What causes significant risk-off events? Can they be anticipated to any degree? Understanding the how and why of these episodes is critical for investors seeking to avoid drawdowns. In this short podcast, I share how I think about episodes of risk-off, with particular attention to the interaction between stock and bond prices — before, during, and after market vol events. I outline three type of risk-off: the classic, the taper, and the liquidation, and provide examples of each. I also propose a fourth, in which the US Treasury market is itself the source of global instability. I hope you find this discussion useful and I wish you an excellent July 4th holiday. Editing and post-production work for this episode was provided by The Podcast Consultant (⁠https://thepodcastconsultant.com⁠)

The Three Types of Risk-Off

Alpha Exchange

Hello, this is Dean Curnutt and welcome to the Alpha Exchange, where we explore topics in financial markets associated with managing risk, generating return, and the deployment of capital in the alternative investment industry. Hello, Alpha Exchangers, and wishing you a very happy holiday.

Our great country turns 250 at a time of profound disruption when the pace of change remarkably seems only to be accelerating. If you think a little bit like I do, and I suspect you do because you are listening, markets couldn't be more interesting right now. We are exposed to both great opportunities and threats. I've taken to saying that the two greatest assets in our country are our stock market and our bond market.

Never before have Americans enjoyed so much stock market wealth. In the textbook, a recession causes the equity market to decline. I think today's causality is reversed. Kevin Warsh ought to be watching for a sell-off in the S&P 500 for its potential impact on GDP. The wealth effect is real. This formidable stock market engine doesn't run without the bond market. That's the other incredibly valuable asset we have in this country.

An enormous, liquid, and generally risk-free government bond market. It fuels the stock market engine. With this in mind, I wanted to share with you some of the work I've recently done as part of an Alpha Exchange white paper, The Three Types of Risk-Off, which I recently made public on Twitter. Over the next 20 minutes, I'll give you the shorter version. The actual piece has some good charts in it that I hope will add to your understanding. Let's get into it.

The Three Types of Risk-Off

Read the full transcript

The candid version is on a podcast,
not the earnings call.

The Three Types of Risk-Off

Read the full transcript

The candid version is on a podcast, not the earnings call.

The candid version is on a podcast,
not the earnings call.