Equities Go Full Retard As Rates Run For Cover
To see the prevailing schizophrenia gripping the two different sets of mindsets in the market right now, look no further than than the surging divergence between equity vol and implied correlation (VIX, JCJ) and credit vol (via swaptions: USSV011). The chart below shows that even as equity traders are going full retard into QE2, and expecting the Fed's Brian Sack to expense their purchases of such staples as hookers, booze and heroin next, rate guys are running for cove (guess what, the fact that going forward Americans will not pay mortgages again, likely for many months if not years, is not good news).
And an even more stunning demonstration of the full retardation of our once proud equity trader class, is the record surge in implied correlation between Jan 2011 and Jan 2012. Translation: the world is fine through the New Year, then it is all going to hell.
H/t Tim Backshall of Credit Derivatives Research