YouSaid · the spoken record

Nancy Davis

lines on the record: 40
first: 2022-09-02
most recent: 2022-09-02
sittings or episodes: 1
sources: podcast

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“Thank you, Trey. Thanks so much for having me on. It was great to have this discussion today. I hope it was helpful to your audience.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“Sure. So we have a fund website, which is eyeball etf.com where investors can see our perspectives and our SAI, our materials are there as well under the materials tab, like our fact sheet. And that's a good use. I recently new to Twitter. I just joined Twitter about three months ago. So I have, I guess it's like a bot hashtag because I did a double underscore. you can follow me at nancy double underscore davis at twitter i also use linkedin and our website also has a contact us page so if you want to be added to our distribution list to receive our quarterly letters or any any materials that we send out you can sign up on the eyeball etf.com website”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“Eyeball has a way to profit from either lower front-aided yields or higher long-dated yields. So the treasuries that we own are just bonds, right? So they want real yields lower because their bonds, which means prices higher. But the options inside of it don't really care about the level of interest rates. So if interest rates were, say, 4% or 10% or 1%, it doesn't really matter to the options the options just want the spread between short and long dated rates to widen. So it's just a different type of spread risk instead of only using corporate credit spread risk inside of bond portfolios.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so duration very simply, all bonds are long duration. Even a shorter dated bond is still long duration. So short duration really should, in my opinion, be called less long duration. And duration is the bond sensitivity to a one basis point change in interest rate. So if interest rates move higher, bonds lose money in price terms. So for instance, you can look at any of the treasury or investment grade or high yield or muni or pretty much all bonds are down this year in 2022 and most of the losses have been from higher interest rates. Credit spreads have widened a little bit, but not very much. It's mostly from rates. And so I think it's just really important for investors to understand that all bonds are long duration and when interest rates move higher, traditional bonds will lose money.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“For most TIP CTFs until September or October. So you had, you know, the bulk of the year with no monthly distribution. Eyeballs had a more of a steady monthly distribution that is potentially enhanced above TIPS alone.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“So Eyeball has paid a minimum monthly distribution of 30 basis points since July 2019. So we paid 30 basis points minimum every month for the past three plus years. That is a different type of most investors to augment government bonds. They take credit spread risk, right? So whether it's high yield, investment grade, leverage loans, splitting rate notes, all those things are taking corporate credit spread risks. We don't take corporate credit spread risk. We take interest rate spread risk. So it's just something different and that is also TIP CTFs often don't pay monthly distributions because TIPS are a variable yield product. They reset with the consumer price index. So you can look at the monthly distribution on tips in 2020. There was no distribution paid out.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“I mean, I would say a lot of people, the way that they're using eyeball is to complete their core fixed income. So if they have, you know, let's just say $100 allocated to the ag index, the ag has no inflation protected bonds. It's only short volatility. They might say, all right, we'll take a third of that exposure and add eyeball to make it a more complete, a more diversified portfolio by adding inflation expectations in the future, adding long volatility to neutralize a short vol in mortgages to help diversify the portfolio. So I think most people are using it not as a bet, so to speak, but more as a diversifying completion portfolio.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“There will be infrastructure build out, and eventually there will be a way more supply will come online. You know, maybe OPEC will break. It is an oligopoly, right? It's a pricing cartel. So you just don't know what's around the corner. So I'm not saying energy is a bad thing to have in your portfolio. It just not may not be the only thing that you should have to express inflation.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“Inflation protection because of their duration exposure. And that's where Eyeball tries to help to say, look, we're going to give you another measure of inflation, which is interest rate, where lenders lend money, which is currently inverted, right? That inverted market plus access to fixed income long volatility instead of just being short volatility. So it's just something different. I'm not saying you don't want to have everything being the same way and you don't want to have everything as one bet. So I think oil, you know, 20 years from now, let's just put that. Like if you're, you know, say you're 70, right, reasonable to expect you only have 20 years left in your life. So maybe oil is fine for people like Warren Buffett. But say you're 22 and you want to have inflation in your portfolio, oil might not be the best long-term holding because of then.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, oil is a huge driver because we are not, the infrastructure is not there around the world. Also the geopolitical situation in Europe is creating the real problems in the energy space. So I'm not saying those are bad investments. It's just commodities are not the only way to think about inflation. That's my point. I'm not saying don't have commodities in your portfolio, don't have energy stocks in your portfolio. Those are fine. But just like anything else, you don't want to plan on that alone working. It's just what everybody has been running to because that's what worked in the 70s. And that's the only period of high inflation that we have to look at. And I think going forward, when people look back and they look at tips, which are the Treasury Inflation Protected Securities Markets, they're going to be disappointed in my opinion because I don't think TIPs will really provide that.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“Because we just don't know what's around the corner. And I think it's especially important for people who are retired because they're not going to be benefiting from wage inflation because they're not in the labor market anymore. And they probably have more of an allocation to fixed income. So they're even more at risk that inflation turns out to be not something that's falling, which is what's priced in right now. The inflation markets are pretty complacent right now that the Fed hiking policy rates and being as hawkish as they have been will slow inflation and it's priced in.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“I mean, I think most people have exposure to real estate, whether they own homes or whether they're renters. They have a kind of a step in the hard asset from, you know, we all need a place to live, right? So I think most people have that in their exposure. I think commodities are used a lot for inflation because they existed in the 70s, whereas the inflation protected bond markets, the inflation markets didn't even exist back then. So I think a lot of people are not looking at inflation or interest rates for that exploitation exposure because it's newer. It's a newer market. You know, the interest rate derivative markets didn't really even start until the 2000s. So I think it's just important to be focused on diversification and commodities are fine and real estate is fine, but you might want to think about other things as well.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“Think it's the old thinking about 6040 portfolios that concern me because I was like, look, if we have stagflation, that is going to make stocks and bonds sell off together. And I think a lot of people count on that 60, that traditional 60, 40 portfolio to be diversifying, you know, the whole point of asset allocation is to not lose money on everything all at once. And that's exactly what's happened in 2022. So something, again, I always think correlations are just, that's history, right? It's what's happened in the past and there's no guarantee that correlations will continue to behave the way they have historically. And I think the stagflationary environment is especially dangerous for the 60-40 portfolio. And I just wanted to alert investors to that risk. And, you know, obviously nobody wants stagflation, but it's unfortunately really played out for a lot of investors this year with”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“So, I started my career at Goldman in the late 90s, and it was right when the US Treasury invented this tips market, the Treasury Inflation Protected Securities. And I remember being a young trader and just thinking like, that makes no sense. You know, tips are bonds. So they are treasury bonds and they will lose money when interest rates go higher based on their duration risk. So I was like, that's not necessarily the best way to be thinking about hedging inflation with a product that will lose money based on their duration exposure. So I wanted to solve instead of many investors use short duration when they're worried about interest rates going higher, they buy short duration. But I feel like that strategy is kind of, it's almost like a fake name because it's not short anything. It really should be called less long because anytime you have a bond, it's long duration. It's just a question of.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“People are only short fixed income volatility in their bond portfolio, which I think is part of our thing standing on our soundbox trying to educate investors is that you have to understand your bond portfolio is probably short volatility and you might want to do something to help at least neutralize that without taking a bet that fixed income vol is going to fall, right? Because when you're short volatility, you're betting that fixed income volatility is going to go down. It might not be going down anymore, especially with QT starting in a bigger way.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so you're right, people use volatility to talk about the historical standard deviation of returns. So there's volatility what I'm talking about is its own asset class. It's like what is in the options market. And so for our strategies, they're all long volatility, meaning we own options. And when your long volatility, you can actually profit from higher volatility. So it's like owning, there's realized volatility, which is what's happening previously, and then there's implied volatility, which is what's happening in the future. So we own options, therefore we are long fixed income volatility. It's not the VIX, the VIX is equity volatility. In fact, it's one specific index for equity volatility. There are lots of different types of volatility any place that there is an options market. There's a vol market. And I think that's what I keep going back to the core fixed income or the ag most”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“So anytime somebody talks about a volatility market, they're talking about an options market. It's sort of like do you use a Kleenex to wipe your nose or do you use a tissue? It's really the same thing. So in order to have a volatility market, you have to have an options market because volatility goes into pricing options. So I think it sounds like a very complicated thing, but it just means nonlinear derivatives, which are options. Most people have linear derivatives inside of their bond funds, whether it's a future or a swap or forward, all of those go up a dollar, down a dollar in their linear derivatives. Options are non-linear derivatives that use volatility to go to pricey options there for their ball markets.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“It's something different. It's nothing in eyeball is in the ag, so it's logical. Again, correlations are historical, so there's no guarantee that it will continue to be non-correlated. But at least what it has inside of it, which is about 80% of the fund is in TIPS, which is a type of treasury bond. And then it has exposure to interest rate, the interest rate markets. And that's not in the ag. So it's logical that it wouldn't be correlated to the ag because it's something different.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“I think the problem is just they there's nothing wrong with passive strategies in the case of the ag, there's no inflation protection in it at all. It's only short volatility because of the about a third is US mortgages and so I think it's just you can have your core holdings be passive indexes, but you want to also understand what they are so you can augment it based on your own personal risks. Many investors, I don't think, realize that the ag is short vol and I don't think a lot of people realize that the ag has no inflation protection inside of it.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“Not sure about retail investors. Some retail investors might prefer there is an inflation, a different type of inflation protected bond, but it's limited to $10,000. So I think it depends on how much money, if you have less than $10,000, it might be better to use that other inflation protected bond. Tips are Treasury Inflation Protected Securities. That's Treasury Inflation Protected Securities. That's the acronym for TIP. So they are Treasury bonds, but they reset with the level of CPI, which is a consumer price index. So it's a relatively new market. A lot of people look at commodities to add inflation protection to their portfolio because they”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“You make more than that 0.5. It has that positive payout as the asset cost moves. You can make more than you could potentially lose. Whereas negative convexity is the opposite. So when you start to make money, the next step is you make less”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“Is equity volatility has not moved higher this year. I think it's really a trend that who knows whether it's going to continue, but with quantitative easing, it was very fixed income volatility reducing. So it's logical to say with quantitative tightening that it will probably increase the level. Just think about it if you don't have that everyday big buyer in the market, it would seem like volatility would increase, especially if the Fed does start to maybe sell some of their balance sheet like they've talked about, selling mortgages or not owning mortgages long term on the balance sheet. So a long option is positive convexity. So just to go back to that concept again, that means if the underlier moves, say 1%, you won't make 1% like a linear derivative. You might make 0.5, which would be at the money option. But if it moves another one percent,”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“I'm not trying to give financial advice about speculating on the level of volatility. The thing I want to educate people on is most, it's not equity of all that you should be worried about. It's actually fixed income because most people are short fixed income ball inside their bond portfolio. And that's the negative convexity. And positive convexity is something that I think is very good to have as part of a diversified bond exposure. What that means with positive convexities when you make money and that instrument moves in your favor, you make even more. So it grows exponentially positive. Most people are only short fixed income volatility because of their mortgage risk. And I think it's especially dangerous time to have that exposure moving into even more quantitative tightening and September with the caps increasing. That can be ball increasing. We've seen interest rate volatility move higher.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so we created a fund access that market. It's something that was previously something that most people couldn't access on their own because it's the interest rate market. It's more of a traditionally institutional market. Most, you know, whether it's a corporate or a sovereign around the world whenever an issuer or a bond issuer, somebody sells bonds in US dollars, they go and hedge their interest rate risk. They don't sit there and say, oh, geez, we hope the Fed doesn't hike rate. So immediately go hedge their exposure in the interest rate market. So I think it's surprising to a lot of people, but the interest rate markets are huge. They're approximately five times larger than the US stock market. It's a huge big market because think of every sovereign in the world, whether it's the ECB, Japan, the Kingdom of Saudi Arabia, whether it's global corporate AstraZeneca.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so all that means is how sensitive. So with a mortgage, a mortgage is often considered negatively comebacks because homeowners are on the option. So you can think of convexity as a way of thinking about how your payoff is. So it's very important for looking at infixed income exposures to have things that are not only short optionality and something that's positively convex. Most investors only have negative convexity in their bond portfolio. It's a complicated concept, but it has to go down to the payoff if your payoff is positive, meaning you can make more than you can lose. That's positively convex. Or if you could lose more than you can make, that's negatively convex in a simple way.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“So, I really like looking at the interest rate markets, as you mentioned, Trey. I think it's a very simple way to look at You would say, okay, I'll charge you less to give you that loan. You know, that doesn't make a lot of sense. So it's a very unusual environment right now where we have this inverted yield curve. It's not something that it's really, I think, a reflection of the rates market saying that the Fed is going to hike policy rates and that's a policy mistake and that that's going to slow growth. I'm not saying that's right, but that's what's priced in.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“It's unclear. I think that the problem with correlations is they can change, right? Correlations are just looking at like what happened in the past and there's no guarantee that things are going to continue. A lot of these model portfolios like a 60-40 portfolio, which has typically 60% equities and 40% bonds, that assumption is that stocks and bonds are not going to become correlated. If they do become correlated, the whole portfolio construction doesn't really work. And so I think that's where you should be looking at other things that could potentially help diversify that traditional 60-40 portfolio because we just don't know what kind of outcome we're going to have.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“Fortunate every day to be a citizen of this country and to have clean water and food and we can feed ourselves as a country. There are horrible things happening around the world with inflation and drought and starvation and famine. It's a really tough environment. So I think it's just really important to whatever your view is about the outcome, just make sure you have a diversification in your portfolio so you're not betting for one specific whether the Fed hikes 50 or 75 basis points it doesn't matter we're not day trading the number of Fed hikes here we're thinking about you know how to plan for our retirement how to have enough not outlive our savings how to have you know good productive lives right that's what it's all about”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“You know, that could be the stagflationary outcome, right? That would be stagflation is a kind of a made-up word from the 70s when you had lower growth and higher prices, a combination of both at the same time. And you really can't rule that out, especially so far in 2022. We've had stocks and bonds sell off together. We've had two negative GEP prints, whether that's recession or not. I'm not going to go there. But we've had lower growth and higher prices. And so I think that's one of the things that investors just have to be careful of is not trying to make a bet about what outcome or what regime we're going to have in the future, but just being really diversifying to be prepared for a lot of different outcomes because nobody really knows, right? If inflation is not a US only thing, it's very much the entire world is feeling inflation. I feel very”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“Tough to say, I mean, obviously, a lot of people are hurting right now because of inflation, right? The cost of living is much higher. It's really hurting consumer confidence. It's hurting small businesses. I think all of these policies are well-meaning, but it creates more of a wealth gap because think about the people who maybe didn't go to college because they couldn't afford it, right? Now those taxpayers who might be working at XYZ, whatever industry they are, their taxes are going to relieve the debts of other people, right? So it's, I think, well-meaning policy, but it can have ramifications that, you know, aren't necessarily fair. Now, nobody said life is fair, but I think that's one thing I always think about is when you give debt forgiveness, you're basically encouraging and rewarding those people who took on the debt to begin with.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“Investors who have things like the ag index is you are embedded short volatility specifically fixed income ball with that exposure because homeowners are along the option to prepay and owners of the financial mortgages are short options to homeowners”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so anytime you sell an option, you're actually selling volatility. Whenever you buy an option, you're buying volatility. So volatility and options kind of go hand in hand because volatility goes into pricing options. Derivatives are kind of two main types of derivatives. They're linear derivatives, which go up a dollar down a dollar, which is features or forwards or swaps. And those are typically, I think of them as like credit card exposure. where you get more exposure than what you pay for, right? And they go up a dollar down a dollar. The options markets are nonlinear derivatives, so they don't have that same linear payout. They have asymmetrically payouts. So you can have asymmetrically positive payouts or asymmetrically negative payouts. When you sell options, you're selling volatility. And that's the thing that I'm trying to stress too.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“Is mortgages. So I think it's just super important to be mindful of what you own and don't go by the strategy's name, really see what's inside your portfolio and where your risks are.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“Mortgages very simply, if you think about it, homeowners are long the option to prepay, so owners of financial mortgages are short options to homeowners, and whenever you're short options, you're short volatility. So most people, I don't think really realize it, but within their fixed income portfolio, they tend to be short fixed income volatility. So it's super important to see if you have things called core fixed income. They tend to be benchmarked to the ag index. And the ag index is just, it's old, right? It used to be the Lehman Ag and then it was the Barclays AG and now it's called the Bloomberg Ag, but it was created before the US Treasury invented the Inflation Protected Market, so it has no inflation protected bonds in the ag, which is not very core to me if you have no inflation protection and it tends to only have short volatility because about a third of the ag”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“Well, the Fed has been very delicate so far. They've put in place these caps. That's probably because the last time they tried to do balance sheet unwine, they totally blew up the market. So they're being very delicate with their steps this time. The fed's caps are going to increase in September. So I think it'll be really interesting tomorrow with Jackson Hole in the press conference to see if the Fed talks more about maybe not holding mortgages on their balance sheet. alluded to that in the past. It's really important that investors look inside their fixed income portfolio, especially things that are core fixed income, because so much of the market has moved into indexing, right? And there's nothing wrong with indexing, but when you have a lot of these core fixed income managers, it tends to be that a third of their exposure is mortgages.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“I think there are a lot of risks out there. I mean, inflation is raging. We have a lot of, you know, whether it's droughts or geopolitical tensions or consumer sentiment being at all time low. I think the problem is also the labor market is that it's really hard to hire people. Even though people have added more employees, their productivity is down. So it's a really tough time for small businesses in particular. And I think people really should be adding in things that are more defensive to their portfolio in my opinion because we just don't know what the future holds. We don't know if the Fed hiking policy rates is going to do anything to stop inflation. And right now the rates markets are priced that future inflation is going to slow dramatically.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“Think it's probably too early to tell because I think the one thing I feel like everybody right now is speculating on whether inflation is going to be falling or going up or going down. I feel like everyone right now appears to be a macro tourist, right? And everyone has their own view about What's going to happen in the future? I think people are really not thinking about it the right way. In my opinion, if you just think about your personal balance sheet, right, you have your whatever you do professionally for your job, you have your savings, and if you don't have inflation inside your portfolio, you're actually short it in your real life because we do live in a real world and hire, we do have to consume things. Not everybody consumes the CPI. They're different whether it's college tuition or avocados.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“The rates market has already priced in additional hikes, and there's more than 75 that's priced in just before the end of 2022. So the Fed needs to hike 110 basis points just to meet what's priced into the market. So I don't think it really matters whether it's $75 and then a 25 or whether it's a 50 and 225. The reality is what's priced in is already there. And you can see that with the level of the two-year interest rate. It's so much higher than where the Fed fund's policy rate is, which is a band is 225 to 250. you can buy even a T-bill and a short-term treasury bill and get paid over 3%. So, the rates market has already Priced in that expectations of hikes. And so it's really up to the Fed to either meet those expectations or say we're going to be doing something else other than hiking policy rates to combat inflation.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“Help on other aspects of the supply side issues or the labor market. So I'm really eager to hear if they talk more about using their balance sheet as a way of reducing inflation expectations because I'm relieved that we had CPI. The last print was eight and a half, which was down from 9.1, but eight and a half is still nothing to get excited about. And I think the big problem with that CPI number is it's just one index, right? It's a consumer price index. Just like you would look at the Dow Jones index and say, aha, this is equities or the US stock market, you can't do that with inflation either because so many people, it's so personal, right? What impacts everybody's day-to-day inflation expectations. But I'm sure they're going to be very tough talking about inflation because the last time they said it was transitory and they were so wrong.”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT
“Think the Fed has a lot of upside at this Jackson Hole because it probably couldn't go worse than their predictions at the last Jackson Hole. You know, they said the labor market slack was going to be easing. They said inflation was transitory. So I think there will see what they say, but I would expect they would really be addressing the inflation that everyone is feeling in their day-to-day life. It's been very hard for a lot of people around the world. It's a global thing right now. Cost of food is expensive. It's really hurting small businesses. The labor market is still incredibly tight. And so I think I'm curious to hear if the Fed is going to address more using their balance sheet as a monetary policy tool. I feel like right now they keep hitting only one nail over and over and over again, which is hiking rate. And hiking policy rates can help on easing demand, but it doesn't”
2022-09-02 · We Study Billionaires · TIP473: Using Volatility to Hedge Against Inflation W/ Nancy Davis · IDENTIFIED FROM THE TRANSCRIPT