Buckle up for a wild ride through the markets with Eric Leake, founder of Altus Private Capital, as Jeff Malec explores the investment world with a quantitative maverick who’s about to reveal the hidden playbook of market mastery! From analyzing market waves to navigating volatility, Eric uncovers his unique approach combining long-term equity market trend analysis with short-term volatility management. Discover the secret sauce of strategies that don’t just follow the crowd – they dance to their own quantitative beat.
With insights sharper than a guitar riff and techniques more calculated than conventional wisdom, Eric shares how he aims to turn market chaos into calculated returns, smoothing out market bumps and turning volatility into opportunity. Blending market insight with analytical precision, Eric provides insights into managing risk and understanding the patterns of investor behavior. Learn how his multi-factor strategy aims to deliver returns while protecting against market downturns, all while maintaining exposure to market upside. This conversation is a great listen for investors seeking to understand sophisticated risk management techniques in today’s dynamic market environment – SEND IT!
_____________________________________
_____________________________________
From the Episode:
ALTUS Private Capital: The Bear Market Road Map – Get the guide!
The Derivative podcast episode: Making Market Music with Roy Niederhoffer
Check out the complete Transcript from this week’s podcast below:
Engineering Alpha using Trend and Volatility on Equity Beta with Eric Leake of ALTUS Private Capital
Eric Leake 00:00
Trend following is, is a clunky, brute force instrument. The trend is, is the condition you know of the market. And in order for the math of trend following to work, you need multiple days to deliver a trend, you need to compound that over time, and there are going to be noisy days in between. They’re just not a part of a trend.
Jeff Malec 00:31
Welcome to the derivative by our Sam alternatives, send it Hi.
Eric Leake 00:36
I’m Eric Lake Altis, private capital here to talk about delivering better results through smoothing volatility.
Jeff Malec 00:49
Hey, Eric, how are you good? I need to know two things quickly. One, the guitar just for show, or you can play. Oh,
Eric Leake 00:59
sorry, I actually know I was there. I was cleaning up my office. No, I was a music major. I played guitar and other instruments for a long time. I thought I was going to be a rock star when I was in high school, going to college. So there’s some leftover for the now, it’s just mostly DJing and as a as a side for fun gig. But no, my guitar days are few and far between. Now
Jeff Malec 01:22
music major. Where’d you go to college? Which was
Eric Leake 01:25
Azusa, Pacific University, look, private Christian University in Southern California. Went there to play volleyball and study music. And the music major lasted, I think, a semester and a half. Two things happened. Number one, I realized that I had to per the major, I had to sing in the all male choir and travel around, and that was not going to work for me as an athlete. And just, I just didn’t do that. And number two, I realized every other person the major was way better than me. Everyone could sing better than me. They could play piano better than me. I realized, you know what, I don’t think I want this to be my living but music’s always been a passion for me. It’s always been something that I’ve been involved with, and I’m still today, involved with in various ways. So my daughter actually was a candidate on American Idol. She’s producing an album. So music is definitely in the family. So kind of around in various ways, but not
Jeff Malec 02:18
my focus. We’ll put a link to the we did a podcast with Roy nieder Harper. I think the other one, he’s way into music. But to me, there’s a link between, like, the musical brain and systematic quant brain.
Eric Leake 02:34
Yeah, I 100% support that. I think that it’s really almost about patterns. And and, you know, music, a lot of times, in pop music, it’s a formula, and there is a way of taking people from emotional, you know, you build and you have a transition, and you have a break, and then you build the chorus. And so there’s definitely some rhyming to how markets work, because I think markets are a lot driven, but we’ll talk about obviously, but there’s a lot of human psychology and behavior finance that drives prices, and there are times when markets are efficient, times they’re inefficient, but definitely I’m not smart enough to figure it all out, but there is definitely a link between the patterns and the math of music and markets.
Jeff Malec 03:19
I totally well that most people don’t realize, right? Like, the far end of music is math, really, is it is? I tell people that with philosophy and logic also, like, the far end of philosophy is actually, you circle back around to Matt,
Eric Leake 03:33
yeah. No, that’s true. I think, I think, until you study, once you study music, and you’re forced to sit in a classroom and study scales and keys and different triads and all those things you don’t realize how mathematical it is. I think, I think music, for people that haven’t studied it seems like this magical, whoa, this. No, there are only about about five chords that you can play. You can probably, I could probably play five chords and sing 30 different pop songs you would recognize because it’s the same math over and over and over again. It’s very it’s very reviewable.
Jeff Malec 04:05
There’s that famous, yeah, I can’t remember who some English group on YouTube that does that. They’re like, the favorite, best songs of all time. And then the second non sequitur I forgot as your last name. It’s spelled L, E, A, k, e, but you pronounce it lake. So what’s the that’s all that
Eric Leake 04:29
I’ve been told it’s like, been that my whole life. I spent, you know, kindergarten you get a substitute teacher. Eric leak is Eric leak here. It’s like, apparently there’s a, there’s a, there was a town outside of Yorkshire England that was L, E, A, k, e, and they pronounce it like, that’s I’m going with. That’s what I’ve been told,
Jeff Malec 04:47
and not leaky, leaky with it. Yes, yeah.
Eric Leake 04:50
Sometimes I just mess with people and make different up. You know, it’s fun Lacroix, you know, you just, I just mess with people. But no, it’s officially lake. It’s what it’s supposed to be. But you can call me Smith, call me Johnson, whatever you wanna call
Jeff Malec 05:03
- Doesn’t love it. And I was lucky enough to go visit you during future proof out there in beautiful, sunny California. So give us a little where you live. Why it’s the best place in the world or not?
Eric Leake 05:14
It’s definitely God’s country. I don’t know if it’s the best place in the world. I’ve been to better. We’re we’re in Laguna Beach, California. It is beautiful. And if I could point the camera out that way, you’d see the ocean. It’s, this is the hands down, best time of year. Total, complete. Side note, if you’re not from California, haven’t been here, you’re thinking of visiting. Want to have your California summer vacation? Come in August, September and October, we have this crazy thing in June called June gloom. And so I always feel bad. You have folks in middle the country. Nebraska, hey, it’s June. Kids are out for summer. Let’s go to California and go surfing. It is your worst nightmare. It’s like San Francisco in January, the fog comes in off the water, because the water’s still cold this time of year, it is. It’s stunning. It’s like 80 degrees. I mean, if you watch the football game yesterday with with the charges you saw so far stadium, they got murdered, by the way, but it is killer weather right now. So we’re in Laguna Beach. I’ve been in Orange County, South Orange County for 30 years, went to like I said, went to school at APU, came down here and found this area. I grew up surfing in Santa Cruz, and once I found South Orange County, the water’s warmer, the waves are more consistent, the people actually doing something with their lives and going somewhere. Most of my friends in Santa Cruz are kind of just hippie sitting on the beach. So I’ve been here a long time.
Jeff Malec 06:41
Who’s to say? Who’s right? Though they’re they’re loving their life too, right? Yeah.
Eric Leake 06:44
I mean, for me, this is more my lane. I think I have extreme add. If you can’t tell I need to be moving all the time, so I I’m more comfortable here.
Jeff Malec 06:53
Yeah, it’s a great spot. Did you ever surf Mavericks? Right? Is that up there? I
Eric Leake 06:58
did not surf Mavericks. Fantastic surfer. I said surf. So one of my good friends, actually, I won’t name his name, but a very good friend from high school. He was one of the original Maverick surfers. He’s actually in that movie chasing Mavericks, and he’s a great dude. But no, I don’t he told me a story one time about I asked him what it was like to surf that and he said at one point in training, he was held down for so long after, after not hitting a wave the right way, that his the blood vessels in his lungs would burst, and when you finally come up with that vest, you’re coughing up blood. Sorry if that’s too graphic for this, you know, marketing guys, but yeah, that is not for me. I am no, and then I’m a fair weather water surfer,
Jeff Malec 07:45
yeah, how do you go back in the water after that? Like, Oh, just a few bursted lung
Eric Leake 07:49
blood? Yeah, it’s a passion for you guys. They survive. I think that’s the win.
Jeff Malec 07:53
And just because you told me this story, and I think it’s cool, you had your own little sporting accident on the mountain bike. Give us the quick we’ll talk about that really. I think we’re gonna quick one.
Eric Leake 08:05
Yeah, so, so I So, rewinding. I grew up playing volleyball. I played in college. I used to coach one of the high school teams here, and getting down on the beach was just, it just wasn’t working. Was too far. I was living in Lisa via the time, so I picked up mountain biking, and yeah, about four years ago, I read some young kids take off in front of us, and they stopped in the middle of a trail, and I’m flying down and there was nowhere to go, and I went off a cliff and went, you know, it wasn’t a good it wasn’t a good outcome, but air today, that’s what we had. So we’re helmets, so that’s why I may sound strange as a risk manager talking about flying off a cliff. But that’s why we have helmets and, you know, pads and things. And it was fine a few few stitches here later. It was all good though we’ve
Jeff Malec 08:51
had him, veneer Ben Sally’s been on here talking about back country hell skiing and liking into avalanche territory and stuff. So, yeah, you’re a risk manager in your day job. It’s fine, that’s right.
Jeff Malec 09:09
So how did California boy end up in the in the markets? What was the path to get you?
Eric Leake 09:15
Yeah, that’s a really strange story. So like I said, I went to school thinking I wanted to do music, and realized pretty quickly that that was not the path for me in terms of a living and I wound up in marketing and communication. And about that time, it was early 90s, for some reason, I started getting recruited by these financial advisory firms, and I thought, very young and stupid. That sounds really fun. I’ll go. I’ll go try and do that. And so this isn’t maybe the best story, but I was, I was lifeguarding down at Salt Creek beach, and they said, if you can pass the series seven, you come to work for us. So I passed the seven on the first try, and they said, Congratulations. You. You’re a stock broker. Probably about five minutes I was fist pumping, and then after, I’m like, what does that mean? I don’t know what
Jeff Malec 10:07
that means, right. Go call all your family and friends and make them Yeah.
Eric Leake 10:11
Welcome to well, even name the firm, yeah. So I literally started my career as an advisor, cold calling through the data point phone book, and it was a grind. It was rough, but ended up building a few clients, and then, within a couple of years, realized that my path really was not talking to folks about their hopes and dreams and planning. I was really fascinated by markets, market pricing, how things move, why they move, technical analysis really was fascinating to me, much more so than than work. You know, again, I was a young man. I was 24
Jeff Malec 10:46
years old, and it’s very way more so than your your brokerage bosses, I’m sure,
Eric Leake 10:50
yeah. So it’s like, look what, what was driving me, and my interest at the time was, was markets. And fortunately, on the west coast, we have a number of of leading technical analysts and thought leaders. I will mention John Bollinger is a friend of mine. He was a great mentor for a while, but without naming a bunch of names, there’s a community of folks out here that really had the passion to give back and to bring people along. And so what started off as, I think a lot of things do, what started off as, what I thought was going to be, path advisory, really moved into money management. And so in the early days, we built strategies, very basic trend following strategies that worked phenomenally well, because markets were very different back then. Remember when I started in this business, you brought a client on the markets when they closed at at 4pm eastern they’re closed. There’s no after hours, there’s no futures, there’s no there’s no options, there’s there’s no ETF, you know, 415 trading. That’s it. Your Maryland’s broker in New York is on the golf course or at happy hour by then. So the pace of markets then was, was, there was an official
Jeff Malec 12:06
timeout. You don’t look that old, though. So it’s that good California living. I look good for 75
Eric Leake 12:13
let’s just go with that. So, you know, markets so basic trend following worked really well because, you translated time, people weren’t trading on their phones after hours. I mean, think about the innovations we’ve had since then. I was in this markets. Before there were you, we were still in fractional trading. You know, we’ve had decimalization, we’ve had ETFs, we’ve had inverse ETFs. We’ve had index features, single stock futures, all of those things, derivatives, all those things that we wanted would give us more transparency, give us more liquidity. Those have the side consequence of those is that you get faster paced markets. I know we’re jumping into markets while we were supposed to be talking about background, but back then, that’s that worked well. And as as time went along, I found myself managing separately managed accounts, and then SMAs for individuals, and then institutions that eventually morphed into, I mean, we licensed models for a while, and tech 2000, 567, eventually, that led to launching a series of mutual funds. And so really, up until last year, for the past nine years, I’ve been running liquid, alternative mutual funds, traditional for that mutual funds running long, short strategies launch a credit, long, short equity. And then just recently launched Altus a year and a half ago, but started off 2030, plus years ago, and that’s kind of in the path. That’s how I ended up Southern California
Jeff Malec 13:41
doing all this and that. So were you for the private clients, when you first started getting into modeling, for lack of a better word, you were like, trend following, this is working. And then are you saying that you saw the speed increase and it stopped working. Then you moved to Long, short equity stuff.
Eric Leake 13:55
It was one evolution. I wouldn’t say it stopped, because we still use momentum and trend following as a core component. What we do? I wrote a white paper a million years ago that talked about, well, let me lay back up so trend following that became more bumpy, right? More volatile, more lumpy. The main complaint with trend following is you go through these series where you get these pullbacks in the middle of the trend, and it forces the investor or the manager or whoever to question, okay, is this pullback a new downtrend, or is this just a pullback? You know, I know this is timeless content. In terms of last week, just recently, you know, last Thursday, we had a president Trump tweet. You also had an implosion of some credit with with Zion bank, and you had this Matt Gnarly 3% beat down in the s, p, it’s already gone, but at the time right, we’re already new. We’re already new highs on today’s close. So is that? Oh, this is it. Canary in the coal mine, right? So the the challenge with trend following is that you’re inevitably always going to get the short term pullback, the counter trend, opposite of what the macro trend is. And so it it inevitably creates a challenge to stay invested. The challenge of short term volatility trading is just the opposite. You can go through periods where you’re up, up up in a way, and there’s no volatility. And then that’s frustrating as well. So what I figured out, in 2003 four, something like that, was that trying to, this is my philosophy, trying to smooth out the returns of trend following. You can’t do it with more trend following, because these are the things that are, that are part and parcel. This is part of the character of trend following,
Jeff Malec 15:46
like. So if I’m like, hey, it’s too much with this long term trend wrong to do short, medium and long term trend following to smooth out that journey. Yep, you’re saying not so much.
Eric Leake 15:55
Multi factor absolutely works, and we do that as well, but even on, even on a on a short term basis. So, so show me the example for deep seek Monday. What short term trend flying model had you hedge for that Monday? Yeah, none. What short term trend model has you hedge for last week’s 3% veto? What short term trend model had you hedge for the PAL misstep in December? You know, December?
Jeff Malec 16:17
Are they really trend if they have that exposure at that point. Yeah.
Eric Leake 16:20
So, so, yeah. So our my object. So when you back up and as a quantitative manager, I didn’t really get into that, but, but we’re quants. We’re based on math. We’re based on on price discovery. Our philosophy is this, here’s the way I can put it. The framework for our economic processes is this, on a long term basis. Trend following works because markets are relatively efficient. Markets generally price on fundamentals. So if you put up a put up a monthly chart of the S P for the past 10 years, it will generally mimic what’s happening in the economy, right? It leads the it leads the drawdown. It leads the top. You know, 2007 the S P topped. You know, a quarter two before we were officially in recession, right? You bought it in 2009 you know, a month or two before the NBR came out and said, Oh, we’re officially out of recession. So on a long term basis, SMP or NASDAQ or Russell, they are, they’re generally fundamentally driven on earnings, GDP, cost of capital, you know, eat earnings, whatever. But when you move your analysis from looking at long term to months to weeks to days to hours, markets are highly inefficient, and they’re driven exclusively by investor behavior, by hurting, right? And there’s and hurting, in our view is short term tail risk. There’s no trend of the hurting trend on the long term works. So that’s how we combine short term volatility, tail risk exposures and hedging with long term trends. And the result is the two smooth each other out. You might You might call this return stacking. You might call this multi strategy, multi time frame. You know, we come up with all these different ways to package it, but what you’re really doing is we’re exploiting, as we deliver returns, the two things that we always want to be able to exploit, things that are observable, measurable, scalable, and the things that we know are always going to be with the market. We will almost always have momentum and the theme and trends. There’s going to be FOMO. Gonna be some sector right now. It’s AI, you know, it’s recently biotech, it’s energy, it’s it’s I structure, right? It’ll be a new theme in another couple of years, but then you’re also always going to have short term risk and short term headlines. And so our process is, get in line with the macro long term, but be prepared when that rubber band stretches too far, because it always does
Jeff Malec 18:46
to the upside. That’s the million dollar trick, right? Like, it can seemingly stretch in infinity, right? Like, what’s the old line? It can stretch longer than can hold? Yeah, yeah.
Eric Leake 18:59
The Keynesian quote is, markets can remain irrational longer than you can remain liquid. Yeah, exactly. And so we have a series of quantitative, driven measures of is, that is the trend? Are we currently too stretched? And these are, you know, proprietary models, but that, you know, this is they’re based around volatility bands. They’re based on cumulative tick on the New York Stock Exchange. When you get these, these big tick bombs that’s showing institutional buying and panic buying or panic selling
Jeff Malec 19:32
tick bombs, I like that. Yeah. That means something different up here in in the Midwest,
Eric Leake 19:37
yeah, yeah, yeah. No, it’s not fleas and ticks, mom and and then we also look at, we have some volume adjusted rsis, some things that basically we’re just measuring. Look, you know, we’re in the race car. We’re ripping around the track, but the oil pressure is too high. We’re revving out the engine. Temp is too high. Something’s gonna break. And so the analogy I give. All the time, which is probably not a great one, is there are certain times in markets, everything is fine, that the macro trend is is is in place, and we’re fully in gear with that trend. We’re benefiting from this momentum behavior. But there’s a two year old running around the living room with a steak knife. I can’t tell you exactly what’s going to happen. I can’t say what the headline is. It’s that’s going to create a problem, but this is probably not going to end well, right? There’s a condition. There’s a macro environment where we’ve where we were. Everyone is on the same side of the boat, and so where we end up applying that is we don’t short the whole market. We don’t make a market call. We just take futures and we short against our core exposures, and we bring the exposures down, let that trend reset and get back in gear. So it’s a process of continually adjusting our exposures to get in line
Jeff Malec 20:51
again. That was going to be my in the race. I don’t know. I can’t work it into the two year old with the knife. I’ll go back to the race car like so the oil pressure side. Do you pull over and park? No for it to go. Take the foot off the gas a little bit. Let’s slow it down. Let’s let that pressure come back.
Eric Leake 21:09
Go from 95% long, put some put some SMP futures against the core positions. Hedge it down a bit. Let things reset and because our total objective is to deliver consistently positive returns, smooth and up to the right, because at the end of the day, this is a conversation about where does a strategy like ours and our hedge fund or a Managed futures account, where does it fit in an overall portfolio? We are built we want to be. We’ve proven it over and over and over and over again with the prior funds I’ve managed. We want to be that low correlation asset class that provides the diversification that everyone else is supposed to be providing. So there are times where we have high correlation. I mean, right now, look, it’s not bad to be highly correlated to the S
Jeff Malec 21:56
and P. That means you’re making money.
Eric Leake 21:58
Things are going up, right? But when the volatility picks up, you want to be able to hedge that volatility down and be the one or two things, three things in the portfolio that’s truly diversifying and giving, whether it’s family offices, other hedge funds, individual advisor, you know, your portfolio construction, we want to be able to deliver that consistency of return, low drawdown, you know, but, but high upside exposure to markets.
Jeff Malec 22:32
When we first started talking, I thought you’re going to say it’s basically a trend following portfolio. But are we saying it’s this is only in the
Eric Leake 22:40
S P? No, so, so we are in SP, we are in NASDAQ, 100 we are in Russell. So it’s basically US equities. We
Jeff Malec 22:46
want it, but only US equities, not a full on trend portfolio. No,
Eric Leake 22:51
no, that’s what we’re differentiated a bit. I think of other folks in our space are trading all they’re trading, the softs are trading, you know, a gold or trading currencies, trading equities worth this. This particular strategy that we’re focused on right now is, is purely US equity. And the kind of the thinking there is that think pretty much every investor in the world, the majority, have US equities in their portfolio, right? So it’s the most broadly, has the potential for the most broad usage if we can help solve that problem. Portfolio, as we as we roll out other other strategies and products, those will come secondary, but the ability to use my 30 plus years experience. We haven’t talked about my mutual fund experience yet. We’ll get to that, but we’ve delivered consistently positive returns. I was at the desk in 2020 I was at the desk in 2008 We’ve sailed through those markets. If we can deliver those, that consistency here, as we build out a new company, new asset management company, we will it will pave the way for other asset classes. But right now we’re starting with equities, because that’s, that’s the most important one to get right in
Jeff Malec 23:57
our view. Yeah. And would you view that as, hey, this is equities plus, or like I’m trying to give you equities, but with half the risk, or something of that nature,
Eric Leake 24:06
we’ve, generally speaking, since our inception, we’ve delivered basically, very close to market returns with, with, with half the risk, yeah, and that’s, so that’s, that’s the whole game, man, that’s, That’s the game is, it is a more reasonable way to get access to equities, a way to participate in US equities, but with a level of comfort that there’s someone at the helm with a proven process to manage risk and volatility around that. And you know, since we launched, after running the mutual funds for nine years, we launched all this in August of 2024 straight into a 10% drawdown. I mean, we’ve had so many headlines over the past year and a half. It’s pretty crazy. I mean, we went, launched a mutual fund to 2016 we went from 1617, 1819, we had a 20% drawdown in 18. But other than that, we went almost three and a half years. Years without a significant volatility
Jeff Malec 25:02
event, yeah, since we launched all 17, was famously, right, like a, I remember writing record number of days without 1% move or something. Yeah,
Eric Leake 25:11
I wrote a comment called, let’s go streaking. And it was about those, those streaks, yeah, that’s and that is, that’s part and parcel. That’s very descriptive of bull markets, a high liquidity driven, you know, fed, supported, you know, bull market. We’re in a similar situation now, although there are some differences we could talk about, but going back to my point, you know, we had multiple years of low volatility that since we launched Altus 15 months ago, on this new delivery of this strategy. We’ve had, what five major events. You know, August was the UN carry trade. No one even remembers that now, but August 2024 was the UN carry blow up. SNP, had about an eight, 9% drawdown. Then you had a pal missed up in December. You had Yeah, the AI, Chinese AI in January. Then you had the massive 20% drawdown, 15% drawdown in the SMP, from February to to the to the April lows. There’s been a lot going on, I said, over the last 15 months, and fortunately, we’ve been able to deliver consistent returns through that process. So it’s been, it’s been a good environment for us to demonstrate our risk management and trend following. But those two, those two concepts for us are inseparable. We will not ever do momentum without a risk management approach. And I don’t think that you can do just short term volatility trading on its own without without participating in longer periods of of of momentum and trend. So they go, they fit really well together.
Jeff Malec 26:39
And what would you what would you say? Someone try and put you like you’re a timer. Are you timing these up and down moves?
Eric Leake 26:45
No, not at all. And in fact, I used to, I was on the board to a couple of different timing comes. So I know that very well. No. So timing in my definition would be risk on, risk off. So one of my favorite games I used to play, when I go speak at these advisor events, I always start off the conversation with, okay, show of hands. Are we in a bull market or a bear market? And the punch line was, it depends on your time frame. Both are true, right? Yeah. So I think one of the biggest challenges for for people who don’t, haven’t built a framework this way, is the human brain wants to solve for the simplest explanation possible always is how we’re built, right? Yeah, homeostasis, just to our bodies are built to be to be efficient. So are you bullish or bearish? Well, yeah, I don’t know, yes.
Jeff Malec 27:37
So so on it we well, I feel like, right now, everyone is both like, I have to be bullish in my positioning, but I’m bearish as hell. I think this can’t last.
Eric Leake 27:47
I just, I’ve just seen this process over and over and over, and I coined a phrase long time ago that I think is still relevant. You can tell me if you think it’s relevant. Headlines change, but investor behavior is always the same, right? So the headlines that created the panic, the catalyst for the panic in Oh 708, those headlines are very different than the headlines that created the panic and the catalyst of the 2020, decline in the covid, right? And those are very different than the tariff headlines. But how markets react to short term news in the context of a longer term trend. It’s consistent. It happens over and over again. Part, I mean, it’s such a long winded answer of why, some of it has to do with how we deliver financial markets, like the business of an FCM or a prime brokerage or an ETF company delivering products. Some of it’s just pure industry stuff about hedging and gamma walls and things like that. Some of it is as basic as just following headlines and people getting over their skis, but, but
Jeff Malec 28:44
markets departments, for some people out, yeah, yeah, yeah.
Eric Leake 28:49
Volatility is a cycle. It’s not a condition. A trend is a condition of volatility is a precise moment in time in terms of how we how we see
Jeff Malec 28:58
- I’ll push back on you a second there, because we talked earlier like the it’s getting shorter, though they may react the same, but is the timing condensed?
Eric Leake 29:09
So I should mention that. So in we’re updating this piece about in 2015 or 617, or 18, I wrote a piece called the bear market roadmap, and we’ll make it available to
Jeff Malec 29:21
show notes, yeah, yeah, and we’re
Eric Leake 29:23
updating it now for current markets, but I spent a lot of time talking to back then. It was mostly retail advisors, because we were on some different SMA platforms. And the common question was, well, how do you make money in a bear market? Well, you have to start by studying bear markets, understand how they work. Okay, bull markets are defined by day after day after day of small gains. They’re not volatile events. The VIX compresses right. Liquidity is, is everywhere, lots of correlation to the upside, lots of themes. But it’s, it’s day after day after day because the investor, if we’re done with the retail. US or the advisor some institutions, they’re going, man, we had that bear market in oh nine and oh, wait, I’m not going in right now. And for a couple of weeks, you look like a genius. No, we’re hedged out. We missed that last 10% of the downside. And then what happens? Volatility calms down, and the market starts going up day after day after day. And eventually, that’s where the FOMO and the herd kicks in, because you cannot stand to be out of that market, right? Yeah. And it’s kind of like the analogy of the the we’ve all done it, you know, a big wheel back in the days, maybe a wagon down the hill, right? You start off, maybe, you know, skateboarding, it’s fine. And then you get a little faster than the speed bubble start. And then eventually those speed bubbles get so gnarly, your disaster, right? That cycle is what momentum is all about, and that’s what ends up becoming the volatility part of the speed walls is the volatility part. So when bull markets are low volatility, boring events, but all of a sudden, you look back over the year, SMP is up, 1518, 20% managers are behind. They start chasing. Bear markets are completely opposite. They’re not consistent downside. So if they were the same, you’d have consistent day after day upside. Bear markets are consistent downside every day. It’s not how it works. Bear markets are the most violent rallies and the most violent declines, because the emotions are running so hot, the volatility is so hot, the option pricing is so hot. People are every night trying to manage their exposures and their credit. What’s my overnight risk? The banks are talking to each other. So we wrote this piece called the bear market roadmap, and I can’t remember the exact dates right now. I think we went back to like 1950 or something, but we looked at what are the 50 largest one day moves in the s, p from it was like, I think, don’t quote me, I think it was 1950 to 2017, at the time. And we’re going to update this piece. But what’s, what’s interesting is the worst days in the market every year, and the best days in the market all happened when the S P was below a 200 day moving average.
Jeff Malec 32:07
That’s when the days as well. Yeah,
Eric Leake 32:09
the even the best days, even the single best winning days in the S P. And that’s so counterintuitive, right? It’s like, wait a minute, get a bull market. You should be having these big Ripper up days. No, your biggest like, I remember 2008 I was I was at the desk when we lost Lehman Brothers. I was at the desk when we I watched all the congress people at Pelosi. They were all arguing about where they’re going to do Cash for Clunkers and the stimulus programs. And there was a big political standoff. And you had a massive sell off on that Friday, S and P was down. I think that week was down like 13, 18% in the way. Monday has to be really nine and a half. I know I think like 11% on that, on that Monday, right? Yeah, because over the weekend, the politicians finally bent and Okay, no, we’re going to save some banks, because we lost bears. Turns right. Bottom line is, these massive moves up and down happen in bear markets, not bull markets. So it’s
Jeff Malec 33:02
also a funny aside real quick. Like, everyone, oh this. We’ve never had news driven markets like this. And a tweet like, go back to, oh, wait, that’s, yeah,
Eric Leake 33:11
you want to see how much wine I was drinking on midnight when we lost Lehman Brothers. You know, I was managing money for a large firm in in Georgia at the time. And you know, it was midnight third time, and nine o’clock our time, because we’re because we’re in California, and I’m like, Well, we’re hedged. Either way, we’ll see what happens. And we’re just sitting there watching Bloomberg and just watching this thing just melt. And that’s that’s lost Lehman. No one thought it was going to happen. So again, we’ve been through these cycles so many times, and the headlines are different. The Catalyst is different, the setup is different. But look how banks, investors, FCMs, think about their capital when you get to a certain pain point. Those are the massive inflection points, and trend following, by itself will never pick that bottom. The math doesn’t work right, even short term.
Jeff Malec 33:59
Well, by I would argue, by design, because if it’s trying to pick those bottoms, it won’t catch the full downtrend or the full uptrend, right? It’s by design. It has to skip those Yeah.
Eric Leake 34:08
But by design, if you read any trend following book, or you study anything, or you know this, you guys are in a space. For me, this is your entire world.
Jeff Malec 34:16
You listen to this podcast, yeah?
Eric Leake 34:19
Well, the point is, by design, we want to ignore those. We call those short term volatility days noise. Stay with the trend, ignore the noise, right? Volatility trading in our book, is trade the noise. Benefit from that. Short term panic benefit from that. So the reason we were heads for deep seek Monday is not because I have some, you know, insight into Chinese AI. It’s because if you go back and look at markets, look at S and P futures, look at Nasdaq futures in the week leading up to that, I remember down in Miami at the time for that, I connections event, and there was a Fed meeting that week. So I was telling my partner, I said, we’re hedging down because we. Were at peak, peak, peak, tick bombs to the upside. All of our models, short term volatility models, were screaming, we’re over our skis. There is a chance you’re going to move higher. But we’ve seen this over and over again. At some time in the next few sessions, some headline, some catalyst, you’re going to erase multiple days of gains. It’s what we’ve done for over two decades, we’ve seen this over and over again, so I thought I always put out a commentary, but I didn’t, because I would look like an idiot was gonna be. Yeah, I thought it’d be the Fed that week saying something wrong or being interpreted wrong. You know, pal, they don’t like what pal said, and they dump the market. But no, we woke up Monday morning. All of a sudden, there’s a new, super cheap AI solution, and all the all the capex spending in the US is now irrelevant, and that was a 3% reset on the queues, cover the hedges, get back along, get back in gear with the macro trend. So the short term volatility acts like a regulator around the extremes, and to try and give a better return stream than just multi timeframe, trend following. Can deliver
Jeff Malec 36:01
on some which I want to dig in that in a second, but it’s interesting to me. Like part of me thinks like, oh, well, you were lucky, because the models were protecting against a Fed announcement. It was some other announcement. But the other half of me is like, no, it didn’t matter what the announcement was. Didn’t matter if it was the Fed or deep seek or whatever, or some bank, like it was so toppy and so overbought that any little thing right with
Eric Leake 36:24
the straw, we’re quantitative, so, I mean, look right, but how do you
Jeff Malec 36:28
view that? Of like, is it luck or like? To my point, like it could, it doesn’t matter what the catalyst is. It’s so uh, overbought that it’s just ready for something to trigger it
Eric Leake 36:37
exactly like. I mean, a good example is this last list last Friday or Thursday. You know, we’ve been doing so well with China. You know, the the administration has been doing well. The market’s kind of taking that out of that, out of the pricing scheme. We’re starting to get overbought again and out of the blue, you know, the administration is using this as a negotiating tactic, and the market just was not prepared. So you create this air pocket, which then we’re buyers. So we were on a big sell off last Friday. We were big buyers at that because you went from which, which happens a lot. You went from too much complacency, the VIX was compressed to almost one year lows, right? No one’s taken seriously. You got a stream of people on the news networks saying things like, what could go wrong? You’re like, Oh, don’t say that. That’s the curse. Don’t say that. I’ll
Jeff Malec 37:28
find something. Yeah. But just to reiterate, you’re not looking at those tea leaves and saying, like, it’s getting it totally we
Eric Leake 37:35
are completely math driven, completely quantitative. These are rules and a framework of risk management we put in place 20 years ago, and we’ve used in sma’s. I use it to win a five star morning start rating with the mutual funds that I ran. It’s a repeatable, observable process. And let me say something, it’s not always fun. You know, last, last Friday. You know, there’s a look, if the market sells off three if equity sell off 3% one day, there’s a headline where you have to consider, wait, is it different this time? Yeah, you don’t get a 3% sell off on just like, I’m sure it’s fine. No, it’s a panic moment, but my job is to have the discipline to exploit that, right? And and it’s, it’s, it’s not always easy, but I’ll tell you this, Jeff, Top Secret, hope no one else I want you to lift your monitors. Just This is between us. Don’t, don’t listen. My favorite trade is a panic Friday, if, if, if our model is confirmed that you are, you go completely oversold. That is one of the now that I say this will probably not make it true, but yeah, it’s one of the most it’s one of the more consistent. One of the more consistent things you can observe, is when you have a panic Friday, you’re exploiting people saying they repeatable human behavior of I don’t know all the information here, the market is smarter than me. I want no exposure over the weekend. We’ll sort it out. Monday, everyone gets a break. They go to football games. They were the barbecue
Jeff Malec 39:04
when there’s a market Axum right, like the market bottoms on Monday doesn’t bottom on a Friday.
Eric Leake 39:11
Or they are. They call it sure on Tuesday as well, sometimes days.
Eric Leake 39:20
So how would I also explain is this trend following is, is a clunky, brute force instrument. The trend is, is the condition you know, of the market. It’s, it’s, it takes. And in order for the math of trend following to work, you need multiple days to deliver a trend, if it’s a five day trend, 20, 3200, trend, whatever. But you need to compound that over time, and there are going to be noisy days in between. They’re just not a part of the trend, right? But volatility trading, in our definition, while trend falling is clunky, volatility trading is a precise moment in time. It’s a one day, two day. Three day event when, yes, the trend is up, but statistically, you are exposed to a pullback, whether that pullback is a 1% pullback, or it’s or it’s the beginning of a new nasty bear market, it doesn’t matter, because we can harvest alpha over and over again by using this multi factor approach. Our trend models and momentum models are going to deliver the return 80% of the time. But there are times where you really need those short term swing trades on the volatility portion, and they’re right within two, three sessions by by the math, by the definition of how they work, we only use those when the market’s really extreme.
Jeff Malec 40:39
So let’s dig into those. So that’s using futures only options, VIX, all the above,
Eric Leake 40:46
all the above. We so, so a vix compression is one of those things we don’t like to short VIX, but, but we will, we will. The VIX exploding higher is one of the conditions that that why we went very long on that Friday meltdown. We look at volatility bands around these indexes as well. They’re not Bollinger Bands, but they’re volatility bands. Because when you break out above or below the these, these bands, the way we construct them, you’ve they contain 90% of the price movement. So statistically, if you’re
Jeff Malec 41:16
helping wine with John Bollinger, like, sorry, John, I’m not. Yeah, I know John.
Eric Leake 41:20
Hate me now my phone’s gonna start blowing up. No, listen, I’m a massive fan of John. We’re we work together on some different things over the years. He’s a great guy, but he really helped help people with his percent B and bandwidth and volatility bands. I remember well, we worked on a lot of stuff together, and he was a great mentor to me in my early my career, there’s a number of other folks too that worked with him that we’re all, we’re all kind of this, this little group of people that that, that he wanted to pass on, you know, technical analysis to
Jeff Malec 41:49
it’s going to your goal is to hedge that downside by little pieces of upside in between it and getting so
Eric Leake 41:56
this goes back to that idea of being a Market timer or exposure manager. We’re exposure manager, right? So think on our return stacking of our three levels, right? So we have, we’re going to get in here with our core exposure right now, the s, p, the NASDAQ, the Russell, they’re all above whatever moving averages that they’re all in there are our proprietary trend models. The trend is green. Get get invested, right? If that was our only process, then we’d be forced to just sit back and take the beat downs every now and then. And for some CTAs managed features, trend followers, that’s totally fine, and that’s the
Jeff Malec 42:33
process. Do you have stats on that if you just ran your trend model on the indices? Is it like, yeah, it’s and it’s probably still good, right? It’s
Eric Leake 42:41
good, but I think most investors will get shaken out.
Jeff Malec 42:45
Yeah, it’s not an enjoyable experience. You look at it on a 20 year basis, like, Hey, pretty good.
Eric Leake 42:52
Look. That also works for buy and hold, right? So if you look at 20 year I mean, who are you 20 years ago? Were you making the same investments? Are you gonna stick with the same this is human behavior. We’re not gonna
Jeff Malec 43:04
stick with something right? Same hairdo? Yeah, I
Eric Leake 43:09
know my hair is a lot longer now. So the the the if you had permanent capital and you literally were managed money for yourself, you don’t clients, you don’t care. You could use just treadmilling or momentum. The reality is, we serve a lot of people who serve other clients, and they’re not just one strategy. They want to see. How can we add alpha, reduce drawdown, improve the portfolio. And when I started off in this business a million years ago, my first clients were professionals. They were doctors, dentists, lawyers, who had already achieved a certain amount of wealth. And their objective was, grow my money, but don’t lose it, right? So I didn’t start off from a place of in the, you know, I started in the 90s, so we’re going into the.com bubble. A lot of my friends and other brokerage firms and things were all shooting for the moon. They were all, you know, buying. I could list all the, all this, all the tickers. I kind of by mandate, who I was working with from day one. Risk management, controlling downside, is just baked into what I do. I can’t do anything else. That’s just, that’s just how I function. And so the the volatility management is about getting investors involved, and getting them into something that will deliver results over time, but not have that moment to get shaken out. Because the reality is, even any strategy, volatility, trading, momentum, pairs, trading, star, whatever you’re doing, multi commodity, you know, diversified, whatever, there’s going to be moments we have volatility. If the volatility is tolerable. You’ll be there for the incredible upside, right? But if you panicked at the April lows this year, you missed a 30% run. So when you have the discipline proven model to say we’ve officially gone down too far, it’s time to cover hedges and step in that. Help smooth the experience and keep people invested for what you hope they’re there for. You hope they’re there for the upside, but if the if the drawdown of the volatility is too high, people won’t be there for the reward that’s been my experience over the last 30 years.
Jeff Malec 45:13
Talk through how the hedges actually work one more time. So without giving away too much of the Yeah,
Eric Leake 45:19
we’re looking at, we’ve got, we’ve got six or seven models that look at different price points. It’s all price driven, because at the end of the day, the narrative doesn’t matter. The fundamentals don’t matter. Investors vote with their wallet. Right for us in our world, price dictates exposure. So when we are in an uptrend like we are now, we are fully invested until we get too far over our skis, and those volatility models, we package that. But volatility for us can mean too little volatility as well as too much volatility. So when volatility goes away, the VIX is compressed to one year lows. You’re breaking down. You’re up above our volatility bands. We call them our vol our volume smoothed. RSI is screaming, all those things are red lights going. Hey, this has been great, but the party’s gone on too long. There’s an accident coming. Doesn’t mean the trend is over. Doesn’t mean you’re not going to reset and go higher, but there’s an opportunity for two things, extra return and alpha, and also smoothing downside. That’s how we’ve been able to deliver 89% of the upside of the indexes with half the volatility, half the risk is because this little short term process is monitoring. Are we too fast or too slow in context of
Jeff Malec 46:36
the trend right? You’ll also dial the trend piece down, the trend exposure, no. So that just exists
Eric Leake 46:43
because our margin equity, yeah, because, because the power of doing this and, and that’s I should say this, the this, this vehicle to being able to do this. I’m having so much more fun doing this in managed features and private fund, because the mandates that you have in a 40 act Fund and the rules around the SEC about exposure that you have to have really dampens and limits what you can do. So with the margin of equity of futures and our ability to change exposures, we can keep those core exposures on and use futures to dial up and increase the exposures or hedge against and get neutral. And the tax efficiency of futures makes that just a night. It’s just an ideal way to execute this strategy. Yeah, other strategies, you know, single stock and and fundamental bias and the AI trade, what might might be great for ETF, or mutual or mutual funds, for us going back into where we have no, no SEC restrictions in terms of, can we? Can we be completely neutral? Do we have to have this exposure? That exposure, the returns have been phenomenal. We’ve had just such a better vehicle to execute the strategy on.
Jeff Malec 47:51
Love it so the nine, nine, you said, in the hedge, nine inputs, what was the we?
Eric Leake 47:58
I just, I just said six to seven. I always say that, for some reason, I think there’s seven. There’s seven inputs measuring everything. Like I said, cumulative tech, our volatility bands, and it’s around each one of those two. So we may have times where it gets really fun, and one of the reasons that we can generate multi factor smoother returns is it’s it’s not that market timing, risk on, risk off. We might be short Russell against a long s, p, because the whole market has been coming up. You’re getting this Russell re inflation trade that’s happening right now. We’re expanding because the cost of capital has come down. Small cap stocks have to borrow a lot of money, right? They can’t. They don’t have the massive profit. They don’t have international profits. And so in our experience, small caps tend to have the most interest rate exposure in terms of dampening when the Fed started cutting rates. And now that the market’s getting a narrative where it believes that the Fed’s going to continue cutting rates, you’re getting this expansion of Russell. So Russell has been getting a lot more violent lately, and it’s beginning up above and hitting so we may have a time where the macro, long term trend is green across the board, but uh oh, Russell is a little over the skis here. So we’re short Russell, but we’re still long SP and NQ. What that does is, on a down day, if Russell’s down 3% but S, P is only down 1% we’re still we’re almost neutral exposure, but we’re still making money on that day. So we can make money on the trends. We can make money on the spread of performance between the positions, and then we can also make money on the volatility or lack thereof.
Jeff Malec 49:36
So all those hedges are working independently in those three markets, each of them will signal, hey, yeah, getting crazy.
Eric Leake 49:44
We’re measuring trend and over whatever sold on each one individually, and they’re functioning differently. That’s why our exposure is we can be, you know, we came in today, you know, 68% long work. We added some exposure. We’re going to win tomorrow. 90% long in a couple. Couple of days. If this they keep we’re coming into the end of the month. There’s a lot of factors this week. I don’t know when this is going to be put out, but those you know this, this week, we’ve got a bunch of earnings. We’ve got CPI. We’ve got fed coming up, the Fed’s in this blackout period. And now we’re going to the to the October 31 mutual funds, selling tax loss, harvesting, all kinds of awesome things to exploit in terms of volatility and trend. Meanwhile, you have the S and P pushing, you know, 1213, 14% year to date. Here we are again. We’re back to that same part of the year where a lot of managers are going and I’m behind the S, P again. And so that exacerbates the moves, and you begin the year end Chase, which inevitably leads to the whole cycle repeating over and over and over
Jeff Malec 50:44
again. How do you view it as compared to, like, all right, I’m gonna be long. I just hold my long. We’ll start basic 6040, seems pretty obvious compared to that, so maybe we skipped that one. But if I’m like, I’m gonna add tail risk, right? I’m gonna have my long equities and just tail risk with like, 20 or 30% out of the money puts, yeah, yeah. How would you compare to that? Because you’re saying, Well, those are only have one single path where they Well,
Eric Leake 51:09
the problem so if you’re comparing so to like that, like a buffered ETF or like, you just sit kind of with those, those exposures, like, I’m a 30% long tail. The problem is those are, we call those caller caller position color trades. You’re permanently limiting your upside, right? You’re protecting
Jeff Malec 51:24
I’m saying not a collar if I’m just right. I’m 80% long stocks, and I just hold 2% long tail risk, yeah, but I just keep buying those puts, rolling them month over month. It’s a guaranteed
Eric Leake 51:37
because it depends how far out of the money those puts are, depends on the daily pricing. How I’ve seen most of those strategies work over time is that the protection only kicks in if you have a blowout event, you know, one or two day event, but you’re still gonna, you’re still gonna suffer the two to 3% you know, couple of day drawdown, because those, those deep out of the money puts just don’t, do not up there far enough. Yet, we do look at those. We look at so it’s not quantitative, it’s it’s it’s more just, I’m a I’ve been a manager for 30 years, and so I’m just, I’m passionate about markets, and I watch, you pay attention. Yeah. So we look at the gamma walls, we look at the Delta walls, we look at what’s happening in terms of of skew. We look at all those things as a secondary indicator. But the difference is, I would say that type of strategy is okay, it serves a purpose, but that’s going to have a fixed correlation. You’re going to get so much downside, but you’re only going to capture so much upside. Should be held back all the time. Ours is a dynamic exposure management. So there are a lot of days out of the year where we don’t need that put volatility is no we’re compressed. We want to have full exposure to markets. We want to deliver the return of s, p, Q’s, Russell, when the volatility picks up is when our hedging picks up. So there are times where we just look like the market, which, which is okay with us, but
Jeff Malec 53:03
it’s usually, yeah, yeah. And point of confusion for me here, if the market does go say, we do have that 30% down, and the trend reverse is now a short trend in all those markets, you’re flat, you’re out. Are you
Eric Leake 53:18
sure we are net short, yeah. So, the whole process
Jeff Malec 53:21
is now the trend is now short, and the Alpha piece is still working. Start from the top,
Eric Leake 53:26
we’re going to get, we’re going to get the core positions in line with the core trend right. We’re going to get, we’re going to short those, those equity indexes, and then as we now start to reach oversold, we’ll cover those shorts and get long, and we’ll be buying those dips as you bounce on the way down. And per will
Jeff Malec 53:45
be getting longer quicker, because you’re not waiting on the trend. All the Alpha pieces are kicking it. Yep. If we go back to where I talked about, what you call them, what volatility trading pieces, I’m calling them Alpha pieces.
Eric Leake 53:56
Yep, volatility triggers. Because remember that our discussion about bull markets versus bear markets. In bear markets, the most dangerous thing to do is to be short for too long, because they’re violent oversold rallies, and there’s so much opportunity. My favorite market is a bear market because, you know, we’re busy, you know, not surfing at two o’clock in the afternoon, because, you know, we’re trading, there’s, there’s a lot to do, but everything speeds up. And, you know, again, if take a look at our, at our at our piece, and we, kind of, we use 2008 and nine as an example of this is a typical path for for a bear market, everyone forgets that you had 20, 30% rallies from mid 2007 to 2009 yet overall, the market finished down like 50, 54% right? Yeah. So it’s bear markets are very explainable. We had a little mini bear market last February, March and April, and it’s a good example. There were, there’s a period of time there during March where we were really rolling and our core bottles went short, but we were. Short for a week, week and a half, and then you begin to reach just panic, oversold, where our models are going. Yes, the trend is now to the downside, but you’re so far oversold, you’re so panicked. Now the tick bombs are the downside. Now the VIX is exploded above, UPS. It’s upper volatility bands all the opposite. You covered hedges. You get long. We were, we were one day early, off the bottom. I remember exactly we were. We were in Palm Springs for an event. And I never, I think I was actually talking to Bobby about something that day, and he was, he was at another event, some conference, and I was telling about our positioning. And you know, it was like, wow, you’re I said, we’re buying this, we’re covering shorts. We’re getting long. And when 24 hours later, that was the low, and the market had that 12% up day, or whatever it was. So the headlines change, but investor behavior is always the same, right? So it’s a you’re either in a bull market where you’re you’re taking advantage of the momentum to the upside, but using short term volatility to hedge, or you’re in a bear market and you’re short, but you better be quick, because those rallies come fast and hard, and then you once the once it’s relieved, you get back in with the trend.
Jeff Malec 56:07
And then those could also just take it neutral at the bottoms, like towards the bottoms tend
Eric Leake 56:12
to that’s the power, I truly believe, of what we do. Because when you’re using just momentum, trend following even multi time frame, you need multiple days of moves to get in gear, change your positioning. But market bottoms and tops don’t work that way. They tend to work themselves out. It’s a couple of big up days and then, yeah, you know. And then you get a couple down days when you when you’re able to apply short term mean reversion volatility trading to complement the momentum trading you just have. Your opportunity set is just so much wider. Your opportunity set to deliver returns is wider and so because they’re all of those independent think of these as like independent strategies inside the entire portfolio. Russell might be oversold, but S P is not so you’re buying the dip on Russell. S and P is not down there yet. So it just all of these tend to work together to create a smoother topping and bottoming experience. And listen, we’re not perfect. There’s, there’s times where, you know, if the market is fully in geared and it’s ripping, and we’re doing little hedges along the way, we’re gonna, we’re gonna not perform. You know, I could do 150%
Jeff Malec 57:14
of the upside. I was gonna ask, like, a 17 is would be bad for
Eric Leake 57:18
you? Because it’s like, no, 17 was a great year for us.
Jeff Malec 57:20
Okay, there’s no Blips. It’s just it was, there
Eric Leake 57:24
was, I think in 17, you had a correction into October that our models picked beautifully. 18 was more challenging, but 18 we finished positive, all the while the market was negative.
Jeff Malec 57:38
Like, what type of environment, something where it’s a big rally, but there’s a lot of layers, false volatility spikes, basically,
Eric Leake 57:45
well, sorry, asking what’s our best environment? Our worst environment? Worst? Oh, dude, 2015 Are you kidding me? I remember that like it was, like it was yesterday. So 15 we had, we were doing SMEs back then hadn’t launched a mutual funds, and we brought on this, about a $4 million allocation. We’re super excited. We’re doing backflips, and we’re going to Javier. And celebrating Margaret is all the time, and the market did nothing for 15 months. I think the only return for the S P for the entire 15 months was the dividend. There was no volatility and no trend. So in a flat market, no one’s making money, and we’re not either. They’re just, you just didn’t have enough enough extremes, and that was going
Jeff Malec 58:28
in the volatility train, get chopped up a little bit, both of them. And the trend,
Eric Leake 58:33
yeah, the trend following is just kind of whip selling back and forth, like for everybody and the volatility trading. But it was such a it was such a narrow you didn’t really get the big extreme sell off or the big extreme upside. I’m not going to say we’ll never have a mark like that again. I then we’ll still start tomorrow, obviously. But I think where we are in the world in terms of of central bank intervention and crypto now being a real currency, a real you know, factor in trading. I think there’s no moving parts now, where it’s it would be very difficult to not have some volatility to exploit. It’s possible we get into that environment. But if you’re, if you’re looking where a strategy like ours can struggle, we’re exploiting momentum and trend and volatility. If you have neither, what are we doing? Yeah, very challenging. It’s
Jeff Malec 59:21
almost not just volatility over here. It’s like a gamut, more of a gamma trade, right? Like you want, yeah, what do you view it like that, like your Gamma Scalping on that volatility trading
Eric Leake 59:33
side, pretty much, yeah, we’re, yes, we’re exploiting the skew. For example, tomorrow, I think, I think vix futures expire tomorrow, so you finally have the spot and the futures coming together. Both of them today are down two and a half percent, sorry, 12 and a half percent off that spike from last year last week. But as you go into the as you roll the contract out to November, you’re going to see that November. Contract get pushed out again, and it will be much higher than the spot. So yes, there, there’s also that factor that we have to pay attention to. And we watch a lot
Jeff Malec 1:00:08
awesome. What
Eric Leake 1:00:12
do we what do we miss? Music, DJing,
Jeff Malec 1:00:16
yeah, I see maybe your wedding picture behind you, and got it? Yeah. Shout out to your wife, who I’ve had the pleasure of having dinner with both of you twice. She’s a just killer in her own right, in a good way.
Eric Leake 1:00:28
Amy’s phenomenal. Amy, yeah, we, we’ve married for over two years now, and she is a financial professional executive in her own right. JP, Morgan, head of national accounts. JP, Morgan, State Street, yeah. Very accomplished. She basically helped kind of build the ETF industry. I think she was employee number five or six or something. Don’t quote me on it, when JP Morgan started launching ETF. So no, she’s a UC Berkeley grad. Incredible, incredible partner. Yeah, thanks
Jeff Malec 1:00:56
for mentioning right as I said, kill her and then your son, which I gotta imagine, he’s doing some work for the firm, right? And is becoming a bit of a quant. Was it like a reluctant as my son’s looking at colleges and stuff, I don’t know if there’ll be any jobs in the future, so I’m a little worried, reluctant participant. Or How’d that work
Eric Leake 1:01:16
out? No, no, he so look, my son saw what I was doing for a long time. He’s one of my best friends. He’s great. He’s great, great kid. Not a kid’s a man. Now he was he wanted to follow in the footsteps of his dad do money management, so we talked about our process of multi factor risk management for years and years. He was trading on his own. Went to UC Santa Barbara. I had no idea how well he was going to do there. Ended up getting himself into one of the investment Dean’s investment group where he was managing a portfolio. There he’s meeting with boards of companies getting recruited, and that was part of the part of the decision making for me to do one more run after running my last firm for 30 plus years, decided to launch a new firm, and so Ryan is my partner. He’s a great partner. The kid is a better quant than I am. Now. He’s surfing better than I am. He’s playing guitar better than I am. So, man, you know, not happy about it, but I’m happy
Jeff Malec 1:02:14
about it. What do you have left? You know, yeah, take him in, anything.
Eric Leake 1:02:17
Yeah. Listen, yeah, I still, I still take them.
Jeff Malec 1:02:25
All right, we’ll put some links in the show notes where everyone can find you and all that, and I think we’ll leave
Eric Leake 1:02:31
it there. Thanks for the time, man. Great conversation. Ditto.
Jeff Malec 1:02:35
We’ll see you next time out there. Okay, all right, see ya. All right. Thanks, Eric. Bye.
This transcript was compiled automatically via Otter.AI and as such may include typos and errors the artificial intelligence did not pick up correctly.
