SI414: The Hidden Risks Beneath the Treasury Market ft. Mark Rzepczynski

**SPEAKER_1** (0:01)
Welcome to Top Traders Unplugged. In markets, success doesn't come from predicting what happens next. It comes from being prepared for what you can't predict.
In each episode, we go deep with some of the world's most thoughtful minds in investing, economics and beyond to understand how they think, how they prepare and how they decide, and the experiences that shaped how they see the world. No noise, no shortcuts, just real conversations to help you think better and invest with confidence.

**Niels Kaastrup-Larsen** (0:35)
Welcome or welcome back to this week's edition of the Systematic Investors series with Mark Rzepczynski and I, Niels Kaastrup-Larsen, where each week we take the pulse of the global markets through the lens of a rules-based investor.
Mark, it is really great to be back with you this week. How are you doing? How are you doing? And how was summer for you?

**Mark Rzepczynski** (0:55)
Summer has gone by really quickly.
I don't know where it's gone. We're already here in mid-August, and before you know it, we're going to be in the fall foliage season. So it escaped me. Summer escaped me.

**Niels Kaastrup-Larsen** (1:12)
Summer escaped you. Yeah. No, it has been a busy one for sure. We've got lots of great topics thanks to you. So I'm very excited to dig into those. We've got a few other things lined up as well.
But I'm also very curious, as always, just to get a feel for what's been sort of coming across your desk on your radar that you might have found interesting in the last few weeks.

**Mark Rzepczynski** (1:42)
Well, I'll go back to a summer analogy, is that oftentimes, especially if you're in the midwest, you'll have thunderstorms roll in. So before the rain, before the winds start coming, you might hear some rumblings in the background. It'll be thunder off in the distance. Then you know the storm is coming, but it's not there yet. I probably would sort of say since the last time we talked, I'm seeing a lot of rumblings that are starting to bother me, and we'll sort of say, let's look at the rumblings of situation awareness. Now, it's not really related to trend following or futures trading, but someone loses 67 percent in a single month.
We find out once again that leverage hurts or leverage kills.
We had the Korean stock market bubble at the end of the other month, which was just a horrific decline in Korean stocks. But this is after a huge move up. This was clearly a bubble. We've had stock issuance that people are now sort of moving to increase stock issuance, and we're seeing some of those new issues sort of have big reversals. And usually, that's a sign of an overvalued market when there's more stock issuance. And finally, we had the Yen Intervention, both from the Ministry of Finance in Japan, but then the Fed actually joined in, which we're seeing intervention tells you that someone doesn't like the way the direction of the markets and they're trying to stop that from happening. Intervention usually doesn't work in the foreign exchange markets, but that hasn't stopped the governments to say like, we've got to arrest what is going on in the yen market and the currency markets. And all of these are rumblings that suggest that things are not as, see, they may not be as nice as or as good as what we think they may be.

**Niels Kaastrup-Larsen** (3:54)
Yeah, no, I completely agree. And actually, there's been one more rumbling, which we'll talk about in a second, and that's in the Treasury markets in the last 48 hours or so. So, there'll definitely be some interesting conversations on that. But I tend to agree with you that sometimes we need to, even though we don't try to predict the future, you know, on a personal level, you kind of take a note of some of these things. You know, regarding the situational awareness fund, I also thought the headline about the loss happening at Jane Street. I don't know much about the firm, other than it's highly profitable or highly successful, as far as I can tell.
But the headline suggested it lost 15 billion alone in the situational awareness fund. And again, with very limited information about these things, I would just say that my first reaction was, hmm, that's kind of a concentrated bet to be losing that much money. And to put it in context, I thought the, I think the article I read said, but it still made 40 billion, or it made 40 billion and then lost 15 So not a big deal. But 15 out of 40 is a big deal if it's happening on one bet. And I'm, and I wonder, and this is purely speculation on my part. I mean, I wonder if, in fact, in some of these firms that are somewhat secretive and you know, but have certainly attracted a lot of attention, and not least from investors, you know, is there more concentration going on in what we see? Because we hear about it being kind of multi-strat and pot shops with hundreds of teams and pots and, but still, you could still end up with a concentrated bet, even though so far they've seemed to have very good risk management. So that was just one thing I took away from that situation, so to speak. But then the other thing, yesterday, Moderna went up 177% in a day. I mean, it's not a small stock. And although I'm sure many people made lots of money from it because it went up, you still wonder a little bit, well, what about those who shorted the stock? I mean, if they were in some kind of long short equity strategy, or just, I mean, frankly, if you were a trend follower, having trading individual stocks, potentially, it could have been in a downtrend, and suddenly it goes up by 177%.