Shervin Pishevar is one of the most accomplished venture capitalists to come out of Silicon Valley in the last two decades. He has been intimately involved with the creation of such companies as WebOS, Airbnb, Uber and Virgin Hyperloop, the most advanced transportation company on the face of the planet.
Shervin Pishevar has recently been making headlines as a result of a 21-hour tweet storm that he undertook on February 5. One of the themes of his tweets is the increasingly dangerous-looking territory into which the U.S. equity markets are headed. Aside from stocks being at near-record-high valuations, Shervin Pishevar is concerned that fund managers are moving back into esoteric trades as a way both to search for higher returns and to boost their own commissions.
One example that Shervin Pishevar uses to illustrate the dangers of traditional funds and ETFs getting into complex trades in the recent implosion of the XIV volatility index. Pishevar argues that, while such trades are often couched in the language of hedging risk, more often than not, they are really just managers looking to increase their funds’ returns and their own commissions.
Pishevar argues that investors don’t really understand these funds or the forces that drive volatility. This means that funds using a 200-day moving average as a means to forecast future behavior are going to be in for a rude surprise. And Pishevar argues that this is true across many different asset classes, not just esoteric securities like volatility indexes.
1/ Some thoughts on financial storms I seeing brewing ahead. I expect 6000 point drop in aggregate in months ahead. Here’s why.
— Shervin Pishevar (@shervin) February 6, 2018
He says that the markets are currently experiencing high levels of asset inflation, which has been driven primarily by the extremely cheap money made possible by the Fed’s zero interest-rate policy. This has allowed corporations across the nation to use cheap funds to buy back their own stock, leading to near-historic valuations in stocks. At the same time, bond yields have been crushed by the Federal Reserve’s quantitative easing programs.
According to Pishevar, all of this adds up to a turbulent ride for investors into the future. He says that those who are looking for the historic 10 percent returns that the market has generated in the past are dreaming.