volatility - What We're Reading - StockBuz2024-03-29T06:21:10Zhttp://stockbuz.ning.com/articles/feed/tag/volatilityU.S. Markets Face An Unprecedented Era Of Discomforthttp://stockbuz.ning.com/articles/u-s-markets-face-an-unprecedented-era-of-discomfort-that-many-co2022-03-06T21:09:48.000Z2022-03-06T21:09:48.000ZKoshttp://stockbuz.ning.com/members/Kos<div><h3 class="subtitle">Are we officially in the process of being caught off guard?</h3><div> </div><div class="available-content"><div class="body markup"><p>I wasn’t even going to write a note this morning, because it’s Sunday and I have a couple pieces planned for the week to come. But then I had an interesting set of realizations this morning while walking to get my coffee:</p><ol><li><p>Many young people on Wall Street nowadays have never experienced real volatility in markets</p></li><li><p>Russia’s invasion of Ukraine and inflation at 7.5% in the U.S. are two extremely different, complex and unmapped pieces of terrain that we are going to be forced to navigate</p></li></ol><p>In other words, we have a ton of inexperienced market participants that should be bracing for the economic shock of their lifetimes, but they’re not - they’re still at the stage where walking around Manhattan in Patagonia vests, drinking Starbucks and making dinner reservations at whatever douche-motel is trendy this week are among their top concerns.</p><p>This wasn’t a big deal <a href="https://quoththeraven.substack.com/p/why-we-could-be-staring-down-the?s=w">when I first pointed out in November</a> that I thought the NASDAQ could crash. We weren’t dealing with Russia <em>or </em>inflation <em>just 5 months ago</em>.</p><p>In that same short span of time, risks to markets have gone from non-existent, to potentially grave. 5 months is <em>nothing</em>; it’s a <em>split second</em> when gauged relative to the reaction times of 27 year old guys named Kyle who help draw up models to justify 45x P/Es on sell side reports.</p><p>And I think there’s a chance shit gets <em>real </em>for the Kyles, the Tylers <em>and </em>the Jordans working on Wall Street, in addition to a lot of other “investors” who got their financial education from 2AM Tik Tok videos, YouTube livestreams and Twitter spaces calls with AMC “apes”, very soon.</p><p>While market pullbacks over the last two decades have been akin to light breeze on a summer day, a coming supercycle of discomfort, where the U.S. dollar is challenged and our debt may actual come due, could be a Category 5 hurricane.</p><p>And nobody has even considered “evacuating” markets yet.</p><div><hr /></div><p>The housing crisis was almost <em>15 years ago </em>at this point. We’ve had the better part of <em>2 decades </em>of nothing but synthetic, Fed produced heroin, mainlined into our brokerage accounts since then.</p><div class="captioned-image-container"><a class="image-link image2" href="https://cdn.substack.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F2ad66fdd-f4cd-4576-9d16-0c1c5c9def38_659x439.jpeg" target="_blank"><img class="sizing-normal" title="Lehman&amp;#39;s Collapse, on the Front Page - WSJ" src="https://cdn.substack.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F2ad66fdd-f4cd-4576-9d16-0c1c5c9def38_659x439.jpeg" alt="Lehman&amp;#39;s Collapse, on the Front Page - WSJ" width="659" height="439" /></a></div><p>I have a long railed against what I have called this “arrogant” monetary policy: the idea that we can micromanage the economy in a way that is going to make everybody comfortable, all the time.</p><p>I have argued that the feeling of entitlement that comes with expecting to be comfortable all the time goes beyond being “arrogant”: it’s just plain unreasonable. The laws of nature - no matter what industry we’re talking about - all but guarantee some discomfort somewhere along the way.<br /> <br /> This is a lesson that I think we’re going to be learning the hard way this year, and potentially for years to come. Over the last 20 years, we have watched people make fortunes in the market simply by <em>guessing</em> a stock and pouring money into it while the Fed backstops markets from ever moving lower.</p><p>We have overdrawn ourselves at the bank, so to speak, <em>as much as humanly possible.</em> Not only have companies with terrible financials been bid up, they have been bid up to fever pitch valuations that – even in the best of financial circumstances - no company should really ever be afforded.</p><div class="captioned-image-container"><a class="image-link image2" href="https://cdn.substack.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F760eeb01-4cc6-4687-ab9a-0be540bbaf0b_857x479.png" target="_blank"><img class="sizing-normal" src="https://cdn.substack.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F760eeb01-4cc6-4687-ab9a-0be540bbaf0b_857x479.png" alt="" width="857" height="479" /></a></div><p>And in addition to discomfort, one of nature’s guarantees is often reversion to the mean. Reversion to the mean becomes far more painful the further off the path of normalcy you have drifted. Heading into 2022, after two years of unprecedented and basically unlimited quantitative easing, which was lopped on top of two decades of additional quantitative easing, we’ve gotten about as far off that path as possible.</p><div class="captioned-image-container"><a class="image-link image2" href="https://cdn.substack.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F66dfacb4-b042-4a68-82a9-5b24f6d8c503_668x468.png" target="_blank"><img class="sizing-normal" src="https://cdn.substack.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F66dfacb4-b042-4a68-82a9-5b24f6d8c503_668x468.png" alt="" width="668" height="468" /></a></div><p><br /> In addition to veering off course, the shock of running headfirst into two immoveable monoliths of volatility - the Fed attempting to curb unrelenting and blistering inflation and an unprovoked invasion of a sovereign nation in Europe - may have only just begun to be absorbed by markets. There’s a reason that the cycle of markets diagram, when swinging lower, starts with “anxiety” and “denial”.</p><p>We haven’t even begun to approach “fear” yet, because markets have sold off in orderly fashion. This was the <a href="https://quoththeraven.substack.com/p/its-still-starting-to-feel-like-time?s=w">cornerstone of my prediction</a> that we are still due for a limit down morning and real capitulation one of these days.</p><div class="captioned-image-container"><a class="image-link image2" href="https://cdn.substack.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F451d9249-61a4-44b6-9140-5fac877c3642_600x500.png" target="_blank"><img class="sizing-normal" title="Riding the Emotional Wave of a Market Cycle | by Chris | Argent Crypto, Inc. | Medium" src="https://cdn.substack.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F451d9249-61a4-44b6-9140-5fac877c3642_600x500.png" alt="Riding the Emotional Wave of a Market Cycle | by Chris | Argent Crypto, Inc. | Medium" width="600" height="500" /></a></div><p>The truth is that while many investors see this as simply another “BTFD” moment like we’ve had in years’ past, we haven’t even started to ponder the long-lasting effects of what could be coming down the pike for U.S. markets, the U.S. dollar and geopolitical tensions.</p><div><hr /></div><p><em>Today’s blog post has been published without a paywall because I believe the content to be far too important. <strong>However, if you have the means and would like to support my work by subscribing, I’d be happy to offer you 22% off to become a subscriber in 2022:</strong></em></p><p class="button-wrapper"><a href="https://quoththeraven.substack.com/subscribe?coupon=0ded1dfd">https://quoththeraven.substack.com/subscribe?coupon=0ded1dfd</a>","text":"Get 22% off forever","action":null,"class":null}"><a class="button primary" href="https://quoththeraven.substack.com/subscribe?coupon=0ded1dfd">Get 22% off forever</a></p><div><hr /></div><p>The Fed doesn’t have any other option but to hike, in my opinion - regardless of what happens in Ukraine.</p><p>Either the Fed will allow the American public to suffer through continued unprecedented inflation, which will have psychological and monetary effects on the American consumer the likes of which we’ve never seen, or they will be consistently hiking rates, which will start the countdown on a ticking time bomb of debt and malinvestment that has been gestating and growing since 1999. Given that the geopolitical conflict is making inflation <em>worse </em>than it was when CPI was 7.5%, the Fed is going to have to react - even if it’s just for show.</p><div class="captioned-image-container"><a class="image-link image2" href="https://cdn.substack.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F4a3e6fc4-3307-4db9-8f85-eeabdb8ef276_699x348.png" target="_blank"><img class="sizing-normal" src="https://cdn.substack.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F4a3e6fc4-3307-4db9-8f85-eeabdb8ef276_699x348.png" alt="" width="699" height="348" /></a></div><p>And Russia’s invasion of Ukraine is an all out wild card. Nobody knows what path it is going to go down or how it will end. Analysts have drawn up scenarios ranging from a cease-fire tomorrow to a full-on nuclear holocaust. And while there are hopes for a temporary cease-fire, which would at least stop the humanitarian crisis of killing of innocent civilians, the shockwaves on the global economic system and the geopolitical implications of Russia’s actions are likely to stick around for years to come.<br /> <br /> In fact, <a href="https://quoththeraven.substack.com/p/fiat-currency-zero-hour-russia-and?s=w">I wrote a week ago</a> that I believe this invasion marks the beginning of Russia and China’s official war on the U.S. dollar as the global reserve currency. <br /> <br /> Both rate hikes and the geopolitical conflict will have effects, even in a best case scenario, that linger for years to come. The number of potential outcomes that can occur as a result of these effects that also end with the market moving to all time highs over the next few years, has dwindled. The outcomes that do result in new all-time highs - hyperinflation and QE - would have devastating consequences that would make the market’s move higher, in nominal terms, moot.</p><div><hr /></div><p>Perhaps over long periods of time, the market may move higher in real terms once again, but appear to clearly be entering a stagflationary period of discomfort that many “analysts” couldn’t have ever fathomed just <em>months </em>ago. <br /> <br /> And if analysts couldn’t have predicted it, markets - commodity markets, equity markets, debt markets, FX markets and otherwise – may only be pricing in the very, very beginning of this new era for the United States.</p><p>The “new era” of discomfort may not last weeks, months or years, but rather decades, especially if the U.S. dollar is finally called into question as the world’s reserve currency.<br /> <br /> This coming week, I’ll be publishing an article that asks about the opposite idea: is it possible for us to get through this and put it behind us relatively quickly? In fact, I’ll even urge my readers to think about whether or not the worst could be over. But this morning, I couldn’t help but feel that – even in a situation where the <em>volatility </em>dies down – the market’s discomfort could be long lasting.</p><p>If we are, in fact, approaching a new epoch of discomfort for investing in the U.S. (which, by the way I hate to say that we probably <em>deserve),</em> investors’ reactions in the public markets have still not reflected the size of the potential volatility going forward.</p><p>There’s a part of me that still believes markets need to move 30% or 40% lower just based on Fed rate hikes alone, as I predicted weeks ago. Throwing into the mix a new, uncharted geopolitical relationship with Russia and Putin as the “wild card”, I can’t help but feel that the odds of long lasting discomfort have spiked profoundly.</p><p><em>And remember: the next crisis, we may not be able to print our way out of anymore…</em></p><p><em>Courtesy of <a href="https://quoththeraven.substack.com/p/us-markets-face-an-unprecedented?s=w" target="_blank">quoththeraven</a></em></p></div></div></div>The Coming Rug Pullhttp://stockbuz.ning.com/articles/the-coming-rug-pull2020-08-31T18:07:03.000Z2020-08-31T18:07:03.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><iframe src="https://www.youtube.com/embed/21drhEkr5GQ" width="560" height="315" frameborder="0" allowfullscreen=""></iframe></p></div>Market Predictions For 2018? Bring 'Em On!http://stockbuz.ning.com/articles/market-predictions-for-2018-bring-em-on2017-12-12T19:13:54.000Z2017-12-12T19:13:54.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><h2 id="ae-body">Saxo Bank has a few</h2>
<p><img title="" class="cms-png img-responsive" src="http://az705044.vo.msecnd.net/20171212/2017-12-12_10-26-20.png" /></p>
<p>Naturally, predictions like this are more for bank PR than education but they have some value.</p>
<p>For one, they're a reminder that unexpected, huge and unpredictable moves happen in markets. And they happen far more often than we expect.</p>
<p>The thing is, they usually happen somewhere you least expect.</p>
<p>As for this set of predictions, let's hope this trader is you (from the report):</p>
<p>"World markets are increasingly full of signs and wonders, and the collapse of volatility seen across asset classes in 2017 was no exception. The historic lows in the VIX and MOVE indices are matched by record highs in stocks and real estate, and the result is a powder keg that is set to blow sky-high as the S&P 500 loses 25% of its value in a rapid, spectacular, one-off move reminiscent of 1987. A whole swathe of short volatility funds are completely wiped out and a formerly unknown long volatility trader realises a 1000% gain and instantly becomes a legend."</p>
<p>Courtesy of <a href="http://www.forexlive.com/news/!/who-wants-some-outrageous-predictions-for-2018-20171212" target="_blank">ForexLive</a></p>
</div>Low volatility, passive strategies and high leverage = Cautionhttp://stockbuz.ning.com/articles/low-volatility-passive-strategies-and-high-leverage-caution2017-08-08T01:23:03.000Z2017-08-08T01:23:03.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><div class="aspectRatioPlaceholder is-locked" style="max-width: 700px; max-height: 532px;">
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<p>“Low volatility could be ‘the quiet before the storm,’” <a href="https://www.cnbc.com/2017/07/26/the-market-risk-that-makes-nobel-laureate-robert-shiller-lie-awake.html" data-href="https://www.cnbc.com/2017/07/26/the-market-risk-that-makes-nobel-laureate-robert-shiller-lie-awake.html" class="markup--anchor markup--p-anchor" rel="noopener" target="_blank">Nobel laureate Robert Shiller told CNBC last week,</a> adding: “I lie awake worrying.” Over the past 20 years, the CBOE Volatility Index (VIX) has closed below 10 on only 21 days, 13 of which have been in the past two months. The current streak of 270-plus days without a 5% drawdown in any of the major U.S. indices is the longest since 1996. Meanwhile, U.S. equity values continue to diverge from earnings — <strong class="markup--strong markup--p-strong">Schiller’s Cyclically Adjusted PE Ratio (CAPE) has only been higher two times in market history: 1929 and 2000.</strong></p>
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<p name="a6f8" id="a6f8" class="graf graf--p graf-after--p">Yet, despite the many bulls claiming low volatility is historically normal, and therefore not a warning sign, evidence is beginning to mount that U.S. equity markets may be near a volatility-driven tipping point. With the market consolidated (<a href="https://latest.13d.com/will-the-incredible-shrinking-universe-of-us-stocks-undermine-americas-economic-future-753605b8006e" data-href="https://latest.13d.com/will-the-incredible-shrinking-universe-of-us-stocks-undermine-americas-economic-future-753605b8006e" class="markup--anchor markup--p-anchor" target="_blank"><em class="markup--em markup--p-em">WILTW</em> June 29, 2017</a>) and buoyed by the lowest interest rates in 5,000 years, investors have taken on more and riskier leverage in search of yield. Compounding the risk, much of that leverage has been “justified” by passive strategies pegged to low volatility. <a href="http://www.zerohedge.com/news/2017-07-30/why-does-extraordinarily-low-volatility-matter-baupost-explains" data-href="http://www.zerohedge.com/news/2017-07-30/why-does-extraordinarily-low-volatility-matter-baupost-explains" class="markup--anchor markup--p-anchor" rel="noopener" target="_blank">As Baupost Group’s Jim Mooney warned last week:</a> <strong class="markup--strong markup--p-strong">“Low volatility would not be a problem if not for strategies that increase leverage when volatility declines.”</strong></p>
<p name="00dd" id="00dd" class="graf graf--p graf-after--p">If passive strategies have a bias to buy, they can also have a bias to sell —<a href="https://latest.13d.com/has-the-meteoric-rise-of-passive-investing-generated-the-greatest-bubble-ever-257200fe5caf" data-href="https://latest.13d.com/has-the-meteoric-rise-of-passive-investing-generated-the-greatest-bubble-ever-257200fe5caf" class="markup--anchor markup--p-anchor" target="_blank"> a threat we explored in <em class="markup--em markup--p-em">WILTW</em> June 15, 2017.</a> <strong class="markup--strong markup--p-strong">With hundreds of billions of dollars of investments now linked to volatility, a spike in the VIX could trigger a devastating algorithmic sell cascade.</strong></p>
<p name="789a" id="789a" class="graf graf--p graf-after--p"><span class="markup--quote markup--p-quote is-other" name="anon_eaa562f04093" data-creator-ids="anon">Time and again in these pages, we have stressed the need to look beyond the U.S. for opportunity. The longer volatility remains low, the more imperative this becomes. It is impossible to pinpoint when the low-volatility regime will end, but <a href="http://www.zerohedge.com/news/2017-07-31/its-better-turn-cautious-too-soon" data-href="http://www.zerohedge.com/news/2017-07-31/its-better-turn-cautious-too-soon" class="markup--anchor markup--p-anchor" rel="noopener" target="_blank">as Howard Marks stressed in an Oaktree client letter last week:</a> <strong class="markup--strong markup--p-strong">“It’s better to turn cautious too soon…than too late after the downslide has begun.”</strong></span></p>
<p name="f10f" id="f10f" class="graf graf--p graf-after--p">Mooney believes low volatility could be the harbinger of the next financial crisis. <a href="http://www.businessinsider.com/bauposts-jim-mooney-on-low-volatility-and-stock-market-drop-2017-7" data-href="http://www.businessinsider.com/bauposts-jim-mooney-on-low-volatility-and-stock-market-drop-2017-7" class="markup--anchor markup--p-anchor" rel="noopener" target="_blank"><em class="markup--em markup--p-em">Business Insider</em> synopsized his reasoning:</a></p>
<p name="fbcf" id="fbcf" class="graf graf--p graf--startsWithDoubleQuote graf-after--p"><em class="markup--em markup--p-em">“</em><strong class="markup--strong markup--p-strong"><em class="markup--em markup--p-em">While leverage is not directly responsible for every financial disaster, it usually can be found near the scene of the crime</em></strong><em class="markup--em markup--p-em">,” Baupost’s president and head of public investments wrote in the letter.</em> <strong class="markup--strong markup--p-strong"><em class="markup--em markup--p-em">“The lower the volatility, the more risk investors are willing to or, in some cases, required to incur.”</em></strong></p>
<p name="137d" id="137d" class="graf graf--p graf-after--p"><em class="markup--em markup--p-em">Assets whose performance is linked to volatility include a huge amount of money…These funds, including quant funds and so-called risk parity funds, target a specific level of risk, and when volatility spikes, sending risk upwards, it can trigger selling…</em></p>
<p name="6e4e" id="6e4e" class="graf graf--p graf-after--p"><em class="markup--em markup--p-em">As such,</em> <strong class="markup--strong markup--p-strong"><em class="markup--em markup--p-em">any spike in equity market realized volatility, even to historical average levels, has the potential to drive a significant amount of equity selling (much of it automated)</em></strong><em class="markup--em markup--p-em">. Such selling would, in turn, further increase volatility which would call for more deleveraging and yet more selling.”</em></p>
<p name="0414" id="0414" class="graf graf--p graf-after--p"><a href="http://wolfstreet.com/2017/07/26/risk-has-been-abolished-according-to-institutional-investors/" data-href="http://wolfstreet.com/2017/07/26/risk-has-been-abolished-according-to-institutional-investors/" class="markup--anchor markup--p-anchor" rel="noopener" target="_blank"><em class="markup--em markup--p-em">Wolf Street’</em>s Wolf Richter pointed out last week</a> that total outstanding leveraged loans in the U.S. reached $943 billion at the end of 2Q17. Moreover, covenant-lite loans — high-risk instruments issued by junk-rated borrowers, with few protections for creditors — made up 72.5% of that total, a record. Yet still, the amount of high-risk leverage in the market is likely even higher. Securities- based loans (SBLs) — or “shadow margin” — are often not disclosed by financial firms, meaning totals remain opaque. However, for the firms that have revealed statistics, growth rates suggest SBLs are also at record highs: Morgan Stanley’s SBLs have doubled since 2013 to $36 billion and Bank of America Merrill Lynch’s SBLs were at $40 billion at the end of 2016, up 140% from 2010.</p>
<p name="b0eb" id="b0eb" class="graf graf--p graf--startsWithDoubleQuote graf-after--p">“<strong class="markup--strong markup--p-strong">Refusal to acknowledge the existence of risk has become a pandemic</strong>,” Richter writes. “This of course has been the explicit strategy of the Fed since the Financial Crisis — to push investors out ever farther toward the thin end of the risk branch.”</p>
<p name="0e49" id="0e49" class="graf graf--p graf-after--p"><strong class="markup--strong markup--p-strong">The meteoric rise of passive strategies — unbeholden to price discovery, endowed with the biases of their creators — has further encouraged investors to ignore risk.</strong> Jonathan Jacobson, founder of Highfields Capital Management, wrote in a recent letter to clients about <strong class="markup--strong markup--p-strong">why the increasing influence of quants is obfuscating market risk:</strong></p>
<p name="f57b" id="f57b" class="graf graf--p graf--startsWithDoubleQuote graf-after--p"><em class="markup--em markup--p-em">“We are convinced that “quant’ funds”, which have attracted hundreds of billions of dollars in the last few years and a significant portion of which use leverage, and whose models and various strategies are largely based on price action and correlations extracted from the reasonably-recent past when volatility has been low (largely of their own making), have</em> <strong class="markup--strong markup--p-strong"><em class="markup--em markup--p-em">contributed mightily to the illusion that market risk is low.</em></strong> <em class="markup--em markup--p-em">As the money continues to flow into these strategies, this dynamic becomes self-fulfilling.”</em></p>
<p name="3a97" id="3a97" class="graf graf--p graf-after--p">Of course, there’s a flipside to that self-fulfillment. As we wrote back in June about the systemic threat created by passive strategies: “If a key sector failure, a geopolitical crisis, or even an unknown, black box bias pulls an algorithmic risk trigger, will the herd run all at once?” This is Mooney’s point as well: volatility spiking would trigger algorithms to deleverage, thus exacerbating the volatility, leading to even more deleveraging. Compounding the threat, VIX short positioning is at record levels, which could further expedite an unwinding:</p>
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<p name="a813" id="a813" class="graf graf--p graf-after--figure"><strong class="markup--strong markup--p-strong">So the question is, what could drive a spike in volatility?</strong> The obvious answer is central banks normalizing monetary policy. Many assume central bankers are aware unwinding QE could end the low-volatility regime and will act to protect the “new normal”. As history attests, <strong class="markup--strong markup--p-strong">this faith is misguided and dangerous.</strong> Yet, even if the majority is correct, that does not mean other volatility catalysts don’t exist.</p>
<p name="25cc" id="25cc" class="graf graf--p graf-after--p">Recently, J.P. Morgan equity derivatives strategist Marko Kolanovic highlighted one such potential catalyst. <strong class="markup--strong markup--p-strong">Financials and tech stocks have been moving in the same direction only 30% of the time of late, in stark contrast to the longer-term norm of 80%</strong>:</p>
<p></p>
<div class="aspectRatioPlaceholder is-locked" style="max-width: 648px; max-height: 431px;">
<div class="progressiveMedia js-progressiveMedia graf-image is-canvasLoaded is-imageLoaded" data-image-id="1*YlvxgrUO4NkAtjwKmgXacg.png" data-width="648" data-height="431" data-scroll="native"><img class="progressiveMedia-image js-progressiveMedia-image" data-src="https://cdn-images-1.medium.com/max/1600/1*YlvxgrUO4NkAtjwKmgXacg.png" src="https://cdn-images-1.medium.com/max/1600/1*YlvxgrUO4NkAtjwKmgXacg.png" /></div>
</div>
<p></p>
<p name="ad39" id="ad39" class="graf graf--p graf-after--figure"><a href="https://www.cnbc.com/2017/07/28/the-back-and-forth-trade-between-bank-and-tech-stocks.html" data-href="https://www.cnbc.com/2017/07/28/the-back-and-forth-trade-between-bank-and-tech-stocks.html" class="markup--anchor markup--p-anchor" rel="noopener" target="_blank">As <em class="markup--em markup--p-em">CNBC</em> wrote last week,</a> this seesaw dynamic between tech and bank stocks is “happening in the context of an overall market that has become quite selective and eclectic, with stocks and sectors rotating in and out of favor with unusual alacrity.” The consequence is market balance and in turn, low volatility — <strong class="markup--strong markup--p-strong">tech accounts for 23% of the S&P 500 and financials have a 14.5% index weight,</strong> meaning they have the power to balance the market as long as one rises as the other one falls.</p>
<p name="5065" id="5065" class="graf graf--p graf-after--p">Citing 1993 and 2000 as evidence — years that saw low volatility and a steep drop in inter-stock correlation eventually return to historical norms — Kolanovic does not believe this divergence-driven stability will last. <em class="markup--em markup--p-em">CNBC</em> recaps his analysis: “It’s generally healthy for individual stocks and sectors to respond independently to incoming fundamental information, <strong class="markup--strong markup--p-strong">when the variation becomes extreme and drives volatility to extreme lows, the market can become unstable and vulnerable to a swift selling storm.</strong>”</p>
<p name="cf50" id="cf50" class="graf graf--p graf-after--p">Seemingly every day for the past two weeks, the VIX has set new records. In a world defined by political turbulence, a time when U.S. markets appear increasingly frothy, when the Fed has a declared intention to unwind QE, the stability appears unnatural — a menacing codependence between financial engineering and greed.</p>
<p name="049a" id="049a" class="graf graf--p graf-after--p">As Goldman Sachs pointed out recently, there have been 14 low-volatility regimes since 1928 and all have required a large shock — namely a war or recession — to end. However, <strong class="markup--strong markup--p-strong">QE and the rise of passive strategies means history may tell us nothing about what’s to come.</strong> And the longer volatility remains suppressed, the bigger the leverage bubble grows and the more costly the correction will be once the passive herd is spooked. As Hyman Minsky once said: <strong class="markup--strong markup--p-strong">“The more stable things become and the longer things are stable, the more unstable they will be when the crisis hits.”</strong></p>
<p name="049a" class="graf graf--p graf-after--p">Courtesy of <a href="https://latest.13d.com/toxic-mix-of-low-volatility-passive-strategies-and-high-leverage-is-reason-for-caution-us-equities-5e92ba0f5fc1" target="_blank">13DResearch</a></p>
</div>Seven Ways To Trade The Brexit Votehttp://stockbuz.ning.com/articles/seven-ways-to-trade-the-brexit-vote2016-06-14T00:41:06.000Z2016-06-14T00:41:06.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p>Next week will be a historical one for both the United Kingdom and the global economy. On June 23<sup>rd</sup> the British people will decide whether to leave or stay in the European Union. Polls have been mixed over the last couple months, but the latest out show momentum for leaving, which is scaring the markets.</p>
<p>Loss of British sovereignty is the fundamental reason for leaving the EU, as many supporters want to take back control of U.K. borders in order to curb immigration. Those that wish to stay in the EU say there are severe short-term economic consequences that would make trade difficult and slow the economy. Even President Obama recently said that if there is a Brexit, the U.K. would go to the “back of the queue” in American trade deals.</p>
<p>While debate and speculation is running rampant, markets are watching the British Pound closely. Last week U.S. indices tracked and moved with the Pound tick for tick, showing that traders are very concerned about the upcoming vote.</p>
<p>So how can you profit off the news when it hits? Below I show seven different ETF/ETNs to buy in anticipation of either a “Yes or a “No” vote.  </p>
<p><strong>Volatility</strong></p>
<p>When markets are faced with uncertainty, volatility rises. The VIX is a fear gauge that measures how much fear there is in the markets at the current moment. Traders will buy VIX instruments to hedge against panic or bet on a move lower in the market. One of the most popular VIX instruments is the <strong>iPath SP 500 VIX Short-Term Futures ETN (<acronym class="ticker">VXX</acronym>). </strong> This ETN provides investors with exposure to short-term VIX futures. Essentially, when the market goes down and fear increases, it will go higher.</p>
<p>The chart below shows VXX over the last month versus the S&P 500. As Brexit fears have increase over the last week, we have seen the VIX shoot higher and the market soften. Investors can expect volatility to remain firm into the vote and surge higher if the vote is yes. However, if the vote is no, expect volatility to fall apart and VXX to go right back to the June lows.</p>
<p><em>The Trade:</em> If you believe it’s a yes vote buy VXX or UVXY (2x long VIX). If you believe it’s a no vote buy SVXY (Short VIX).</p>
<p><img alt="" src="https://staticx-tuner.zacks.com/images/blogs/7e/1465833743_scaled_624.jpg" style="width: 624px; height: 263px;" /></p>
<p><strong>Yes Vote</strong></p>
<p><strong>SPDR Gold Trust (<acronym class="ticker">GLD</acronym>)</strong> seeks to reflect the performance of gold bullion. The Trust holds gold bars and from time to time, issues Baskets in exchange for deposits of gold and distributes gold in connection with redemptions of Baskets.</p>
<p>In times of uncertainty gold thrives. A Brexit would create uncertainty about the euro zone economy, the stability of the EURO and would set a precedent for other countries to leave the EU.</p>
<p>Gold has already been very strong this year with the ECB and Bank of Japan experimenting with negative interest rates. A yes vote could push gold much higher as currency fears force traders to buy the yellow metal.</p>
<p><img alt="" src="https://staticx-tuner.zacks.com/images/blogs/e8/1465833764_scaled_624.jpg" style="width: 624px; height: 259px;" /><strong>Guggenheim Currency Shares Japanese Yen ETF (<acronym class="ticker">FXY</acronym>)</strong> is an investment that seeks to track the Japanese Yen. Traders will buy the Yen in expectation that it will rise against the Euro, the Pound and the Dollar. Yen momentum has been a concern and a risk-off type scenario could give the currency an extra push higher as global markets head lower.</p>
<p><strong>Direxion</strong> <strong>Daily Financial Bear 3x (<acronym class="ticker">FAZ</acronym>)</strong> is an investment that seeks daily investment results, before fees and expenses, of 300% of the inverse of the performance of the Russell 1000® Financial Services Index,</p>
<p>This is a good play, not only on a Brexit yes vote, but also the Feds reaction to the Brexit. Yellen has mentioned that the vote is a concern and a yes vote will most likely create turmoil that would prevent any fed rate hike until December. Low rates are killing banks, expect FAZ to head higher on the expectation on more delays on any rate hike, plus heightened fear of economic turmoil.</p>
<p><em>The Trade:</em> Long GLD, FXY, and FAZ if trader believes “Yes” vote is coming.</p>
<p><strong>No Vote</strong></p>
<p><strong>Guggenheim Currency Shares British Pound Sterling (<acronym class="ticker">FXB</acronym>)</strong> is a currency ETF that reflects the British pound and its daily movements. The Pound has come under pressure this year in anticipation of this vote. While some of the move might be priced in, there could be a lot more room to go lower if there is a Yes vote. However, if they stay in the EU, there will be a massive rally in the pound and FXB will shoot higher.</p>
<p><strong>iShares MSCI United Kingdom (<acronym class="ticker">EWU</acronym>)</strong> is an investment that seeks to track the investment results of the MSCI United Kingdom Index. The fund will at all times invest at least 90% of its assets in the securities of its underlying index and in depositary receipts representing securities in its underlying index.</p>
<p>Expect U.K. stocks to rally if there is no Brexit. The risk has held the index down so far this year and if that risks goes away we could see money flow into U.K. stocks.</p>
<p><img alt="" src="https://staticx-tuner.zacks.com/images/blogs/8e/1465833778_scaled_624.jpg" style="width: 624px; height: 263px;" /></p>
<p><strong>Direxion</strong> <strong>Daily Small Cap Bull 3x</strong><strong>(<acronym class="ticker">TNA</acronym>)</strong> is a way to play U.S. stocks through the Brexit vote. Expect a large rally if there is a no vote and the best performing stocks to be the riskier or small cap stocks. TNA gives an investor triple exposure to this idea so they can profit of a big move in the Russell 2000 index.</p>
<p><em>The Trade:</em> Long FXB, EWU, and TNA if trader believes a “No” vote is coming.</p>
<p><strong>In Summary</strong></p>
<p>It’s hard to speculate which way the British people will go as the polls have been all over the place. Expect the market to remain volatile as new polls and headlines come out. When the final vote is known there will be a violent move in response to the vote, with a Yes being bearish and NO being bullish for stocks.  Use the above stocks to trade your opinion and even protect your portfolio for that June 23<sup>rd</sup> vote.</p>
<p>Courtesy of <a href="https://mrtopstep.com/7-ways-to-trade-the-brexit-vote/" target="_blank">MrTopStep</a></p>
</div>When The SEC Investigates Market Failureshttp://stockbuz.ning.com/articles/when-the-sec-investigates-market-failures2016-01-01T18:47:50.000Z2016-01-01T18:47:50.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p>This week, the SEC gave us a belated Christmas present.  But what does it actually portend?</p>
<p>The present in question is an 88-page "<a href="http://www.sec.gov/marketstructure/research/equity_market_volatility.pdf" title="" target="_blank" class="external-link">Research Note</a>" from the SEC's Division of Trading and Markets titled "Equity Market Volatility on August 24, 2015." It's an innocuous-enough title, but for us market-structure wonks, it's kind of a big deal.</p>
<p>The conclusions of the piece are purely factual, and include dozens of pages of juicy charts and tables (be still my nerdy heart!). There's little or no conjecture, and there's absolutely no policy recommendations.</p>
<p>It outlines the facts of that fateful trading day, discussing what went wrong, and which classes of securities were affected. It's a gold mine for folks who want to dig in and understand what happens when things break, and, for any investor, it's worth reading at least the first six pages.</p>
<h3>Key Findings</h3>
<p>Here are the most interesting findings—not just because they're objectively interesting—but because they give you some insight into where the SEC may direct future policy:</p>
<ul>
<li><span style="line-height: 21.28px;">The SEC goes out of its way to point out that large and small equities—and large and small exchange-traded products—were almost equally affected. It hammers this point home repeatedly. To me, this signals that it is countering an internal (or external) argument that there's a "small-cap problem" when it comes to market structure, or that the liquidity haves/have-nots divide is the fundamental problem.</span></li>
<li><span style="line-height: 21.28px;">The SEC makes a clear point of highlighting that 60% of the limit-up-limit-down (LULD) halts came when securities were trading up from lows. The not-too-subtle implication is that they're going to revisit the symmetry of the system. This is a good thing. People really only care, in general, about downside volatility. Sure, people building models, shorting or managing risk in a sophisticated way care about overall volatility. Actual investors? Not so much.</span></li>
<li><span style="line-height: 21.28px;">While it highlights the <a href="http://www.factset.com/insight/2015/10/can-the-dutch-save-etf-trading#.VoP-LPkrJD8" title="" target="_blank" class="external-link">same issues</a> with the NYSE open and reopen process that I did in a recent blog, it makes a case study of the PowerShares QQQs, which, in tracking the Nasdaq 100, by definition includes no NYSE-listed securities. It points out that the Q's had just as big a discount problem in the heat of the open as did the iShares S&P 500 ETF.</span></li>
</ul>
<p>It concludes by saying the things it actually wants to keep researching, and show its hand pretty well here: It wants to focus on how the LULD process works (or doesn't), and it wants to readdress marketwide circuit breakers. It also says it's looking at Reg SHO and the short-sale restrictions, although from my analysis, I don't see this as a contributing factor (but hey, I've been wrong before).</p>
<h3>So What Does This All Mean?</h3>
<p>It's important to understand the SEC's actions in context, and in total. The SEC is not a singular entity that speaks as one voice with one set of tools. Each division has its own regulatory bailiwick, and its own penchant for action or inaction.</p>
<p>The Division of Trading and Markets is generally concerned with plumbing and exchange regulation, and what we see here is it coming into line with where the big action has been lately, the Division of Investment Management.</p>
<p>The Division of Investment Management oversees mutual funds and ETFs (among other things), and the agenda there going into 2016 is enormously clear. There are more than 600 pages of proposed rulemaking currently out for comment, all of it focused on one thing: risk.</p>
<p>One set of rules has been proposed for managing liquidity risk. Another set of rules has been proposed for managing derivatives (and thus leverage) risk. This all comes after a set of questions back in June where it started treading into Trading and Markets territory, asking about whether exchanges should have look-through responsibilities when it comes to exchange-traded products.</p>
<h3>Jumping On Risk Bandwagon</h3>
<p>This data dump from Trading and Markets reads to me like a "getting on the risk bandwagon" statement. In general, I'm all for this. The SEC's job is to keep the trains running on time, and days like August 24 and unintended exposures through poorly constructed products are absolutely the kinds of things it should be focused on.</p>
<p>My hope is that it takes its time and really listens, because there are dozens of unintended consequences already baked into its proposed rulemaking. That's bad enough when you're talking about the inner workings of mutual funds and ETFs; it's a bigger deal when we're talking about the inner workings of the markets themselves.</p>
<p>The moral of the story: 2016 is a year in which investors—and investment managers—will need to pay very close attention to what's happening in Washington.</p>
<div>Receive stories like this to your inbox as they are published. <a href="http://www.factset.com/subscribe" target="_blank">Subscribe</a> by e-mail and follow <a href="http://www.twitter.com/factset" target="_blank">@FactSet</a> on Twitter. If you are looking to source FactSet data or analytics in your publication, email media_request@factset.com.</div>
<div>Courtesy of <a href="http://www.factset.com/insight/2015/12/key-findings-on-the-sec2019s-august-24-data-dump?referrer=E-mail&email=mrsbuz1@aol.com&domain=economics#.VoarnllFrcc" target="_blank">Factset</a></div>
</div>Is It A Correction Or Bear Market?http://stockbuz.ning.com/articles/is-it-a-correction-or-bear-market2014-10-16T15:14:53.000Z2014-10-16T15:14:53.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p>“Is the S&P in a correction or Bear market Mom?” is the question I received from my daughter last night. She’s been learning the stock market slowly over the last five or so years and I cringe at times with the questions she poses however no question is a bad question. I’d rather she come to me than blindly follow some pundit or supposed guru to $99/month subscription. After all, if he/she is so smart – why do they even need to charge for anything? Just sit back and enjoy the wealth.</p>
<p>While the big boys and their algorithms have their calculated strategy, this is how I explained it to her in my simple, 'laywomans' terms. In my mind big money typically buys at major supports during a correction. They sit back and salivate at an opportunity to, not buy the dip, buy buy on the <em>cheap</em> and define their risk.</p>
<p>For me, I consider the monthly 20 SMA as you can see from my <a href="http://t.co/2jdRIMma1h" target="_blank">prior post on the subject here</a>.</p>
<p>If only a correction, one would want to see SPX bounce off of the 20month or (the line in the sand) the prior correction low to HOLD. If that prior correction low were to break, all bets are off as volume spikes and we’ve entered a Bear Market. Again, remember we're talking a <strong><span style="text-decoration: underline;">monthly chart</span></strong> here and not a daily or weekly.</p>
<p>The ensuing Bear market sell off is wicked fast and generally lasts only a few months. Stock market bubbles and crisis'............well that's a horse of a different color. In a Bear market however you'll still see rallies. They are not a signal that all is well. Rallies are swift and sharp back up to resistance where you re-load your shorts and define risk above the 20month as your cover point. I've provided a few charts so you get the idea of my theory.</p>
<p>Are we in a Bear market now? No one knows Dorothy (ignore what they say on "entertainment" news television but if you want to dip a toe, I wouldn’t do it until we reach the 20month OR retrace 78.6% of the prior drop. I don’t need to catch a bottom……….but I also don’t need my face ripped off by volatility.</p>
<p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1290966?profile=original"><img class="align-center" src="http://storage.ning.com/topology/rest/1.0/file/get/1290966?profile=RESIZE_1024x1024" width="750"></a></p>
<p>You will notice that I have two different 20month SMA's on the chart. One is based on the "close" and the other based on the "low" of the candle. Of course there are anomalies where the 20month did not hold such as the fear sell off in 2012 when Greece was rioting and there were concerns the taper. Operation Twist was magically announced and all was well. Regardless it is of note that <strong>the prior correction low was <span style="text-decoration: underline;">never</span> violated.</strong> Fed to the rescue. No bear market. <a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1290995?profile=original"><img class="align-center" src="http://storage.ning.com/topology/rest/1.0/file/get/1290995?profile=RESIZE_1024x1024" width="750"></a></p>
<p>This is important as you see an enormous volume spike as the prior correction low was taken out. Guess who had their stops there. Yep - big money. Now the 20month SMA (either based off the low or the close) has become resistance. Hang on to your hats. <a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1291021?profile=original"><img class="align-center" src="http://storage.ning.com/topology/rest/1.0/file/get/1291021?profile=RESIZE_1024x1024" width="750"></a></p></div>S&P500 Monthly Supportshttp://stockbuz.ning.com/articles/s-p500-monthly-supports2014-10-12T20:38:26.000Z2014-10-12T20:38:26.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p>Merely my observation of the S&P500 based on it's 20 year monthly chart. It would appear most 'dips' were bought heavily at the 20month SMA with the 20month (off the low) SMA being the line in the sand..........at least on the last two 'bubbles'.</p>
<p>The 20m (off the low) then became overhead resistance. </p>
<p>Just food for thought. I have sent an alert for SPX at both levels in an effort to "buy like the big boys". At least buying 'there' is limiting my downside risk (wink wink). We could definitely bounce before then but the MACD looks to be rolling over somewhat and let's face it; October is a tough month. I'm sincerely anticipating further volatility as even semiconductors and rails are exhibiting signs of selling. I look forward to buying cheaper; aren't you?</p>
<p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1290953?profile=original"><img class="align-center" src="http://storage.ning.com/topology/rest/1.0/file/get/1290926?profile=RESIZE_1024x1024" width="750"></a></p></div>