Zed Francis, chief investment officer at Convexitas, joins Jack to talk about interest rate risk, what really happened to the British pension system, and tail risk as a portfolio diversifier. Francis argues that December 2022 will see a wave of mandatory liquidations by the U.S. retirees forced to take mandatory distributions on their retirement accounts. These forced sales will be larger as a percentage of the typical 60/40 portfolio than they normally are, due to the drawdown in stocks and bonds that have already occurred this year. Filmed on November 8, 2022.
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About Convexitas: https://www.convexitas.com/
Convexitas’ piece on Liability-Driven Investment (LDI): https://www.convexitas.com/insights/liability-driven-investment-de-riski...
Convexitas’ piece on duration risk: https://www.convexitas.com/insights/rates-free-risk-duration-duration-ev...
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Timestamps:
00:00 Intro
00:33 The Financialization Of Everything
10:27 Private Markets
17:01 Duration (Interest Rate Risk) Explained
19:35 The Losses From Rising Rates Are Immense
26:26 The U.K. Pensions Crisis - Explained In Great Detail
38:41 Stocks and Volatility
41:53 "Ignore The VIX"
45:19 Tail Risk
50:47 Are Active Investment Managers Underweight Stocks?
01:00:07 The Different Phases of A Bear Market
01:07:46 The Credit Markets Are Frozen
01:10:21 A "Waterfall of Liquidations" Is Coming From Forced Selling From Retirement Accounts
01:19:45 The Value Of Portfolio Overlays
01:26:00 Basis Risk
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Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.
