Chad Cascarilla – Update on Tail Risk

**Patrick O'Shaughnessy** (0:00)
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Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

**SPEAKER_2** (1:52)
Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

**Patrick O'Shaughnessy** (2:20)
My guest today is Chad Cascarilla, here to discuss some of the tail risks in the economy and markets as of March 24th in the midst of the coronavirus pandemic.
Chad was one of the most successful investors during the global financial crisis with a specialty in the banking and finance systems. He now runs Paxos, a trust company which trades and custodies unique products like Pax Gold, Bitcoin and other tokenized assets, including simple Pax dollars. I feel it's important to avoid confirmation bias in times like this and not just talk to people who are optimistic or long. And while I still believe this is ultimately a positive and optimistic conversation, Chad acknowledges and outlines scenarios that few are talking about yet in markets. Please enjoy.

**SPEAKER_2** (2:57)
Enjoy.

**Patrick O'Shaughnessy** (3:03)
Chad, it's not that long since our last conversation, but the world has changed quite a bit. I thought it would be fun, given your deep expertise in the banking system, a deep history in sort of the big short trade in the last financial crisis, and a facility with looking through sensitive parts of the system in markets like this, that you'd be a great guest to have on to discuss where we sit today and where we go from here. So to level set with the audience, the S&P 500 is down about 35%, which is no joke, and it's the fastest decline of that magnitude that we've ever seen.
I'd love to begin with this porridge analogy that you mentioned right before we started recording and use that as a jump off point to discuss what the scenarios we may see from here, how you handicap those and what you would recommend investors and maybe even business people do in those three scenarios.

**Chad Cascarilla** (3:48)
I think what's helpful is to come up with a couple of different ways in which the world could evolve. And then you could start putting probabilities on them and thinking about maybe what's the right strategy in those different scenarios. I kind of was describing it as it could be too hot, too cold or just right.
And that's really referring to the response from both the fiscal side and from the monetary side to try and address the crisis that we're having because of the coronavirus.
And I think what's also helpful to do is to maybe step back and understand where we started from, which was I'd say a price for perfection moment.