Am I Wrong About ETFs Being “Financial WMDs”? Goldman Says “Probably”
Somewhat surprisingly (given all the Trump headlines), Wednesday's most popular post here at HR was "I Really — Really — Don’t Think This Is A Good Idea: ETF Edition."
In it, I rehashed my all-too-familiar, common sense argument about ETFs. Here it is, in a nutshell:
What I do know is that if you step back from the unit creation/destruction process (which generally seems to be functioning well) and just abstract yourself a bit, this just seems like a bad idea.
After all, ETFs are kind of
Maybe, but futures a lot more leveraged than ETFs.
unless you’re buying ETFs on margin or buying leveraged ETFs on margin
I enjoy buying option contracts on leveraged ETFs on margin!
“I love the smell of napalm in the morning”, what could possibly go wrong.
It would be biased, or even naiive to say Goldman is vacating because they have specific knowledge of impending liquidation problems. But clearly, Goldman is aware of the risk. And it seems that Goldman knows it would be naiive to maintain an imputed backstop liquidity role. A real cynic would say Goldman knows just how to attack these markets and force liquidation downdrafts, or the reverse in a way that allows the firm to profit, especially if they have reliable valuation models. You wouldn’t want to try that as a maker would you?