Will a Recession Kill ETF Liquidity?

Published on
August 21st, 2019
Duration
36 minutes

Will a Recession Kill ETF Liquidity?

The Expert View ·
Featuring Hari Krishnan

Published on: August 21st, 2019 • Duration: 36 minutes

Hari Krishnan does not like ETFs. In this piece, the author and Doherty Advisors portfolio manager argues that products like the HYG give investors a false sense of security. In an adverse market environment, such products could see outsized declines, as the lack of liquidity in the underlying assets finally begins to matter. Krishnan also touches on the best way to hedge against a potential liquidity crisis. Filmed on August 7, 2019 in London.

Comments

Transcript

  • Jb
    Joe b.
    4 October 2019 @ 02:29
    Great presentation Hari. What the critics do not understand is that using historically default rates may not apply in the next recession as debt has doubled since 2007 and most of the debt is in BBB. also the ETF structure is relatively new asset class that has not been recession tested. my question has to do with the Roll down risk. if the AVG bond is trading at 101, doesnt that mean there is a NEGATIVE roll down, which would be helpful to a put position? thanks again.
  • LR
    Lalitha R.
    23 September 2019 @ 18:38
    Great interview! Love the fact that Hari is signaling a structural timebomb but in a clear calm and nuanced way. More interviews like this please. Real Vision is a gem for continuing to pick insightful interviewees like this.
  • df
    dwight f.
    18 September 2019 @ 04:00
    CAll this man back ASAP for a new interview!!! I like how he can explain such a complex topic
  • MH
    Michael H.
    6 September 2019 @ 02:30
    Great content. You deliver it with a beautiful voice and cadence too.
  • CD
    Christopher D.
    26 August 2019 @ 15:58
    As Jack Bogle very aptly put it, the problem with ETFs is that they are tradable. The liquidity mismatch can show in the price to NAV (HYG Equity NAV ) basis. In case of liquidity mismatch between the vehicle and the constituents, a mutual fund can either suspend redemptions or impose exit fees, for the greater good of the slower investors. ETFs can't. The Fed considered in 2014 asking regulators to impose exit fees on corpo debt funds https://www.ft.com/content/290ed010-f567-11e3-91a8-00144feabdc0 Back to ETFs, if you look at GLD Equity NAV around md Sep 2008, you'll see the basis around NAV swing from +6% to -6%. I can't recall precisely but I think that's when the market first saw GLD as physically backed (& allocated), then feared GLD would just be a paper promise.
  • am
    alexander m.
    25 August 2019 @ 03:39
    It is interesting to think of these ETFs as just derivatives transforming value from the bonds however they do pay a cash flow stream. What about these ETFs such as volatility ETFs, ones which pay no cash flow and essentially try to track the VIX. why can you be sure that this ETF will always track its benchmark and why would this ETF be liquid after for example a huge spike in vol?
    • RP
      Ryan P.
      26 August 2019 @ 01:25
      Prospectus guarantees benchmark.
    • CD
      Christopher D.
      26 August 2019 @ 15:22
      volatility is not a commodity as such, it mostly lives on investment bank balance sheets. A fund cannot buy bits of the IB balance sheet, it gets exposure to it via a note. So Vol 'ETFs' typically are ETNs, exchange traded notes and they offer exposure to some roll of VIX futures for as long as the provider bank remains solvent. If the huge spike in vol is related to the ETN issuer going bust, price will go to zero where liquidity doesn't mean much.
  • RY
    Roy Y.
    23 August 2019 @ 13:21
    Superb!
  • SA
    Stephen A.
    23 August 2019 @ 02:36
    Well, that was a waste of time. Obviously the guy is very smart, but at the same time he is focused on too many unimportant details and misses the big picture. First, he starts off by saying -10% down in the SPX is no big deal. Really? There have been only 8 out of 853 months since 1950 that were -10% or bigger for the SPX. That would be less than 1% occurrence. You have had only 53 -6% or bigger months. That is a 6% occurrence. So acting as if -10% is no big deal makes him look bad. 2nd - he is trying to scaremonger people out high yield bonds by comparing them to XIV and the Volmageddon. HYG and XIV have zero in common. One holds VIX futures which are highly volatile and represent a very nebulous concept called "volatility expectations", the other holds claims on bonds - obligations for corporations to spit out a coupon backed by a cash flow stream. VIX futures are backed by air, HYG by real obligations. The two financial instruments couldn't be any more different. If bonds selloff guess what happens? They yield more. So you gonna scare people with higher yields? People are gonna be scared because HYG yields more? In a world starved for yield, people are gonna run away from a higher yield? Are you kidding me. They are getting compensated for the credit risk they undertake. There will be a ton of people rotating out of their shitty low yielding bonds into a higher yield if the HYG sells off. Technical bond selloffs don't last long and have always been fantastic buying opportunities. Finally, I am pretty sure he has absolutely no idea what the default rates on something like HYG are. All defaults in history amount to skipping one coupon payment. Big deal [eyeroll]. Finally, if you want to hedge HYG, according to his theory HYG selloff preceeds stocks. So why wouldn't you hedge with the VIX or a stock ETF put - the move down in stocks will come after the HYG move, right? So you get a heads up. And the move in stocks will be wider. If you have a 10% loss in HYG, you likely have a 20% loss in XLE or XRT or some other stock ETF that is highly correlated to HYG. If HYG sells off it is because people are worried about energy companies or retail companies making their junk bond payments. Well guess what? If they can't make junk bond payments, their stocks are worth zero. So hedge with correlated stock ETF instead of hedging HYG (which even he says borders on idiotic). Hari Krishnan is a very smart guy, but this is very low quality content. It was a complete waste of time for me.
    • RP
      Ryan P.
      23 August 2019 @ 12:37
      I don’t think you really grasped the actual context of what he was saying based on your feedback. End of day you have a perceived liquid instrument that wraps very illiquid instruments. His point was this structurally doesn’t make sense just like structurally the VIX and XIV didn’t make sense in a “extreme” event. The trade is hard to hold because you can’t predict the timing. That’s all. You can argue if you agree with his thesis but you can’t debate the possibility that what he just explained can’t happen.
    • HK
      Hari K. | Contributor
      23 August 2019 @ 17:08
      Glad to have inspired some powerful emotions with that one. You have made some good points. I would counter with two comments. Yes, 1 month -10% down moves in the S&P are rare. However, the incidence of limit down moves for ETPs is much higher than one would expect. Data is available on the NASDAQ website. Second, you are arguing that credit spreads should never go out in a low interest rate regime, as there will always be a bid for yield. This assumes markets will stay "risk on" ... Europe has had bouts of severe credit widening in the past 10 years, with German yields close to 0.
    • HK
      Hari K. | Contributor
      23 August 2019 @ 17:25
      One more point ... It could be argued that ETFs are more dangerous than ETNs, in some ways. They do not promise to deliver the reference index - fees, but try to create an incentive (the arbitrage mechanism) for dealers to keep the price of an ETF in line with the basket. This can create implied tail risk if dealers drop out.
    • SA
      Stephen A.
      23 August 2019 @ 20:38
      Thanks for replying Hari. I am just pointing out that with an ETF structure you do have ownership of these junk bonds and the junk bonds are instruments that pay out a high coupon if held to expiration. Both HYG and JNK are ETFs not ETNs. So if the ETF dissolves, you do end up being an owner of a basket of junk bonds. I understand that there may be forced sellers for whatever reason and the selloffs could be sharp but the junk bond market is full of long-term buyers who will step in to buy these junk bonds if they are trading at substantial discounts. On an average basis junk bond default rate is 2.9% with principal loss rate of 58%. Let's do the math here 2.8% * 58% - you are losing 1.6% here if you hold to expiration a basked of junk bonds and take on the credit default risk. 2009 had the worst numbers with 10% default rate and 75% principal loss rate - 7.5%. If you have a situation where for whatever reason HYG is off -10%, to me personally, I am buying it and forgetting it. -10% exceeds the worst default rate in a year ever experienced. To Ryan P: I am not arguing that what he described can't happen. I am arguing that if it does happen it is an opportunity that many will take (including me)! I used to work for the Goldman Sachs Merchant Bank. These guys will be swooping in on this stuff like there is no tomorrow.
  • st
    steven t.
    22 August 2019 @ 20:28
    Can someone help explain the second leg philosophy that Hari mentioned in the interview? I am not quite sure what he means exactly. Is it people rotated into "safe stocks" like J&J, but were forced to liquidate at a later point?
    • SM
      Sarit M.
      22 August 2019 @ 21:43
      First leg down would be an initial collapse, the index drops and so do many of the popular momentum stocks. At this point, index puts (atleast 25 deltas) would be expensive as would puts on popular stocks, as everyone would rush to buy them. In contrast puts on companies like JNJ would not be very expensive, because some capital would rush into these "safe" stocks. So, if you believe there is going to be a second leg down after a market crash, you can hedge more cheaply by buying JNJ puts instead of index puts. And if the market crashes further, your hedges can protect you. And if the market rises instead, you lose the money that you spent hedging. The basic theory is that during the second leg down, all stocks would drop, even the safe ones like JNJ.
    • st
      steven t.
      23 August 2019 @ 11:33
      Theory makes sense. Thanks for the explanation.
  • MC
    Minum C.
    22 August 2019 @ 18:35
    Great discussion and explanation. Might the catalyst for the high yield market be a downgrade of General Electric credit? Lots of smoke around GE these days.
  • PF
    P F.
    22 August 2019 @ 15:48
    Great interview!
  • RP
    Ryan P.
    22 August 2019 @ 13:11
    - 20% of underlying issues trade Daily - Product (HYG) is optimized not replicated against the index which means it trades most liquid baskets first to keep liquids and spreads tight - Tough to own negative carry puts because event is not easily timed & would rather sell calls because aren’t exposed to same convex upside response to event (sell the forward curve) - not as exposed to interest rate risk as LQD / need credit event to get stuff rolling (watch oil & retail / media issuers) - would rather be long SJB ~ Positive carry to hedge market event - think next level response to lockup of HY market - he touched on that and try to get exposure in those areas - want to see this somewhat in a recent case scenario ? Look at HYT over December 18, already trades at discount to NAV for this very reason & watch what this discount did during that time period. Closed ends are illiquid (mostly) and therefore trade at discounts to compensate
  • SG
    Sven G.
    22 August 2019 @ 11:00
    very interesting... i have a feeling you could expand Hari's bond ETF illiquidity hypothesis to most ETFs... I smell gating on the horizon.
    • EK
      Edward K.
      22 August 2019 @ 16:22
      Steven Bregman introduced this topic several years ago. You can Google but Macrovoices podcast was my introduction.
  • MS
    Michael S.
    22 August 2019 @ 10:50
    Fallacy of composition!
    • HK
      Hari K. | Contributor
      22 August 2019 @ 19:10
      Fallacy of disposition :-)
  • MT
    Mike T.
    22 August 2019 @ 10:06
    this post purely fyi, use or dismiss depending on personal preference. The following 21 etf symbols taken straight from one particular broker I use. They are the current ETF's with the most highly liquid options available in the US. As said just 21 symbols only. Being a short premium option person, when it comes to ETF's most of the time I stick with this list only, rinse and repeating every 45 days or so. DIA, EEM, EWW, EWZ, FXI, GDX, GDXJ, GLD, IWM, QQQ, SLV, SMH, SPY, TLT, TQQQ, USO, UVXY, VXX' XLE, XLU, XOP.
    • RK
      Robert K.
      22 August 2019 @ 12:27
      You selling OTM puts waiting for the steamroller or what?
    • SM
      Sarit M.
      22 August 2019 @ 21:48
      If you are selling options regularly, I hope you have downside protection in the form of buying far OTM puts. To each his own, but do lookup tail/unit risk hedging for option sellers.
    • MT
      Mike T.
      23 August 2019 @ 08:28
      Sarit, I'm inclined to think that maybe you don't have the mathmatical knowledge to be able to quantifiy risk in probability/mathmatical terms??? If my assumption is wrong please accept my apologies.
  • AT
    AITOR T.
    22 August 2019 @ 08:46
    Thank you guys. Great interview.
  • JW
    Jason W.
    22 August 2019 @ 05:43
    Your have to interview this man again! Absolutely brilliant , I could listen to his articulation all day even if it wasn’t as interesting as it is! Excellent RV!
  • AD
    Anthony D.
    22 August 2019 @ 03:55
    Thank you so much for the presentation. As a neophyte in the use of options I have a question. In the absence of hedging a position of ownership in an ETF like HYG, won't the purchase a put have the same risk/reward if your timing is correct compared to a stock. If the price drops below the strike before expiration you profit no?
  • RP
    Ravi P.
    22 August 2019 @ 03:49
    Hari - what’s the latest and greatest source for the performance vs flow concave / convex relationship observation? Thanks!
    • HK
      Hari K. | Contributor
      22 August 2019 @ 15:26
      Sorry for the late replies ... I usually do not quote academic papers, as they can be late to the party. However, "Investor flows and fragility in corporate bond funds", Journal of Financial Economics, 2017 gives an excellent analysis of flow-performance curves for bond funds.
  • mg
    matt g.
    22 August 2019 @ 02:29
    Great Interview. The narrative pushed everyone into the ETF's since the Broker/Dealer model was so obviously broken. It was a pretty easy sell too since after Lehman its was a way to stick it to the banks and their fees. No one will tell the public that ETF's are just financial engineering, albeit the rub is in that the structure is so simple people think that their isn't any risk there. If the way to make money investing is to buy mispriced risk and if everyone is buying an ETF with the same risk, everyone is mispricing the same way. If we get a bad recession and investors start cashing out of the ETF, and the ETF is forced to start selling the underlying, we are gonna get caught in a loop pretty quickly. It won't be any different than an investment fund that is forced to close because redemptions came too quickly. How long until the ETF complex is just Long Term Capital Management on a huge scale? That being said, the Blackrock acquisition of ishares from Barclays at the height of the financial crisis, might be the one of the best acquisitions of this century, from a non-technology standpoint.
    • HK
      Hari K. | Contributor
      22 August 2019 @ 15:28
      A series of excellent observations here, well done
  • MS
    Michael S.
    22 August 2019 @ 01:52
    Always great
  • KL
    Kerrie L.
    22 August 2019 @ 01:52
    Wonderful interview Hari! Very articulate in your analysis. Thank you.
  • PG
    Philippe G.
    21 August 2019 @ 23:45
    Excellent and informative!
  • AS
    Anthony S.
    21 August 2019 @ 23:11
    When you come to a place to learn about something, this is what you are looking for. Thank you Hari
    • HK
      Hari K. | Contributor
      22 August 2019 @ 19:45
      Thank you, fine sir!
  • Hv
    Hannah v.
    21 August 2019 @ 22:14
    Hello Hari, Do you have a twitter account we can follow? Thanks!
    • HK
      Hari K. | Contributor
      22 August 2019 @ 15:27
      Unfortunately not, as I get bogged down with my day job. Thanks!
  • JW
    Joel W.
    21 August 2019 @ 22:07
    Hari, thank you very much for your thoughtful responses to viewers’ comments & questions. Your extra effort adds a tremendous amount of value to an already excellent interview.
  • MR
    Max R.
    21 August 2019 @ 20:48
    Krishnan says they're no one in the watchtower; I'll go farther. There isn't even a watchtower. Add this to Krishnans' warnings. The ETF business is under capitalized and over-extended. Sometimes I wonder if the S.E.C. looks the other way just to get a few thousand more in regulatory fees. I've done some analysis of new ETFs financials here https://medium.com/@maxrottersman/is-the-s-e-c-b4157172e252?source=friends_link&sk=1c4ab9a9811f48bacc50c90f3e728d7d
  • HK
    Hari K. | Contributor
    21 August 2019 @ 20:45
    I am behind schedule & will address some of the excellent questions tomorrow ... All the best
  • NO
    N O.
    21 August 2019 @ 20:00
    Really interesting. Hadnt considered the mark to market aspect.
  • MT
    Mark T.
    21 August 2019 @ 19:52
    Hi, Hari Thanks for your insights. For VSTOXX, it is in backwardation, doesn’t it mean that it has no carry currently while allowing one to hedge against volatility through call options. Thanks again, appreciate your time for sharing your knowledge.
  • F
    Floyd .
    21 August 2019 @ 19:17
    Not enough discussion generally about the risks of a lack of liquidity in markets,that is what made this interview so helpful. Would have liked a bit more elaboration on the new vol. funds like IVOL that you alluded too. Do you expect move volatility in rates and in turn would you find these funds useful?
  • AC
    Aaruran C.
    21 August 2019 @ 19:14
    You talked about the contagion potentially spreading to mutual funds, but I was wondering what an event like this would do to investment grade ETF's like LQD. I don't see how there can be a junk bond sell-off without some effects in the investment grade space (especially considering how much of the BBB stuff is mis-rated) because there's a similar liquidity mismatch.
  • DN
    Dave N.
    21 August 2019 @ 18:53
    This is extremely well done. There are so many possible stress untested market structure related issues lurking underneath the surface and Hari highlights HYG complex issues as well as others.
  • dm
    david m.
    21 August 2019 @ 18:12
    Hi Hari, from a broader perspective, is it fair to say that the indexed/passive equity world (ie SPY) is a giant momentum factor play? In the very unlikely, nearly impossible event that we see a drawdown of >40%, can one make the case that passive's will likely under-perform actives in aggregate?
  • GS
    Gordon S.
    21 August 2019 @ 17:59
    Great interview! What are your thought on rolling deep OTM monthly puts on HY ETFs? They should not be affected too much by the decays you mentioned?
  • LH
    Leigh H.
    21 August 2019 @ 17:49
    It's one thing to really understand what you re talking about. It's entirely another to be able to articulate an argument so clearly and thoroughly and effectively. Terrific presentation.
  • N
    Norman .
    21 August 2019 @ 17:36
    Very solid interview - wish there was more of this on RV and less of the clips rehashing old content. Hari, how about puts on Blackrock for a systematic risk-off? I totally agree with someone's comment below on BKLN. I'm just amazed that you can have an ETF where underlying liquidity for settlement is...weeks, months??
    • HK
      Hari K. | Contributor
      21 August 2019 @ 17:50
      Fascinating idea! The one question is how much reputation risk is embedded in a failed ETF? In the short term, probably not much I guess.
  • CT
    CHRISTIAN T.
    21 August 2019 @ 17:18
    Brilliant and intelligent. Read '2nd Leg Down' too, great book.
  • BN
    Barrett N.
    21 August 2019 @ 17:07
    Another great interview and great insights! Thank you HK and RV!
  • HK
    H K.
    21 August 2019 @ 16:54
    The Problem of Holdings Turning illiquid is Independent of the wrapper. Probably Woodford and Natixis could talk at Great length about it if you take two Recent Examples. No wrapper will Save me if I own high Yield and that Tanks. That is Not etf specific as it is often portrayed. In fact, the arbitrage opps embedded in creation / redemption process will Provide a buffer vis a vis an equal Portfolio in a Traditional Mutual fund.
    • HK
      Hari K. | Contributor
      21 August 2019 @ 17:02
      No wrapper will protect you, true. But HFT can trade ETFs using standard stat arb approaches, creating flash crash risk. Detachment of an ETF and the reference basket implies that the ETF is no longer tracking anything, so why invest in it at all? Mutual funds slow the price discovery process down to a more reasonable speed.
    • HK
      H K.
      21 August 2019 @ 17:40
      Ok, thanks - I see your point. But looking from an 'investor-in-the-etf' perspective that would only affect me if I want to sell intraday in such a scenario, i.e. get caught in the accelerated price discovery process. No one should trade ETFs on crazy days at market order anyway. Further On price discovery: There are also times (I would argue) where it is extremely valuable to have an accelerated price discovery process. Take the time when the greek stock market was closed for weeks at the height of the european debt crisis. The ETF listed in the US referencing the market was still trading and even though the ETF didnt have any NAV during those days, one could easily get in and out of the position if needed. That provides an attractive option in my view.
  • JR
    Jay R.
    21 August 2019 @ 16:10
    Hari, I really appreciated your valued insights in your book Second Leg Down and liked you strategy of buying 10 delta moves on the SPY puts while the market and large institutions are looking at the 25 deltas. I have played with the weekly VIX long calls but there is too much contango with the SPY futures that to me it really is a harder trade. It seems the algos and vol targeting funds are better at profiting from that product than the average retail trader. A couple of questions... 1. How much of the current trading environment is based on risk parity trading which would include holding not only stocks, government bonds but also corporate bonds and gold? The usual 60/40 ratio appears to have morphed into a more complex fund that have a wider diversification that is specifically targeting volatility. I notice that when volatility goes up certain assets move counter to that move more so than trade headlines or news flows. 2. Would you think TLT could suffer from similar counter-party risk in the options space should a systemic risk occur as you stated for HYG? Chris Cole of Artemis Capital goes into great detail of the correlations between stocks and bonds, the implications for both asset classes to move down in a systemic risk off are scary. Would there be someone to pay off my puts on the TLT if there was a crash in the markets or would there be simply a lack of bids? I know in equity markets SEC requires market makers and specialists to guarantee liquidity but whats the rules if your brokerage goes belly up. As some of the others noted, you are truly a outstanding in your analysis and I look forward to more of your interviews as well as your new book.
    • HK
      Hari K. | Contributor
      21 August 2019 @ 16:52
      Great questions, ty. WRT 1. there is certainly overcrowding in the risk parity/targeted volatility/alternative risk premium space. It's all based on the assumption that exposures can be nearly adjusted in nearly continuous time. No jumps allowed ... However, I've steered away from an analysis of risk parity as I do not have a good order of magnitude estimate of size not the degree of overlap across strategies. The ETP world gives me precise size estimates, which makes it easier to say something concrete.
    • PC
      Peter C.
      23 August 2019 @ 02:39
      wrt 2 You should be buying calls & not puts since TLT is the go to Fear Trade?
  • DS
    Dusko S.
    21 August 2019 @ 16:04
    Hari, Very insightful. Any thoughts on going long SJB to sidestep the theta/forward drift issues associated with puts. Am long both long-dated BKLN puts and SJB.
  • PK
    Phua K.
    21 August 2019 @ 14:46
    Would love to read your books. May I know what’s the title?
    • HK
      Hari K. | Contributor
      21 August 2019 @ 14:54
      Here is a link to The Second Leg Down. https://www.amazon.co.uk/Second-Leg-Down-Strategies-Profiting/dp/1119219086 Many thanks for your interest!
    • SM
      Sarit M.
      21 August 2019 @ 16:14
      Great to have you back, Hari. I've been reading your book recently and must admit I'm a big fan, both of the eye opening content and your cogent writing style. I'm a retail investor so maybe this is something professionals know anyway, but it has been superbly helpful to me. Just a suggestion, if you did an audio or video series or an online course, I think you'll get immense traction. Now, it may not be worth your time, but you'll definitely reach a much larger audience. But thanks again, I'll be reading your second book too.
    • HK
      Hari K. | Contributor
      21 August 2019 @ 16:53
      Ty Sarit for your encouraging comments ...
  • HS
    Hubert S.
    21 August 2019 @ 14:21
    Hi Hari, thank you for so much lucidity and logic. OUTSTANDING!
    • HK
      Hari K. | Contributor
      21 August 2019 @ 14:54
      Thank you, sir!
  • AP
    A P.
    21 August 2019 @ 14:05
    Great Hari, really great. Would love to see a conversation with Steve Bergman from Horizon Kinetics, to my knowledge the only person apart from Hari having done extensive research on ETFs to such a detailed level (and Grant’s letters on ETFs are also great). Apart from the RV series on ETFs, here is another one => https://vimeo.com/209940152/f2154e4d3d
    • HK
      Hari K. | Contributor
      21 August 2019 @ 14:55
      Many thanks for this. I will take a careful look at Steve's work myself.
    • CN
      Charles N.
      22 August 2019 @ 05:33
      Loved Hari's interview and this was a great addition!
  • GF
    George F.
    21 August 2019 @ 13:25
    I thought the Fed was going to buy all the bonds the ETFs wanted to sell?
    • HK
      Hari K. | Contributor
      21 August 2019 @ 13:34
      Haha, maybe for gov't bonds, but probably not corporates
  • OT
    Omar T.
    21 August 2019 @ 11:23
    Hi Hari Do you have an opinion as to how the price of the high yield ETF would respond to Major downgrades from the Triple B market? Assuming a recession comes at some point in time?
    • HK
      Hari K. | Contributor
      21 August 2019 @ 13:24
      BBB downgrades would lead to an oversupply of high yield and at the very least, selective selling of existing HY names in favor of recent downgrades. The question is whether there would be a bid for all of this stuff ... at some point I would expect a large dislocation between sovereign & corporate spreads.
  • AB
    Anne-Marie B.
    21 August 2019 @ 10:57
    Wonderful interview. I really like this gent's approach. Great job RealVision for finding us such fine people from which to hear!
    • HK
      Hari K. | Contributor
      21 August 2019 @ 13:01
      Very kind, thank you!
  • HK
    Hari K. | Contributor
    21 August 2019 @ 10:01
    Hi, this is Hari. I appreciate all of your comments and will do my best to respond later today.
    • JC
      Jack C.
      21 August 2019 @ 10:44
      Hi Hari, when do you plan to release Market Tremors?
    • HK
      Hari K. | Contributor
      21 August 2019 @ 12:50
      Market Tremors is about 1/3 written, so another 6 months for a complete first draft. The book will try to identify situations where normal-sized moves may trigger forced selling, based on a decline in available credit and over-enthusiastic positioning. These should be great times to hedge, as insurance is incorrectly priced.
  • CD
    Christopher D.
    21 August 2019 @ 09:32
    This is the single best video I have seen at RV. Fantastic to hear his view. Thank you!
    • AB
      Anne-Marie B.
      21 August 2019 @ 10:58
      Totally agree
    • HK
      Hari K. | Contributor
      21 August 2019 @ 13:04
      That means a lot to me, ty
  • MT
    Mike T.
    21 August 2019 @ 09:19
    I read the transcript, highly relevant commentary, LIQUIDITY is everything! For me HYG even now does not have optimal liquidity properties in its Options Market. No problem with the volume in shares traded, but the Options Market for HYG has relatively wide spreads. I never, ever, buy stocks/ETF's outright as it's an inefficient way to deploy capital.
    • HK
      Hari K. | Contributor
      21 August 2019 @ 12:55
      Great points. Just to clarify, I am not a die hard opponent of ETFs. SPDRs and other broad-based equity ETFs don't have major liquidity mismatches and offer access. I target levered ETFs where the underlying is mean reverting on a daily basis, carry hungry ETPs and niche ETFs where the underlying can't support the arbitrage mechanism. We used to have a "bad ETFs" basket that we would synthetically short in the options markets.
  • LS
    Leigh S.
    21 August 2019 @ 08:16
    These deeper thought pieces is what RV is about. Super many thanks
  • RM
    Russell M.
    21 August 2019 @ 07:16
    near end of video, reference to v2x, define and expand please. thank you.
    • HK
      Hari K. | Contributor
      21 August 2019 @ 12:46
      The V2X is the VSTOXX, the analog of the VIX for the Euro STOXX 50 index. Sometimes it trades with a flatter term structure (less futures contango) than the VIX, so can be a cheaper hedging instrument in terms of roll down. While the VIX has horrendous carry in quiet markets (see the VXX for example), there are structures you can trade that cut costs while providing large exposure to a volatility spike. The HYG is tough to hedge directly, as the forward will drift away from a put strike over time. Happy to give some details on request.