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tv   Whatd You Miss  Bloomberg  October 11, 2021 4:30pm-5:01pm EDT

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romaine: we got the star of the week. equities are in the red. heating up about whether inflation rushers are going to be transitory or not. one of the big issues that traders are going to have to watch into the last quarter of this year and even beyond is not
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transitory. in a new issue of bloomberg markets, our part -- reporters fall the day in the life of five traders. they cover various assets including crypto. we will get to that, don't wo rry. caroline: we can listen to some traders we are are bloody focused in on -- we are already focused in on. >> taking emotion out of it completely, staying educated is very important. staying disciplined and patient, especially in an environment like this where we have volatility, unbelievable intraday. >> there's a psychology around understanding what is out there, not fighting the market and being respectful of the market and with the market is telling you and being really cynical about every in punt -- input, questioning every assumption, which can be tiring sometimes. but you have to do it. >> you take discipline and
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ability to disentangle. i know that sounds weird, but disentangle the decision-making process from the day-to-day. >> insane volatility or crypto in some, i don't know, you understand it can be off by an order of magnitude. >> all crypto, all tokenization, everything related has gone to $2 trillion. everything we do day-to-day that people do not even realize yet, that market is going to be disrupted. >> there's an opportunity when there is lots of excess volume. we have seen that with a lot of the meme stocks. by the way, the retail engagement from our perspective is unbelievably good for us. i am a big fan of growing our ecosystem. caroline: nice little round up
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there. now let's talk to one of the correspondence behind that story, sonali basak. i am interested in all these types of trading and assets being looked at by these five individuals. what were the few key narratives you saw throughout? sonali: we spoke to people with $30 million in assets from $330 billion in assets. something a lot of them had in common were a few things. one, comfort with volatility and humbleness to know when you are about to lose money and how to deal with it. a lot of these folks we spoke to about what happened when they lost and won. the other big thing was technology. whether they were talking about crypto or what they call ats, the adapting to new ways of trading was something they also had to become double with. also a lot of them -- become comfortable with. also a lot of them started very young.
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they remembered being given a lot of responsibility early on. so, remember and how much young people have to do in the market is important. romaine: talk more about the adaptability. you mentioned the idea of the trading platforms have changed. sometimes the person you are trading with is not actually a person, and i am sure they have to factor that into how they want to price things are what they bid or ask. sonali: liquidity in the market is really important. factor that into the volatility itself. one thing apollo made the point to me was do not trade just to trade. they said you need to know everything you can about the asset and just as importantly, what you do not know about the asset and the counterparty. they avoid some concerns about portfolio trading, for example. the more algorithmic trading behind bonds when you come to big banks looking at asset classes together. yes, you should be worried about this to some degree. the other thing about technology that is interesting is they said
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they would get into crypto full-scale but they are investing a lot in blockchain and potentially deify in terms of being the counterparty through someone else for these technologies. you still need to know who you are trading with what the message in which you get there is changing. taylor: really interesting. let's bring in one of those traders profiled in that piece, katy kaminski, chief research strategist and portfolio manager who has about $6.5 billion in assets under management. katy, a great profile to read, mainly because it is all about the quan. i am curious, start with away quan trading has really changed for you. we knew of the blue ups -- the blowup, and the pandemic that upends the industry again. what have you noticed is the biggest shift about the quan industry? katy: the most important thing
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is quan is a spectrum and these days, everything is influenced by quan. it used to be very much a niche part of our business, but after what we have seen in technology and all the data science, quan is in everything we do in finance. for me, that is a good and exciting change. and it is part of everything we do because it is about data. caroline: it is about infrastructure as well. as we speak to you, how much has that been stress tested? i think it has been a great example of how technology can really revolutionize business. for us who have been more your tried-and-true classic want -- quants, it was a learned experience to actually going to doing things remote and learning
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how to use technologies and new methods to navigate a very different work environment that we did not expect prior to this. romaine: talk a little bit about some of the models you guys do. we talk about the quant trader is such a fixture now, but you go back 20 years ago, they were sort of shunned and we all remember the great memoir by emmanuel derman talking about his experiences in the early days of being a quant trader and strategist. there has always been the concern that once you model something good, everything -- everyone else will either duplicate remodel or find a way to replicate the more profitable portions of it. and that means down the road the profitable portions become less and less. katy: that is a good point. but one of the key things that we think about the quant strategies i work with, which are your tried-and-true methods, for me it is really about measuring data and aggregating
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information together in a way that we can actually distill views on the market. i think that one of the challenges today is that so much information is out there. so, the way that you aggregate and measure information and use that to trade is still somewhat of an art in the sense that there is so much out there that you can use. so i do agree that some very tried-and-true, classic, complicated strategies, yes, they are the way and the secret sauce of the past no longer works. what tried-and-true methodology will provide an interesting approach to trading in the market where we are not focused on emotion, we are focused on measurements. that just provides a very different return series then what you might have with other investment strategies. taylor: does that still work
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though, given the heavy hand of a federal reserve, where the models might tell you companies go soft and the fed comes in and starts buying junk bonds? truly, how do you take into account a heavy hand of a federal reserve that dampens volatilities? can the market see that? katy: that is one of my favorite questions because everyone says now the fed is going to come in and control the market and there will be no more trends and every time there is a trend it has been reversed. how i answer that is when the fed comes in and changes market dynamics, it creates very different trends, of which we follow in a very different sequence then what you might think about. if i look at a year like 2019, that was a phenomenal year in fixed income. i look at 2020, bigger trends were energy, also fixed income again. anytime you have a different market environment and a stressor, you find different trends that occur in the wake of
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that type of behavior. yes, classic trends of the past stop working, but it just creates a new environment, and right now inflation has been our biggest trend that we have been following. caroline: and haven't we been talking about it. in the piece you talk about your early days, and the phd, it was your professor who got you into systematic trading and getting your appetite about that. does your day-to-day now look like how you envisioned it? walk us through an average day for you. katy: that is a good question. i think why i was interested in what i do today is i was always fascinated by this separation of emotion from decision and this idea that there will be periods of time where rules and methods
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might work better than what your gut tells you. i was fascinated by this as a phd student was interested in, what are the rules traders use, and why and when do they work. and as i sit today as a quantitative investor, i live that day-to-day, and that these rules and the strategies, they make the decisions. i personally disentangle my gut feelings if they don't work and also how the market moves. it is kind of a fascinating field, in that sense. caroline: great to get some time with you today. katy kaminski. you're are going to ask something? romaine: do you know that she wrote a big portion of the cfa material on managed futures? taylor: i did not know that. romaine: i just noticed her name on that. caroline: do we need to blame her? romaine: she can help me study. caroline: never going to
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advocate bending the rules. coming up, crypto. how traders are handling all the volatility in the space. romaine: when are you giving me your notes, taylor? taylor: i could share my notes. romaine: nutella. caroline: she has a lifetime supply. she doesn't need that. meanwhile, we are talking about leigh drogen. we will see if there are notes from taylor on that. this is bloomberg. ♪ is bloomberg. ♪
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>> i personally think bitcoin is worthless. but i don't care, it makes no
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difference to me. our clients are adults and to disagree. so if they want to have access to buy or sell bitcoin, we cannot custody it, but we can give them as clean as possible access. romaine: that was jamie dimon of course speaking earlier at the institute of international finance meeting. and of course, look, we have to talk crypto because caroline is here. big take focuses on the day in the life of traders, and on volatility and a few other things. caroline: it is a good day when we can mention the vicks, the fx volatility index, and bitcoin volatility. $57,000. i think we said that was the highest going back since march, april may. the blue screen is the 30 day volatility. it has been creeping up since the lows of september. all of this brings to mind, is
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it a blessing or a curse given that volatility should be good for markets? less discuss it all with leigh drogen. he started a new firm recently, starkiller capital, applying quantum research to digital assets. this is interesting because we know you as someone who traditionally would come on and we would talk to you about traditional equity analysis. make the pivot in the jump for us how you apply that with crypto. leigh: i have been a crypto investor since 2013, more so in 2015. in early 2017, sat down to apply very similar models to what your previous guest uses on the equity side which is what the beginning of my career was in. to the crypto market, those trend following models. what we found is because of the asymmetric nature of the growth of these cryptocurrencies, these
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trend following models are just incredibly useful in this market. and so at star killer, we are leveraging those very classic cta-style trend following momentum models. and they work very well. caroline: people are going to be based about this. they would say trend following matters because there are no fundamentals. do you have to look at the technical of trading these assets? how much harder will perhaps the institutional money flooding in make it for you? are others coming? leigh: i would completely agree. my original thesis around crypto in 2015 was it was utilityless, basically financial asset as religious proselytization. for me, only in 2019 did we really see some fundamental value to any of this. yes, it is definitely coming. there will be more trading that
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will cut down on some of the momentum in the market. but it still stands that because of the global nature of the asset class and because we are just so early in this asset class, that the asymmetric nature of the returns when something does get going and does hit escape velocity from a fundamental perspective, you do not want to cut off the right tail of those concerns. romaine: with regards to mitigating risk, i am to go back and look at it from an equity perspective. when you look at market risk and trying to match up your investments and your portfolio with whatever data you want to set at, how do you do that in the crypto sphere? particularly when correlations are not always as linked as you would like them to be and some risk metrics are maybe not as proven or tested as we see in the equity and fixed income markets? leigh: good luck putting
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together a reasonable data for your asset because they move around so much. here is how we think about it. there is a fundamental premise that we believe in, and that is that something such as a market cap weighted index of bitcoin and eth as you are data neutral asset you will judge everything against, that is how you have to think about these markets. if they going to take, everything else is basically going to go in the tank with it. you have to manage risk about what is happening in those assets and understand the interplay between those two and the rest of the ecosystem, more so when the trend is up. that is when you want to trade -- play around. we are having these trend following models and momentum models, and they governed the overall beta the portfolio of and they mostly look at those two assets. when the model says you have to
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take them down, we basically get rid of a lot of the other stuff. taylor: does that work when you get headline risk in the stroke of a pen from china trying to change the game of the rules when it comes to crypto? leigh: one of the things you simply have to accept if you are going to be an investor in this space, and you don't have to accept this if you are trader where you can be in and out of stuff in a matter of hours, but if you are running the kind of size we are running and you are looking for the type of long-term asymmetric return we are looking for, you have to be willing to take a lot of vol. our models basically say we are willing to take a 25% or 30% drawdown because we can know the market trough to peak during these big cycles. but if you want to be in it for those big returns, you cannot be trying to manage risk for a 5% or 10% job down.
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you also cannot be playing with leverage, because if you lever up your book, and yes, we see these 20% overnight drawdowns, you are just going to get wiped out. caroline: as many around this table no, and as i have said many times, my husband works in the world of crypto. therefore i feel the pain that never sleeps. this whole story is about a day in the life of a trader. what does your week look like? is its incessant nonstop? when do you get to rest up and just let the models work for you? leigh: the way i work for as the cio of our book, and luckily we have an amazing pm who handles a lot of the yield strategies on the farming side. but it's kind of interesting that you got to kind of relax more during the day because it
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is not so compressed where everybody is around and you have to be so focused every hour from 9:00 to 4:00. the other part is if alerts go off in the middle of the night you have to be able to get up and understand what is going on. but on a broader perspective, because of the way that our book is kind of designed, there are periods in which we take the beta of the portfolio down very seriously. those are the times were you get to reset, relax, kind of take a break from the risk management of the portfolio and do deeper research on thematic-oriented things. but yes, it is 24/7. i enjoy that more than just the monday to friday thing, because i found myself working on the weekends anyway. caroline: as always, a joy to
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have you with us. we are going to dig in a little more into the world of trading in a moment. this is bloomberg. ♪ t. this is bloomberg. ♪
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romaine: welcome back. we have an interesting discussion today. we have some interesting perspectives here. keep the emotion out of it. money never sleeps in crypto. you should know that, caroline. do you sleep anymore? caroline: i have nothing to do with the trading anymore. romaine: i just thought the shouting would keep you up. caroline: it is very demure on our side. i guess working from home has changed the name of the game.
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taylor: there was a great comment about misting the boisterous trading floor. certainly in a post-covid world that has changed. caroline: maybe it is a more hospitable place to work. romaine: everyone loves the yelling and shouting. that is the only way. it is all just yelling. you have to keep one part of your body on the couch. very strange. ♪
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>> from the heart of where innovation, money and power collide, in silicon valley and beyond, this is "bloomberg technology" with emily chang.


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