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  • Beginning of ETF Shock

    March 23, 2020

    Last Monday I wrote about the issues that ETFs will face due to the disruptions to real economy. I did not expect the problems to surface at the short-end of ETFs and so fast.

    Last week some of the short duration ETFs had a 30 plus-standard deviation move in one day. A thirty standard deviation move in many different ETFs mathematically should not normally happen in our lifetime even if we assume we inhabit a multiverse with zillions of universes, each with trillions of galaxies with billions of stars in each galaxy and most stars having an advance life form with ETFs trading at the centre of their respective planetary financial capital, and all these planets are subject to one single multiversal pdf.

    A thirty standard deviation move in short ETFs only indicates the structural fallacy in construction of ETFs which I described in my earlier post.

    I post screenshot from website of one such ETF, just so that readers can visually see how a 30 SD move looks like.

    Growth of Hypothetical $10,000

    Source: ishares website

    What is worse, is that alongside this sharp downmove, many ETF providers have increased exit fees by 400% overnight. 1

    I repeat here that global central banks are busy stabilizing real economy and they will not be able to clear mess in the ETF market at the same time.

    1 https://www.wsj.com/articles/blackrock-vanguard-raise-price-of-cash-redemption-for-some-etfs-11584746900

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