GM 78: The Market Risk Nobody’s Watching ft. Dave Dredge & Cem Karsan

Today, we take you into the complexities of the current financial landscape, emphasizing the crucial theme of positioning in an environment marked by rising interest rates and shifting market dynamics. We explore how recent structured product issuance is significantly impacting market structure, particularly in the U.S., where the volume of callable bonds and equity-linked products has surged. They highlight the risks associated with reliance on historical correlations, which may not hold in times of market stress, and the implications for investors navigating these turbulent waters. The conversation also touches on the potential for a significant monetary regime shift, akin to what was seen in the late '90s, driven by geopolitical tensions and domestic economic policies. You will gain valuable insights into how to recognize and adapt to these evolving risks, to become well prepared for the challenges ahead.

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Episode TimeStamps:

01:34 - A quick catch up since last conversation

02:13 - Dredge's key takeaways from 2024

08:58 - When did things really start to move for Dredge?

15:41 - Cem's analysis of the recent global macro environment

22:51 - What has driven the S&P volatility?

24:44 - Positioning is all that matters

29:31 - "Correlation is a bitch"

33:31 - Portfolio Manager in legal trouble for following an ESG strategy

37:57 - The difference between credit and vol investors

42:07 - The good outcome is a recession

45:36 - All the things that you are not worried about is driving your performance

48:49 - The state of interest rates and FX trading

57:24 - Is the Fed losing its grip on the economy?

01:03:46 - The outlook of markets - where are we heading?

01:09:18 - Risk is on your balance sheet, not in the future

01:16:14 - Dredge's perspective on structural products issuance

01:27:22 - The recession might come sooner than we think

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