YouSaid · the spoken record

Dean Curnutt

lines on the record: 102
first: 2024-02-05
most recent: 2024-02-05
sittings or episodes: 1
sources: podcast

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“Better deals. In other words, I think that there's value in helping people think through trade construction. And so what I try to do is I say, okay, well, the S&P 500 is where most of the wealth is, right? I mean, there's obviously real estate and art and the bond market, but to me the base risk asset is the S&P. That's what people are indexed to, whether they like it or not. That's also where the liquidity is in the options market. And guess what? That's also where the drag from owning insurance tends to be the highest.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“The graveyard of Short Val traders is real. There's also a graveyard of people that have bought Val and spent money buying volatility. So a lot of it really does come down to being thoughtful on sizing as well. And, you know, look, I tend to think that markets are very efficient. The options market's very efficient. But I do think that there are”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Exactly. Yeah, over time, there's a thing we call the virus premium, the VRP. It's discernible in every risk asset. And again, Geico wants to make money on insurance. The seller of options on cattle futures, on corn, on the S&P, on gold. All of these folks over time are in the business of providing that insurance, essentially taking that gap risk to accumulate profits over time with the knowledge that they're going to be wrong sometimes and they could potentially lose a lot. We know about the kind of skewness of asset returns, where the largest down move is more negative than the largest up move is positive, right? So the losses to the short vol guy can be substantial. They can be violent. And so sizing becomes a real consideration. The landscape of”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Being long optionality, being long convexity, generally you said be eaten alive. It generally has a negative absolute return. And being short options generally has a positive absolute return. It's just that it's, you know, you can get blown up that way.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“A wonderful trade. I mean, an incredible, incredibly timed trade $25 million to $2.5 billion. What did he do with the 2.5 billion? He actually plowed it right into the market at the depths of the COVID crisis in terms of the market had sold off. And that to me is what Vall is supposed to be. You can't buy Vall all the time. It's going to eat you alive. It's too expensive. But if you can be tactical and thoughtful about it and then use it to make yourself a more empowered buyer into a market that is on its heels and no one else can buy but you and there's value there. I think that's kind of the idea of trying to utilize optionality on the long side at least.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“So the underlying asset obviously matters a lot. Some forward looking assessment of what's going to happen. I'm not in the prediction game, but you can't help but try to read as much as possible and try to think through what those tales might be, either to the upside or the downside, right? Is the market leaving something on the table in terms of how it prices the distribution? And maybe it's just my own tenure in markets. I've just been through a lot of episodes of crisis, but I find people so flat-footed through these periods that back to the Bill Ackman example, you know.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Know what I try to ask myself all the time and what my clients I think are asking me to help them think through is are options worth it, right? Is the price worth it? And it's a question, it's a rhetorical question, right? I can come at it in a number of scientific ways and I do with data. I think about is it worth it in sense of, okay, what am I ensuring? How volatile is the asset I'm insuring? Options on Netflix are going to cost a lot more as they should than options on Colgate Palmolo, a stock that really doesn't move, right? Toothpaste. Not exactly very exciting.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“For people like me, that episode is one of the most fascinating things. I'll never stop thinking about it and studying it. Because as you referred to, those option prices were so heavy. At some point, the price is so expensive. Even with the FOMO, even with the degree of momentum in the underlying, the ticket costs so much, it's so difficult, right? to break even. You reference the upside calls. I'll actually also point to the downside puts. So when that stock got into 200 or 300. The long dated two or five strike put. So it's hundreds of points away, cost something like 50 cents or a dollar. I mean, the prices, you've never seen prices like, you know, this before. I will say just sort of thinking about my philosophy on convexity.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Yeah. And is there a dynamic where the people who made the bets in one way make money so they have more money to continue to bet in that way? And the people who made the bets in the opposite way, they're running out of money. I think, for example, there was a time where buying short-dated call options on GameStop had, I'm sure, had a phenomenal sharp ratio until it didn't. And there was a point where people were buying a thousand strike call options on GameStop. And when those eventually expired worthless, they didn't have any more money to buy GameStop. So it fed on itself, I guess.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Of that 2017 low vol is a very famous experience called, some people call it Valmageddon, but the VIX ETP complex Was no liquidity, it just drove the price higher. Very similar to the unwind of GameStop, right? That the short covering dynamic became so substantial that you create so much pain for the Melvin capitals of the world and create so much excitement for the roaring kitties and his Legion of fans that you get into that spiral effect, right? And it can be nasty, you know, depending on which side of it you're on.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“The sharper ratio for selling vol was extraordinary. And there was a story probably mid 2017 in the Wall Street Journal about a store manager from Target. And this gentleman was essentially long this ETF called the SVXY, which is a product that effectively sells vault in an ETF. It sells VIX futures. The thing went straight up. And he's like, this is fantastic. You know, you can't lose. Enough people get long that, right? A good deal, a good outcome is going to attract capital. And it almost becomes self-fulfilling. We've seen it in Bitcoin, right? Enough people see that their neighbor is successful. It's the FOMO and it drives the price up. It creates the success that drives more people in. And that, I think, is especially the case for carry trades and shortfall. And so the, you know, the unwind.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Don't ever think you can't go beyond that, whether it's a risk off or a risk on. I mean, we saw the meme stock episode, right? That should tell us that these things can get outrageously out of hand at a point in time. But one of the things in terms of my own process that I really do incorporate is just that market prices and the trades that built around that are built around them are living and breathing parts of the ecosystem. And what I mean by that is the Soros concept of reflexivity. Market prices aren't just a forecast. They aren't just a function of supply and demand, but they themselves make their way into the fundamentals. They become part of what moves the market, and especially derivatives trades. Market prices, let's just take Volv, right? So 2017, as low as the VIX was, it turns out, as I said,”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Okay, well, obviously, it's probably not insurance if it doesn't cost anything. And so at a zero VIX, it's basically literally telling you options don't cost any money. I think the interesting question is how low could it possibly push to? And I think in 2017, we explored the boundaries of that. Now, I've been doing this for long enough that one of my sayings is market, the market is a never say never business. Whatever you thought was possible.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Yes, the bond market. And look, it's hard to argue that it wasn't. It was delivering a low coupon, but positive coupon. And it was consistently rallying in a risk off. That's a beautiful characteristic. At some point, and SVB will contest to this, at some point, the price of the treasury itself becomes so high, the yield so low that it's kind of a toxic asset at that price. But the only insurance that you can truly count on is something you pay for. And I say, you know, you buy a house. You're excited. You just got your mortgage and your mortgage lender tells you, hey, listen, you know, you are going to have to insure the home. And so you call your neighborhood homeowners insurance broker and you ask for some pricing and you say, okay, well, what's the premium? And they go, nothing, zero.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so I'll tell you why the VIX can't go to zero by virtue of a little story I like to tell. And some of it's a bit of a skeptical story about our industry. This stuff's hard. You should be humbled by markets and cycles. And you're really trying to add alpha at the edges. If someone tells you they've got this strategy that never fails, you know, or they've got an option strategy that gives you some incredible hedge. for zero cost well why would that be you know how how can you possibly manufacture that and that actually was a big part of a lot of my concern i'm typically too early on trades but a big part of my concern with that negative deeply negative correlation between the stock and the bond market that we saw in the post-crisis period was that people were using duration as a positive carry hedge.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Right. And when it goes to 10, I mean, why can't it go to zero? When it was at 9 in 2017, I know I'm kind of setting you up. What happened did that caused it to bounce? And how does that phenomena build if, oh, there's an idea dinner hedge funds and someone's made a lot of money selling vault? Oh, I'm going to sell vault. And then this becomes shorting volatility becomes a very crowded trade until everyone is short volatility. So there's no one left to short volatility. And then there's an accident and then it implodes.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“So just take 20 divided by six, and you know, you're going to get a sharp ratio. It's back of the envelope, but you're going to get a sharp ratio of three, three and a half for just owning the S&P 500. Not a lot of research you need to do. It's as liquidous could be buy the spy, no fees. That's incredible. The sharper ratio is on selling volatility during 2017 were even better by many counts. Again, depends on how you measure it. Could have been four or five. So, you know, you get these periods where vol can be extraordinarily high or extraordinarily low. And 2017 was one I think the VIX closed 50 times at a 250 days below 10. Just doesn't happen very often. So we're close to that, you know, we're at 12 or 13, but not quite there just yet.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Exactly. Yeah, theoretically. No, it's interesting. You get close to the lower bound, which the history of the Vicks will tell us is about nine. We had this left tail event in options, meaning, you know, left tail of Loval. So when we typically talk about leftail events, we think the VIX went to 80. That happened in GFC. That happened during COVID. 2017 was this fascinating year where the S&P was up a fair amount, but was up on one of the lowest levels of experience volatility in 50 years. I think you have to go back to the early 60s for something as quiet as the S&P. And so the sharp ratio, I think the S&P was up 20% that year. And the realized volatility was six. Okay, so this is an S&P that's moving more like 30 basis points, 40 basis points a day.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Market prices is very much reflecting the experience of engaging with them. So if I bought the VIX at 16 and I lost money, I'm just less inclined to do it the next time, right? And so this is the feedback mechanism. And so we've got a low VIX, a low option implied volatility. And all these things are really our shorthand ways for the market to talk about the price of insurance. The VIX is very simply the cost of”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Maybe putting it a little bit differently if I'm the seller of that insurance, I'm emboldened by the fact that at 50 basis points a day, I'm never paying out on the insurance. I'll sell someone a put. It never expires in the money. I don't have to really hedge it. There's no, you talked about Harley Bassman, the Convexity Maven. There's no convexity to hedge because the market's not moving. And so competitive forces in the market say, well, maybe the VIC started at 16. Boy, I made a lot of money selling it at 16. Maybe I'll sell it. It went down to 15 because more people jumped in. They saw I was making money at 16. And so competitive forces push it down to a level that's a little bit more commensurate with the here and now risk, which is very low. And so we've got this setup where implied volatility and equities is extremely low. I just think about.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, yeah. So over the course of a month, we realized north of 100 Val. And there's a little widget that we use, us derivative geeks. You take your 100 and you just divide by 16. I won't get into why, but 100 divided by 16, it's telling you that over the course of that month, the average move was about 6% per day, right? So you go through these periods where there's not just a pile up, but there's a pile up, a file-ups in car crashes. There's not that happening right now. Over the last month, the SAPs realized less than 9% in terms of its annualized standard deviation. So I'll divide the 9 by 16, and I'm going to get kind of 50, 60 basis points a day, right? A half a percent a day over the last month. That's not enough to scare anybody.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Accident reports and so forth. So they know that when they take in all this premium, they're not going to keep it all for sure, right? They're absolutely ready to pay out. And the question is, how much will they have to pay out? So I think about realized volatility. So the experience of the day-to-day changes, we'll use the S&P 500. That's kind of like the frequency of accident in the GEICO example. How many accidents is the S&P having? If it's only had a single up move of 2% and a single down move of 2% over the last year, that's not a lot of accidents. To give you an idea of an accident heavy period during the teeth of the COVID market crisis, we had three straight days of 9% moves in the S&P, down 9%, an up 9%, and a down 13%. That is just epic in terms of volatility.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Well, I've had an opportunity to teach a class on options and episodes of financial crisis for my Alma Mata St. John's University. And I try to keep the sort of discussions on options simple and away from differential equations and things like that. I didn't learn it that way. I try to think logically. And so my example of how to teach this, I always go back to car insurance. And so GEICO's in the business of making money, all states in the business of making money. And they're going to evaluate the driver or the pool of drivers based on what the premiums that they take in and then the premium, then the loss payouts that they pay out, right? When there's a claim, whether it's theft or an accident or damage of something like that, right? And again, they're in the business of making money. They're running data historically. They're experiencing.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, exactly. It's sort of like calling for an episode of Financial Crisis. At some point, you're going to be right. Yeah.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“I'm in the same camp just trying to understand how this plays out. I did see sort of an interesting argument around Fed policy and just back to this notion of we raise rates by so much was it raising rates that brought down inflation or was it really the unlocking of supply chains and that sort of stuff? You know, this will be an argument forever about was it truly transitory or not? You know, everything's transitory over a long enough timeline. We know that much, right?”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“So did I, and so did pretty much everyone. So, yeah, there's more the debt in the system had a longer duration. So for liability for obligors, for borrowers, it was actually better because it's like, oh, I don't owe this until 2040. I don't have to refinance until 2030. The pain, ironically, was on the bondholder. So really, so really the bank. So this whole narrative of, oh, interest expense is going to go up so much and companies can't afford it. It's like, well, a lot of them, if they're in real estate, they use an interest rate cap and these are expiring, you know, as we speak. A lot of them, you know, they have a fixed to floating structure so it doesn't turn into a floating loan until later on. So Amazon issued a bond that doesn't expire until 2052. The homeowner has a 30-year mortgage. So yeah, I think a lot of that has been blunted, but we'll see. It's anyone's guess.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“You can argue that the stock market fell because the multiple fell, which is consistent with higher rates. But here we are back at an all-time high, right? It's a pretty fascinating kind of setup here. Again, a lot of people will say that there just wasn't as much duration risk in the economy through the homeowner and the corporate. So the rate increases haven't mattered as much. But we were coming from such, you know, again, century low in rates to something that was so substantially higher, I would have thought there would be more real economy impact. By now, maybe it's coming or maybe not. I don't know.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Supply comes down by so much and prices stay sticky because there's just nothing for sale. So the demand for what is for sale keeps prices high. And the corporate economy, they just people were very, very successful. CFOs were very successful in terming out debt at once in a century. It's the homeowner's equivalent of the mortgage, right? You've got very low cost capital, which at some point becomes higher cost capital. But I certainly, again, I'm not an economist, but I'm scratching my head saying, man, you know, you raise rates by 500 basis points and the economy barely slowed down.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Of the long end coming up, mortgage rates getting to levels we haven't seen in decades. So I think there was quite a bit of worry on the stock market side that absence some big rally in the bond market, things could potentially break, so to speak. I think what hasn't happened yet, and I'm not an economist, I just try to talk to folks on this stuff, is the impact of interest rates on the real economy, right? I think that's the head scratcher. That's sort of the open question here, which is, okay, are we still in the lags are long enough and variable enough where we still just don't know? Are we kind of waiting? A lot of people talk about the CRE cycle and that being the first one to really experience the difficulty of refinancing at a much higher cost of credit. The mortgage market kind of seized up, right? So it's just like the housing market doesn't break because”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so let's maybe talk a little bit more about 2023. So the bond market had a whipsaw of the year, right? I mean, by mid-year, the bond market was on its knees. There were significant losses again. It was really that rally in and around October, which was pretty ferocious that allowed, I think rates basically finished the year where they started, right? So it's a big old zero, but with a pretty bad sharp ratio because of all the volatility. So it was sort of a break even year in the bond market, obviously a great year in the stock market. I do think we were kind of close to a, I don't want to say a breaking point, but things certainly were getting worrisome. Again, around October, and some of this was the late August, some of it's the refunding announcements, the bear steepening that came from that, right?”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Stock bond correlation. Okay, so in 2008, in March 2020, you had the Fed cuts during a stock market crash. So that is rates down, prices up when stocks prices down. So that is a negative correlation in 2022 interest rates went up as stocks went down. So that's a positive correlation. Last year, the Federal Reserve continued to hike as stocks went up. So that's a positive correlation. So the positive correlation last year really helped out stock investors. So you're saying that if the Federal Reserve doesn't cut by as much, which correlation would that be? Sorry.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Yes. And so the big difference between the cuts price did now versus the cuts price did in March and April of 2023 is that the Federal Reserve has blessed these cuts, not just with, you know, innuendo and forward guidance, but specifically a dot plot, which is, you know, it's worth something. So this is great that we can connect these two topics of Fed cuts and”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Deal that if we can't fulfill these cuts, it's a big risk off, right? I think that's just, I think it's, I think we've set a high bar at six. I think it's going to be pretty hard, but it's not necessarily the last year will tell us is not necessarily Armageddon for the stock market if we don't get there.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“High relative to what you think is fair value or very low, depending on how hard you have to coax a buyer or seller into the trade. I think what's interesting and sort of to jump to now, we've got, of course, six eases priced in, right? Out to Jan 2025, six and change. It was seven. And as we were just saying in April of 2023, we had at the peak four cuts priced in, none of which were fulfilled. So some are arguing, well, if the market doesn't, if the Fed doesn't deliver on these cuts, that's going to be very disruptive to the stock market. Okay. I mean, I get the logic, but last year those cuts were not delivered on, right? And the S&P, I think, was up 15% even in the second half of the year might have even been more. And so it's not a done.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“It was extraordinary to see the curve shifted in and around March and into April of 2023. So you had at least one, maybe an additional hike priced in before it. And then I think at the peak of the disruption of the cycle, we got to about four eases priced into the end of the year. Now, of course, none of those eases was fulfilled. One of the hikes actually was fulfilled, right? And so the market obviously can be extremely wrong. Market prices, what I've learned, are really simply where a transaction is suitable for two counterparties to find a way to meet. So they are predictions in some ways, but they really, to me, reflect capital availability. So you can see some outrageous prices that are very...”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“I think it was about 20 days where it moved up or down by 2% or more on a single day. The S&P had a single 2% up move and a single 2% down move. So it's an inversion of the cause and effect. And I'm not definitively saying it's good or bad. I don't think it's good. I think your treasury market is supposed to be not volatile. You could argue we're getting to the end of the Fed tightening cycle. An easing cycle is upon us. The move index is down to 105. So some of this stuff is just time. You know, you're working through it. And you can argue that there'll be less volatility in the treasury market going forward. We'll see. But I think it's, again, it's just something we got to keep a close eye on.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Display some tension. I would hear, I talk to a lot of people who trade this stuff for a living. Bid offers are wide. You can't get stuff done. Option prices reflect that. So this move index spent a lot of time well north of 120, 130. The ratio, for example, the move index to the VIX is something I started following not as a signal, not to predict anything, but just to have a little metric to keep track of and just to illustrate that over time, you know, we switched to this environment where interest rate volatility was much higher than equity volatility. It's a totally nonsensical concept, right? The risk-free asset is more volatile than the risky asset. In 2023, the TLT had”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Happen I'll get paid some option premium. And so when you're a short vol, that can introduce convexity into the market. It can be an accelerant into the market. And so that rate vol move was extraordinary. And people who are experts in it, and I've looked at this a little bit myself, there's really only one other equivalent to something as violently up in rates and then back down in rates. And that's the crash of 87. That's a pretty good company you're keeping in terms of severity. And so what started to happen after that was, I would say the fabric of the treasury market started to”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Fed way off its tightening cycle. It's a risk off. And what do we get on the back end of it? We get one of the more vicious rallies, let's say in the two-year note we've ever seen. The two-year note inside of, I'm going to say three weeks is 125 basis points lower. And that takes out hedge funds who had sold a lot of all basically betting that there's no way that two-year rates can go down.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“What keeps me going in this business is it's you can always learn and it's very humbling. And, you know, I think that there were folks on Twitter who had done the work on SVB and we're looking at and saying the mark-to-market losses here for a bank that has got way too much treasury exposure having bought a lot of this stuff at yields of 1.25% some of this paper, right? I mean, by the time you get to four and change percent on the 10 year, it's just very easy math to realize that, wow, these are big, big, big losses. So you get the up moving rates, which takes SVB out. And to me, what's so fascinating, and I think it really speaks to some of my process about trying to understand the overlay of derivatives into markets is that the upshock in rates takes SVB out, it pushes the...”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Even thinking about thinking about raising rates. And so that makes its way into option prices. And by late 2020, early 2021, the move index is at 38 or 40. That's extremely low. That's basically calling the moves in the tenure about two to three basis points a day. Okay, that's extremely low. We get through 2021. And of course, now the Fed realizes its way behind. It starts the tightening cycle. rate fall is much higher in 2022 but to me what was very fascinating was svb i know you focused a lot on svb you've had some experts really digging in on svb and i just want to say”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“COVID. You saw dealer balance sheet capacity vastly eroded. You saw really record levels of realized volatility in the treasury market, even surpassing the GFC. And so at some point, even the market, the risk-free market, which is so deep and so widely subscribed around the world, even that loses its capacity to be a shock absorber, right? Because the folks that need to provide that insurance themselves are compromised. That's the primary dealers. So we get through the COVID shock. And again, back to the forward guidance idea, at no point was the Fed's promise really more, really stronger than by, let's say, early 2021. Rates are low and they are going to stay there. Remember the famous pow, we're not.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Let's maybe just do a very, very quick rewind, and I'll try to do this very, very fast. So we come into COVID and VAL is very low. The VIX is at 12. Credit implied VAL is very low. You know, guys like Bill Ackman, who famously bought all this credit default swap protection kind of paid a song for that protection in February of 2020. So he took 25 million and created a windfall of 2.5 billion. A lot of that is because that volume was so low that those options were just low in price. Interest rate vol, extremely low. COVID hits, VIX of 80, the move index, which is sort of a quasi-VIX in the rates market. Also balloons, you know, the COVID crash was about a joint crash in stock and bond prices. And I think we got our first whiff of real fragility in the bond market during.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Of the economics of the United States are the fact that we ran a near 7% budget deficit in peacetime with a 3.8% unemployment rate. That's just not realistic. And that's not sustainable. And that's the base asset, right? That's the U.S. Treasury market. So that's kind of how I mean it. The flip of the causality of risk on risk off to me is a concern because the bond market is just not healthy. And a lot of it's just the fiscal dynamics in the US.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Is that we've got a stock of debt right now that it's just really difficult to argue unless you're just so far off into the MMT crowd that that 33 trillion amidst higher rates and the need to turn this money over and the need to continuously reauction paper is not a real threat to the system and so when you see, and I'm not someone that follows auctions very closely, but suddenly this is now part of the market's dialogue, right? Why did the S&P go down? Well, the five-year auction didn't go well. That wasn't a thing years ago. So suddenly the stock market's taking its cues from the bond market. And I just think the fundamentals of the bond market, while there's fundamental, the prices are fundamentally better in the sense that we've got real interest rates now. The real interest rate is not zero or negative. It's positive. But I think the fundamental backdrop in terms of...”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Are very real. The Fed has the ability to just make the prices up with the degree of capital that it has in a completely non-mark to market, completely price inelastic fashion. So I'm happy with rates where they are. I think this is just a more realistic way to run a financial system. To the point around the trades that are built around it, I don't know that there's a huge series of exotic trades that are banking on this correlation that can just run am up. There obviously is the world of risk parity, which is often painted with a very kind of monotonic brush and it's a lot of different things. I think you kind of alluded to it. There's different leverage degrees of leverage that are”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“I think you make some great points there. Number one is if you're long term enough and you kind of close your eyes and don't open that statement, you can probably get past this, right? And I think, at least for me, and I'm old enough to be a little bit of a traditionalist, I suppose. I look at the treasury market and I look at yields which start with a forehandle. And that to me feels like a much more normal version of where market pricing should be. I'm not never was a big believer in zero policy rates, especially for the length of time that they persisted post the GFC. I think there's a fair amount of malinvestment that comes from those low policy rates. I think markets, if anything, they're going to lean into. And I'll just say they're going to lean into forward guidance, right? Big time. And the promises of the Fed.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“We all know that what happened in October of last year, this giant bond market rally occurs and it brings the stock market with it. And so I'm not sure that's good or bad. I don't think it's great because per unit of risk or per unit of capital, you have more risk now, right? And boy, just about the entirety of the financial system is based in some ways on being able to sprinkle out some capital in both stocks and bonds and having the bond market be your kind of rainy day vehicle. And that, I think, has changed. And I'm not sure how that changes back, but it's certainly something I think we're supposed to keep a close eye on.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Zero to on the order of 30% positive, it's a pretty profound switch, right? So what happened in 2022 specifically, I think the stock market S&P's down 18%, bond market's probably down about the same. Fascinating, right? You've got these two assets that are supposed to both go up and be negatively correlated, and now they suddenly both go down together. And so it seems to me, and the data bears this out, that the stock market really takes direction from the bond market rather than the first and more traditional scenario, which is the bond market moves are more a reaction to the stock market moves, right? There's a growth concern, there's a shock to sentiment, and the bond market is the recipient of flight to safety capital and rallies on that. Now, the bond market is either rallying or falling in value, and the stock market is following suit, right?”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“50%. If you're just running the correlation of the daily returns, you're going to be minus 50 or so. And that's a very, very powerful diversification tool, right? When you can put two assets into your portfolio, both of which are going up over time. And that's certainly what occurred, you know, post GFC all the way into COVID and they're negatively correlated on a daily basis, you've kind of got a nirvana, right? That's the sort of foundation, the bedrock of 60-40 are these two assets that contribute positive return but are negatively correlated. And that negatively negative correlation serves as a pretty good risk reducer. To get to your question, why do I call the treasury market the risk-free asset? It's because that correlation has flipped. And that's really a post, I would say, 2022 phenomenon. So you start to map these correlations.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT