Value After Hours 05 18: Michael Kao, Urban Kaoboy; Alpha with Asymmetry; Capital Structure Arb | Summary and Q&A

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May 9, 2023
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The Acquirers Podcast
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Value After Hours 05 18: Michael Kao, Urban Kaoboy; Alpha with Asymmetry; Capital Structure Arb

TL;DR

Michael Cow, also known as Urban Cowboy, discusses his background in capital structure arbitrage, the future of oil, and the potential for inflation with the Federal Reserve's monetary policy.

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Questions & Answers

Q: How did Michael Cow transition from coding and engineering to capital structure arbitrage?

Michael Cow's interest in coding and engineering led him to study electrical engineering and computer science in college. However, after realizing that he wanted to pursue a career in finance, he applied for a job at Goldman Sachs and ended up working on the trading desk, where he developed a passion for capital structure arbitrage.

Q: Can you explain the concept of capital structure arbitrage in simple terms?

Capital structure arbitrage involves exploiting discrepancies in the prices of different securities within a company's capital structure. For example, a trader might simultaneously buy the bonds of a distressed company and short its equity, betting on the convergence of the securities' prices. By understanding the relationships between various securities and the value of the company's underlying assets, traders can profit from these arbitrage opportunities.

Q: What is Michael Cow's long-term view on oil?

Michael Cow holds a long-term bullish view on oil, believing that there will be a shortage of cheap oil in the future due to a lack of long-term investment in the sector and the declining prospects for shale oil production. He suggests that the transition away from fossil fuels, along with factors such as ESG considerations, could contribute to higher oil prices in the long run.

Q: What are Michael Cow's concerns about inflation and the Federal Reserve's monetary policy?

Michael Cow is concerned about inflation and the potential impact of the Federal Reserve's monetary policy. He believes that the recent increase in inflation could be sticky and difficult to control, which may require the Federal Reserve to take a different approach than in previous economic cycles. Cow also highlights the regressive nature of inflation, noting that it affects all individuals and can be particularly damaging to those least equipped to afford it.

Summary & Key Takeaways

  • Michael Cow shares his journey from a career in coding and engineering to becoming a capital structure arbitrage expert in the finance industry.

  • He explains the concept of capital structure and how different securities, such as convertibles and bonds, can be leveraged to create asymmetric investment opportunities.

  • Cow also discusses his long-term bullish view on oil and his concerns about the potential for inflation and the impact of monetary policy.

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