Boaz Weinstein: How to Handle Market Volatility | SALT Talks #57

TL;DR

Boaz Weinstein discusses the current state of the credit market, highlighting the disconnect between equity volatility and low credit spreads. He explores various trade opportunities, including cap structure arbitrage and closed-end funds, and emphasizes the importance of understanding market technicals in the current environment.

Transcript

hello everyone welcome back to salt talks my name is john darcy i'm the managing director of salt which is a global thought leadership forum at the intersection of finance technology and public policy assault talks are a digital interview series that we launched during this work from home period with interviews featuring leading investors creators ... Read More

Key Insights

• 💳 The credit market has been stable, but credit spreads being too low and equity volatility being high indicates a disconnect.
• ☠️ Technical factors, rather than fundamentals, are driving the market, especially in cases where double B-rated companies are trading at the same spreads as highly rated companies.
• 😇 Distressed companies and fallen angels continue to pose risks in the high yield market, despite the overall low default rate.
• 😚 Opportunities in the credit market include cap structure arbitrage and investing in discounted closed-end funds.
• 🔒 Private equity-backed companies have a higher risk of default, but private equity has also added value in many cases.
• 🤪 The current market environment offers attractive relative value trades, such as shorting high yield and going long safe investment-grade securities.
• 🧑‍🤝‍🧑 Trade opportunities can be found in short-dated bonds and secured loans of distressed companies.
• 💳 The volatility of equity markets and the low level of credit spreads present an opportunity for strategies that focus on buying credit default swaps and hedging with equity puts.

Questions & Answers

Q: How did Boaz Weinstein transition to Wall Street and what role did luck play in his career?

Weinstein's transition to Wall Street involved luck, as he bumped into a partner at Goldman Sachs during a job interview. This encounter led to his start in the trading industry.

Q: How did Weinstein's experience at Deutsche Bank during the 2008 financial crisis compare to the current market environment?

Weinstein highlighted the differences between the two periods, emphasizing that the current market is driven by market technicals and the lack of participation from large banks as shock absorbers. In 2008, the market was more focused on the fear of the financial system collapsing.

Q: What opportunities does Weinstein see in the credit market currently?

Weinstein sees opportunities in shorting overvalued double B-rated companies at double-digit credit spreads and going long safe single A-rated companies. He also discusses opportunities in closed-end funds trading at significant discounts to their net asset value.

Q: How does Weinstein explain the disconnect between equity volatility and low credit spreads?

Weinstein attributes the high level of equity volatility to uncertainty in the market due to factors such as the upcoming U.S. elections, potential tax changes, fiscal stimulus uncertainties, tensions with China, and the COVID-19 pandemic. However, credit spreads remain low due to the presence of fallen angels and technical factors driving market behavior.

Summary & Key Takeaways

• Salt Talks is a digital interview series that provides a platform for discussions on big ideas shaping the future and interesting investment ideas. Boaz Weinstein, founder and CIO of Saba Capital Management, is the guest in this interview.

• Weinstein discusses his career in finance, particularly his experience at Deutsche Bank and his approach to credit trading and market making.

• He emphasizes the importance of understanding market technicals and highlights trade opportunities in the credit market, including cap structure arbitrage and investing in discounted closed-end funds.