Recently, the media reported that a well-known investor saw a new bubble in the financial markets. As a result, there have been many reports of such a certain decline in the stock market, which we have. Did all the writers first check their sources and understand the content? Partners analyst Martin Mat fell in love with this question.
American investor Dr. Michael Burry warned in his comment that the current situation is similar to 2008 and he predicts that the stock market crash is so certain. Who else would welcome anyone who predicted the collapse of the mortgage bubble and spent billions of dollars on it. A city that has been bubbling and threatening to collapse is also making a passive investment in equity investment. However, it is necessary to make an original comment enough and understand the context.
No correction like correction
The whole uproar with the long course of the long-term stock crash began after the release of Dr. Burry for Bloomberg. The similarity of the current situation with the cessation of the crisis in 2008, when the hunt for additional percentages drove investors, including banks and insurance companies, into collateralised bonds, their risk could not be reliably assessed, seeing that now and then to the so-called ETF.
Most investors now do not examine the fundamental value of the stock, but only passively enter positions with the help of ETFs and mutual funds. And first here we see Dr. Burry risks that could trigger a sharp correction. Personally, I see it dramatically.
Where there is nothing, even the speculator does not take
These are mainly currencies and illiquid shares that would normally only be of interest to experienced investors and gamblers. However, some popular indices are built on them, and consequently ETFs, into which billions of dollars flow. ETFs and mutual funds linked to these shares may have difficulty in the event of a short sale, as they will hardly find sufficient liquidity in the underlying shares to sell them from the portfolio. Each ETF is only as liquid as its underlying securities.
Forced sales end in a quick drop in price, because when you have to sell, you just have to, even if it doesn’t rain and dollars fell outside. Due to the lack / non-existence of strong buyers, prices will immediately fall well below the rational level, when the decline can easily reach a fraction of a percent.
He had a big problem with the stock
Dr. Burry cites the Russell 2000 stock index as an example, where a quarter of a stock has a daily tradable volume of less than a million dollars. At the same time, we know that these funds are worth hundreds of billions of dollars through passive investments (ETFs, mutual funds). What would happen if investors started to take back their positions in passive investments?
The forecast of a large correction in the action therefore does not apply to the entire market, but to specific areas where prices may be strongly influenced by sudden sales. This is especially true of less liquid markets, where a sharp change in demand and supply of securities can cause huge price fluctuations. In this particular case, Dr. Burry talked about small-cap stocks, respectively. about small business promotions in the United States.
A change in nlad makes me take anything off at any time
Dr. Burry will therefore not see a global collapse in general, but may have problems with these specific markets. Moreover, he didn’t win over time, when he added that he didn’t know when it would happen and there was nothing very specific about the resulting effect.
In addition, similar horror pbh can be grafted onto other commodities traded in me, in which there is a huge amount of income, but only milk is traded. The total market capitalization is thus more than the daily tradable volume. Similarly, they can scare you with real estate, bitcoin, some bonds as well as a collection of stamps and beer dots.
ETFs are a good servant, but they are not for everyone
This is the reason why ETFs pay off primarily in large and liquid markets, where their efficiency guarantees a relatively correct fundamental valuation, low fees, immediate liquidity and minimal handling. In the case of marginal markets and the index, the liquidity of the ETF deteriorates, and from the idea of intraday trading, only the money.
For me, the underlying securities are more liquid, so it is appropriate to even create an ETF bond. This is the reason why you will not find ETFs in esk crowns or ETFs on esk stocks and bonds or on many other investors oblbench market. ETF managers are thus confident first of the possibility of a sudden forced sale, when they would be trapped by their investments.