The Market Has Never Been More Fearful Of An Extreme Event - page 3
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I am afraid that they are going to create some event artificially - and then all the hell could break loose
They don't need to create any event
All they have to do is to keep CBs printing machines running
They don't need to create any event All they have to do is to keep CBs printing machines running
They just did (create an event) and the market did nothing
Greece delayed the payment to IMF (it requested bundled payment at the end of the month) - ie. - it will default
USD And The New Era Of FX Volatility - Morgan Stanley
Right up to this week’s FOMC rate decision, the markets remained uncertain about the outcome.
"Largely due to international developments, the Fed decided to pass on hiking for now, and once they do move, the Fed is expected to tighten only very slowly and cautiousl , ending at a terminal rate lower than previous cycles," says Morgan Stanley.
Does this suggest that the USD uptrend is complete? Morgan Stanley thinks not.
"Due to the uneven nature of the global recovery post financial crisis, monetary policy is not as synchronized as it once was. As a result, the Fed will be hiking rates in an environment where we forecast close to 60% of the central banks under our coverage to either maintain or cut rates further until the end of 2016. As such, the differential should continue to grow more USD supportive over the course of the next year," MS projects.
"Note that rate differentials matter for international investors not in isolation, but rather on a risk-adjusted basis. And with the numerator only likely to change marginally compared to past cycles, having a view on the denominator – FX volatility – we think is just as important in assessing whether high carry strategies which flourished in the past Fed tightening cycle will return to vogue," MS adds.
In that regard, MS sees three reasons why FX volatility will be higher this tightening cycle than in the last one.
"First, the Fed’s data-dependent approach is a break from the Greenspan-era ‘measured pace.’ This raises uncertainty on the future Fed Funds rate, the world’s monetary anchor and liability currency for private sector investment.
Second, slower reserve accumulation may increase volatility via (a) reduced presence of an ‘automatic’ buyer of Treasuries and (b) less reserve rebalancing to cushion FX moves.
Third, reduced fixed income balance sheets are likely having a negative impact on liquidity and contributing to sharp increases in asset market volatility, including FX," MS clarifies.
source
What happens if Catalonia decides to exit?
The market as we know it is dying
Catalan independence takes one small step forward
Elections in the northeastern Spanish region of Catalonia resulted in a majority for pro-independence parties: 72 out of 135 seats are in the hands of parties that clearly support secession from Spain.
However, this is not a one way street and this conflict is here to stay for quite some time.
The pro-independence parties labelled these elections as a de-facto referendum, as the central government in Madrid denied them of such a move. And, in terms of seats in parliament, this was achieved.
Not so fast towards independence
However, the mainstream wide coalition of parties, Junts pel Si (Together for Yes) including both pro-independence right and left parties as well as notable figures in the Catalan civil society did not win a majority on its own.
They obtained 62 seats. The other pro-independence party is not exactly a natural partner: the CUP party is not only pro-independence but also radical left, anti-capitalist, and that doesn’t really go well with the right wing policies enacted by the current Catalan president Artur Mas.
So what kind of government will Catalonia have? Will it push quickly for a declaration of independence?
There is also another question regarding a secession: counting the votes, the pro-independence parties gained only 48% support, as several parties did not pass the threshold to enter parliament.
read more
The things are getting weird. Much weirder than in 2008. By gold people
The things are getting weird. Much weirder than in 2008. By gold people
You are right : the bubble is enormous. This time when it bursts no QE will save them
You are right : the bubble is enormous. This time when it bursts no QE will save them
That would be QE999 or QE666
?
"There's something going on in derivatives land," is the warning from ADM's Andy Ash and as Paul Mylchreest notes the relationship between VIX and SKEW suggests the options market is pricing in the possibility of a major market event. The process enables professionals to maintain the illusion of calmness in VIX while hedging their positions (as they attempt to unwind as we have shown). Whether this 'event' is a crash or melt-up is historically unclear but given the taper and the trend of the last few years, we suspect the former more likely that the latter.
Via ADM Investor Services' Paul Mylchreest,
A rather thought-provoking chart which we've been looking at is the ratio of the SKEW (the chance of an extreme or outlier event, i.e. OTM versus ATM options) versus the VIX (the expectations for more 'normal' day-to-day volatility - the price of hedging implied by ATM options)... and is an indicator of how the market is pricing the possibility of a potential black swan event.
You can see how extended we are right now… (actually at record highs)
We can’t help wondering when Bill Gross tells the world that he is selling volatility, whether he is, in fact, selling ATM vol and buying OTM vol ???
While (curiously) 2000 didn’t register, the two previous highs in the SKEW/VIX ratio were 1994 and 2007 which turned out to be pivotal dates in terms of changes in market direction.
One up and one down... Which does it look like this time?
* * *
Think briefly about who is buying and who is selling? Thiunk about who is buying deep OTM protection? Smells like the professionals are a little less sanguine than their chatter suggests...
Institutional clients are dumping equities off to retail clients... thank you very much...
and those that can't dump their assets are hedging aggressively (while maintaining the illusion with VIX that all is well)
sourceI went through this article great info thanks for sharing