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Adam Schwartz And His ‘Black Bear’ Tilt At Credit ETF Windmill With Bet On Epic Implosion
It's time for another edition of "credit ETF implosion question begging", this time courtesy of Adam Schwartz, a 39-year-old who runs something called "Black Bear Value Partners".
Apparently, Schwartz is in the camp of folks who believe the inherent liquidity mismatch in high yield (and other) credit ETFs will ultimately cause the vehicles to implode at some point, an opinion regular readers know I share - sort of.
There is a liquidity mismatch in those products - period. The ETFs offer
On the subway this morning I was reading Howard Marks book “The Most Important Thing”, and the chapter dealing with black swan events (black pigeons?) and how the 2008 crisis relied on investors assumption that house prices never going down. While your protagonist may be wrong in how he’s going about it, I understand the consensus that it will not unfold as Schwartz predicts.
Recently, I’ve been enjoying doing a search on $spy on twitter, and seeing how people predictions go. Of course, everyone’s predictions are all over the map and entirely useless for anything but entertainment. Who knows? No one. Maybe in a few years we will see Schwartz interviewed often on CNBC and Bloomberg, like Eisman… One thing I do know for sure, is there will be more 5-6 sigma events…
At the low in 2008, HYG traded to a discount to NAV.
HYG should go much lower this time, with a bigger discount to NAV……tons of low quality debt (BBB and lower) has been issued worldwide, since the crisis.
why would the ETF ‘choose’ to sell its liquid bonds holding the crap back? dont they have a specific basket of bonds to sell per 100k unit or something? and I also thing the SA -must- make a mkt with the etfs, part of their package in their role. as 100k shares of lqd are redeemed to the sponsor, since the etf matches an index…each basket will be both good and ‘bad’ bonds. what price the SA gets selling those bad bonds will impact the etf’s NAV and that is part of hte price dicovery process. bloomberg article assumes the SA get to pick and choose the bonds the sponsor is offloading, i dont think they get a choice.