The End Game for Bubbles and Anti-Bubbles

Published on
August 14th, 2019
48 minutes

The End Game for Bubbles and Anti-Bubbles

The Expert View ·
Featuring Diego Parrilla

Published on: August 14th, 2019 • Duration: 48 minutes

Diego Parrilla, managing partner at Quadriga Asset Partners, joins Real Vision to talk about the relationship between the bubbles and anti-bubbles. He describes how misconceptions such as the market's faith in central banks and the desperate search for yield amplify both phenomena. Parilla then reveals the biggest risk to the global financial system, his timeline for the endgame, and how investors can position defensively. Filmed on August 7, 2019 in London.



  • DH
    Daniel H.
    15 June 2020 @ 00:53
    One word: prescient
  • DS
    David S.
    17 November 2019 @ 17:52
    The worst case scenario is the counterparty risk on your insurance. DLS
  • TH
    Tom H.
    16 October 2019 @ 23:39
    Hands down one of the best interviews on Real Vision. There are precious few experts on this site (or anywhere) that clearly explain the benefits of antifragility in equity markets from a macroeconomic point of view. Excellently done, Mr. Parrilla. Thank you.
  • EL
    Eric L.
    18 August 2019 @ 19:19
    Excellent interview! At about 44:40 Parrilla says "we found ways to get absolutely loaded on that 30-year duration in smarter ways than just going outright long, which you can get blown out and artificially cheap insurance is available. And this is how you can actually achieve risk very little for potentially very high exposures with very limited carry..." My question is, for a novice investor, what is this cheap insurance you were talking about and how do you buy it? Are you talking about call options on the 30 year bonds? Thanks!
    • TH
      Tom H.
      16 October 2019 @ 23:35
      Yes, he's likely talking about out of the money call and put options. As a novice investor (as I am), you might find it challenging to implement the complex solutions these experts talk about which require rolling options over from period to period by selling them before expiration and purchasing the next batch out. The idea is to expose yourself as long as you can to the possible massive return by losing money slowly through carrying costs. They are all talking about the same sort of thing Nassim Taleb covers in his Incerto series (in particular The Black Swan and Antifragile). I would suggest reading those and then keeping an eye out for asymmetrical trades. You'll find similar ideas on Real Vision such as John Burbank's eurodollar best and Brent Johnson's Canadian banker's acceptance notes trade. Currently, the eurodollar trade is treating me right. I'm also trying OTM puts on the VIX that have a potential 2x to 5x return (to capitalize on a huge rally in the S&P and hedge against my junior gold and silver mining positions). The thing I like to keep in mind when I buy options is that I'm expecting to lose every dollar I put in. If I can cut my loss near expiration, fine. But the whole point is that your loss is limited to what you put in so I don't bet anything I can't afford to lose.
  • GG
    Gary G.
    8 September 2019 @ 05:22
    Great interview. Not sure what the dislikes are for!! Like seriously....
  • MN
    Maverick N.
    28 August 2019 @ 19:12
    "From risk free interest to interest free risk" those words are worth their weight in Au. Diego, you continue to add value to this forum with your thoughts and analysis. Thanks.
  • pa
    pascal a.
    23 August 2019 @ 21:45
    Once inflation starts to seriously increase, will this also increase the mortgage lending rates as well? I assume people will start dumping mortgaged backed securities which drives up their yields thus increasing mortgage rates.
  • CB
    Clifford B.
    23 August 2019 @ 13:25
    Great insight into what is going on globally. Thank you Diego for the information.
  • WM
    Will M.
    17 August 2019 @ 02:07
    Great stuff. His "Antibubbles" book is clear, short and to the point. Good read. He provides some great arguments for gold optionality. I did email Quadriga for investment interest but got no response unfortunately.
    • DP
      Diego P. | Contributor
      17 August 2019 @ 16:10
      Dear Will. Thank you for your kind message and for your interest in the strategy. Please feel free to email me directly on (please note double R and double L in my surname) and I will happily add you to my distribution list and pass the information for potential investment. Thanks and regards, Diego
    • IS
      Ionel S.
      18 August 2019 @ 12:38
      It's August 15th and in Spain and as in other catolic parts of Europe, nobody will answer you ar do businnes with you during that period...
    • WM
      Will M.
      23 August 2019 @ 12:56
      Thank you Mr Parrilla. I will do this shortly!
  • Sv
    Sid v.
    20 August 2019 @ 21:26
    thank you.
  • PK
    Patrik K.
    19 August 2019 @ 18:43
    Thanks for this. Diego always brings valuable understanding. I had not previously made the connection between currency wars, tariffs and the resulting inflation. Please bring Diego back in 6 months for an update!
  • CL
    Charles L.
    15 August 2019 @ 15:16
    Maybe I missunderstood but I believe there is a little contradiction when stating "the false market belief in the all powerful central banks" and "central banks will keep the bubble from bursting" ? Believing they will be able to keep things artificially high is precisely that false market belief itself, isn't it?
    • DP
      Diego P. | Contributor
      17 August 2019 @ 16:17
      Hi Charles. Good question. Base case scenario is stagflation, where Central Banks and Governments massive monetary and fiscal managed to prevent bubble burst. Worst case is a massive burst of global parallel synchronous bubbles, which not even infinite amount or printing and lending and spending is able to avert. Time will tell. I hope I will be proven wrong. Good luck! Diego
  • JC
    John C.
    16 August 2019 @ 13:55
    Will a move to lower and then negative interest rates create a huge expansion in equities inflating the bubble more for a period before a collapse? Or will it all be too little too late for the equities markets? Novice here
    • DP
      Diego P. | Contributor
      17 August 2019 @ 16:13
      Hi John. Equities are "strikers" and somewhat binary. Most will likely suffer large losses in a bubble burst, but some could do well in an inflationary environment. Credit, on the other hand, must be avoided in my view as it suffers in both bubble burst and inflation. Hope helps. Good luck! Diego
  • SS
    Stephen S.
    14 August 2019 @ 21:39
    I understand the point that governments will do "whatever it takes" to keep huge bubbles from bursting. But what happens when that's not enough. Governments are already pushing on strings. Why should we think extravagant intervention will work?
    • JH
      Jesse H.
      15 August 2019 @ 08:00
      Good question, but here's a quick response: because we're no longer in a capitalist system, that's why. There may be a temporary "crash" of sorts in markets, but this will be followed by more centralised control of / intervention in markets. This is the moment in history in which we find ourselves, I believe. See Neil Howe / The Fourth Turning.
    • PP
      Patrick P.
      17 August 2019 @ 02:07
      Remember rule #1 (it is the only rule) The Federal Reserve is going to protect the Banks and the Government at all cost. Together they can do whatever it takes to save themselves ... including taking your money. (Bail-Ins) Helicopter money and any other scheme they come up with. They are super slick at it and most people do not have a clue what's going on. Be aware and stay vigilant. Start to watch for little things that will give you a heads up (example ...GE's mysterious accounting practices being exposed this week) ....I'm very long PM.
  • TR
    Travis R.
    15 August 2019 @ 05:16
    Mr Parrilla believes that the Chinese bubble will implode via inflation/currency devaluation. This is spot on and will most likely not be limited to China. Say the average house price is $100K; if the average 10 years later is still $100K against a backdrop of 3% annual inflation the nominal value of housing will have declined to just shy of $74K. That is a 26% silent crash. Increase the annual inflation rate to 5% the value declines to just under $60K. Silent crashes are the easy way out for politicians, central bankers, etc.
    • TR
      Travis R.
      16 August 2019 @ 04:46
      Correction: real value of housing; not "nominal".
  • RR
    Randall R.
    16 August 2019 @ 00:38
    He is preaching exactly what K.M. at Hedgeye and Raoul Pal have been saying: Buy gold, TLT, USD; short financials. That trade has been working since Sept. 2018. Don't see anything changing anytime soon.
  • GF
    Guangle F.
    15 August 2019 @ 19:20
    great guest !
  • NP
    Nick P.
    15 August 2019 @ 05:07
    Amazing production, really enjoyed how your guests just speak without the distraction of an interviewer injecting their biases. This is one of my favorite real vision formats. Well done guys.
    • DS
      David S.
      15 August 2019 @ 09:29
      Tokyo T. - The monologue allows for a coherent position. It worked beautifully here. Thanks for your comment. DLS
  • DS
    David S.
    14 August 2019 @ 17:54
    Make sure you have enough cash equivalents for a year or two. Even anti-bubbles like gold can be volatile as it will be sold to cover margin calls. Margin calls will accelerate as volatility spikes. Good luck. DLS
    • JH
      Jesse H.
      15 August 2019 @ 08:05
      Good point, but dare I say this time will be different for PMs...we might not see them sell off much in a liquidity squeeze - that's my intuition anyway, from looking at a lot of data and many sources. This is a different kind of cycle end - specifically, the beginning of the end of the debt supercycle (they will amp it up with more debt initially until eventually we do in fact get the inflation genie out of the bottle).
    • DS
      David S.
      15 August 2019 @ 09:21
      Jesse H. - I hope you are correct. I just want to be prepared for a possible wild ride. DLS
  • CB
    C B.
    14 August 2019 @ 14:15
    Brilliant insights, and his metaphor for portfolio construction as a combination of defenders and strikers is spot on. Thinking more about the bubble/anti-bubble concept - has any research been done into the capital flows that have enabled the inflation/deflation of these assets? Can we quantify how much flow $ will have to reverse to cause a true bubble deflation vs just a correction on the way to higher bubble highs? It seems to me that it takes more capital to inflate an already huge bubble, so may take less to prick it than we expect.
    • JH
      Jesse H.
      15 August 2019 @ 08:14
      V. interesting point - makes a lot of sense to me. The other way of looking at what you're saying is, from a systems perspective (I'm a systems engineer), what does the stability and resilience of a system look like - viewed in stability / resilience terms, your comment about capital outflows required to burst bubbles makes sense (more inflows required to build it, less required to trigger a downward cascade).
  • sf
    santiago f.
    14 August 2019 @ 14:47
    Great connectivity between thoughts and action. Thanks Diego. My concern on buying cheap insurance via options is counterparty risk. In a blowup scenario you may be expecting a payoff from a blown-up counterparty.
    • DS
      David S.
      14 August 2019 @ 16:13
      Well said!. DLS
    • JH
      Jesse H.
      15 August 2019 @ 08:09
      Great point, but this is why one doesn't *just* buy insurance on options. And if you have blown-up counterparties, everything is gonna be much, much lower. Diego also mentioned gold several times, and having a full team of different "soccer players" which are offensive and defensive investments. This way, you provide stability and resilience in the face of what will be some big market moves and changes, which are inherently unpredictable.
    • JH
      Jesse H.
      15 August 2019 @ 08:10
      Oops, sorry - "insurance via options" is what I meant to write.
  • LP
    Lynn P.
    14 August 2019 @ 20:39
    Coorect me if I am misunderstanding, but is this not the strategy of John Hussman, buying S&P puts as insurance. Perhaps Diego's timing on this is superior to Hussman's (HSGFX), but it is no guarantee (other than your risk is defined by the premia for the puts).
    • JH
      Jesse H.
      15 August 2019 @ 08:01
      My understanding is that what Diego is talking about here - and the meat of his approach - is a good deal more sophisticated than just buying some puts on the S&P, though that may be one trade to consider.
  • CW
    CC W.
    15 August 2019 @ 06:08
    He spoke better towards 2nd half of the interview. First half is hard to follow. Hard to look at him talking because of the bad bad sunburn. Its like he just came out of the oven baked @ 425 degree for two hours straight.
  • JB
    Joe B.
    14 August 2019 @ 20:19
    Can anyone explain how a retail investor can by the volatility / financial insurance. Is buying the VXXB a good vehicle or does one have to do it via options?
    • CN
      Charles N.
      15 August 2019 @ 03:56
      You can do both. For example today Vix went up 26%. If you owned VXX you had a 13% gain today, if you owned VXZ you had nearly an 8% gain. Safer to buy those vehicles for very short term plays. They were great buys near the end of July when the Vix was at 12. Buy puts when the Vix is low and nobody wants them. When the market is testing lows, it's too late to buy insurance
  • RH
    Rizwan H.
    15 August 2019 @ 02:03
    Nothing short of amazing! Deeply insightful!
  • EK
    Edward K.
    14 August 2019 @ 17:37
    Cogent holistic examination of a macro worldview. Great point about low volatility exploding higher to reveal high correlation among assets but hidden by complacency and reach for yield. As I write this significant selloff in equities and huge drop in rates so not sure if endgame afoot but all possibilities seem to be on the brink as sea change looks to be transpiring, Note on China especially interesting.
  • DS
    David S.
    14 August 2019 @ 17:34
    Huge thanks to all the RVTV team for preparing us for the current financial problems. Keep up the good work as it will get much more exciting. DLS
  • JH
    Jesse H.
    14 August 2019 @ 17:28
    Excellent stuff from Diego, as always.
  • AM
    Alonso M.
    14 August 2019 @ 17:15
    Excellent content.
  • CL
    Cyril L.
    14 August 2019 @ 12:31
    "The investment game is a game where the number one rule of the game is they will change the rules" Took me a while to figure that one out. He's absolutely right, that should be the first thing taught in any finance course / training program. Unfortunately it's not, and that's causing many people to lose money / get angry unnecessarily. The whole interview was great. Diego never disappoints.
    • JB
      Jon B.
      14 August 2019 @ 12:43
      exactly. powell pivot. just wait for the government to outlaw gold again. that's probably a sign you've hit the market bottom.
    • DS
      David S.
      14 August 2019 @ 16:24
      When Roosevelt banned the hording of gold the US$ was on a gold standard. They may do it again, but less likely. The bigger problem now may be protecting your gold and counterparty risk in gold ETFs. DLS
  • JW
    Jon W.
    14 August 2019 @ 13:21
    Newbie question, but what "insurance" is he referring to?
    • EF
      Erik F.
      14 August 2019 @ 14:14
      At the beginning be was referring to put options on the S&P 500.
    • EF
      Erik F.
      14 August 2019 @ 14:14
  • GH
    Gary H.
    14 August 2019 @ 13:56
    Great insight and, of course, very concerning but accurately paints a picture of where we have arrived.
  • JB
    Jon B.
    14 August 2019 @ 12:41
    Wow. very good. When you say insurance - what do you mean - is there an ETF for that? or are we buying an insurance stock? or expressing a hedge in some leveraged instrument, swap etc.
    • AC
      Aaron C.
      14 August 2019 @ 13:23
      Either long the VIX or SPY puts.
  • DH
    Dennis H.
    14 August 2019 @ 11:52
    Liked your book. Long live the collector
  • BA
    Bruce A.
    14 August 2019 @ 10:54
    Some great statements: 'The damage is already done'. 'Bubbles are now too big to fail; the concept of monetary normalization is history'. 'The central banks are trying to pull up the falling dominoes'. 'Monetary Extremes, Fiscal Extremes, Currency Wars/ Trade Wars'. 'Paradigm shift to inflation'. Embrace the anti-bubbles: Low vol, gold and USD v Yuan. 'You win by not losing so don't have all strikers on your team'. 'Bonds are your Frans Beckenbauer; great historically but very aged so unreliable now so be underweight credit'. 'But be careful shorting bonds; the game has changed. I can see zero interest rates through Central Bank manipulation but rising inflation'. Consider asymmetric option trades where you are exposed only on your premium.
  • CD
    Chris D.
    14 August 2019 @ 10:22
    Wow. Diego - another great one!
  • DS
    David S.
    14 August 2019 @ 09:31
    Important interview. Thank you, Mr. Parrilla. I will watch the monologue again tomorrow using the summation as a guide. Mr. Parrilla's bubbles and anti-bubbles are reasonable as he has expressed on RVTV before. On first listening, the fact that we can have zero to low interest rates and inflation is extraordinary in history, but possible in the short term. Excellent point. DLS
  • RR
    Robert R.
    14 August 2019 @ 08:56
    Incredible insights. Fresh thinking. Thank you Diego and RV