TIP473: USING VOLATILITY TO HEDGE AGAINST INFLATION

W/ NANCY DAVIS

01 September 2022

Trey’s guest today is Nancy Davis. Nancy is the founder of Quadratic Capital Management and manages the portfolio of both the Inflation Hedge ETF (Ticker: IVOL) and the Quadratic Deflation ETF (Ticker: BNDD). Before founding Quadratic, Nancy spent 10 years at Goldman Sachs where she became the Head of Credit, Derivatives, and OTC trading. Barrons has named her one of the 100 most influential women in finance and you’ve likely seen her as a frequent guest on CNBC, Bloomberg, and others. 

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IN THIS EPISODE, YOU’LL LEARN:

  • Nancy’s predictions on the forward guidance from the most recent FED meeting in Jackson Hole, which was kicking off at the time of this recording.
  • What Nancy is watching to determine if inflation has peaked.
  • Which indicators does Nancy pay the most attention to.
  • How to use the volatility markets to hedge against inflation.
  • The basics of bond convexity.
  • Opportunities for when inflation and interest rates move towards parity.
  • And much, much more!

TRANSCRIPT

Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

Trey Lockerbie (00:04):
My guest today is Nancy Davis. Nancy is the founder of Quadratic Capital Management and manages the portfolio for both the Inflation Hedge ETF, ticker IVOL, and the Quadratic Deflation ETF, ticker BNDD.

Trey Lockerbie (00:18):
Before founding Quadratic, Nancy spent 10 years at Goldman Sachs, where she became the Head of Credit, Derivatives and OTC Trading. Barron’s has named her one of the 100 most influential women in finance and you’ve likely seen her as a frequent guest on CNBC Bloomberg and others.

Trey Lockerbie (00:33):
In this episode, you will learn Nancy’s predictions on the forward guidance from the most recent FED meeting in Jackson hole, which was kicking off right at the time of this recording. What Nancy is watching to determine if inflation has peaked, which indicators Nancy pays most attention to, how to use the volatility markets to hedge against inflation, the basics of bond convexity, opportunities for when inflation and interest rates move towards parity and much, much more.

Trey Lockerbie (00:59):
I really enjoyed having Nancy on. I certainly learned a lot about the mysterious world of volatility markets, and I think you’ll find some really interesting strategies here. So without further ado, please enjoy this conversation with Nancy Davis.

Intro (01:11):
You are listening to The Investors Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected.

Trey Lockerbie (01:35):
Welcome to The Investors Podcast. I am your host, Trey Lockerbie and today we have our new friend Nancy Davis on the show. Welcome to the show, Nancy.

Nancy Davis (01:43):
Thanks for having me, Trey.

Trey Lockerbie (01:45):
Well, I’ve been loving all your commentary. I see you often on CNBC and Bloomberg, other media outlets, and I’ve always really liked your opinions and your perspective and the news of the day today, we’re recording this on August 25th, but today the FED is meeting in Jackson Hole as we speak. For those who don’t know the Federal Reserve Bank of Kansas City’s Annual Economic Policy Symposium, which is held at Jackson Hole is kicking off this weekend. It’s a three day gathering, and it includes a lot of central banks around the world. And most notably Jerome Powell will be speaking and we’re going to hear hopefully some interesting thoughts from him and probably a narrative change from some other thoughts he said in the past, for example, about a year ago, he said, “inflation is transitory,” which I think has not panned out quite as he had hoped.

Trey Lockerbie (02:31):
The FED hikes are getting up to 150 basis points this year and the markets, despite some decent corrections have actually absorbed the hikes, I think fairly well, but what’s your personal opinion on where the forward guidance goes from here?

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