Mike Green, portfolio manager and chief strategist at Simplify Asset Management, joins Forward Guidance to make sense of the market turmoil that has caught investors off guard so early on in 2022. Green tells Jack Farley why he thinks the rotation from growth stocks to the so-called “inflation-trades” (energy, industrial, and commodity stocks, for example), might have gotten ahead of itself.

Green examines the mechanics of how passive flows distort price discovery and cause tendencies for the market to drift steadily higher while also raising the risk of extreme downward price movements. He explains how options overlays can take advantage of this environment and discusses his decision to bring those products to investors in an ETF wrapper. Green also discusses Simplify’s new credit hedge ETFs, AGGH and CDX. Green argues that inflation will relent soon, and that the future rate hikes priced into the bond market likely overstate how far the Federal Reserve will actually raise rates.

Mike Green on Twitter @profplum99

Simplify on Twitter @SimplifyETFs

Jack Farley on Twitter @JackFarley96

Blockworks on Twitter @Blockworks_

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Two papers Green discusses:

Xavier Gabaix & Ralph S. J. Koijen, “In Search of the Origins of Financial Fluctuations: The Inelastic Markets Hypothesis”: https://www.nber.org/papers/w28967

Lasse Heje Pedersen, “Sharpening the Arithmetic of Active Management”: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2849071

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Carey Potter and the Half-Gay Dick with Keith Carey