They say that diversification is the only “free lunch” in markets. Scatter your bets around and you’ll realize a reduction in volatility that helps you manage risk. That’s been happening at an epic scale in US equity markets: the 1m correlation among stocks in the S&P 500 is (to quote Dean Wormer from Animal House) zero point zero. But I’d argue that today’s index and the trillions of dollars that track it are enjoying a run of low correlation among stocks that is unsustainable. It’s not if, but when the next correlated risk-off episode materializes.Effective risk management requires a healthy imagination and a willingness to carefully evaluate blind spots. In the aftermath of largescale drawdowns and spikes in measures like the VIX, a consistent realization by investors is that the degree of “sameness” in assets was underestimated. It took us until 2008 to recognize that the substantial run up in housing prices was linked to a common underlying driver: the vast supply of mortgage credit. There was a hugely under-appreciated source of correlation that failed to make it into how securities and risk scenarios were modeled. Today, amidst these record low levels of correlation among stocks in the S&P 500, are we similarly missing a hidden yet shared connection that exists in the ecosystem of companies all engaged in the pursuit of AI riches? Is the stunning wealth already generated being recycled today in the same way that mortgage credit was recycled in 2006?I hope you enjoy this discussion and find it useful. Be well.
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25:09
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25:09
David Puritz, Founder and Chief Investment Officer, Shaolin Capital Management
It was a pleasure to welcome David Puritz back to the Alpha Exchange. A colleague of mine from 25 years ago and now the CIO of Shaolin Capital Management, Dave has some excellent insights to share on uncorrelated investing broadly and on the current state of convertible bond trading, risk, and liquidity, specifically. When he last joined the podcast in 2021, the Fed was still at zero, five-year yields were 75bps and Dave warned investors to avoid long-duration, low-coupon converts. The epic drawdown in bonds in 2022 made that call quite prescient.We talk about some of the pricing dynamics within converts, where Dave sees the risk of being wrong as especially high. Here, he points to the pricing of high implied vol underlyings that can suffer from vol compression that is not offset by a tightening of credit spreads. Overall, he sees many areas of the converts market with little margin for error. On the risk management front, Dave states that in order to get a position to a fully desired sizing, the first purchases generally need to be made at the wrong price. In fact, he says, “you want to be wrong” on your earliest purchases and be averaging in at lower levels. In this context, we explore the notion of cheapness and finding value in the convert space. Dave differentiates between fundamental value, value in beta and technical value.With deficits soaring and the traditional stock-bond hedge broken, we also talk about Dave’s thinking on hedging fiat currency risk. He argues that Bitcoin—once dismissed as too volatile—is increasingly functioning as a digital form of scarcity, a portfolio hedge alongside gold in a world of relentless money creation. He also shares some very interesting insights onBitcoin-linked equites like miners and the potential applications to AI.I hope you enjoy this episode of the Alpha Exchange, my conversation with Dave Puritz.
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57:03
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57:03
RoR: Reflections on Risk
In this discussion, I share my thoughts on the backdrop for both SPX realized and implied volatility, as I explore the question of whether there is value in optionality. We have 3 things going in terms of realized vol at the index level. It’s low, it’s especially low on SPX down days, and it’s remarkably stable. My take is that the combination here can play tricks on how we think about risk. We are prone to letting our guards down. Next, I share a 5-part framework for addressing the question, “is insurance worth it?”. I find that certain proxy hedges like HYG provide excellent value at current ultra-skinny option premium levels. Next, I review the GOAT (Great Opportunities and Threats) portfolio which overlays gold and bitcoin as diversifying assets and index put spreads as insurance on a base portfolio that is long the SPX. The risk-return characteristics of the GOAT are decidedly better than those of the SPX in 2025. I also explore the pricing of SPX vol skew and how it is a headwind for collar hedging trades. Lastly, the topic of correlation is on my mind, especially as it is an input into structured derivatives trades that often cost too much. I hope you enjoy the discussion and find it useful. Have a great week.
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31:45
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31:45
Ken Rogoff, Professor of Economics, Harvard and Former Chief Economist, IMF
On this episode of the Alpha Exchange, I had the pleasure of reconnecting with Ken Rogoff, Professor of Economics at Harvard and former Chief Economist at the IMF. In our conversation, we explore themes from his latest book, Our Dollar, Your Problem, a valuable retrospective, and analysis of the rise of the U.S. dollar as the world’s reserve currency and the vulnerabilities that accompany it. In our discussion, Ken reflects on the privileges America enjoys from dollar dominance, namely lower borrowing costs, financial system centrality, and sanction power—while warning that such advantages are not guaranteed forever.We also explore the lessons from past debt and currency crises and the fragility of fixed exchange rate regimes. Here Ken shares firsthand experience as a policymaker who was among those whose advice was sought for how to address many of the prominent FX vol episodes of the 1990’s.We turn to the main point of his book – that there are risks that come with assuming low interest rates will persist indefinitely and that our policy instability may be quietly undermining the dollar’s status as the reserve currency. Ken underscores that debt sustainability is as much about politics as economics, and that weakening of central bank independence may threaten the dollar’s safe-haven role. The main message: periods of calm often mask deep vulnerabilities and complacency about fiscal deficits, global dollar reliance, and policy credibility can quickly give way to instability.I hope you enjoy this episode of the Alpha Exchange, my conversation with Ken Rogoff.
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53:40
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53:40
Kris Kumar, Founder and CIO, Goose Hollow Capital
It was a pleasure to welcome Kris Kumar, founder and CIO of Goose Hollow Capital, back to the Alpha Exchange. Kris presents a compelling argument that traditional economic frameworks centered on consumption are becoming obsolete as AI-driven capital expenditure emerges as the dominant growth engine. With companies spending $400 billion annually on AI infrastructure, he contends we're witnessing a fundamental shift from consumption-led to investment-led economic dynamics, requiring investors to recalibrate how they analyze market drivers and policy transmission mechanisms.Kris draws parallels between current AI investment patterns and historical tech bubbles, noting critical differences in financing structures that could alter unwind scenarios. He explores the unique challenges facing monetary policymakers as AI disrupts labor markets while tariff policies create inflationary pressures, potentially rendering traditional Fed tools less effective. The discussion also covers emerging market opportunities, particularly in Latin America, where countries benefit from AI-related commodity demand while offering superior real interest rates.I hope you enjoy this episode of the Alpha Exchange, my conversation with Kris Kumar.
The Alpha Exchange is a podcast series launched by Dean Curnutt to explore topics in financial markets, risk management and capital allocation in the alternatives industry. Our in depth discussions with highly established industry professionals seek to uncover the nuanced and complex interactions between economic, monetary, financial, regulatory and geopolitical sources of risk. We aim to learn from the perspective our guests can bring with respect to the history of financial and business cycles, promoting a better understanding among listeners as to how prior periods provide important context to present day dynamics. The “price of risk” is an important topic. Here we engage experts in their assessment of risk premium levels in the context of uncertainty. Is the level of compensation attractive? Because Central Banks have played so important a role in markets post crisis, our discussions sometimes aim to better understand the evolution of monetary policy and the degree to which the real and financial economy will be impacted. An especially important area of focus is on derivative products and how they interact with risk taking and carry dynamics. Our conversations seek to enlighten listeners, for example, as to the factors that promoted the February melt-down of the VIX complex. We do NOT ask our guests for their political opinions. We seek a better understanding of the market impact of regulatory change, election outcomes and events of geopolitical consequence. Our discussions cover markets from a macro perspective with an assessment of risk and opportunity across asset classes. Within equity markets, we may explore the relative attractiveness of sectors but will NOT discuss single stocks.
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