The Unholy Trinity: Volatility, Illiquidity, and Insolvency

Chris Cole, founder and CIO of Artemis Capital Management, sits down with Michael Green to discuss why he views volatility as the ultimate expression of illiquidity and insolvency. Together, they explore how the Fed’s actions in 2020 swiftly stomped out both of these risks, explain how structural dynamics resulted in rapid equity price appreciation over the last year, and take a closer look at volatility and the options market and what Cole describes as a “bull market in fear”. They also touch on credit markets and why Cole argues that the Fed’s dilemma is a choice between corporate solvency and pension solvency, the regulatory game theory for Bitcoin, and Artemis’s soon-to-be real “Dragon Portfolio”. Filmed on March 26, 2021.

Key Learnings: Cole does not see a speedy return to pre-COVID levels of volatility but caveats that elevated VIX levels are more the result of fear and expectations of volatility rather than realized vol. He also argues that policy makers will have to choose between pension solvency and corporate solvency, and in an increasingly populist political environment, choosing corporate solvency will be an extremely difficult decision.

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