Gundlach: “You Should Be Raising Cash Literally Today”
by Tyler Durden
ZeroHedge.com
Jun 13, 2017
While there was nothing markedly new from Jeff Gundlach in his latest monthly webcast, it appeared that the DoubleLine CEO either had just read or otherwise agreed completely with JPM’s Marko Kolanovic, who as we noted earlier, warned that even a modest spike in vol coupled with a plunge in liquidity, could lead to “catastrophic losses” for the year’s best performing strategy: short convexity, or otherwise selling volatility. Recall what JPM said.
May 17th and similar events bring substantial risk for short volatility strategies. Given the low starting point of the VIX, these strategies are at risk of catastrophic losses. For some strategies, this would happen if the VIX increases from ~10 to only ~20 (not far from the historical average level for VIX). While historically such an increase never happened, we think that this time may be different and sudden increases of that magnitude are possible. One scenario would be of e.g. VIX increasing from ~10 to ~15, followed by a collapse in liquidity given the market’s knowledge that certain structures need to cover short positions.
A few hours later, in not so many words, Gundlach made the same warning during the webcast, in which he – like Gandalf – warned that “we’re on increasing watch for volatility,” Gundlach said, pointing out that “there is a massive amount of money that is being short VIX.”
The Rest…HERE
