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Is This How The Junk Bond ETFs Blow Up?

You know there's probably something a bit quixotic about the crusade to warn of an eventual blowup in the high yield ETF space. But...

You know there's probably something a bit quixotic about the crusade to warn of an eventual blowup in the high yield ETF space. I've been railing against those products for years - long before Heisenberg was Heisenberg. The blowup of the short vol. ETPs reignited the debate and there's certainly a sense in which the wipeout of the Seth Golden crowd seemed to presage something - although what that "something" is isn't yet clear. The obvious conclusion to draw is that to the extent damn near everything has become an expression of the increasingly ubiquitous short vol. trade, XIV and SVXY were just the tip of the proverbial iceberg. But that's kind of an endless regression. I mean, don't get me wrong, I've been predisposed to shrieking about things that represent "implicit" short vol. strategies, but the waterfall effect doesn't affect all of those strategies equally and if you're not careful, you can wind up in the crowd that spends their time penning short vol. manifestos that read like Revelations.   When I talk about the high yield ETF space, I generally focus on the underlying liquidity mismatch which, to me, looks incontrovertible. Howard Marks and Carl Icahn have var
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7 comments on “Is This How The Junk Bond ETFs Blow Up?

  1. Kiri says:

    “… and then it gets harder and harder to explain to investors why no one seemed to have been accurately appraising risks.”

    Oh, there’s an easy explanation. They’re paid not to.

    Now, that’s obviously not the answer that will be given to the press/public when things turn, instead there will be much handwaving and obfuscation. But at the end of the day, that will be the real answer.

    • NA says:

      I found it suspicious in 2007 when, at the peak of oil prices, Goldman came out and said they were going to 200 (from 140. They went south and never looked back. Same thing at the 2007 peak, too. They have all their customer accounts, know their customer margins, etc etc etc, and have centuries of experience with markets, and they’re making the perfectly incorrect call?

      Either they’re idiots like everyone else, or they’re geniuses lying to you so you can provide them liquidity.

  2. Turnd Turk says:

    This isn’t specific to this article but I was wondering, have you been bullish on anything… Ever?

  3. Jeff says:

    Dissecting market risk, whether structural or geopolitical, is neither bearish nor bullish.

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