Alpha Exchange

On this episode of the Alpha Exchange, I’m joined by Lori Calvasina, Head of U.S. Equity Strategy at RBC Capital Markets, for a discussion on the forces shaping the equity market and the framework she uses to assess where the S&P 500 should trade.

A central theme of our conversation is the strength of corporate earnings. Lori contrasts today’s market with 2022, when the rapid repricing of interest rates coincided with a considerably weaker earnings environment. This time, earnings growth has provided an important offset to pressure on valuation multiples.

She also identifies a vulnerability. Her current framework incorporates a 10% reduction to consensus earnings estimates, reflecting concerns about both the non-AI economy and the sustainability of earnings expectations associated with the artificial intelligence investment cycle. We explore whether the extraordinary capital spending of the largest technology companies can be sustained and whether companies outside that group are positioned to participate in a broader recovery in investment. Lori distinguishes between the concentration of spending among the largest companies and the much earlier stages of capital expenditure recovery across the rest of the market.

This creates an interesting tension. The companies responsible for much of the market’s earnings strength are also the companies making some of the largest commitments to future growth. Their ability to generate returns on that investment matters not only for their own valuations but for the outlook of the broader index. At the same time, an improvement in capital spending elsewhere in the economy could provide an additional source of support, particularly if the recovery broadens beyond technology.

I hope you enjoy this episode of the Alpha Exchange, my conversation with Lori Calvasina.

Private equity has become an increasingly important part of institutional portfolios. Investors are attracted to its long-term return potential, the ability to influence portfolio companies and, perhaps less explicitly, the relatively smooth performance that comes from periodic rather than daily valuations. But what exactly are investors being compensated for? And how much of private equity's return profile can be recreated in public markets?

My guest today is Randy Cohen, Professor of Finance and Entrepreneurship at Harvard Business School and Co-Founder of PEO Partners. Randy has spent much of his academic career studying asset pricing, investment management, and the challenge of identifying genuine investment skill. Randy and I go back to our days at the University of Chicago, where Gene Fama's work provided a foundation for how we think about markets, risk, and expected returns.

In our conversation, Randy describes an approach to private equity replication that begins with the economics of a leveraged buyout. Companies attractive to buyout investors generally exhibit strong profitability, attractive valuations, healthy cash generation and relatively manageable business risk. These characteristics overlap meaningfully with established equity factors.

Add industry selection and a measured amount of leverage, and Randy argues that a liquid portfolio can capture important elements of traditional private equity exposure. Of course, the differences matter. Private equity managers can make operational improvements and exercise control. Public portfolios offer liquidity but expose investors to daily market volatility. And the smoothing of private valuations, what Cliff Asness has called volatility laundering, complicates the comparison.

We discuss these trade-offs, the substantial role of fees, and the potential for liquid private equity to serve as a complement rather than a replacement for traditional allocations.

I hope you enjoy this episode of the Alpha Exchange, my conversation with Randy Cohen.

Chris Hentemann launched 400 Capital Management in October of 2008, in the teeth of the Global Financial Crisis, with roughly $2.5 million of friends, family and mostly his own capital. Today, 400 Capital manages approximately $8 billion, focused on asset-based and securitized credit.

We begin with Chris’s early career at First Boston, Salomon Brothers and Bank of America, where he developed expertise across mortgages and structured products. Chris reflects on the extraordinary expansion of bank balance sheets leading into the GFC and why the combination of leverage, insufficient risk capital and misaligned incentives ultimately proved unsustainable.

That experience became foundational to the investment philosophy he would build at 400 Capital. Chris explains why he starts with raw, unlevered returns, looks for strong underlying asset selection, and seeks structures that provide asymmetric or convex outcomes.

We then turn to significant risk transfer, or SRT, and how regulatory changes created opportunities for private investors to assume credit risk that banks increasingly wanted off their balance sheets. Chris walks us through a recent transaction with OceanFirst involving a seasoned residential mortgage portfolio and explains both the underwriting and structuring behind the investment.

Lastly, we discuss the enormous AI infrastructure buildout. Chris explains why 400 Capital is cautious on data-center real estate itself but sees opportunity financing tangible assets such as power equipment and turbines. We finish with risk management, dry powder and why, at this point in the cycle, being a thoughtful second mover can sometimes be more valuable than being first.

I hope you enjoy this episode of the Alpha Exchange, my conversation with Chris Hentemann.

My guest today on the Alpha Exchange is the Convexity Maven, Harley Bassman. Harley joins me at a particularly interesting moment for markets, with long-end Treasury yields backing up, rate volatility elevated and the traditional relationship between stocks and bonds looking increasingly unsettled.

We begin with Harley’s argument that the rise in long-term yields is less an inflation story than a trust story. With large fiscal deficits, growing interest expense and an enormous amount of Treasury supply coming to market, he sees investors demanding greater compensation to own long-duration government debt. Add substantial borrowing from AI hyperscalers and a changing global buyer base, and the supply-demand equation for bonds becomes even more challenging.

We discuss why Harley thinks the Fed is in a difficult position, how higher real yields are affecting housing affordability, and why changes in the transmission of monetary policy may make the policy rate less powerful than it once was.

Harley then gives us a tutorial on the MOVE Index, which he created in 1994 using data extending back to 1988. We discuss what a MOVE reading above 100 actually means, how today’s volatility compares with history, and why seemingly extreme levels can sometimes simply represent a return to an older market regime.

We finish with options, forward rates, equity-market flows, and the conditions Harley believes could finally make higher rates matter for stocks.

I hope you enjoy this episode of the Alpha Exchange, my conversation with Harley Bassman.

With one of the largest repricings in fixed income in decades underway, Brij joins me for a wide-ranging conversation on monetary policy, inflation, the wealth effect and where he sees opportunity across global bond markets.

We begin with a provocative question: what if interest rates have become more effective at influencing financial markets than the real economy? Here, Brij argues that the traditional relationship between rates and business investment has weakened considerably. Ultra-low and negative real rates did not necessarily generate the productive investment policymakers hoped for. Instead, they helped encourage greater financialization, from household leverage and corporate stock buybacks to private equity activity and, more recently, government borrowing.

That leads us to inflation and Brij's argument that today's remaining price pressures are increasingly connected to wealth rather than wages. With an enormous amount of household wealth tied to equities, particularly among older generations, we explore how asset-price appreciation can support spending in areas like housing, healthcare, restaurants and travel even as labor-market demand cools.

We then turn to the Fed and the dramatic repricing underway across developed-market yield curves. Brij explains why the front end remains closely tied to expectations for monetary policy, while longer-dated yields incorporate a much broader debate around nominal growth, term premium and the economic consequences of the AI investment boom.

AI itself becomes an important part of the discussion. We examine whether extraordinary capital spending and borrowing by hyperscalers are contributing to higher bond yields, changing the traditional stock-bond relationship and potentially crowding out other borrowers.

I hope you enjoy this episode of the Alpha Exchange, my conversation with Brij Khurana.