TIPS, Options & Rates. Increased Volatility environments with Nancy Davis

This week’s guest may be new to Twitter (@nancy__davis), but she’s certainly not new to the wide world of volatility in all its wonderous “fruit” forms, including of course rates and fixed income volatility. In this Derivative episode, Jeff sits down with one of the “100 Most Influential Women in U.S. Finance,” Nancy Davis. Nancy, who started her career at Goldman Sachs, is the founder of Quadratic Capital, portfolio manager for the IVOL and BNDD ETFs, and a frequent finance commentator on Bloomberg and CNBC.
In this engaging chat, Nancy is talking TIPS (inflation, duration exposure, plus real yields, and yield curve control), debit card vs credit card investing, why most bond investors are short mortgage calls, the purpose of IVOL, the day-to-day of running an ETF (the Vanguard of Convexity), a mother’s love for options, what it takes to make it as a female in finance, why having a P&L is the key to meritocracy, and much more. Plus, we’re playing two truths and a lie where we find out if she has a strong poker face or if that’s just a reference to her doppelganger — SEND IT!

Check out the complete Transcript from this week’s podcast below:

TIPS, Options & Rates. Increased Volatility environments with Nancy Davis

Jeff Malec  00:07

Welcome to the Derivative by our RCM Alternatives, where we dive into what makes alternative investments go analyze the strategies of unique hedge fund managers and chat with interesting guests from across the investment world. Happy Thursday everyone. I’m out in Napa, meeting some clients and tasting someone, but the show must go on. So we’re recording a couple of good guests in the coming weeks with the trend following crypto trader next week to sort through the carnage in that space, followed by some energy folks who will dish on just how high gas prices can go. Today’s episode was a lot of fun where we get to chat with Nancy Davis but all things volatility and inflation rates and spreads what it’s like to run an ETF and debit versus credit card investing. Nancy is the founder of quadratic capital and manager of the eyeball ETF that’s unique way to approach fixed income and inflation. Come to the ball top state for the real talk about raising a family and meeting a p&l from meritocracy. Send it This episode is brought to you by resumes vix and volatility specialists in this managed futures group. We’ve been helping investors access volatility traders for years and can help you make sense of as volatile space. Check out the newly updated VIX involved white paper and to the education menu, then White Paper link and now back to the show. Hello, we’re here with Nancy Davis of the Ahsoka avatar on our Jedi evolve infographic. Welcome, Nancy.


Nancy Davis  01:36

Thanks for having me.


Jeff Malec  01:37

Thanks for being here. Did you get your poster? I think we sent it out.


Nancy Davis  01:41

Yeah. Thank you so much.


Jeff Malec  01:43

Are you a Star Wars fan or no?


Nancy Davis  01:45

Oh, yeah. Yeah, no, the whole my entire quadratic team, we all went to the premiere of Star Wars in Port Chester, which is right by our office in Greenwich, Connecticut. And we all dressed up, me included.


Jeff Malec  01:58

Were you Ahsoka, did I nail that avatar? No.


Nancy Davis  02:01

No, I was not Ahsoka. No, nobody wants to be a Ahsoka. It’s okay. I’ll take it.


Jeff Malec  02:08

Who? I’d got to know now who you dressed up as?


Nancy Davis  02:12

Well, of course, Princess Leia.


Jeff Malec  02:15

And you had your hair going in?


Nancy Davis  02:17

The 80s. Yeah, I got a lot of hair. So it works perfect. And the braided buns?


Jeff Malec  02:23

I love it. Have you been watching the Obi Wan series with little little child layup?


Nancy Davis  02:31

I haven’t I don’t have little children’s. So


Jeff Malec  02:34

no, it’s an it’s adult content, but they part of it is about layup as a child. Anyway. I haven’t seen that yet. So I want to just jump right in and talk about tips. I think I’ve been doing all too long that I really don’t get tips. So if we can just start and explain it to me, like five? What tips do what they’re supposed to be doing? How you think about them? Start from there.


Nancy Davis  02:59

So maybe just to give a brief history lesson. A lot of people look at like what happened in the 70s for you know, what, what do they do now with all this realized inflation? Like, where do they go? What do they look at. And I think the big thing I keep in mind is tips didn’t exist that the chips market wasn’t created until the late 90s. It was 1997. When the Treasury issued. They’re called tips because they’re treasury inflation protected securities, to acronym for type of treasury bond issued by the US Treasury. And they didn’t exist in the 70s. So I think a lot of people look at oil or gold or equities or real estate and say, Oh, this is a great inflation hedge. The can’t look at tips because there’s no data. And personally, I don’t think tips are really going to work in inflationary period because their bonds, right. So because our bonds, all tips have duration exposure. So whether it’s a short dated tip or a long data tip, it doesn’t really matter. They still will, you know, lose money when real yields go higher, based on their duration. And so I feel like short duration is a bit of a you know, we’ve been in a period of very low interest rates for a very long time since the financial crisis. And I feel like people just need to be aware that short duration it’s almost like a fake name. You know, it’s not short anything, it’s just less long, right?


Jeff Malec  04:27

It’s still shorter duration shorter


Nancy Davis  04:28

it’s it’s still long duration, it’s just less long. It’s not short anything like to me short means it does well it makes money when the thing goes down, whatever that thing is, and that’s not the case with short duration. It’s still and it’s especially true with all the the Fed going from like think about it today is it’s June 2022. Literally a year ago, before the June FOMC meeting the Fed was not even remember the whole like not even thinking about thinking about raising rates like Whoa, what a, what a crazy year it’s been right, we’ve gone from not even thinking about thinking about raising rates to having 150 basis points of actual policy hikes plus another 190 expected in the next, you know, five months. So the other big problem with tips, which, now that you got me on a roll, the other big problem with tips is tips. Only reference one index is I think the best comparison just to set the stage is like, if you are a, say, an equity investor in the US markets, you would never buy, you know, the Dow Jones index, or the Russell Index or the NASDAQ and say, tada, I have, you know, US equities. There, they’re actually more ETFs and stocks. So it should be a lot easier to measure the stock market than it is the ETF market. And the the, the only way that tips are reset, is with one index, which is the consumer price index. And the Consumer Price Index is a third of it, if you you know, you can Google it go to the Bureau of Labor Statistics. They’re the ones who calculate the index. And the BLS a third of CPI is what they call shelter, which is actually owner occupied rent. So it’s just not, I think, a sufficient way to think even the Fed doesn’t use CPI as much as they use other indices. So it’s just really important to say like, chips are okay, but we really haven’t had runaway inflation, with the exception of now since they started. And there’s nothing to look at in the 70s. So don’t people don’t really realize how, how much they’re not going to work, in my opinion.


Jeff Malec  06:52

And how does it work in practice, that the how does the CPI adjustment work, they’re fed, or the Treasury just adds to your principal.


Nancy Davis  07:03

So they reset the principal at the maturity. So you can have like, if you have what’s to get extreme example, a 30 year, you can wait a lot of a lot of times you get that, that principle reset, but they’re set every semi annually. So it’s, it’s a, they’re actually pretty complicated instruments, because in the US, at least, this isn’t the case in Canada, but in the US that kick out, actually shadow income, like phantom income, so you’re supposed to pay taxes on the income that the CBI is generating. And so the nice thing about No, I’m not a tax advisor, right. So I’m not allowed to give tax advice. But the nice thing about 40 Ach funds, which are mutual funds and ETFs are both 1940 Ach funds, and I sing about 40 Ach funds is a was a clean the distribution. So the monthly distribution that you get from the ETF is is, is sweet and easy comes on a 1099 into your brokerage statement. And so you don’t have to do these estimated taxes. But it’s


Jeff Malec  08:09

a little weird if Reg, say there was only one huge investor had 100 billion and tips. And the Treasury would have to basically print money right to to get you your CPI adjustment. So it’s like we’re going to print more money to protect you against inflation. seems counterintuitive. Seems weird. And but in practice, you’re saying they’ll that gets mark to market every year as the adjustment happens. But then you get you get the actual adjustment at the end of the term of the of the security. Yeah. We can get into whether we should mark the market for taxes there.




Nancy Davis  08:47

Yeah, it’s it’s they’re complicated instruments. I think, you know, a lot of they are just treasuries, but they’re not like, I think a lot of people don’t understand tips. It’s a pretty widely not understood market. And I think the other thing that people generally don’t understand is that, you know, there are no tips and things like the Barclays ag index, right? Yes, think about the AG is like a really, really, really old index. It used to be the Lehman AG. Before that it had a different name than it was a Barclays AG. Then it was a Bloomberg, Barclays ag and now it’s just the Bloomberg gag, but the Ag index, a lot of people own that are own managers that are benchmarked to that to get their you know, core fixed income. But the problem with the AG is it has only nominal treasuries meaning regular treasuries, it has no inflation protection in it at all. So you know, if people only on the Ag they might not be as diversified in core fixed income as they might think.


Jeff Malec  09:41

The so you mentioned a lot of people don’t understand so what percent of investors are worried about inflation and bought tips to protect them? Right? We don’t know for sure. But just you went to your guests of what percent of investors are actually happy with their tips, purchases and that’s present, I knew they’re like, these things are terrible, this we’ve had inflation, I bought the tips, and I’m I’m down, so they didn’t understand the bond component of it.


Nancy Davis  10:09

You know, I think the most frustrating was probably the first quarter of 2021, when inflation expectations were actually ripping, and tips were down, you know, pretty substantially because of their duration. Because we had remember, the, the tenure like ticked up a little bit to like 175. And tips lost money, like quite a bit of money, even though inflation expectations were increasing. So I think that’s where it all comes into play. We were, you know, about 311 basis points in q1 2020, q1 21, when tips by themselves were losing money, and that 400 basis points about performance was from the options component.


Jeff Malec  10:53

And so I guess that’s a good point for tips. It’s not that you’re going to be plus 10, when the AG is down, 10, almost impossible, right? It’s going to be just a little incremental, potentially incremental, better, when there’s an inflation print when the CPI is higher? Well,


Nancy Davis  11:10

I think the thing, the thing about the AG is the there’s nothing, there’s no chips in the ag. So, you know, it tends to be, you know, not related. It’s, I would say it’s complementary to the Ag like the Ag spine, but the AG is not diversified or complete. So I think a lot of people are using tips, or they’re using the eyeball ETF to take that core ag portfolio and make it more diversified. So it’s like, it’s like a ag needs a little, a little tweak, because it’s just such an old index and the tips market is a new market. So I think a lot of people just don’t realize that that the Ag doesn’t have any any inflation protection.





Jeff Malec  11:50

Let me ask another way, how much inflation protection? Would I actually need to have like this year erase the entire bond loss? Right? Would it have to be it couldn’t be one to one coverage on the CPI have to be multiples of that, right?


Nancy Davis  12:04

Well, you know, TIPS TIPS, you have to think of like nominal yields, and then tips have real yields plus inflation. So generally, right now, the Fed has been very aggressive with their forward guidance as well as their actual policy hikes. So inflation expectations have been decreasing. Real yields have been increasing this year. And that’s everybody was talking about really negative real yields last year, but but tips have positive real yields now. So nominal yields can rise as a result of real yields or inflation expectations. And so it’s important to keep in mind that there’s, you know, real yields is what matters for tips, not nominal yields. So basically, since they’re bonds, you want lower real yields, just like in a regular bond, you want lower yields for higher prices, or if you have a bond with credit risk, you want credit spreads tighter, yields lower to do well, if the bond like a whether it’s investment grade or high yield bond?


Jeff Malec  13:08

Did you ever think you were gonna be this bond inflation person? Right, because your background was a little bit more of like, cross asset? multiple, multiple assets? Right?


Nancy Davis  13:18

No, I’m glad you asked that question. Because when I started my career in the late 90s, at Goldman Sachs, it was right when the US Treasury invented the tips market. And so I’d say this has been actually a career long passion of mine to be like, well, that’s such a, like, it’s so not going to work, you know, to use the CPI index, I think is very, you know, does it make any sense to have so much of it be owner occupied rent, a third is rent. And then tips are bonds, which are long duration. So I feel like it’s actually really plays to my strengths. Well, because we’re taking a product that, you know, people don’t know it’s broken, because we haven’t really had runaway inflation, they will know backward looking, but because tips didn’t exist in the seven years, people don’t realize, you know, how only using CPI and having long duration is not necessarily the best thing


Jeff Malec  14:11

for me. It looks broken this year so far.


Nancy Davis  14:15

Yeah. Well, it’s interesting because we’ve had the rates market is very, it’s all forward looking like all markets are forward looking. So it’s not what’s priced in now. It’s what does the market expect in the future? The same with the equity markets, the same with the credit markets, all markets work that way. And the interesting thing about the rates market is the rates market thinks the Fed hiking rates is going to slow inflation, right. The market is very much priced in for this, you know, the Fed might have retired the word transitory, but the rates market has not the rates market believes the Fed is going to hike. Then let me just pull up my Bloomberg so I can see right now and quote it. We have, you know, over like the Fed is only hiked 75 And then another 75. So, one 150 is an actual realized hikes but the market is pricing in another 75, another 75, and then another, you know, 25 plus in the next like five months right before the end of 2022. So the rates market is really fully priced in these hikes. And the rates market thinks the Fed hiking rates is going to slow inflation. And I think that’s where the opportunity lies, because it’s all about you know, it’s all about buying low selling high right, all investing and asset allocation and inflation future inflation expectations are, let’s talk in ball terms. So your because I know you have a lot of vol people, difference between implied and realized is massive, it’s a huge difference between implied and realized. And that’s because realize inflation is super high, and future implied inflation expectations is much lower,


Jeff Malec  15:55

which is basically basically the market saying the Fed is going to do it, they’re going to control it.


Nancy Davis  16:01

Yeah, the market has a lot of conviction that the Fed hiking policy rates is going to slow inflation. And to me, that’s an opportunity because I’m like, I don’t see how the Fed hiking policy rates is gonna make, you know, the geopolitical risks, simmer down or create less supply side issues or fix the labor market shortage. It’s really none of those. It’s hitting the demand side, but it’s not really going to impact the supply side.


Jeff Malec  16:30

And what what do you mean by policy rates real quick?


Nancy Davis  16:33

I mean, the Feds the Fed sets the policy rate. So that’s the only thing you know, the you can look at fed fund futures


Jeff Malec  16:40

is the market rate.


Nancy Davis  16:43

Well, all central banks set policy rates, right. So the Fed or the ECB or the Bank of Japan, they set the policy rate, but the curve, the interest rate curve, just like a vol curve is set by the market. Right. So that’s not something like even think back to let’s see, I think it was the fall 2019 Do you remember the fall 2019 the repo market was exploding, right repo rates were like 6% overnight, even though policy rates from the Fed were extremely low and my fellow long blonde haired, Lael Brainard was coming out talking about yield curve control. But I think what she was really talking about was forward yield curve control, not like Japan style, but more like what Australia ended up doing. In in the the heights of the pandemic, they did fronted yield curve control, because at the end of the day, the Fed only sets the policy rates, but the market sets see the term structure of interest rates. So the term premium is set by market participants that’s not set by central banks.


Jeff Malec  17:50

And what what are your thoughts on that they write, they essentially set it by kind of telegraphing what they want to do. And then the market follow suit. Right. So they can, I guess it’s a game of chickens. A little bit like I can tell you what I think I’m going to do move the curve, but it’s just expectation based policy. But


Nancy Davis  18:09

well, it’s often wrong, I think, yeah, that’s really wrong. Keep in mind, like just let’s just take Chairman Powell, for instance, you know, in 2000, let’s see 18. Going into 2019. The rates market had priced in three hikes. Three hikes was expected in 2019. Then the December 18 meeting came out. And Powell, you know, is getting these aggressive tweets, let’s call them that, remember? Hey, J, hey, J from a different Yeah. He who, whose name who shall not be said to? But anyway, so he was getting all these aggressive tweets about hey, J. Hey, J. and Powell, instead of hiking rates three times in 2019, like what was expected in December 18. At the December meeting, he turned dovish suddenly and he ended up cutting rates three times and there was no inflation, no pandemic, no election like literally nothing was going on. So I think it’s very important for the market to keep in mind that a lot of this is theatrics, right, a lot of this forward guidance is convincing people that you’re credible. And I think right now we’re at peak credibility because the market he believes the Feds gonna hike. I see, you know, over 180 basis points about 185 basis points of additional hikes. Christian in the next five months, like with midterms, think about that. It’s more than what they’ve already hiked. They’ve hiked once. 175. People are


Jeff Malec  19:45

like it’s the end of the world they paid 75 You’re gonna do more than more than


Nancy Davis  19:49

like more than the amount of hikes they’ve already priced in the markets pricing in like, literally before the end of 2022.


Jeff Malec  19:57

I have a graph for this that I just drew Oh, I can’t see that. Can you see the little squiggly lines? Right? If you you’ve seen those online, like there’s the 30 years of rates, and these were the expectations always. Right? They were like just kept, the expectations always rates are going up rates are going up rates are going up. And guess what, for 30 years, they never did. So


Nancy Davis  20:17

I can’t see that graph. Maybe we need to edit it and get a better one.


Jeff Malec  20:20

Yeah, I’ll find the actual one somewhere and put it in the show, pencil. But it was just grabbing like the actual movement of rights versus the expectations, which were always sloping up. And we know that it was not always sloping up. Yeah. Switching gears a little bit. I got my header here vol metaphors. So my friend Jason Buck over at Muni funds been known to borrow your line calling options, debit card investing. So talk a little bit what you mean about that. I love it. Well dig into that a little.




Nancy Davis  20:59

Yeah, sure. So derivatives generally, you know, have a really bad reputation for a really good reason. Right? They are, I think Warren Buffett and Munger has to call them financial weapons of mass destruction. And I think the problem with options is they get they get lumped into derivatives are like, you know, it’s like fruit, right? There are a lot of different types of derivatives, just like there are a lot of different types of fruit, you wouldn’t say, Oh, this apple is just like this banana, right? They’re both fruit, but they’re pretty different. And so most of the universe, especially in fixed income, uses linear derivatives. So these are sometimes called one Delta derivatives derivatives, all it means is they go up $1, they go down $1. So like, futures, up $1, down and dollar swaps up, $1, down, $1, forwards, up $1, down $1, all linear derivatives. And the problem with linear derivatives is funding right? It’s all you know, like a credit card where you spend a little bit you put up a little initial margin, you might have some variation margin, but you get to buy something or sell something more than what you put up for. Right? So it’s leverage. It’s like call a spade a spade. All derivatives that are linear derivatives are levered vehicles, and they can have funding obligations at any point in time, like, the exchange can have intraday margin calls, you can have counterparties have margin calls, like think about every, every single big blow up that I can think of, in my career, starting with long term capital in the late 90s, has been funding. Yeah, it’s all linear derivatives. So the problem with those is, it’s like a credit card where you don’t really pay for something, or, you know, have the capital to cover the short, but you get exposure to more than you pay for. So I think of it like a credit card where you’re paying, maybe you’re paying, you know, whatever, 10% or 6%, but you have a lot more exposure options depends on how you use them, right? So options are non one delta. So they’re, they’re asymmetric products, meaning they have deltas, less than one. So option, Delta very simply can be zero, or it can be one, if it’s one, it’s completely in the money and at expiration, and anything less than one, you know, the further out of the money you go, the lower your delta is. So like a wingy option. Sometimes they’re called Teenies. Like, you know, teenagers, I guess, little, little delta options, like, those are really, really high or low strike options very far away from whatever, you know, whatever the market is, and it could be oil, or it could be gold, or it could be interest rates, or I know the VIX gets a lot of love. Because, you know, it’s easy to see, but there are a lot of different volatility markets, and anything that has an options market has evolved market. And so the thing that I really like with long options, and it’s not the case, selling options is a different story. I’m not talking about selling options, but if you buy an option, I think of it like a debit card, because you can never you know, you you stop loss, the position, right you there’s never going to be a funding obligation above and beyond what you pay for the option. And you have the asymmetric payout, which is not it’s not I’d say it’s financial leverage, but it’s not borrowing money leverage. So the nice thing about it is especially in an ETF, you don’t have the ETF you have every 15 seconds, the NAB prints right you have intraday liquidity. And so if you have a big market move with linear derivatives, you might need to sell you know, quickly. Whatever the fund owns to raise cash to meet those margin calls with a linear derivative, you always have that risk and linear derivatives are all over the place in fixed income, like everywhere. It’s actually astonishing to me that some of these ETFs and mutual funds can have these very G rated names and investment objectives like saying, you know, where principle protected or principle protected and, you know, income focused. But a lot of them have a lot of structured credit and linear derivatives inside of them, that can have a funding obligation at any time. So it’s just really important if you’re to know what you own. And to understand not just in name only, right, you can’t just look at a strategy and say, Oh, it’s a short duration fund. It’s like a money market, you know, there is there’s a huge spectrum of things that can be in short duration, you can have all governments which is, you know, can lose money, like think about how much the Fed, move their rate hike expectations, it’s not like there’s nothing in the world of investing that doesn’t involve risk, everything is risky. It’s just understanding what those risks are, and creating a portfolio with different risks. So everything doesn’t look exactly the same.


Jeff Malec  26:02

So if I’m, I want to go on that Hawaiian vacation, it’s $50,000. I only have $5,000. Right? I can go on my credit card. But eventually that bill is going to come due. And you’re saying no, I’m only going if it’s a $5,000? The options, right, the options are like, Nope, I’m only paying my 5000 That’s all I’ve got. And if I lose that, so be it. But I’m not, I’m not going to risk that $4,500 addition or that? What $45,000 additional


Nancy Davis  26:32

think of it as stop loss Sing to me, it’s like when you use fully funded options, you can you can, I think the whole especially in the macro community, like everybody CTAs, whatever, macro funds, they all talk about tight stop losses and stop losses for risk management. To me, it’s all kind of backwards stuff. Because think about like, let’s just break down for a second, like what, what does a stoploss mean? It means, you know, first, that fund manager loses your money, right? That happens, personally your money, then only after they’ve lost their money, your money, do they start to manage the risk of the portfolio. And they do that by covering the things that they like to short, they’re buying them back higher, and the things that they like to own, they’re selling them lower, right, it’s really a negative gamma strategy. So I have a big bone, or beef, I guess, is the right word to beef with CTAs, who use linear derivatives, most of them use futures. And they say they’re long vol. I’m like, I don’t know you’re trying to replicate options, but you’re really short gamma. Because when your risk management comes in, especially if they’re big jumps, and it’s not a trend, it’s a surprise, the CTA is really buying high and selling low because of their risk management. So I’m not saying what we do is better, right? I’m not like some elitist and saying, like, That’s stupid, it doesn’t make any sense that’s worked for you. Those strategies have been around really, since the 80s. I just think there are other ways to think about risk management. And that’s why I like using long options to stop loss when you set the investment. Right. You know, I always know with our options, what we can lose, you know, I think of it is like, you know, like debit cards, because there’s never an obligation on the fund above what we what we spend in the mark to market is every single day,


Jeff Malec  28:21

and how do you do you have a budget or be like, Hey, we’re going to spend X percent of the right on justice debit card investing to, to provide our hedges.


Nancy Davis  28:33

So we have a lot of, I’d say risk management budgets, we have, you know, internal, well, those are all, you know, proprietary about the OTC Greek risk management, like how much gamma we want, how much, you know, roll, we want how much time decay we want, how much theta how much Vega, and all of that changes, because it’s a actively managed strategy. But in our prospectus, you can see that the premium limit the market value of the options, and again, the options, anybody can come into the fund, right, you can even buy it this morning, who sell it this afternoon, we have no idea who’s coming in. It’s not like a private fund where you say, alright, this capital is locked up for a year, right? The mark to market and so we typically manage our options to have a market value under 15% of the overall funds now. But in our prospectus, you can see that we say that we have at least 80% of the fund and Treasuries are cash. So yeah, we just have to be at that limit. That’s also allowing for, you know, with long options, you can have ball spikes, so the mark to market can go up very quickly because it’s asymmetric, right. That’s the point of owning them, right? Yeah, that’s the whole point of owning them. And so our risk management is all about profit taking. Right? It’s all about when the options make money. We then roll our strikes or sell some of the existing positions to reduce the risks. I think it is like, you know, I think that’s to me, it makes a lot more sense to risk manage the profits rather than stop loss losses, like I think, I think the whole, you know, what’s like a math equation. Remember, in school you were learning like the order of operation, like what do you do if you see a patient and the teacher tries to trick you, they put addition, first and division later multiplication later in the equation, you have to know the order of operation. And to me, the whole macro community all uses the same order of operation, which is they say it’s long ball, but it’s really short gamma. So that’s the yes, maybe over the trend, it replicates options, but it really is reliant on a market liquidity being there to implement stop losses, be not having jumped, moves, see, the whole strategy is buying high selling low and they do risk management. Whereas for us, we stop loss with the debit card, like, you know, paying the Having Our defined downside, and then risk managing when we make money. So it’s just different.


Jeff Malec  31:12

So talk a little bit about why you’re buying these options, and what what the purpose is inside of IMO.


Nancy Davis  31:18

So going back to like the, when the Treasury created the tips market in the late 90s, we’re trying to fix those, those two issues. And just to reiterate what the two issues are, that one issue is, the only way tips get reset is one single index, which is the consumer price index. So we’re trying to capture inflation expectations in the future, not measured by CPI. So we have this core Treasury portfolio, like the fund is a Inflation Protected bond, it owns at least 80% in treasuries or cash, then the options are trying to get exposure to another measure of inflation expectations, and also solve the issue of tips being bonds and have a duration, like even short duration has duration. So instead of, you know, think about buying less long duration, you’re still guaranteed to lose money, if real yields go higher, right, you’re just gonna lose less money. So our goal is to actually profit from higher long term rates, or lower front term rates. And that that’s kind of cool, because it’s not just an inflation strategy. It’s also a pretty unique potential risk off, like, if you look at March 2020, just to pick a date. That was a very risk off time with the pandemic, and tips lost money, right? Because Tips Tips are inflation, right? Tips capture, you know, when you have periods of risk off, tips will go down, because, like, remember, oil is trading negative breakevens fall and there’s no inflation is a really risk on asset costs, like there, it’s not like buying a stock, or it can only go to zero, inflation can actually go negative, you know, look at it 2008 In the financial crisis, breakevens just, they can go to, you know, no zero bound, right, so and


Jeff Malec  33:10

we didn’t cover that before real quick. So they’re gonna adjust the the Treasury either went positive CPI and negatives. Well, you’re protected


Nancy Davis  33:18

against deflation at maturity. Unlike in Canada, you actually have the deflation risk, but you still have to hold it for whatever the bond maturity is to get your principal back. So breaking, you can have a lot of mark to market as you’re waiting for that to happen. So I’ve all has inflation in the name, and it does, it is tips plus we try to solve the problem of another measure beyond CPI and how to actually profit. If long dated yields go higher, instead of losing less money, we actually try to make money and like first quarter of 2021, but it’s also I see it as a lower ball tips fun because we can also benefit from lower front dated yields and a rise in fixed income volatility. And those things tend to happen when people want bonds in their portfolio, right when when you want your bonds is when your equities is losing money when your credit spreads are widening. When the portfolio is kind of in a in a tough time like March 2020. You can see a lot of short duration fixed in income lost, you know substantial amounts of money in March 2020. And that’s because they have a lot of credit spread risk, right. So when equity sell off, credit spreads widen, when equity sell off and the markets are in risk off. Typically inflation expectations will fall because bad stuff is happening. So eivol is also long ball. Right? So we can benefit from an increase in implied volatility. And then we also have a way to benefit from lower fed hike expectations which is the way to say it today. Back then you would say negative yields negative policy. The rates are, because because there is no zero. So it’s really a spread trade. So we either want lower friend dated yields, and that’s less fed hikes in today’s environment, which I think is a nice, you know, I think it’s a nice fade the Fed trade because I don’t know if the Feds going to hike an additional, you know, 190 basis points by the end of the year in addition to the 150, that they’ve already hiked. But it seems pretty asymmetric, that that’s already built in. And you can benefit from less fed hikes or higher long term rates, and


Jeff Malec  35:36

it’s kind of games for sure. They’re not going to be 390 or something.


Nancy Davis  35:40

Who knows? Like, it’s a it’s, it’s, it’s been a wild year, if you think about a year ago, we were not even thinking about thinking about raising rates. And here we are.


Jeff Malec  35:51

And so the options it seems it’s a steep nerd trade, right? So you’re you’re betting on those options that the curve is gonna steep and that the either the short end is gonna go down, or the long end is gonna go up.


Nancy Davis  36:03

Yeah, sometimes I think it’s, you can call it some people call it sweetener, but I feel like that sounds you know, a lot of people don’t understand what that means. So I think of it like if you if you think about buying a bond with credit risk, right, any investment grade high yield, what do you want, you want the credit spread tighter, and yields lower, right, that’s what you want with any kind of any type of bond with corporate credit risk levered loans, high yield, investment grade, credit spreads, tighter, yields lower. For us, we have tips, so we want real yields lower. And then we want the spread between short and long dated rates to widen, right, we want a widening of the spread. And I think that might be, you know, it’s really a different strategy. It’s not something it’s not another me to strategy where everybody else is doing this, I think it’s always helpful to compare it to stuff that people know, right? It’s like, if we didn’t have the internet, and you’ve never been to Africa, and I say to you, you know, what’s a giraffe? You know, you wouldn’t really be able to describe it without comparing it to other things that people are more familiar with, like, oh, it has spots, and it’s kind of big, like an elephant. And


Jeff Malec  37:12

I don’t know what we’d compare it. Well, I’ve been to the Science and Industry museum, or the Field Museum in Chicago ama was like this, how does this thing still exist because of the internet, right? They have like stuffed models of all these animals. But back in the day, that’s how you had to go learn about,


Nancy Davis  37:27

so I feel like people don’t really, people can compare it better when they’re like, alright, I get it. If I own credit, I’m making a spread bet that spreads are going to tighten, for us we’re making a spread, but to that spreads are going to widen, and it doesn’t really matter. It’s not corporate spread risk, right? It’s not and that’s the big thing that people need to keep in mind, especially with inflation running really hot. And, you know, companies having like, if we have a stagflation area environment, right, like, look at the start of 2022, we’ve had bonds sell off, credit spreads, widen equity sell off. So if you have a portfolio of stocks and bonds, but you have a lot of credit spread risk, even if you have a lot of short duration funds, most of them are taking mostly credit spread risk, and corporates have, you know, a rough go whether it’s higher labor costs, or, you know, consumer confidence is in the toilet like less consumers buying or supply side disruptions, or whatever that makes that corporate not able to meet their multiple that’s priced in the future, you’re gonna have credit spreads widen and equity soft together. And so a lot of people it’s funny because I feel people are always like, how do we size eyeball and the people that have eyeball bigger in their portfolios are the ones who are just like, we don’t want credit. We want another type of spread trade to get return and a potential enhanced monthly distribution above government’s, we don’t want to take more credit spread risk, we’d rather take that corporate beta in equities, get rid of our credit and mortgages, especially mortgages with the Fed reducing their balance sheet and have this as another type of spread trade.


Jeff Malec  39:11

And you mentioned mortgages, I’ve heard you talk before which I like which is the flip side of debit card investing, right that these mortgage investors mortgage backed securities or however you’re investing in them, they’re selling the call option, right? So they’re short options. So that got me thinking like went now that mortgage rates are up though, like no one with a 3% 30 years going to prepay or roll out of that, right. It’s almost like free money at this point. So how do you think about that, like eventually the rates get to a point where they’re not as short the option right like it locks in the the optionality there a little bit?


Nancy Davis  39:48

Yeah, I think that’s one thing you know, the VIX gets a lot of attention and people focus a lot on equity of all but that’s the thing I try to really educate people that like any place in your bond portfolio that you have to add at AG is a third mortgages, any place you have an actively managed manage or benchmark to the AG, they’re probably going to have mortgages and they’re structured credit, which is levered mortgages all inside the short duration, not all ETFs and mutual funds, but a lot of the ones that are have short duration, they take spread risk, right. There’s only two types of Banderas, there’s rate risk, and there’s spread risk. And spread risk includes credit spread risk, interest rate spread risk, agency spread risk, and with mortgages. Just thinking about like an option, that homeowner in the US is long the option to prepay. If you own the financial mortgage, you’re short options to homeowners. And whenever you’re short options, you’re short vol. So actually, most people are short, fixed income volatility and their bond portfolio and they don’t, I feel like I want to be like, don’t you remember the financial crisis because that prepayment risk is a model thing. And since interest rates are higher, and consumers are not pre paying as much pre payments are down, and volatility is higher. So mortgages are short vol. It’s Model Driven ball in a single CUSIP. So it’s harder to unpackage. But I think of us as like, it’s like a mirror image right of what is a mortgage and mortgage is an agency bond coupled with short options if you own it. eivol is a treasury bond coupled with long options, it’s literally opposite.


Jeff Malec  41:27

And so in this current environment, though, the has the rate risk outpaced the credit risk.


Nancy Davis  41:34

No credit spreads have not really widened very much the credit


Jeff Malec  41:38

or the rates have gone way more than the credit spreads. Yeah,


Nancy Davis  41:41

credits widened a little bit but we’re not having you know, you know, this is not like the 2008 Right now we’re credit spreads are gapping out this is more of just policy rates trying to fight inflation. And the rates, Margaret very much believes the Fed is gonna hike and it’s really price for less future inflation. That’s really the key thing. It’s all all markets are forward looking and the rates market. Now, if you look at the break, even curve, it’s massively downward sloping. If you look at the, the swaps curve, it’s actually fully inverted. The market thinks the Fed is going to hike and it’s going to slow growth and create this disinflationary environment.


Jeff Malec  42:21

And why not trying. So you were saying there’s two risks. And when you buy a bond, the credit risk and the rate risk, why not trying


Nancy Davis  42:28

to spread risk, generally spread risk can be credit spread risk, agency spread risk, in our case, interest rate spread, risks are lots of different types of, again, spread risk is like fruit. And there are a lot of different shades of spread risk, but most people have credit spread risk,


Jeff Malec  42:43

I’ve always tried to consider the credit spread risk. Why not try and consider both the credit spread risk and the rate risk, too expensive, too pricey to put on?


Nancy Davis  42:57

I will doesn’t take any corporate credit spread risk, right? We have counterparty risk, because we have OTC options, but we we have interest rate spread risk. There’s just it’s not I’m not saying it’s better. It’s just different. It’s not what everybody who has a bond portfolio that’s not governments is taking either, you know, some type of spread risk, and most of like 99% of the risk out there, whether it’s private credit, direct lending, you know, it’s it’s corporate risk, right, whether a company’s private or public, it’s still has people callous, and you know, revenues and profitability. Hopefully, a lot of these companies don’t. But it’s all the same, you know, company risk, and so we don’t take any corporate spread risk, we take interest rate spread risk, so it’s just a different type of spread risk.


Jeff Malec  43:46

So I’ll rephrase what why not also hedge against the rate risk? So you do a little bit but not outright? Right? Are you


Nancy Davis  43:54

trying to hedge the rate risk we’re actually trying to profit when long dated yields go higher, or profit when friend dated yields go lower? So I’ve all has had less downside than chips alone, because tips inflation’s or risk on asset class, right. So I’ve always, I think it’s really cool, because it’s not just an inflation. It’s got inflation in the name, but it also has interest rate volatility, and it can also benefit from less fed hikes. So that can, you know, the funds only got about a three year track record. But if you look back over three years, you can see like March 2020, we had positive performance when tips alone were down, you know, 150 775 basis points for the same passive index. And even though 85% of our strategy was invested in tips, we had positive performance, and that’s because of less lower front dated yields and an increase in ball. So it’s kind of cool because you can get the inflation’s risk on you can get that solve the problems with tips by themselves in a risk on inflationary environment. You can get the you know, what are bonds supposed to, in my opinion, they’re there to provide, you know, monthly distributions. And they’re there to diversify equities period. You know, we do that in a different way. Instead of taking credit risk, we take interest rate spread risk. And that can benefit when equity sell off, and credit spreads widen. Especially when we have so many fed hikes priced in, you can see this in, you know, 2022 periods that we’ve had really big equity down days. So market, the eyeball tends to be not always but sometimes up those days. And that’s because of rising volatility. And also the market saying, Oh, the Feds not going to hike an additional, you know, 200 basis points going into the end of the year, in addition to the 150. They’ve already hiked. So it’s kind of cool, because you get the equity risk off potential, you get the inflation. And then I think the really neat thing is the stagflation airy risk, like, obviously, I’ve all tips, none of this stuff existed in the 70s. Right? So people look at the 70s. And they’re like, what worked, and every model is back testing. But the interest rate, markets weren’t really developed in the 70s. So you can’t really look at anything like tips weren’t even done it until the late 90s. But if you think about it, I think tips would outperform nominal treasuries, I think they would definitely outperform credit, in a stagflation airy environment, I think the curve would likely widen, it would probably first be from less fed hikes, because if the markets pricing in a low growth, like we’ve already had one negative GDP print and the US, if we have a low growth environment, maybe the Fed is going to be like, ooh, we gotta do we gotta use our balance sheet more to reduce the money supply and reduce the tighten policy that way to combat inflation instead of killing, killing the economy creating a recession, and just hiking to hurt Paul, the demand side of the equation. So we can also and then also, I think, in a stagflation airy environment, imagine if models suddenly make stocks and bonds less correlated? What if it goes to correlate it? Like, hold on to your horses, right, like all these risk parity models? Yeah, risk parity all over the place is that these public pension funds and institutional investors where they buy stocks, and they buy government bonds, thinking they’re going to diversify each other? What if what if that correlation in the model changes, and stocks and bonds actually become correlated and go down together like what we’ve seen this year, that should make fixed income volatility go a lot higher. So I think all three of those ways could potentially be good for us in a stagflation airy environment.


Jeff Malec  47:48

Switching topics, what’s it like running an ETF? What’s your day to day is an automated I hear all these beeps on your Bloomberg? So give us a little insight into what it’s like, how big is your team? All that good stuff?


Nancy Davis  48:02

Yeah, so it is very, we’re running a 1940 act fund. So it is very straight through processing and systematic because think about unlike a private, you know, private fund, like a hedge fund, for instance, has typically monthly or quarterly subscriptions redemptions, and then they only give the price of the fund once a day, right? For us, our nav is ticking every 15 seconds, there’s a bid offer always in the ETF people can come and go there’s no lock ups, no liquidity, no incentive fee, no new sending your passport and all your Kyi to the Cayman Islands, you just buy it, it trades on exchange. So it definitely has to be very, very institutional in terms of the infrastructure in the state through processing. Because you have to handle that that liquidity. You know, it’s great for investors, right? No incentive fee, full liquidity, it’s an active ETF. So you can always see what the portfolio owns. So think of it as like an SMA people like that. So they can see what the managers doing. We feel like we have the transparency of a SMA, we have the liquidity of a of a treasury fund the bond funds so investors can come and go based on their capital needs. And then we also have no incentive fees. So it’s a big it’s really good for clients, and it’s been a lot of fun.


Jeff Malec  49:32

And so, do you sometimes wish you’d stick with the private fund or No, for all the reasons you just listed and had that incentive fee?


Nancy Davis  49:40

No, no, I am, you know, feel very, very good about giving a long convexity bond fund to investors. I sleep well at night. It’s, it’s been, I feel like being I’ve been an entrepreneur for almost 10 years, right. I worked at Goldman for about 10 years and then a couple of They’re, you know, places in between. And I was actually a stay at home mom for three and a half years, which I’m proud of. And I’ve been I’ve been running my business for about a decade. And I feel like the nice thing about being an entrepreneur is you can really try to solve problems for people and innovate. You know, nobody had done this before. Nobody thought of this. It was really, you know, taking an idea. That is, I think, a solution for investors and giving them you know, some of the some of it, we have actually a lot of Australian investors. And they I love this nickname, it’s awesome. They call us the quadratic, my firm, the vanguard of convexity, because we’re the low cost provider of positive convexity, and like, long only options, right? If we’re always long options, like the debit card going back to that, like, why would you charge an incentive fee if you’re long only. So I feel really good about what we’re doing by giving access to this market? Doing it in a way that’s very, you know, fee, you know, it’s cheap fees for what it is, it’s an actively managed portfolio with real time Greek risk management, and the axis is a market that most people are only short because of their mortgage exposure.


Jeff Malec  51:13

Do you sometimes wish you knew the clients better? Right? Do you see like big flows out and like, Oh, if I could have only talked to him and explain what happened yesterday, or something like that,


Nancy Davis  51:23

um, the nice thing is, is people can come and go, it’s like, if people want to get to know us, there’s no you know, call my phone, send us an email, like we’re here, we’re accessible, that some people don’t want to talk to the portfolio manager, they want to make their own decisions, they want to come and go and they want, they don’t want to be, you know, coming to me and explaining why they’re redeeming to buy some, you know, make some capital call to some private equity fund, they, you know, invested in five years ago and need money for, you know, it’s like, it’s kind of nice, because I think it gives in clients a lot of freedom, you know, they are welcome to talk to us. And we are welcome, you know, happy to have relationships, and we have a lot of great relationships with clients, but they don’t have to come and, you know, send us a fax to the Cayman Islands to get their money back and then wait for the audit to get their audit callback back, they can just take their money, buy and sell whenever they want. And I think that freedom is something that I think is is really, really important for institutional portfolios to because so much of like, take an insurance company, if you add it insurance companies can general account, like 70% of these portfolios are privates, right, whether it’s private equity, direct lending, private credit, it’s all this like this, this view that having illiquidity premium gives you more return. But just like anything else, you want a portfolio to be diversified. And liquidity, I think, is something that institutional portfolios haven’t really thought about diversifying. Because we haven’t had, you know, kind of this this liquidity need within private, like money’s been flowing. It’s been there’s been too much money. Like, I get emails every day being like, Do you want a business loan? You know, it’s like, I get like, three of them a day from different private, direct lending firms like that market is so frothy, and my it’s just like, still, same thing is Oh, eight instead of getting letters in the mail to say, Hey, do you want a home loan? You know, no questions asked. Now I’m getting Hey, do you want a business loan? No question that has, it’s the same, you know, the same access. And I feel like everybody looks at private credit is like magic unicorn non correlated strategy. And I wondered grab them, you’re like, it’s not different. Like it’s, it’s, you’re investing in a company, whatever they do, whether it’s, you know, whatever it is, it has costs, it has revenue, and it has profit, it’s all the same economics, and there’s nothing magical about that asset costs, you just don’t really see how much it moves. And so I think, I’m very excited about giving a non correlated strategy in a liquid wrapper, because I think because so much of the portfolios have gone private, there’s actually going to be a lot more volatility in the public markets, because the public markets are the only place that you can get liquidity. Since so much capital is tied up in these illiquid assets, especially the ones that have capital calls.




Jeff Malec  54:22

So, example, march 2020, when the the bond ETFs were Everyone was worried they were dislocating but they were just providing liquidity, right? Yeah, the


Nancy Davis  54:31

only thing that’s trading the Treasury market was completely broken. Like, like completely in the treasury market is supposed to be one of the world’s most liquid markets, like private credit. Just in the month of March, most private credit strategies lost 25% And they weren’t really fully marked to market. It was just a snapshot here, snapshot there. So it’s not it’s not some non correlated strategy. It’s the same you know, investing in businesses investing in companies investing in And, you know, it’s the same thing to me. But these institutional investors have so much allocation to privates, that I think it’ll make public markets much more volatile. And in a weird way, I think it’ll feed on itself for allocators to say Oh, privates are such a great place to be because they’re low vol. Because it’s not marked


Jeff Malec  55:25

so you mentioned Goldman, what’s your take vampire squid are great place or somewhere in between?


Nancy Davis  55:31

I love Goldman. I had a good sir.


Jeff Malec  55:37

You, Goldman people on and I love asking this right? Because the perception out there is kind of like, oh, they’ll steal your children and cut your throat?


Nancy Davis  55:45

No, no, I had both my children when I was working at Goldman. So to two pregnancies to birth to maternity leaves. I was very fortunate, I think to be I spent most of my time on used to be called the risk arbitrage desk. It was later called the principal strategies group. But it was essentially Goldman’s prop business. So I didn’t have any like, no, no external clients, no sales people like it was a very much like, very nuclear group. And so I think I was very fortunate to be on such a great team. And I’ve look, I’ve definitely heard, you know, no firm is perfect, right? At the end of the day, it’s all what is your team, who are the people that you work with, but for me, I had a amazing experience at Goldman. I only left because I was recruited by the world’s largest hedge fund at the time, it was JP Morgan’s hedge fund. And I remember, you know, telling telling the founder, like, I’m not interested, I’m very happy. I’ve been running the desk at Goldman, I was ahead of credit derivatives and OTC trading for over five years at the firm. I was like, I’m not interested in leaving. And he leaned over like he got really close to me at we were at the Four Seasons, he leaned over, he looked me in the eyes, and he’s like, What in your life could be better? And I said, Well, I really love to see my kids more. He said, Where do you live? And I said, Greenwich music, we will open a Greenwich office for you. You can work four days a week. And I was like, Whoa, yeah. Okay. I’m like, that’s a, you know, I never worked four days a week there. I did, you know, but I did take, you know, I did schedule, doctor’s appointments for my kids. And my kids were babies, like, they’re literally neither of them were in school, they were either like a super, super baby, and then a toddler. And so it was, I think, a nice step for me to realize that I really wanted to be home with my kids in that zero to three period and make the investment in them. So I think in a weird way, having that baby step was like what gave me a lot of confidence to say, you know, I really want to be a stay at home mom, I don’t want to be a stay at home mom forever. I love investing. And the funny thing is, I actually think you really find out what you love when you are not working. And it’s not a job anymore. Because I used to drop my kids off at preschool, when they got a little older, I would go to the Greenwich library where they had two Bloomberg terminals that were free, that I would I would invest I would trade I did a lot of secondary market trading of structured products. So breaking out zero coupon bonds with the various option opponents. But it’s like, you kind of know you’re like what I do this in my spare time for fun. And I’m not at you know, I’m not playing pickleball or, you know, going shopping or whatever. Whatever stay at home moms do in there, like two and a half hours a day. I’m trading options, because I love it. It’s like, it was a really good like, I actually liked this, this wasn’t some random thing that I fell into. It’s something I do in my free time. And I’m passionate about it. So I think it really helped me go down that entrepreneurial path to be like, I love what I do. And I don’t want to use any linear derivatives. I hate linear derivatives. But that’s weird being a derivative person. Because driven people get bucketed as like, Oh, you do all derivatives. And I’m super not. I’m all asymmetry. I love options. That’s it.


Jeff Malec  59:14

So that would have been a fun flex like you’re walking the stroller with the other moms like what do you guys do this morning, I was at the Bloomberg terminal. Some swaptions


Nancy Davis  59:24

those would be really good friends from my stay at home Mondays because I was also like, you know, it was such a like little Dynamo. So I was like doing all the PTA stuff and, you know doing this committee, that committee so I have a lot of a lot of friends moms who know what I did in my spare time and they think it’s awesome. You know,


Jeff Malec  59:46

that’s a great story. So what advice would you give for some young woman listening to this podcast of how did they get a hold in this male dominated industry? How do they how do they add you do it? What’s your what were your secret? Was it hard?


Nancy Davis  1:00:03

No, I think you know, in the finance industry really want to be a revenue producer, like I think that is, I think a lot of women go into finance, but then they find themselves in support roles, like whether it’s compliance or legal or operations, things that don’t make money that are costs. So very simply, I think the ultimate meritocracy is having a p&l, right, having a number next to your name, doesn’t matter what you look like, it doesn’t matter who you’re friends with, it doesn’t matter how you sound where you’re from, you know, you make money, you got something to show, and if your support, you know, your cost. And so I think going, you know, being in the driver’s seat, so to speak, where you have revenue that you’re bringing in, and a number next to your name makes it the ultimate meritocracy, right. It’s like, it’s very, like the golden practice, it was either like,


Jeff Malec  1:00:56

I don’t care if you’re from Mars, if you got a p&l.


Nancy Davis  1:00:59

If you lost money, I remember one of my old colleagues, we had a lot of Japanese nationals on the prop desk when I first joined. And I remember, one day like walking, watching some trader being escorted off the floor by one of the senior partners. You know, is like being here to be like, what what is going on, and he says, I shouldn’t do it in his Japanese accent. He’s like, he’s a professional trader, he loses money, he gets fired. And so it was it was kind of a 01. Like, if you did well, you got promoted, and you know, continued in your career. And if you sucked, you got fired, and you found a new career. So it was kind of a very, very efficient market, I would say, and I love my time there. But I also wasn’t on, you know, I wasn’t dealing with the the bureaucracy of being, you know, I wasn’t in sales ever. I wasn’t on the sell side, it was a very, very, very good place to be.


Jeff Malec  1:02:04

That begs the question again, of like, how do I get a seat in order to have a p&l? Right, that’s a whole nother conversation of like, well, it’s not a meritocracy to try and get to that seat. You feel that was like the school you came out of or intern program or just?


Nancy Davis  1:02:19

Yeah, well, I am like, the proof is in the pudding that it doesn’t really, you know, there are a lot of different ways to get a seat because I didn’t come from the school that Goldman recruited from I didn’t have, you know, I really earned it, I would say I got in the door. But I think, you know, a lot of times people think they have to go to a certain like, I look at my friends who are going through the college process with their kids. And it’s just like, they’re going crazy about the name of the school. And I think it’s really what do you do when you’re at the school. And also, when you get to the job, a lot of these kids that I you know, I hired plenty of kids from these these great Ivy League schools, and they were like, born doing Excel, right? They’re so easy to hire as employees, because they’re like plug and play, right? They’re like, they know, know, finance really, really well. But a lot of times, it’s also how do you handle failure, and having that grit and that ability to say, you know, this is not working? What me change and do something else, right? So I think having that mindset of really being a growth mindset is super important for whatever you’re, you know, wherever you go to college, wherever you’re coming out, making sure that you can take criticism, and say thank you be like, Thank you for telling me I always ask for feedback. I am not perfect. I script things all the time. And I always want to know from people, what can I do better? And that helps me grow. Right? It’s not criticism, it’s helping me develop myself. And so I think having that mindset, whatever industry you’re in whatever job you go into, you know, be open when somebody tells you that you did something wrong, or you could have done something better. Be open to it, say thank you, I really appreciate it. Tell me, you know, thank you for for making me aware of this. I think it’s really more about not where you go to school, but being a learner. Because a lot of people, I think when they come out of these, like they have perfect grades, they have the perfect schools on their resume. And then they’re told on the trading desk, you know, the markets tell them you lost money and they won’t change, right? They don’t have enough humility, or enough ability. They think, oh, that’s gonna make me not smart, or, Oh, I’m not, you know, super great at math because I screwed up. You know, I didn’t make money on this. So I think having that, that that ability to grow is super important. I think that’s probably the number one thing I would tell people.


Jeff Malec  1:04:49

Yeah, we see the prop firms here in Chicago hire like online professional poker players and like things like they know how to think in real time and know how to pivot and be dynamic. Let’s play a little game with two truths and a lie then we’ll let you go. Tell me three things, one of which is not true. And I’ll see if I can suss out what is what


Nancy Davis  1:05:18

all right all right, so I love shoes. Especially Jimmy choose


Jeff Malec  1:05:29

in your opponent you didn’t know. I love shoes. Especially Jimmy choose okay.


Nancy Davis  1:05:36

Okay, um I have been detained by Russian law enforcement.


Jeff Malec  1:05:46

Okay, recently Okay, number three


Nancy Davis  1:05:54

I routinely get mistaken for Lady Gaga


Jeff Malec  1:06:05

in Grennan check it


Nancy Davis  1:06:06

in Vegas. I would say mostly in Vegas


Jeff Malec  1:06:10

you could use that to your advantage I’m gonna go with mistaken for Lady Lady Gaga True. True.


Nancy Davis  1:06:23

I got the nose. My nose.


Jeff Malec  1:06:26

Drew Hey, I wouldn’t mind that I’m gonna go detained in Russia True. True. Then right the shoes and Jamie choose was too cliche for Greenwich hedge fund woman right like so. actually hate


Nancy Davis  1:06:42

shoes. I’m not. I’m not. I’m wearing a slippers. Orthopedic slippers by the way. They’re not very sexy. But yeah, I’m not a shoe person at all. I don’t get it. I don’t understand the like, love for heels in particular. I’m like, like flip flops and slippers.




Jeff Malec  1:07:00

I need the name of those orthopedic slippers. I feet problems. And I’m like, I can’t walk around on the hardwood floors without some sort of


Nancy Davis  1:07:08

foot protection. Yeah, these are awesome. They have a lot of arch support. What? Who makes them? Let me my son actually bought them for me. It’s called Ergo. Cool. Cool. All right, their Mother’s Day present.


Jeff Malec  1:07:23

This episode is brought to you by Ergo. Awesome, we’ll let you go. And just because we’re talking kids from it. I took my daughter, my son to camp on Sunday and my daughter to camp today this morning. We dropped her on the bus for three and a half weeks. I’m like, No, everyone thinks it’s good. Oh, your kids are out of the house. Like I’m gonna miss them. Three and a half weeks is too long, right?


Nancy Davis  1:07:45

It didn’t go by fast. And I think it’s I don’t know.


Jeff Malec  1:07:48

It’s all good. Well, thanks so much, Nancy. This was fun. Hopefully we go on a panel together sometime soon. That will forget about in 10 years.


Nancy Davis  1:07:59

That’s really nice to see you again. Thank you so much for the opportunity. And yeah, it’s uh, keep fighting the good fight. Enjoy your your three weeks,


Jeff Malec  1:08:08

we’ll do and we’ll put your links to your website, and you’re on Twitter now. Welcome to Twitter.


Nancy Davis  1:08:13

Thank you. Yeah, I’m,


Jeff Malec  1:08:15

how’s it going?


Nancy Davis  1:08:16

May 6, is when I joined Twitter, I had to I set up the account, the last weekend of April. And then I had to get it all, you know, go through all the compliance channels to record it and, you know, do all the it took a while to kind of get that all set up and then got the okay to, you know, so my first tweet was May 6, and it’s been it’s been a learning experience. Like I’m learning all sorts of new words. Like I now know what spaces are, I know what the nest is. I’m having a lot of fun with it.


Jeff Malec  1:08:49

So it’s fun. Well, we enjoy it what give him your handle there.


Nancy Davis  1:08:55

So I have a double underscore and there is a scammer who’s impersonating me they have Davis with a I think it’s a I lowercase i And Al I’m sorry instead of eyes so mine is Nancy double underscore Davis Taavi s but that I you have to be careful for it because there is someone in person with I think it’s an l like a lowercase L it’s kind of looks like i but they have it’s kind of freaky. They actually have my image and my face and they’re like reaching out to people saying they’re me. I actually changed my my Twitter picture this weekend, just because of the scammer, but I was super annoyed with Twitter because I keep I’ve sent in my photo ID I’ve sent in a picture of my face next to my photo ID I’ve submitted the form to say I have a scammer and I keep getting the same stupid automated message back from them saying, you know, we’re unable to verify your identity. And I’ve done everything you say I filled out the form I’ve sent in a picture I’ve sent in a picture of my driver’s license next to my face. I like here I And if it’s I don’t understand, like who’s running that place. And then the other really annoying thing is a whole verification process. So it’s like at least I could try to get myself verified so people know this is the real me and not somebody using my name, likeness and image and saying there me. But Twitter has told me that they’re not doing new verifications. Like I’ve gotten several emails saying we’re not doing any new verifications, but that’s not the case because I see other like Derek Jeter, you know, he’s, he’s newer to Twitter than me and he got a blue check immediately. Now, I’m not saying I’m the same as Derek Jeter, but I’m kind of like, as a public corporate in today’s like World of governance, at least have the same policy like you can’t discriminate between one person versus another. You’re either not doing verifications or you’re doing verification. So anyway, I am not verified


Jeff Malec  1:10:57

with you and you’re quoted and magazines and newspaper, right, like it should be pretty easy to verify. I’m gonna say you’re the Derek Jeter of publicly available rates convexity. I, Nancy, thanks so much. We’ll look you up next time or in New York.


Nancy Davis  1:11:13

Awesome. Thank you so much. Have a great day. You too. Thanks. Thanks. Bye.

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