I heard for a very long time over the last decade, oh, risk parity is causing these issues,

or, oh, it's the trend followers.

And again, in isolation, I don't think any of them are the problem.

But when you look at this big, massive category together and consider the hundreds of billions

of dollars that are in there that are suddenly all having to trade at the same time because they're

all taking some sort of volatility contingent trade. All of them are ultimately demanding

liquidity when there is none, causing severe pressures on the market, amplifying volatility

and very often in a way that is directional. So when markets sell off, most of these strategies

are also trying

to sell at the same time, pushing markets further, faster. Welcome back to The Breakdown with

me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our

world. The breakdown is sponsored by Crypto.com, bitstamp, and nexo.io, and produced and distributed by CoinDes.

What's going on, guys? It is Wednesday, September 23rd, and I am so excited to share this conversation today with Corey Hofstein.

Corey is the co-founder and chief investment officer

of Newfound Research, which is a quantitative investment in research firm. Corrie and Newfound

just put out a new paper a couple weeks ago called liquidity cascades, the coordinated risk of uncoordinated market participants.

And where it really comes from is a desire to understand that feeling that so many people

have that something in the markets is off. The interesting thing that Corey does in this paper is dig into three

different narratives, the narrative of Fed intervention, the narrative around the growth of passive

and index investing, and the convex nature of hedging, i.e. the liquidity mismatch between

market makers and other market participants, i.e. the liquidity mismatch between market makers and other market

participants, particularly around volatility correlated products. What Corey finds is that these

...