Episode summary
Why Trend Following Might Outlast the AI Arms Race | Mark Rzepczynski | Systematic Investor | Ep.423
Top Traders Unplugged
· · 1 hr 14 min · Hosts: Niels Kaastrup-Larsen · Guests: Mark Rzepczynski
Summary
Mark Rzepczynski argues that today’s bond selloff looks less like a market anomaly and more like a return to normal after decades of unusually low and even negative rates. He points to France, Japan, and higher global inflation and growth as evidence that longer-term yields should be higher, especially once term premiums and fiscal crowding are added back into the picture. He also says the bond market is being shaped by a different set of participants now, with hedge funds and basis traders playing a bigger role than central banks did during quantitative easing.
He ties that shift to a broader change in market structure: capital flows, dealer balance sheets, and liquidity constraints matter more when markets are stressed. Drawing on Perry Mehrling’s ideas, he says the plumbing of finance helps explain why dislocations can turn into trends, especially in bonds and commodities. In his view, a shortage of intermediation capital can turn a normal move into a disorderly one.
On the macro side, Rzepczynski argues that geoeconomic fragmentation may increase divergence across markets, which is helpful for trend following. He also says commodity shortages can create nonlinear, explosive moves when inventories run low and buyers rush to hoard.
Finally, he says machine learning is making many quantitative strategies more crowded and shortening alpha half-life, but trend following may be unusually durable because it does not depend on a fixed, widely shared signal.
Key takeaways
- Mark Rzepczynski says the current bond selloff is a return to normal, not a historic anomaly, once inflation, growth and term premia are restored.
- He argues that hedge funds now matter more in bond-market price formation, which makes yields more sensitive to position changes and financing conditions.
- Rzepczynski says geoeconomic fragmentation should increase cross-market divergence, which can improve trend-following opportunities.
- He warns that commodity shortages can trigger stockout-driven, parabolic price moves when inventories are tight and participants hoard.
- He says machine-learning crowding is shortening alpha half-life across quant strategies, but trend following may be more durable because it is not built on a fixed signal.
Notable quotes
“the current environment is a return to normaly”
“we're seeing the market is more two-way and and you can make money shorting bonds”
“if the world becomes more fragmented and dislocated, we should sort of see the diversification increases in markets”
“when that happens what you're going to see that markets will go parabolic you're going to get you know a big dislocation in markets”
“the behavior of people looking at uh you know machine learning and everyone doing the same thing is led to more crowding from adaptation of models”
How the episode opens
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. Welcome or welcome back to this week's edition of the systematic investor series with Mark Rasiminski and I Neils Castro Larsen where each week we take the pulse of the global markets through the lens of a rulesbased investor.
Mark, it is uh great uh to be back with you this week. Uh it's been a little while. How are you doing?
I'm doing well. Uh I was just uh I think we were talking beforehand about uh fall foliage in here in New England. So we've uh the peak up in the mountains has occurred, but we've got a lot of color out here and so it's a it's a great time to be in New England.
Yeah, it's actually a great time to be in Switzerland as well. We have the same beautiful colors on the mountain sides at the moment. So that's uh that's great.
Now, we've got a very extensive uh lineup of topics, thanks very much to you, that we're going to be talking about today. But there are a few things going around the uh going on in the world right now. So, I thought we would start as we always do, just uh kind of going through a couple of things that may have hit our radar the last uh week or two.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- trend following durability
- ai & machine learning models
- bond yields and treasuries
- safe-haven dynamics
- geopolitical fragmentation and commodity shocks
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Top Traders Unplugged, this episode and its artwork belong to Niels Kaastrup-Larsen. Octagon is not affiliated with the show; this page is an independent summary.
