Bubbles And Anti-Bubbles | Expert View | Real Vision™

Описание: How can investors position themselves to profit from irrational markets? Diego Parrilla of Quadriga Asset Management explores the opportunities behind bubbles — and their funhouse mirror opposite, anti-bubbles — which result from artificially suppressed prices. Filmed on October 16, 2018 in New York.
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Bubbles And Anti-Bubbles | Expert View | Real Vision™
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Transcript:
So it's interesting to see which one of these bubbles will either trigger things or which ones are the most dangerous. My view is that the epicenter of the bubbles is obviously government bonds. That's where the problem starts with this extension and duration, these low base rates, artificially low interest rates and stuff. Now, the fact that it is the epicenter of the problem doesn't mean it's the problem itself. Japan has taught us for decades that you can actually have insane, I would say, monetary policy measures and move into regimes that could last for a long time. So it's a widow maker. The JGB market is a widow maker.
And the minute-- if you were short JGBs, zero coupon JGBs at 99.99, what was your risk reward? Well, my risk reward was potentially $0.01 to make $100 or 100 yen. The minute you go into negative interest rates, it's game over. So we've really moved into a new world. And by left pocket lending the right pocket, this could go pretty much anywhere. The problem becomes the other pockets. And I think what we've seen so far in the time of this interview being shot-- we've already seen significant trouble in the weaker emerging markets, those that have significant imbalances at the macro level or significant debt in non-local currency. So we've seen Argentina or Turkey or others suffering.
We're following a process that is a bit-- combines two things. There's a domino effect. So the weaker guys go first, and they push farther out. But it's also a snowball effect, so the pieces are getting bigger and bigger. Think about the European crisis or the Lehman crisis with the smaller banks and eventually getting to a too big to fail moment, or in Europe with Iceland and Ireland and Portugal eventually getting us to that too big to fail Spain or Italy moment. I think this crisis is the same. You start with the weaker guys falling first and dragging along the rest.
And I think the big issued I would say if there are two main areas that worry me, one is high yield. This is no precedence of this size and scale and levels. So that is a ticking bomb that could go, and I think will go, in a very nasty way. The second one is China. I think China is Lehman squared. China has been trying to solve structural problems by printing and borrowing. I think this is-- they're not really solving problems. They're transforming those problems. And I think this will give into a combination of problems alongside a gross devaluation of the Chinese yuan. So unfortunately, this is like a room full of balloons. It's not quite clear which one will go first. But as one balloon goes, it puts a lot of pressure into the others. And I think the mechanism by which this happens is actually through the anti-bubble and implied volatility in particular.