Ben Melkman, Founder and CIO, Light Sky Macro LP

Alpha Exchange

Fascinated by markets at a very young age, Ben Melkman has spent his investing career thinking through the intersection of politics, macroeconomics and the price of options. After earning a degree from the London School of Economics, Ben hit the FX desk at Morgan Stanley, quickly establishing himself as an invaluable resource for the largest macro hedge funds who sought his counsel on how best to structure trades in light of vol surfaces on offer across asset markets. After a highly successful run at Brevan Howard, Ben established Light Sky Macro in 2016. Our conversation is about large vol events. With respect to the Global Financial Crisis, Ben dove into the complexities of credit derivative markets, concluding that the price of insurance was outlandishly cheap relative to the actual risks and the potential for contagion. In our discussion, Ben makes highly insightful points around the inherent risks of over-reliance on modeling, the degree to which correlation assumptions can lead to gross underestimation of risk and the vast interconnectedness of the financial system. Ben’s views on the interaction between politics and markets and the manner in which investors sometimes fail to anticipate regime shifts is fascinating. He points to the onset of Abenomics in 2013, a massive campaign that aggressively pushed the yen down, Nikkei up and volatility up. In the period prior to this wholesale shift in policy, option prices were all skewed in the opposite direction. As we finish this excellent discussion, Ben looks forward to the potential that the combination of more aggressive fiscal policy in conjunction with accommodative monetary policy might cause a re-think of the inflation shortfall that has characterized the post–crisis era, at the very time when inflation is a highly unloved asset class. Lastly, Ben offers thoughts on the 2020 US election, excited about the potential market action that may arise from the starkly different views offered by the Democrats and Republicans. Please enjoy this episode of the Alpha Exchange, my conversation with Ben Melkman.