Was Monday's ETF Collapse Just A Warmup?
Back in March, Howard Marks offered the following rather straight-forward assessment of exchange traded funds: "The ETF can’t be more liquid than the underlying, and we know the underlying can become highly illiquid."
That’s a warning that almost no one seemed to understand.
Well, that’s not entirely true.
Some ETF providers clearly understood because, as we noted with some alarm in May, Vanguard, Guggenheim, and others are quietly lining up billions in emergency liquidity that can be tapped in the event IG and HY bond fund flows suddenly become very non-diversifiable (aka unidirectional, aka everyone is getting the hell out in a hurry).