• Tag Archives VIX
  • BIS Lists The Four Biggest Threats Facing The Global Economy

    After years of fire and brimstone sermons, also known as the Bank of International Settlements’ annual reports delivered with doom and gloomy aplomb by Jaime Caruana, who year after year warned about the adverse side-effects of central bank intervention, today the BIS released its most upbeat reports in years, in which it praised the recent rebound in global growth and predicted that GDP may soon revert to long-term average levels after the sharp improvement in sentiment over the past year.
    Or maybe not, because even as talk of a “global coordinated rebound” continues, it has once again rolled over, with the US economy barely growing above stall speed, while the BIS explicitly notes that “despite the best near-term prospects for a long time, paradoxes and tensions abound” among these are the VIX…
    Financial market volatility has plummeted even as indicators of policy uncertainty have surged.
    … and the record disconnect between equities and bonds.

    This post was published at Zero Hedge on Jun 25, 2017.

  • JPMorgan’s Head Quant Doubles Down On His “Market Turmoil” Forecast: Here’s Why

    After getting virtually every market inflection point in 2015, and early 2016, so far 2017 has not been Marko Kolanovic’s year, whose increasingly more bearish forecasts have so far been foiled repeatedly by the market, and the same systematic traders that he periodically warns about. As a reminder, his most recent warning came last week, when he cautioned that even a modest rebound in VIX could lead to dramatic losses for vol sellers. As a reminder, here is the punchline from his latest note:
    Days like 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. So in light of a market that refuses to post even the smallest of drawdowns (we are not sure if the words “selling”, “correction” or “crash” have been made illegal yet), has Kolanovic thrown in the towel and declared smooth seas ahead? To the contrary: in a note released late last night, he echoes warnings made recently by both Citi and BofA, and predicts that receding monetary accommodation from ECB and BOJ will likely lead to “market turmoil, and a rise in volatility and tail risks” and just in case there is some confusion, he reiterates what he said last week, namely that the “key risk of option selling programs is market crash risk.”

    This post was published at Zero Hedge on Jun 23, 2017.

  • Coming Apart: The Imperial City At The Brink

    David Stockman routinely refers to President Trump as the ‘Great Disrupter’. But this is not a bad quality, he insists. Rather, it is a necessary one: Stockman argues (my paraphrasing) that Trump represents the outside force, the externality, that tips a ‘world system’ over the brink: It has to tip over the brink, because systems become too ossified, too far out on their ‘branch’ to be able to reform themselves. It does not really matter so much, whether the agency of this tipping process (President Trump in this instance), fully comprehends his pivotal role, or plays it out in an intelligent and subtle way, or in a heavy-handed, and unsubtle manner. Either serve the purpose. And that purpose is to disrupt.
    Why should disruption be somehow a ‘quality’? It is because, during a period when ‘a system’ is coming apart, (history tells us), one can reach a point at which there is no possibility of revival within the old, but still prevailing, system. An externality of some sort – maybe war, or some other calamity or a Trump – is necessary to tip the congealed system ‘over’: thus, the external intrusion can be the catalyst for (often traumatic) transformational change.
    Stockman puts it starkly: ‘the single most important thing to know about the present risk environment [he is pointing here to both the political risk as well as financial risk environment], is that it is extreme, and unprecedented. In essence, the ruling elites and their mainstream media megaphones have arrogantly decided that the 2016 [US Presidential] election was a correctible error’.
    But complacency simply is endemic: ‘The utter fragility of the latest and greatest Fed bubble could not be better proxied than in this astounding fact. To wit, during the last 5,000 trading days (20 years), the VIX (a measure of market volatility) has closed below 10 on just 11 occasions. And 7 of those have been during the last month! … That’s complacency begging to be monkey-hammered’, Stockman says.

    This post was published at Zero Hedge on Jun 20, 2017.

  • Deutsche Bank: The Market’s Current “Metastability” Will Lead To “Cataclysmic Events”

    With the VIX slammed at the close of trading on “quad-witch” Friday, sending it just shy of single-digits once again and pushing stocks back in the green in the last seconds of trading, the much discussed topic of (near) record low volatility simply refuses to go away, which means even more attempts to i) explain it, ii) predict what ends the current regime of “endemic complacency” and iii) forecast the “catastrophic” damage to markets when it does finally end as JPM’s Kolanovic did earlier this week, when he set the bogey on a modest increase in the VIX from 10 to just 15.
    Overnight, applying his typical James Joycean, stream-of-consciousness approach to capital markets, Deutche Bank’s derivatives analyst Aleksandar Kocic penned his latest metaphysical essay on this topic, which covered most of the above bases, and which postulates that far from “stable” the current market equilibrium is one which can be described as “metastable”, the result of widespread complacency, and which he compares to an avalanche:”a totally innocuous event can trigger a cataclysmic event (e.g. a skier’s scream, or simply continued snowfall until the snow cover is so massive that its own weight triggers an avalanche.”
    He also inverts the conventionally accepted paradigm that lack of volatility means lack of uncertainty, and writes that to the contrary, it is the ubiquitous prevalence of uncertainty that has allowed vol to plunge to its recent all time lows, keeping markets “metastable.”
    How does the regime change from the current “metastable” regime to an “unstable” one? To Kocic the transition will take place when uncertainty, for whatever reason, is eliminated: “Big changes threaten to explode not when uncertainty begins to rise, but when it is withdrawn.” He also points out that while there is punishment for those who seek to defect from a “complacent regime”…

    This post was published at Zero Hedge on Jun 17, 2017.

  • JPMorgan’s Kolanovic: “$1.3 Trillion In S&P 500 Options Expire On Quad-Friday”

    With Nasdaq ‘VIX’ reaching 15-year highs relative to S&P ‘VIX’ in the last week, we suspect Friday’s quad-witching will be a little more noisy than normal as traders scramble to cope with $1.3 trillion of expiring S&P options…
    JPMorgan’s Marko Kolanovic lays out the details…
    In our view, it will be difficult for the market to go much higher from these levels (~2,450) unless there is meaningful progress on US fiscal reform (i.e. tax cut).
    Current positioning of various investors is already quite high and that poses additional risk going into weak seasonals.

    This post was published at Zero Hedge on Jun 16, 2017.

  • Gundlach: “You Should Be Raising Cash Literally Today”

    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.

    This post was published at Zero Hedge on Jun 14, 2017.

  • Nasdaq Relative ‘Risk’ Explodes To 14 Year Highs

    While the VIX rebounded from its lowest level since 1993, it was volatility bets for tech stocks that saw the biggest spike last week.
    As Bloomberg notes, amid Friday’s Fang-nado, the CBOE NDX Volatility Index soared 40%, the most since the stock rout of January 2016, reaching its highest level relative to the (S&P) VIX since the aftermath of the dot-com bubble burst.

    This post was published at Zero Hedge on Jun 12, 2017.

  • Doug Noland: Crowded Longs, Shorts and a New Z1

    This is a syndicated repost courtesy of Credit Bubble Bulletin . To view original, click here. Reposted with permission.
    It was a week that saw Mario Draghi cling stubbornly to ultra-dovish monetary policy, the UK’s Brexit strategy thrown into even greater disarray after Prime Minister May’s failed election gambit, and the former Director of the FBI essentially testify that our President is a scoundrel. And then there’s the Middle East…
    In the midst of it all, after trading at a 24-year low 9.37 Friday morning, an abrupt reversal had the VIX ending the week at 10.70. Looking at the S&P500’s slight (0.3%) decline for the week, one might be tempted to think comfortably ‘boring.’ Market internals, though, were anything but boring or comforting. Friday’s session saw the Nasdaq 100 (NDX) swing wildly. After trading to an all-time high 5,898 in the first hour of U. S. trading, the index sank over 4.0% to 5,658 before closing the session down 2.44% at 5,742. Amazon traded in an intraday range of 1013 to 927. Looking at ‘FANG’ plus Microsoft and Apple, major market cap was evaporating in a hurry. By the end of Friday’s session, Facebook had declined 3.3%, Apple 3.9%, Amazon 3.2%, Microsoft 2.3%, Netflix 4.7% and Google 3.4%. The semiconductors (SOX) traded at a multi-year high 1,149 early in Friday’s session, then sank 7.0% before recovering somewhat to close the day down 4.3% at 1,090. Biotech (BTK) rose 1.5% in the morning to an all-time high and then closed the session slightly lower.

    This post was published at Wall Street Examiner by Doug Noland ‘ June 10, 2017.

  • One Bank Is Confused: The Fed’s Rate Hikes Have Resulted In The Loosest Financial Conditions Since 2014

    In its latest weekly Economic Indicators Update, Goldman charts the ongoing paradoxical divergence between the Fed’s professed tightening path and what is actually taking place in the US stock market, where it finds that financial conditions are the easiest they have been in two years.
    One month ago, Goldman discussed this topic in depth when Jan Hatzius implicitly asked if Yellen has lost control of the market, and warned that in order to normalize fin conditions, the Fed may be forced to follow through with a “policy shock.”
    Overnight, Deutsche Bank also focused on the ongoing divergence between Fed intentions and market reality, noting that despite another weak Q1 for US growth and several soft inflation prints in recent months, “the Fed has for the most part stuck to the script for policy over the remainder of the year.” The German bank notes “recent communication has continued to signal that at least one rate hike – the first likely coming at next week’s June FOMC meeting – and a reduction in the balance sheet are still likely by year-end.” It posits one reason why the Fed has remained on message “is that financial conditions have persistently eased despite two rate hikes since December. In fact, our financial conditions index has recently neared the loosest (i.e., most supportive of growth) levels since 2014.”
    We consider these questions through the lens of our financial conditions index (FCI). In brief, our high-frequency FCI is a composite of various financial market indicators – the trade-weighted dollar, equities, the 10-year Treasury term premium, VIX, mortgage spread, and corporate bond spread. The variables are transformed when needed (e.g., by taking growth rates), standardized by their pre-crisis mean and standard deviation, and then aggregated into an index using weights based on each variable’s historical relative ability to forecast out-ofsample real GDP growth. The index is constructed such that positive values indicate that financial conditions are supportive of growth, while negative values are consistent with tight financial conditions that exert a drag on growth.

    This post was published at Zero Hedge on Jun 6, 2017.

  • Mystery Trader ’50 Cent’ Reappears, Bets Big On VIX Doubling By July

    Having been able to sell back his protection purchases for a major profit amid Trump’s impeachment panic two weeks ago, the mysterious options trader ’50-cent’ has been spotted once again – loading up on cheap bets on a big blow-out.
    As Bloomberg reports, the volatility buyer or buyers dubbed ’50 Cent’ appears to have returned to the market again on Monday, following Friday’s trades as the VIX continues to trade below 10.

    This post was published at Zero Hedge on Jun 5, 2017.

  • Central Banks Now Own A Third Of The Entire $54 Trillion Global Bond Market

    Two weeks ago we asked a question: maybe behind all the rhetoric and constant (ab)use of sophisticated terms like “gamma”, “vega”, CTAs, risk-parity, vol-neutral, central bank vol-suppression, (inverse) VIX ETFs and so forth to explain why despite the surging political uncertainty in recent years, and especially since the US election…
    … global equity volatility, both implied and realized, has tumbled to record lows, sliding below levels not even seen before the 2008 financial crisis, there was a far simpler reason for the plunge in vol: trading was slowly grinding to a halt.
    That’s what Goldman Sachs found when looking at 13F filings in Q1, when it emerged that the gross portfolio turnover of hedge funds had retreated to a record low of just 28%. In other words, few if any of the “smart money” was actually trading in size.

    This post was published at Zero Hedge on Jun 4, 2017.

  • One Bank Spots An “Amber Warning Sign” Inside The Vol Complex

    In a time when record low volatility has spawned a cottage industry of vol and Vix experts, with analysts desperate to explain either why volatility is where it is – here the simplest explanation is not only the record injection of liquidity by central banks pushing risk assets to all time highs but the fact that even hedge funds appear to have thrown in the towel on alpha-generation and are barely trading, as shown last week..

    This post was published at Zero Hedge on May 27, 2017.

  • Stocks Up, Bonds Up, VIX Up, Dollar Up, Gold Up… As Crude Crashes

    Jeff Bezos and Bill Gates vying for the world’s richest man title…
    Today’s biggest story outside of AMZN $1000, was OPEC’s epic fail… OPEC announced a 9-month extension of its production cuts that have not worked. The market was disappointed…WTI saw its biggest down day since Feb 2016

    This post was published at Zero Hedge on May 25, 2017.

  • Another Rigged Market: Scientific Study Finds Systemic VIX Auction Manipulation

    To the list of ‘rigged’ markets (e.g. Libor, FX, Silver, Treasuries…) we can now add VIX (which explains a lot) as two University of Texas at Austin finance professors find “large transient deviations in VIX prices” around the morning auction, “consistent with market manipulation.”
    As Bloomberg reports, in addition to being an index that is much quoted in articles about market complacency, the VIX is used as a reference price for derivatives: If you want to bet that stock-market volatility will go up, or down, you can buy or sell futures or options on the VIX. These products are cash settled: The VIX is not a thing you can own, so if your option ends up in the money you just get paid cash for the value of the VIX at settlement.

    This post was published at Zero Hedge on May 25, 2017.