Alpha Exchange

On this episode of the Alpha Exchange, I had the pleasure of reconnecting with Ken Rogoff, Professor of Economics at Harvard and former Chief Economist at the IMF. In our conversation, we explore themes from his latest book, Our Dollar, Your Problem, a valuable retrospective, and analysis of the rise of the U.S. dollar as the world’s reserve currency and the vulnerabilities that accompany it. In our discussion, Ken reflects on the privileges America enjoys from dollar dominance, namely lower borrowing costs, financial system centrality, and sanction power—while warning that such advantages are not guaranteed forever. We also explore the lessons from past debt and currency crises and the fragility of fixed exchange rate regimes. Here Ken shares firsthand experience as a policymaker who was among those whose advice was sought for how to address many of the prominent FX vol episodes of the 1990’s. We turn to the main point of his book – that there are risks that come with assuming low interest rates will persist indefinitely and that our policy instability may be quietly undermining the dollar’s status as the reserve currency. Ken underscores that debt sustainability is as much about politics as economics, and that weakening of central bank independence may threaten the dollar’s safe-haven role. The main message: periods of calm often mask deep vulnerabilities and complacency about fiscal deficits, global dollar reliance, and policy credibility can quickly give way to instability. I hope you enjoy this episode of the Alpha Exchange, my conversation with Ken Rogoff.

It was a pleasure to welcome Kris Kumar, founder and CIO of Goose Hollow Capital, back to the Alpha Exchange. Kris presents a compelling argument that traditional economic frameworks centered on consumption are becoming obsolete as AI-driven capital expenditure emerges as the dominant growth engine. With companies spending $400 billion annually on AI infrastructure, he contends we're witnessing a fundamental shift from consumption-led to investment-led economic dynamics, requiring investors to recalibrate how they analyze market drivers and policy transmission mechanisms. Kris draws parallels between current AI investment patterns and historical tech bubbles, noting critical differences in financing structures that could alter unwind scenarios. He explores the unique challenges facing monetary policymakers as AI disrupts labor markets while tariff policies create inflationary pressures, potentially rendering traditional Fed tools less effective. The discussion also covers emerging market opportunities, particularly in Latin America, where countries benefit from AI-related commodity demand while offering superior real interest rates. I hope you enjoy this episode of the Alpha Exchange, my conversation with Kris Kumar.

As the summer winds down, and there’s so little daily motion in the SPX, the realized vol spike of April feels further in the rear view. I often suggest that periods of calm in the market can cloud our thinking about risk. Sometimes markets get caught in low vol moods and this is one of them. But low realized volatility should not be viewed as an all clear. A good case can be made that the backdrop is becoming definitively worse. I argue that the price of insurance is a good deal versus the totality of risks. Options are valuable in light of a building of uncertainty in the economy, in Fed policy, in tariffs, in US debt, and in a dangerous escalation in not just global affairs but in the US political civil war.

On this episode of the Alpha Exchange, I was joined by Ben Hunt, Co-founder and CIO of Perscient. Ben has built his career around one powerful idea: that the stories we tell—whether in politics, markets, or everyday life—shape our behavior far more than we realize. In the mid-2000s, entering Wall Street from outside its traditional ranks gave him a rare vantage point. He wasn’t steeped in the bullish narrative flow that dominated the industry. With an outsider’s perspective—and an ability to read the “language” of mortgage-backed securities—he was able to see flaws at the heart of a $10 trillion asset class well before the global financial crisis hit. In our conversation, we explore how understanding narrative structure can illuminate risk in ways models cannot, and why being outside the story sometimes lets you see it most clearly. In this context, we chat as well about Ben’s creation of the Epsilon Theory, a widely read exploration of how narratives drive markets. I have personally found his writing thought provoking. On markets, Ben is not optimistic that our political system is up for the challenge of reigning in the unwieldy debt and sees the potential for some combination of higher rates and a lower dollar as a result. Today, through Perscient, a venture he co-founded, Ben is applying AI-driven tools to map and measure narratives in real time, helping investors see the hidden storylines moving markets. I hope you enjoy this episode of the Alpha Exchange, my conversation with Ben Hunt.

On my mind is correlation. There are plenty of financial market correlations, both implied and realized. In equities, we talk a good deal about the correlation implied by the relationship between S&P 500 index implied vol and the implied vol on the stocks within the index. That’s been low, to put it mildly. How about the correlation between the dollar and SPX? A signature aspect of the recent risk event was a weaker dollar, even as rates rose and the VIX rose while the SPX swooned. A correlation that gets little attention is that between an asset and its implied volatility. We know that - with only rare exceptions, when the SPX rises, the VIX falls. The correlation runs deep, about negative 80% or so. But for select other assets - and this is the main point of my little talk here - the correlation between the price and the implied volatility - is often actually positive. We call them SUVU, “stock up, vol up” assets. SUVU is that compelling financial trait of an asset that leads to substantial option trading volume as well as significant "derivative" ETF assets under management. Over the course of 20 minutes, I walk through how the option market pricing consequences of these assets with unique return distributions. I hope you enjoy the discussion and find it useful.

The clearing price of optionality in the market is impacted by a myriad of factors. To be sure, the economy and corporate profit cycle, the stance of monetary policy and geopolitical risk all matter. Flows in the derivatives markets are also of consequence as they impact the environment for supply and demand. And in this context, it was excellent to welcome Benn Eifert, Founder and Managing Partner of QVR Advisors, back to the Alpha Exchange. Benn brings a data-driven lens to today’s complex volatility markets, and in this conversation, he discusses the unintended consequences of crowded risk-managed option strategies, such as buffer ETFs and overwriting. We explore how structural flows have drained the volatility risk premium, especially from the front end of the curve where the flow has especially been one way, leading to substantial optionality being sold into the marketplace. Benn states that since 2012, the VRP has largely vanished, leaving the returns to owning short-dated straddles actually positive since then. For risk-managed ETFs, the implications are unfavorable as many of these strategies often reduce beta without providing meaningful downside protection, results that are posted on the QVR website. From Benn’s perspective, even for a large and liquid options complex like the S&P 500, the sheer volume of capital chasing the same trade is distorting expected returns. We finish the conversation by exploring the evolution of QVR’s trade implementation and risk management practices. Here, Benn shares that the listed options market has become a focal point relative to years ago when OTC products transacted bi-laterally with large banks were of greater importance. The approach now leans into technology and seeking to exit and enter trades more passively, with a market-making approach. I hope you enjoy this episode of the Alpha Exchange, my conversation with Benn Eifert.

It was a pleasure to welcome John Marshall, Head of Derivatives Research at Goldman Sachs, to the Alpha Exchange. Our conversation explores a number of critical topics starting with the meaningful growth of equity funds deploying options as part of a risk management overlay. John describes how covered call ETFs and systematic vol-selling funds have quietly reshaped the supply/demand dynamics for index optionality. He makes the point that this cohort—unlevered, yield-focused, and largely buy-and-hold—is proving more resilient than the vol-selling programs of past cycles, with implications for both market stability and the vol risk premium. Next, John shares his team’s efforts to find what he calls “asymmetry alpha” in the options market, focused on event-driven, catalyst-based trades at the single-stock level. We learn that option pricing is increasingly being informed by company-specific fundamentals. John explains how his team connects metrics like free cash flow yield, return on equity, and event-driven catalysts to the pricing of volatility and skew. Rather than relying solely on historical vol or peer group comparisons, this approach seeks out asymmetries in option markets that are grounded in the evolving health—and risk—of individual balance sheets. John argues that these additional, company specific variables are often overlooked by traditional volatility frameworks and as a result, can help identify mis-pricings in the tails, informing more precise use of calls, puts, and risk reversals. I hope you enjoy this episode of the Alpha Exchange, my conversation with John Marshall.

Greetings and salutations loyal listeners, welcome to what promises to be another exciting addition to our Sayings on Vol and Risk. To set the table, last year, I did a 5-part series with 25 Sayings. These are concise statements I’ve wound up using many times over during the course of my career to help myself and others think about market risk. These pitchy proverbs are market maxims that explore the drivers of unanticipated change in asset prices. With the first 25 saying completed in 2024, I recently added 5 new ones, getting us to 30. This podcast gets us to 35 in total. Hope you enjoy and find interesting. 31. “Risk management suffers from a failure of imagination.” 32. “Markets are a never say never business.” 33. “Broken markets break down.” ~ Mike O’Rourke, Jones Trading 34. “This is not your father’s ETF market.” 35. “Doubt is not a pleasant condition, but certainty is an absurd one.” ~ Voltaire

Today’s world of ETFs and mutual funds increasingly features new flavors, a popular one of which is derived from embedding optionality. There are plenty of ways in which one might contemplate risk managing and shaping the distribution of equity returns using options. Common strategies like overwriting create income, but limit upside. Others like the zero cost collars create both upside and downside guardrails on returns. These strategies can be back-tested. Because they also exist in the market, with more than $200bln in AuM, the performance of the funds can be evaluated as well. With this in mind, it was a pleasure to welcome Dan Villalon, Global Co-Head of Portfolio Solutions at AQR Capital Management, back to the Alpha Exchange. Dan walks us through the findings from his research, published in a two-part series on the AQR website. In these notes, Dan dissects the drawdowns and returns across these funds. The findings are rather striking: across a wide sample of buffered funds and option-based strategies, very few delivered both higher returns and smaller drawdowns. In fact, most underperformed their beta-adjusted benchmarks on both fronts—meaning they not only lagged in returns but also failed to meaningfully protect against losses in periods like the COVID crash, the 2022 inflation-driven drawdown, and the volatility of early 2025. Even strategies designed explicitly for downside protection often fell short when it mattered most. I am a big believer in option strategies and in the value of the SPX options market as a vehicle to transfer risk. These results were a surprise to me. Dan outlines three key drivers: the persistent cost of buying options, the structural frictions involved in implementation, and the surprisingly high management fees for such rules-based products. Dan also introduces a more behavioral theory—what he calls the "placebo effect": the idea that investors feel safer simply because they're told they’re protected, even when the data shows otherwise. I hope you enjoy this episode of the Alpha Exchange, my conversation with Dan Villalon.

Dean sent a separate email but for the sake of visibility I am replying on this thread with the opener text and the audio file. If we could get this ready for publishing would be great. With nearly three decades at BlackRock, Mitch Garfin brings a deep well of experience to his role as Co-head of Leveraged Finance, overseeing high yield and leveraged loan strategies for the firm. In this episode, we explore the evolution of the credit landscape — from structural shifts in the high-yield market that leave indices of higher credit quality to managing risk in a world of tight spreads but always shifting macro narratives. Mitch shares how his team navigates dispersion, with recent focus on considering the implication of tariffs on different sectors. His team positioned for tariff-related volatility by reducing exposure to sectors like autos and consumer products perceived as most exposed to trade policy risk. Conversely, Mitch saw better value in the tech and insurance sectors. Next, we discuss advancements in trading technology and the implications for liquidity. Here, he argues that the electronification of credit markets and the growth in portfolio trading is having profound impact on risk transfer, reducing frictions and transaction costs. In the process, he shares how his team leverages tools like ETFs and the CDX product to manage exposure. I hope you enjoy this episode of the Alpha Exchange, my conversation with Mitch Garfin.

In 2024, I did a 5-part podcast series called “25 Sayings on Vol and Risk”. These are observations I’ve found do a nice job of describing how markets work, or perhaps better said, how markets sometimes fail to work. Because markets are always teaching us lessons, I couldn’t help but add to the original 25 with five new sayings. I’ll follow up in short order with another five. Here are our Sayings 26-30: Hope you Enjoy!

As Global Head of Equity Derivatives Research at Bank of America Merrill Lynch, Ben Bowler is helping the firm’s institutional client base understand the complex risk dynamics that impose themselves on today’s markets. His process often leads him across asset classes, looking for linkages and developing stress indices that may provide early warning signs for US equity markets. Our discussion first considers the recent SPX vol event, which, from a short-term severity standpoint, Ben puts in a category with the GFC and Covid. He further makes the point that since the Tariff uncertainty was self-imposed, it was as if we were in the midst of the Covid crisis but already had the vaccine in hand. We then explore the work that Ben and his team have done on the concept of fragility. Here, he argues that the speed and magnitude of vol spikes, flash crashes and tantrum in markets has increased. In fact, in US single stocks, he suggests that fragility is at an all-time high with the reaction to earnings faster and more violent. Two factors may be playing a role. First, there is substantial crowding in certain risk exposures, like large cap tech. And second, liquidity provision, increasingly electronic in nature and sometimes rapidly withdrawn during times of stress. Lastly, we discuss the history of innovation and how investors have generally pulled forward the benefits of path-breaking new technologies, leading to asset price bubbles. Here, Ben is thinking about right tail risk and how important optionality may be in hedging the risk that the AI bubble could inflate substantially. I hope you enjoy this episode of the Alpha Exchange, my conversation with Ben Bowler.

Corey Hoffstein, the Co-Founder and CIO of Newfound Research is among the investors expanding the financial product set available to the RIA community. A client segment that has long been fed a diet of 60/40 exposures, the high-net-worth community is finding the need to diversify beyond stock and bond exposure. Using their innovative approach to return stacking, Corey and team are making alternative sources of risk premium accessible and packaged in an ETF format. Through our conversation, we first learn that from a behavioral standpoint, introducing entirely new securities with new exposures has been a challenging ask. With return stacking, the diversifying strategy is put on top of an existing stock or bond exposure, packaged in one security. We discuss Corey’s recent white paper, comparing the risk characteristics of corporate bonds to that of merger arbitrage and how each exposure interacts with stock and bond markets. He finds the correlation of risk arbitrage returns to those of the equity market are lower than corporate bond spreads to equities. We also review a realm of trading strategies that Corey has focused on substantially over the years, trend following. He walks through the manner in which trend can be defensive and how it behaved specifically over this recent significant market drawdown. We finish by getting some of Corey’s thoughts on the broad topic of risk premiums and which like merger arb and vol selling ought to be persistent sources of compensation. I hope you enjoy this episode of the Alpha Exchange, my conversation with Corey Hoffstein.

In six short trading days from 4/2 to 4/9, the SPX realized as much vol as it did during the ENTIRE year of 2024. The protracted risk-off that began with the “Liberation Day” fallout ranks only behind Covid and the GFC in terms of severity using data going back to 1990. While we've likely moved past peak VIX, in the aftermath of recent chaos is an overhang of uncertainty that may hamper critical decision-making. I see plenty of lingering uncertainties - from the uneven communication from the WH, from the unpriced reactions of our trading partners and from how the market will need to price in the potential economic and corporate profit fallout from the last several weeks. Unfortunately, the recent period has been a totally unforced exercise in negative branding for both the dollar and US government bond market. For the VIX to run to 50 and for duration not to rally concurrently is a bad outcome, amounting to an asset pricing taste test that went poorly. Scott Bessent and Company need to more effectively safeguard one of our most prized possessions, the US government bond market. The Ten-Year note, not the SPX, is the risk asset. The real financial tail risk that would bring about a spiral higher in the VIX would seem to lie in the potential that long-dated UST yields rise quickly. From a contagion standpoint, the Ten Year is the vulnerability. It’s not being treated as such. I hope you find this useful. Have a great week.

For Matt King, evaluating market risk is often about pinpointing vulnerabilities within the financial system. Over the many years he's been advising institutional investors, he's gone where the action is - in the dotcom era it was corporate balance sheets, in the pre-GFC period it was asset-backed CP and in the last decade it's been sovereigns and QE. Now the founder of Satori Insights, Matt shared his current assessment of risk on this episode of the Alpha Exchange. His materially bearish take is a function of what he views as US trade policy underpinned by both a misunderstanding of balance of payments math and a failure to appreciate the risks of chaotic implementation. On the latter, Matt worries that the US is earning itself a risk premium in the back end of its bond market, a troubling development especially set against the ever-growing pile of debt outstanding. Matt shows the spike in US real rates at a time when the VIX was also surging and the dollar falling as similar to the UK's "Liz Truss moment" in 2022, an event that forced the Bank of England to act quickly. Matt argues that while Democracy ought to be mean-reverting - where bad policy leads to bad outcomes and declining popularity, ultimately motivating a change of course, today's setup in the US is one in which bad policies impact growth and further poison our politics, reinforcing bad policy. Stepping back, he sees value in gold, noting that both gold and FX vol are still too low. I hope you enjoy this episode of the Alpha Exchange, my conversation with Matt King.

Market risk events come in all shapes and sizes, originating from unique sources of uncertainty. We've seen them all - valuation bubble unwinds, mortgage credit crashes, Fed policy shocks, even the shutdown of the US economy from Covid. Over the last month, investors have been forced to confront a new risk, that of the imposition of substantial tariffs by the US on its trading partners. With this in mind, it was great to welcome Steven Englander, Global Head of G10 FX Research of Standard and Chartered Bank, back to the Alpha Exchange. Our discussion begins with Steven's assessment of the setup coming in to 2025 and that was one in which the market was long dollars in anticipation of the Trump agenda. We next talk about balance of payments identity math and how it is difficult to solve simultaneously for a lower trade deficit, higher direct investment from abroad and lower US interest rates. He suggests, however, that the speed with which asset prices moved in March and April, have complicated the decision-making process for investors thinking about making investments into the US. We next explore the factors driving the dollar lower. Here, in addition to noting that implied Fed cuts have increased by 50bps over the last month, Steven also suggests that a risk premium may be assigned by foreign investors to US assets. He points as well to pessimism about the US economy, noting that this is not yet showing up in the hard data. There's much more to learn about Steven's framework in our discussion, which I do hope you enjoy.

Lenin purportedly said, “There are decades where nothing happens; and there are weeks where decades happen.” It’s difficult to understate how highly consequential these past few days have been. We live in an interconnected world of international rivalries, debt, trade, asset prices and economies. All kinds of tail probabilities become more live when a shock of this magnitude occurs. From a market standpoint, however, the higher vol goes, the greater likelihood that government officials blink in some way. The scars from the market chaos of the GFC and Covid remain and the lesson is not to create hard to fix but also urgent problems in the financial system. With this in mind, there could be an opportunity to fade the exceptionally high VIX level. I hope you find this discussion useful.

Best known for his seminal work on the information content of the US Treasury yield curve nearly 4 decades ago, Campbell Harvey has produced meaningful academic research in all corners of empirical finance. In this episode of the Alpha Exchange, I caught up with Campbell, now a Professor of Finance at Duke and Partner at Research Affiliates, on his recent work on gold, an asset near and dear to me. We discuss his piece “Is There Still a Golden Dilemma?", with Claude Erb that updates work they did back in 2013 on the yellow metal. Our conversation explores the financial properties of gold, with emphasis on its capacity to hold its purchasing power and to help defend against equity market drawdowns. On the first, Campbell makes the point that over the past two decades, gold has easily outperformed inflation. He adds, however, that gold is considerably more volatile than inflation is. Thus, there are periods when gold can also underperform inflation. On the equity drawdown front, Campbell’s work shows that, while not an explicit hedge like an S&P 500 put option is, gold has proven durable during risk-off periods. We move to the drivers of the gold price and here Campbell discusses the role of both ETFs and Central Banks. Lastly, and importantly, Campbell’s work shows that entry price matters. When the price of gold deviates from fair value, the forward return profile tends to be worse. Today’s substantial rally may easily continue, but investors must be mindful of the risks of buying at extended levels. I hope you enjoy this episode of the Alpha Exchange, my conversation with Campbell Harvey.

In this discussion, I review the absolutely stunning level of volatility experienced by the S&P 500 right around this time 5 years ago, as the market crash resulting from the Covid shutdowns occurred. No asset – except volatility – can survive the liquidation that took place in March of 2020. I also focus on gold, which, to be clear and to repeat, is not a hedge. A hedge is an insurance contract that you must part money with in order to obtain. There are no positive carry hedges in the world. But there are assets that act considerably defensively for periods of time, are trending higher, have natural buyers (in the case of gold, we can sight Central Banks) and also possess the rare feature of "stock up / vol up"... Gold has all 4 of these right now. I hope you find this podcast interesting and helpful. Thanks for listening and keep the feedback coming.

Now a Portfolio Manager at Acadian Asset Management, Owen Lamont has had a long career in both the markets and in academic research on them. Earning a PhD in Economics from MIT in the 1990’s and then teaching at the University of Chicago shortly thereafter, Owen makes the point that these two storied institutions approach empirical finance from vastly different perspectives, with the MIT approach to explaining market anomalies utilizing behavioral finance and Chicago embracing market efficiency. Our conversation is about some of Owen’s current work, starting with the observation that equity correlation has been exceptionally low, owing to the manner in which large cap growth stocks are disconnected from the rest of the market. As part of this, we explore the original tech bubble of the late 1990’s, contrasting it to present market leadership. Here, Owen makes the point that the original internet stock craze had dramatically more equity issuance than we see today. Owen puts equity issuance and short interest in a category of factors that have particular significance from an information content perspective, calling both firms and short-sellers smart money. We talk further about the AI trend in markets and Owen’s concern that the massive corporate spend may be overdone. He points to research in the academic literature that shows that high capex firms have some history of underperformance and offers competing theories on why. He gravitates to explaining excess investment in AI from the lens of over-optimism among both investors and companies. Among the other topics we cover is Owen’s take on the “min vol” factor – that is, the empirical finding that low volatility stocks outperform the market on a risk-adjusted basis. In a manner similar to the tech stock craze of the late 1990’s, the underperformance of the low factor over the past 5 years owes to the incredibly strong performance of the riskiest stocks during this time frame. On a going forward basis, Owen is optimistic that low vol stocks can deliver better risk adjusted returns. I hope you enjoy this episode of the Alpha Exchange, my conversation with Owen Lamont.