trying to trying to annail that daily market narrative. I was I was going to say those headlines were

probably mine Bomberg Markets wrap. In my defense, we only met today, so I didn't I would have filtered otherwise. Really great reporters suggested that are mixed. It just had a sense of like, I assume it's somewhat AI ish, right, like, as this thing gets changed again and again and again, maybe maybe I'm overcrediting AI and undercrediting you guys. But I could just see the machine going, you know, screw this,

just I can't deal with this anymore. It was definitely it was definitely an editor pool I don't I don't belong to, so we can can blame people like Mike for those. Yeah. Actually, I'm really glad you brought all of this up because I wanted to ask you how difficult it's been to discern a message from the market recently. Yeah.

I think that's that's really a great question because I think, you know, some people have mockingly said about us in finance that you know, in there were thousands of experts on virology, and then you know, in one there are tons of experts on inflation. There are you know, geopolitical and war experts and know exactly how all these things play out. And you get plenty of emails and maybe

we're guilty of it at Man Group. I hope not, but we get plenty of emails for strategists saying I think this is how it plays out, and you think, yeah, it really never ever plays out like you think it does in these sort of you know, kind of broad based geopolitical issues. So if you go back. I remember, like Hurricane Katrina, oil was a driver of the market. Stocks went down. When oil is going up, I mean

it's laughably forty dollars barrel, I think done. And so you kind of knew what you're supposed to look at. COVID You maybe you looked at case counts. There's some things to kind of some signal you could look at, but mostly for me, I like to look at, you know, which assets are moving. And so in the GFC we looked at, you know, kind of funding spreads, like is there stress in the market? Our banks able to borrow? So we have all these metrics we look at. This

one kind of defies that, right. You know, there's a little period where oil was going up and then rates would sell off and the equities would sell off, and it was kind of a ripple each time, right, and

then March just blew your whole theory out of the water. Right, there's this big run up in rates at the end of March, along with a big run up in equities, and you don't know how to grapple with that if you're trying to make a narrative, right, you know, the narrative that came out of the end of March, which felt a little contrived, was stocks are not so bad in inflation really because they have pricing power. And so the people who are spreading that narrative, you know, it's

there's some there's some rationality behind it. But you know how many of those were saying last year, you know, with yields this low, you have to own stocks because they have earnings yield and so that's spread to the treasury is really valuable, and you know they should trade

into multiple that's more in line with treasuries. To me, that's also laughable because if are of stocks making a four percent earnings yield with treasuries at fifty basis points is I mean, I should use the fifty basis point reference. And so if I own a hundred, you know, of treasury bonds, I can afford to own stocks all the way up to a hundred and pay up to a you know, something absurd like that. That doesn't really make

a lot of sense. So I think that's the challenge of this market is getting your hand head around that there isn't a single line item what we can look at, and I think that's a it's a change from what we're kind of used to COVID was just unknowable, and we all made panicky, bad traits, even you know, the really brilliant man solutions people made some you know, some part rates um and that's about kind of dealing with risk and surviving it. Now it's it's a little bit

you know, head scratching. So the more you can diversify, the less pain you get, as long as you understand the totality of the diversification, and you don't sit there and look at I told you not to buy that zinc, and you know, everyone looks around like, did you don't remember you saying anything about nickel? You always And then you know, you look at an email. You know, it's like a line somewhere on like page forty six of someone's deck that says, be cautious around real zinc and nickel.

You know, Peter I Um. The narrative seems to have really shifted away from COVID. You know, it's like mission accomplished with COVID. And then you know, you look out around the world and you've got this situation in Shanghai, uh with the city, you know, in a pretty long lockdown. I'm reading yesterday Philadelphia is bringing back the mask mandates. Um are we done with COVID? Do you think is it still is that a tail risk or is that

a regular old risk? How would how would you think about the risk of COVID And you know, sort of where would you rank it among our our the big risks out there? And what is that risk exactly? I mean it's me It's sort of raises the specter of this deflation story that you hear. You know, if if the supply chains in China are messed up, uh, and we still have war in Ukraine and Russia's and wheels over a hundred, you know that that's me sort of adds to the um stagflation risk that that a lot

of people talked about. Is it as simple as that or how are you thinking about it? Well, I'll hearken back to my previous comment that I'm not a virologist, so I'm not gonna I'm not going to pretend to understand China's particular approach. But I think we're concerned a little bit that there's gonna be a supply chain disruption again.

And what's funny is in the old day, supply chain disruptions were just bad for companies trying to make money, but now they're really bad for the inflation narrative, so that the market really doesn't need any more inflation stories. I mean, if I have to read more people talking about used car prices and then the impact on the federal reserves thinking because of used car prices, I mean, I can't believe Jake Powell was shopping for used car.

But maybe he's got a grand kid or something that he's looking for, you know, somewhat beat up Nissan of some sort that he can get them and just can't get his hands on it. Um. So the COVID pieces a bit like that. You know, we I think that the real issue, and I think you you're sort of alluding to the idea I want to use commodities because of inflation, and I'm worried about bonds because of inflation. But then this Ukraine war thing, I thought war bad,

so bonds good. And so if we figure out some way of kind of dealing with the energy shock, you know, does that mean bonds have a place or what if the energy shock is so extreme that you know, it causes some recession, Like let's start pricing two fifty barrel for whatever reason, I can contrive a scenario that comes up that way between an attack and Saudi and and and the Ukrainian war, and the same might be for COVID and and I'll say we got it in a

sense wrong. In our trend funds. We were basically position and inflationary looking assets in November when a Macron hit, and it was a very big, fast deflationary shock, right, And so we do what we do systems, just close risk when it doesn't fit and and then rebuilds it. So you know, it looks a bit like that was a bit you know, quick to judge there on a on a half day Friday after Thanksgiving. But that's kind of how it risk managed itself, so you kind of

know what what it's gonna do, you know. I think in the back of your mind, if you're an investor and you're saying I want to go from long bonds to short bonds, you probably need to have someone play that Devil's advocate piece and say, you know what, I hear you, but what about this COVID bit? You know, what about the war bit? What if what if the war expands into anything? You know, even an accident the accidents happen, right, and so what if that accidental bit happens.

So I don't know why China so aggressive relative to everyone else. Sometimes I wonder if they know something about COVID redoubt in terms of the fifty year plan um. But at the end of the day, that's their approach. And so there may be some supply shocks. And we've certainly seen China growth numbers look different from ours, right, And so that's another interesting aspect of how the world is sort of developing, that we're now all on different cycles.

You know, it used to be everyone went into deflation shocked together, and everyone kind of came out together more or less. You know, Now we definitely I don't know if it's a bipolar tripo or whatever. However, polls there are on on lots of bipolar Earth, But however many poles you want to stick in the world. UM. You know, there is a definite difference in the economic cycle in in China UM and versars. They're looking to stimulate demand and you know, we're trying to do the opposite. So

there's there's some natural friction among uset classes. And I'm thinking that has to go into how you manage all that. So, yeah, it's not none of this is easy like that. You know, I'm supposed to come on and tell you it's all really easy. You call us, call us up, this is what you should do. It just isn't. So in some

ways I feel like a therapist of times. So people will tell you this is what you think, and you kind of just listen to people struggle through it all and say, look, this is kind of what we think about. You know, take a few deep breaths, use this, use this, use this, and and then if you can develop that framework at least, then you have something that's working for you.

So you can stop waking up at you know, four am and say, wow, the eight rs are down right now, or you know this social media company is down right now. That's an ellion dollar company. Can that happened to an eight D billion dollar company? And the answers yes, like

can you know so? So, Peter, if you're trying to decide at this point whether you should be long tread areas or short them, it does at all basically hinge on whether or not you believe the Federal Reserve when it comes to quantitative tightening, or whether you think they're gonna sort of get scared away from the path that they're on and and and sort of readjust their plans for QT and and not be as aggressive. I mean, is that is that the only variable to worry about

when you're long or short ponds at this point? You know? I I guess so for me, the FED is the conversation around the FED has been very much like last year is like, Wow, they might do something next year, and then by the end of the year, maybe three or four. Now it's nine. Now they're gonna start running off the balance sheet. So it feels like they've been pretty behind. The market has accepted them being pretty behind. I mean where we are in equities and bonds right now.

Maybe it felt like a bad start to the year, but it's not catastrophically bad, right, We're not talking catastrophically bad. So I kind of look at the wings of the problem, you know, the far out tails, right and left tail to the problem, and if the FED can pulled off soft landing, that's probably a pretty good right tail, right.

I don't think the market at this point is probably confident of a soft landing, whereas in two thousand eighteen, if you remember, you know, Yelling and Bernanke were on stage and you know Powell, I guess had no choice but to listen and turn from hawk Is to dublish really fast. And so two thousand nineteen was you know, all bets are on every empiles and you were confident the FED had your back COVID. You know, it wasn't easy to be confident, but the FED had your back.

Here it's definitely different, right, the FED doesn't have your back. You don't know where the FED put is. So there is that chance if inflation just keeps printing these kind of numbers, and the job market stays tight, and we see wage inflation, house inflation, all of this, it is going to be pretty hard for them to have your back.

And so you know, your confidence in bonds, well, if they have to hype ten, twelve, thirteen times and they really run off the balance sheet, I'm certainly not confident about thirty year bonds that you know a hundred fifty bass point and you know kind of uh, the difference to the front year to the two year. So there's a lot of moving pieces to it, and I think it just keeps going back to, you know, running your

portfolio with some active risk management. That's just when it's not working, step away, and when it starts to work again, you know, sometime after the next fed hyke, you say, Okay, it's starting to stabilize. It makes sense to me. I kind of see where things are going. You might miss a few percent, right, but you miss a few percent on the way up. It's better than getting hit with

on the way down. And I think that's by enlarge the challenge I think investor's face, because you're all benchmarked. You have to make as much as your peers make, and they may not always make the right decision. And so some of our systematic strategies I feel like, you know, it shouldn't really be cutting risk here. It seems fine to me, like and and the other. I guess the analogous piece I have to that, and a lot of people will say after the yield curve inverts, it's not

a sign that you should sell. It's a recession signed. Everyone's got this blanket kind of thing, and then everyone rolls out for the next twelve months. You tend to make money in stocks, but the path of some of those twelve months, I mean, you know, depends what kind of roller coaster you like to ride, right, some of those twelve months were like, no, a nice uphill to the top and you get off at the top of the roller coaster and was nice. Others weren't exactly like that,

And it seems to just ignore that. If you just take any random day, right, like I took Thursday and added twelve months, equities tend to be up. And so it's not a very useful benchmark to just tell me usually this happens because you know, I know a lot of us can't survive the stomach churning, you know, of minus on the way to up two percent at the

end of the year. Yeah, especially with such an unusual environment that we're in, there's really not much of an analog in history to draw one and one you know,

in action exactly yeah, exactly right. You know, Can I actually ask you to describe what you see are some of the factors behind the renewed equity sell off we're seeing in April, and how some of those factors or what's different between now and the first couple of months of the year, and whether or not we're continuing to see that valuation we set that everybody was talking about at the start of the year, or if it's more of growth scare in your view. Yeah, so there's a

lot to unpack there actually. Um, you know, it depends what you think April ones valuation, whether it made sense or not relative to March, and so I think there's some liquidity issues in the market. I think this year has been very much defined by liquidity. So we see days where very low volume up a lot, recently high volume down a lot, but there's never a really confident update with very high volume. It's often down a lot and then back to flat with tremendous volume. Now you

feel like, okay, there's some logic, there's some real buying there. Um. I think the end of March kind of equities have this cool inflation hedging potential. It felt a little bit like just an excuse. Retail was maybe piling, and we certainly saw money flowing in. So there are a lot of different forces pushing the market up and maybe overshade a little bit right because you know, some systematic strategy

are short. There are people like us who run hedge mandates for clients who are monetizing hedges, taking profits kind of right sizing. So a lot of different things can kind of feed into that, you know, what caused the market to round, and so then you end up looking for a narrative what's caused April to start weekly? Well, rates have moved up a lot again, so you know, the big bug a boo of the market isn't really the war. The big bug a move of the market

is is rates and valuation and multiples. And you've seen it in the growth stocks, right. Aztec still really hasn't gotten off of its own way just yet, and I think that can be heavily attributed to rates. Peter, one last thing before we get to our our crazy things

of the week. In the notes you center I sent over, I noticed you said, uh, you know, cash isn't completely unattractive right now, which is kind of interesting to me because I don't know how many people we talked to who are who are like, whatever you do, you can't be in cash earning nothing. But but what is it about cash right now? Is it just waiting for you know, for all the selling in the other asset classes to end, or is it finally those money market rates or start.

It's it's not so much that cash is going to make you a lot just not gonna lose you anything, right, So yeah, I think others would say you're just waiting for gott oh if you think you're to buy other assets on the cheap um. I just think people need to sit back and say, Okay, if I sell something, must I buy something? And so when a client comes to us and says, hey, you know, I'm i'm equities right now, what do you think they're my first nature?

Because I'm a tailored guy, my first reaction is like, oh, you've been pretty lucky for the last years, so maybe it's time to feel less lucky and sell some Like well, what am I gonna buy? I should I should buy private equity? Like well maybe I don't know, but that doesn't seem like it's all that different from equity. And you get into these conversations where I don't want to own bonds. Okay, you don't want to own bonds, I don't. I don't know how to trade commodities. I can't trade commodities.

Oils at minus forty at least equity goes to zero. And so at some point you can just say, you know what, put in cash? The right answer for me as a as an employee of men Group is just put in hedge funds because they can make lots of money. But the easy answer that doesn't require a lot of thought is put in cash and figure out where you're going. It's not meant to make you a ton of money.

It's to simply say I don't understand everything that's going on, and the absence a brilliant scenario, I mean, I can give you our list of best ideas, you've got to go to an ic and I c has ten people. One person wakes up in a bad mood and just says, you know what, I'm don't want to do that, and so you end up in a muddle. And I think sometimes on the risk management side, people spend too much time reallocating because you need to beat your benchmarks and

meet your peers. And you know, maybe cash isn't a terrible terrible thing. You know what it's worth. And now the counter argument to that is if you plan to do that for a really long time with this kind of inflationary environment, you will look like an idiot. And so so you know, my my note there is too It doesn't matter what you buy next. If you're worried about de risking d risk first, and then about where

to put it right. And one I worked for stam Drug, a miller way back when, and he had a line once when he wanted people to de risk. He had some thoughts that the market might go down, and he said him, by d risk, I don't mean sell a bunch of stuff you don't own to make yourself market flat. I mean sell what you own so that you don't have any issue. Right, Just de risk, get rid of your lungs and your shorts, cut everything back down. And

there are times where you should just do that. And I think that the desperate fear of you know, I'm not earning enough to match inflation or not, you know, getting caught out missing bonds, missing this missing that. You know, from a risk control standpoint, it isn't always a legitimate argument capital preservation over capital appreciation. I guess yeah, But it makes me a very unpopular person if you don't. I imagine, I imagine a rate dal You always say

that guy's an idiot. It's very easy for him to allocate your assets because he's you know, and for us too, it's just harder sometimes when you have a different group of constituencies inside your framework that just have a different view, like the dollar is worthless, No, the dollar is king. And he's like, Okay, what do I do with that? Good stuff? Good stuff, Peter. Always a pleasure to catch up with you. But now we got to take you out of your wheelhouse and get to the crazy things

of the week. Here, Uh, what's the craziest thing you saw this week? Well, I was going to go with the whole Twitter elon Musk drama where he was going to join the board. Then he rescinded and everybody was tweeting about the drama, and he's been he's been asking people about changes he should be making for Twitter. But I actually had a call in from our friend Max Kachman, who was on the podcast just a couple of weeks ago, and Mike, I'm sure you you know what the board

apes are. The board ape. So the company behind the board apes it's called Yuga Labs, and Max went through their pitch deck. He was looking through it, he noticed one slide that has financials sort of like a breakdown, a pie of all the financials breakdown and the components

are the craziest thing. So board Apes is one component land Sales is another, and then there's two sections, one for goblins and one for mechanical dogs land land sales, land sales, I think in the metaverse, Oh oh, of course, of course, yes, But it's a goblins and the mechanical dogs that are they n f T projects too? I don't know, We didn't know. So it was just really really interesting because the company raised four hundred and fifty

million dollars. Peter, if someone brings you a pitchbook like that, I'm sure you're all in, right, and we were all in. We we find it very easy to invest in things that can only go up, so it's quite straightforward. That's great. Goblins, We've got to figure out how what allocation percentage to goblins. Uh one must go. But that pretty good build down. I like that one. How do you, Peter, you see anything crazy this week? You know, I was kind of

at this point. I didn't get to do the Academy Awards week because you know, I like hockey and I didn't realize how how fun they could be the award shows. But you know, I'm gonna go back a touch. It's been a weird year where liquidity is all about random moves and every week day you kind of wake up with a random thing. And so the whole industry years ago had a short vol et F and it implode, exploiting miraculously, just beautiful fashion destroyed itself and you know,

went from hundred to fifteen and disappeared. There's also a long Volley t F which also managed to implode over ten years and go to zero. So we've created, as an industry of all industry, a product that could be long and short the exact same thing, and both of them go to zero. So I thought that was impressive, but I found someone who did it faster, and so there was an Italian e t F on Nickel. It's

absolutely fascinating how it turned out. It turns out if you close the exchange on the way up, the three x short Nickel et F gets liquidated. You close the exchange for whatever reason, you close the exchange, do you reopen it, it collapses. The three x long vault long Nicol e t F also goes out of business. So within a period of two weeks, the long et F and the short et F with the exact same underlying, you know, with three x leverage, managed to go out

of business in two weeks. It took us about ten years to do that in the ball industry. So I give some credit to the Italians for being ahead of the game. Um, but maybe a slight warning to people using three X leverage that you probably want to just double check that the underlyings can't go negative or can't go up in a couple of hours. Oh my gosh. Absolutely, that's really good. That's really good. I think he wins.

That's pretty good. Anytime you mix three X with anything traded on the LAMI I think, uh, I think you got a crazy thing. Yeah, I think that by definition that those days are over. But every time we say this won't happen again, you have someone who can't count the the open interest in the v x X note and says we're over my fifteen billion. And as Matt

Levine wrote, like who's running that spread cheek exactly? Yeah, I think he said possibly it was an intern and they stopped tracking and and nobody else took it over. I think emailed it. I think, I mean, having worked in big places, it does have that sad feel of yeah, and it's like and then the three X nickel e t F was just handed off to some new junior trader, Like, all you have to do is just do this every day and then you know, this should be fine. Nothing

should happen. Yeah, as long as the exchange is open, we'll be fine. We'll be fine. What could go wrong? As long as price doesn't go negative. It's like okay, yeah, yeah, it's not gonna go negative. Like no, no, that's good. It's cool. It's cool. You think I've got you you the intern this portfolio, if it has any serious risk to it, that's hilarious. That's so good. All right, well that is a good one. I think I might have to concede defeat to tow the three x uh nicole

et F. But I'll give you mine. Of course. I'm gonna make you to play prices right with me? Here, I had two crazy things. I couldn't decide which one was better. So instead I'm gonna make you decide which one it gets a higher bid. And there are two pieces of very very important gen X memorabilia. So I don't know if if gen X, if you're comfortable with the gen X uh uh, you strike me as more

of a millennial memorabilia type. All your memorability exists in the metaverse, but for jend X, our memorability is really there in the real world. So we've got two pieces of of jend X memorabil Before you say that, I note that you didn't have a millennial comment for me, or you assume that I'm a generation I just I take small offense for that. It's it's that maturity and wisdom isn't there disclaiming the use of the pronouns we

are isn't necessarily we share the same view. That's exactly exactly. Well, let's see, Peter, maybe maybe you're you'll get the small one wrong too. Uh. Well, that it's not bad at the price is right, all right. Two pieces of memorabilia. One, it's the Tonic blue guitar that Kurt Cobain rocked out with in Nirvana's nineteen nineties smash. It smells like teen spirit music video. So that one's coming up for auction,

uh by Julian's Auctions. So keep this in mind when you're pricing this is we only know what the auction house hopes to get for that item. We don't know what it's sold for. But it is a nineteen sixty nine blue Fender uh Mustang guitar. I believe it is UH seen in the smells like teen Spirit, the famous Nirvana breakthrough video in the nineties. That's coming up for sale. So what do you think the auction house UH is

hoping to get for that? And the other one has already gone up for sale, and it is Tiger Woods golf Clubs that he used in the Tiger Slam. Now, VA, if you're not familiar with the Tiger Slam, what that was is typically if you win a Grand Slam and golf it means you want all four majors in one coun calendar year, and it's incredibly difficult thing to do. But what Tiger Woods did is he won two in one year and then the first two in the next year, so four in a row, but not in one calendar year,

so they called it the Tiger Slam. Still still very impressive. So the Irons and Wedges, titlists irons and Wedges he used to win all four actually did go up for sale, UH, And so we know the the we have price discovery on the actual bid for that. So well, Donna will start with you, what do you think deserves a higher bid? The Kurt Cobain's guitar for Tiger Woods is irons and wedges, and as as a tiebreaker, give me the bid of the higher christ item the guitar. For sure, I'm going

with four and a half million. We're a half million for the guitar. The data says with great confidence, Peter at atwater our confidence, uh Guru guests would be very proud of the confidence with which you uh stated that, Peter, how about you. I just want to say, for the record, I didn't see her hands to see what you know is in her hands. These questions were being asked. She's showing me them now this is the podcast. So she's

a fast gourgler. She's a fast gurgler. So I will say my offer on the guitar was substantially below four and a half, which is problematic. My logic was, you know, golfers have lots of money they pay for things like this, but it wouldn't be interesting if they were worth more than the guitar. So I'm gonna lean with the guitar.

I guess I only have to be a penny below her to win if in that case, but I'll be less jerky about it and we'll make it like three million UM pay on paper here is not that number of digits. Now, what I should do is make you, guys, turn off the other person's answers. I feel like hearing the other person's answers. So it's totally fine that you

had let her go first. I have a lot more dignity because now I just look kind of a finance journey, just kind of undercut the price and that sort of thing like improving the opinion the general population house of people like us. So Tiger's clubs went for five point two billion, five two million, excuse me, Hill, they come with a certificate of authenticity, and not only that, they come with a polygraph test results from the guy at

titlist who Tiger gave him back to at the end. UM. Now where you might be tripped up is that again, Kurt Cobain's guitar hasn't actually gone up for sales, so it very well could go up for more than what they expect, but they're only expecting eight hundred thousand. Basically, the reverse contrariant was the way to go there. Yeah, everything instead of just instead of just answering. The golfers

have money and they spend money like idiots. Sometimes Trazer, you know something, Um, I was so, but I will say I do think Uh, Kurt's guitar is going to go more for more than that. His acoustic uh is that already went up for sale. Is the most expensive piece of rock memorabil you ever sold it like five millions, So you all I all I really need to do is find out if Elon Musk is a fan. And although we're right, I still lose. So so you had the lower end, So I think I lose either way,

unless lower on the price. But if if if we're write an Elon less space whatever, If you can pay nine billion for a small social media steake, you can s a guitar. Yeah, hopf ever know one. You need it. It's handy to have around if you want to serenade someone. So that's true, that's true. Grimes his his uh, his lady friend Grimes might be able to write a you know and inflationary times he does. It's bring a full circle. It's a real asset, it's a real assets. Do really well.

Absolutely absolutely. I was surprised by I was surprised for five million for Tigers Clubs. But I mean, you know, I think to your point, there's a lot of golfers with money out there, and uh, just someone just has to have it, if you just have to have it, Yeah, it was probably it was probably Phil Mickelson. Who will who will scalp them down break his knee. But with that said, Peter, always such a great opportunity to catch up with you. I hope we can have you back

again soon. Um, I really appreciate your insights on everything going on it man. Yeah, thanks for having me. It's good fun. So yes, What Goes Up We'll be back next week. Until then, you can find us on the Bloomberg Terminal website and app or wherever you get your podcasts. We'd love it if you took the time to rate and review the show on Apple Podcasts so more listeners can find us. And you can find us on Twitter, follow me at Rea Anonymous, about a Hirich is at

Valbanna Hierrach. What Goes Up is produced by Stacy want. The head of Bloomberg Podcasts is Francesco Levi. Thanks for listening. To see your next son