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Nervous VIX
Yes, I know the tape is relentlessly
ticking higher. Trying to sell this market has been a recipe for
disaster, but one of my favorite indicators does not believe the
creep up in stocks. Here comes the VIX again.
To be fair, the setup has not really
changed even though the market has kept rallying. The way I see it,
the VIX is refusing to make lower lows and on a move above 29 it
will begin to make higher highs. This would be a change in a downtrend that
has lasted for a very long time. Don't forget to sell speculative
positions---if that VIX spike comes---even though I have no guarantees (who does, right?).
I saw the the rally in the bonds, I
don't trust the move higher in gold (ZH gold bugs, that means this
attempt to recapture $1000, not ultimately) and I sure as heck feel
the stock market is way ahead of itself. We just filled the mother of
all gaps on the SPY, which could be a catalyst for interesting
developments in the coming week. The market so far has been trying to
see every glass as half-full; a “half-empty” attitude should be
respected, if it comes.
I am talking my book and don't plan to
update you on any changes in my positions, but this rally is long in
the tooth, IMHO.
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I completely agree, Andy, and I'm talking my book too.
LMAO
I agree with you, Andy. The O-Team can not have hyperinflation...yet. Gold will have its big run several years from now. Oil is a key chess piece as always. It appears that someone has decided that $70-$75 USD is a fair price to pay for oil. Anything higher and O-Team looks bad....hence dollar should strengthen along with VIX. Plus, if Israel invades Iran, dollar must strengthen or $100 oil, which doesn't work with the O-Team.
WHEN ISRAEL INVADES.
Israel is a nuclear power driven by
religious zealots in a hatred match
with the obam admin over settlements
on the east bank.
Will the US stand by as israel takes the
law into its own hands or will it
react as it did when Israel sold and
supplied south africa with nukes to
use to maintain apartheid?
When the Botha Gov't of south africa
admitted Israelis supplied and installed
the nuclear delivery systems and
weapons there was no mention in the
press, not a word from an outraged
public. IMO that is why 9-11
happened.
Yes, i'm a self hating jew, hate to
think of the backlash that a full blown
baking of the middle east would have
on my kids.
So am I, but I don't hope to expire anytime soon, unlike this green shoots rally. Yeah Fed!
Andy, just tell us which rock is the box under!
In Shawshank, he hid the box under a rock that had no earthly reason to be next to a wall under a particular tree.
What that has to do with this, I have no idea, but I suppose it's - tell us where the money is hidden?
Exactly, family tree right out of Deliverance!
Read page 136. The banks figure out that the only way to fix the economy is to give the money back.
http://books.google.com/books?id=PxuiM1vFUmgC&pg=PA181&lpg=PA181&dq=Pric...
The book is funny. He has bit of trouble understanding how charging a bunch of interest in a fixed gold price economy creates disturbances between paper receipts for it and the underlying gold.
The VIX just might be trying to "give the money back"
Yup. Makes you think about Paulsons statements like. The people can longer get enough credit to buy the things they need. Chinese saying a dog can get a credit card in america. etc etc. The ramp up in 1929 was the same ramp up we just had. The loans made at the new super elevated asset prices are no longer able to be serviced by the amount of cash and income in the economy. It will never make it through the solid set point liquid repayment cycle. It's just impossible to achieve just like it's impossible to service a 1000 month mortgage on 1400 a month income.
It's just how the system works. Eventually the banks end up with all the money and the only way to reset the system is for the banks to give it back and that is the loan loss cycle. This should create the massive huge monetary structures we see and then it should completely destroy them with small businesses starting back up and growing into the valuation horn that fractional reserve creates. But this doesn't happen. Our corporations are indestructible. They are given all the patents all the support of the entire nation and tax payer and bank. You just can't kill them, you can make them change how they operate and what industry they focus on but you can't kill them.
All the things you try to peg as fixed are all sucked in and bent and forced to bow to income. Liquidity washes away all solid structures. Pegging of prices is an attempt to controll the washout which is why people starved while crops were burned to make them more valuable.
The market ramped to rediculous P/E ratios back then too. It will buckle and kneel before income or it will get it's knees broken.
Assumed that he market has it right, stocks up, bonds up, gold probably up, dollar down - to me that spells the early stage of inflation.That feels risky as expressed by the vix but stocks go up.
What is the proper risk-adjusted position in this setting? The ugly aspect is that cash is a looser in inflationary times. Add in the systemic risk, the DB rumours, Reggie Middleton's analysis of JPM (bankrupt) and what remains?
It has to crack. Stocks down, gold dip then flat then up, dollar up bonds up equities go down the toilet bit more? I still can't see it all. But this makes sense to me. Hopefully someone will figure it out by next week casue I think the dinner is on the table.
Unfortunately, most people have IQ's at room temp!
Yeah, is it me, or is it gettin' hot in here?
Weekly TLB reversal for the VIX is 29.02 and it has been fighting off closing above the 233EMA for the past 10 weeks. Daily reversal is 29.15 (I'm still trying to figure out the disconnect). The VIX reversed down on the daily TLB back on 9/10/09 (coincidence?). Current range for the weekly VIX is 23.09 to 29.02 and needs another lower weekly close to start trending. Chart I'm using is here:
http://www.charthub.com/images/2009/09/19/VIX.png
I know the USG may have to do something to stop the downtrend of the dollar. But it's difficult to reverse monthly trends. The monthly closes have been modestly lower so that does make it easier to reverse the trend. Chart here (I admit I like using charts):
http://www.charthub.com/images/2009/09/19/US_Dollar_Cash.png
These stocks will be the tell.....
Big base being built here....
And the biggest weight in the S & P 500:
Big pivot point here....
Trend changes start in the lowest degrees of trend, e.g., 5 minutes. Longer term charts display the dominant trend, but it's always subject to correctives along its path. Trade what you see on the chart as the clues are on it. Here's my .02... Maybe less next week if the USD continues down.
http://tinyurl.com/mgb5lk
Volatility in the VIX shows the complacency and will eventually lead to a change.
I'm no technician, but are there seasonal trends which could show a greater tendency in Q4 / Q1...as opposed to Q3, for example ?
As the debate rages on for stocks, the VIX, gold, the USD, inflation/deflation, no one seems to be looking at bonds. (???) On the same page is a nice Gold/EUR chart.
http://tinyurl.com/knjwkd
Andy -
First of all kudos for charting on a log scale. Not sure if if you did it because it supports your case better or out of integrity, but either way, it it something most chartists ignore and I give you mad props for this often ignored issue with charting.
As to the underlying issues behind the VIX here, I think you would agree that quad witch screws up the analysis a little. We will have to wait and see if the inevitable quarter end markup on stocks takes the VIX lower. If not, then I think your case is a good one.
I would also encourage you to look at the implied vols for the sector ETFs to dissect why S&P implied vol is declining. You will find that every sector except one has seen a decline in IV over the past 30 days. That one exception is financials - the XLF I believe. That to me is a worrying sign.
Same goes for IVs on the commodity ETFs - all major energy and precious metals are up over the last 30 day rally in equities.
On a separate point, if you are still looking for a job I really wish you all the luck possible. It is a tough market out there, but you clearly are a bright and more importantly honest person. You will get what you want - just keep at it.
Bonds are hated now. That's why I'm buying them, even at these yields. Got a bunch done at 3.85 in June. Some more at 3.7 in late July and may add again next week if supply pushes yields in the 3.50s
Just have a look at the Fed's recent flow of funds. Credit growth is collapsing at unprecedented rates, and that's including the ramp in federal debt. Wages trends are horrible.
Nominal GDP is just going to suck mightily for a few quarters (Q3/Q4 restocking notwithstanding) and nominal GDP is simply the most important variable in long term bonds yield trends.
I still think we revisit the lows at some point in the next 12 months.
Like the Pottery Barn bit in another thread.
Aside from stuff like Toll Brothers issuing a bond a something ridiculous like 300bp over Treasuries (a freakin 10yr bond from a BB homebuilder), there is a lot of confirmation signs floating around re the deflationary landscape we are evolving in.
One thing I like to watch is pro sports. Call me stupid, but I like the excesses of pro sports salaries as a relatively interesting tracker of consumer (and to some extent, corporate) bonanza: gotta love A-Rod getting half a billion by signing mega contracts in late 2000 and late 2007.
In that context, I think it's interesting to see more and more stuff like this coming up:
http://sports.espn.go.com/nba/news/story?id=4475244
Eric Hadik of Insiide Track had an interesting bit on that very subject in his September newsletter:
In some respects, this ‘bubble’ is more confined than a real estate or stock market bubble. However, if I am right and this is a bubble about to burst (and that is a big ‘IF’, I will admit) it would have a ‘trickledown’ effect and impact various areas of society. And, its bursting would have a very negative impact on urban areas for multiple reasons...I probably have you wondering, so let me ask you a simple question (with a related preface) and see if you can figure out where I am heading...Tulip Bulb Mania , tulip contracts sold for more than 10xs the annual income of a skilled craftsman.
Will historians soon be asking how anyone could pay almost $9,000 for one pitch of a baseball? ...or the annual income about 15-20 skilled craftsman for a single, 2-3 hour game of pitching a baseball (not to mention what the remaining 17+ players were earning)....or paying one person (later linked to both marital infidelity and steroids) about $850,000 per game and about $4.5 million per month.
Although an extreme example (which is what a mania consists of), these statistics applied to Roger Clemens contract with the NY Yankees in 2007 ... and best portray the insane levels to which sports payrolls have risen.
Whether it be baseball or basketball, the signs of a mania are all over the place. The question is timing. When will the bubble burst? Let’s look at a a few cycles.
The 17-Year Cycle
Fast forward to when the mania really took hold... A bubble often takes hold on the heels of a sharp setback. The biggest setback in Major League Baseball began to develop in July 1993, with the threat of a strike for that September. It was averted, but only for a year. In 1994, an actual strike took hold in September (9/14/94), cancelling the remainder of the season and all of the post-season.
So, the period of 1839 - 1845 is definitively linked to the origin of baseball in America (although the game has evolved for centuries around the globe).17 years from 1993/1994 is 2010/2011.
The ramifications of that ruling contributed to the bubble that is now poised to burst. The snowball has already begun to roll down the hill. The question is whether anyone can stop it. The stock market crash & bank debacle of ‘07-’08 - and even the Bernie Madoff scandal (and its alleged impact on the owners of the NY Mets) have been edging it closer to a cliff. As more and more scrutiny of corporate and bank spending occurs (from executive payroll to spending on perks), the bread and butter of sports’ owners revenue stream will begin to disappear.
Corporate suites and sponsorships could become taboo. In other words, the ‘pillars’ supporting this mania are already beginning to crumble. The question is how long it will take before it hits owners - and then players - where it hurts. In between these two events (corporate spending freeze & player payroll freeze), it would not be surprising to see isolated owner bankruptcies or struggles. Ultimately, the cities of these teams could be left holding the bag.
Although widely debated and even debunked, the American origin of baseball was long traced to the year of 1839 and a man named Abner Doubleday. While this ‘history’ is spurious, at best, there is documentation of baseball rules being published in 1845... having been in use for at least a few years.170 years from that period is 2009— 2015. The organization of Baseball is pinpointed to 1857 and the National Association of Base Ball Players 153 years - or 3 trios of 17-Year Cycles -is 2010.
Great find.
I have started to view these athletes contracts as another form of very expensive consumer infrastructure, much like commercial real estate.
It would make sense that, if the deflationary scenario unfolds, the most representative example of US consumer discretionary secular bull market - entertainment - would take some form of hit.
Hmmmph. It is quite possible that this bubble has fundamentals.
TV is your cheapest entertainment value, even when you have to cancel basic cable. Entertainment has trended towards higher-paid stars for a very long time. (There's a great prophetic essay about this somewhere, from many years ago.)
In a seriously failed economy, star entertainers will still do well. I'd love to see a salary profile of movie stars in the 30's.
I think you are right that we revisit the lows in bonds. I would add that the dollar is hated more than bonds...thus the call action in the UUP. The Daily Sentiment Index on the dollar has hit 3% bulls more than 10 times in the last month. 97% bears is simply unsustainable. So if you really hate bonds and are being a contrarian, then the buck has just as stronge a case. I put up the p/c ratios on the UUP last night ( it had a big ramp in AH's Friday night and D.O.D. was looking for info). On Friday, the p/c ratio was 1 to 5 in the Oct $23 UUP and the $24 open interest was 2 puts vs. 19563 calls. In Dec, the call action is 10 to 1 on the 23 strike. So we are dealing with two contrarian views here---huge call activity and 3% bulls. Personally, I think the buck (while it may spike lower with a final push up in equities) is due for a serious retracement to the upside.
Don't jinx me Andy!! Lmao...A great end from the beginning of the day. Night all.
Agreed with this. You gotta love the always prescient German gov selling bonds in dollars. When G7 governments get into the global dollar-is-doomed carry trade, you know we are probably starting to get a little bit too far.
Re bonds vs. USD, I just trust that the deflationary trends will show more clearly in bonds than they do in the currency. Got burnt a couple of times in FX so I am always a little bit weary of being too definitive over these.
The one play I like there is short-GBP. Holly Molly, what a fucked up country/economy.
You guys forget that the USD is not some equity, and sentiment works different for FX. It's the ongoing flows that will continue to be USD negative. That's not to say a short upturn is impossible.
I am not so sure about that actually. With the current account gap reducing, there are simply not as many dollars to be recycled as there were in 2002-2007.
The last time the current account deficit was that "narrow", DXY and EURUSD were much much higer.
Again, I'd rather play the deflationary trade through bonds than FX (simply because I don't trust these EM reserve managers to stop bidding EUR like there's no tomorrow) but within G3 (and I am very tempted to say G10) I think the secular flows just can't be a exact repeat of what they were in 2002-07.
VIX INDEX:
Daily chart - ongoing bullish divergence.
US 1O YEAR BOND:
Daily chart - ongoing bullish divergence.
BTW, I began to warn people of the impending crash back in *February 2007*
MORE:
http://www.zerohedge.com/forum/market-outlook
Keep dreaming AD. The FED is in the fight for its very survival. No rational solutions apply when fear takes hold - particularly when the supply of ammo is infinite... In a few years the commercial interest rate will be in the sushi range, 0.5% or less, and the banks will be reduced to the status of utilities - irrelevant.
-10
I bought a bunch of gold not long ago :( Hope it does not tank.
Well you'll be in good company. When the money comes out. It'll either go into bonds or gold. it went into gold last time on the depression and I'm willing to bet it'll do it again.
People yanked 55 billion last tuesday and wednesday from the money market and it barely phased the market.
I reserve the right to one "ha" for later use.
Look at the Dutch vix, made a 52-week low Friday at 25,50 http://tinyurl.com/kvkg62
Less than 3 weeks ago spiked up to 33,5656, which was firmly in alarm territory (32 is red flagg, 34 is women and kids first).
I am fighting the tape, using vix to my advantage, but don't get overexcited, ww CB's are fighting with everything they got. I believe we will break sharply lower in the short term, however I do not have exact timeframes. Should have broken some time ago, it didn't, so please be f-f-fucking careful how you operate. Me, myself and I are playing this bitch short fut within callspreads, waiting for a drop with the corresponding vol spike. Tik tak tik tak goes the clock, I am getting borderline lunatic in the process, but this strategy is, at least for me, the lowest cost and lowest risk in these moronic times.
"even though I have no guarantees (who does, right?). "
you need to cultivate some contacts at goldman sachs...
I would also point out that many longer term moving averages are sitting right below the 23 level. That would be 200, 400, 600, 800 dma's.
It would be surprising to see a major move below this level. A lot of support right here.
Absolutely agree, word by word. Perfect analysis...
Winter is coming but the bears are just waking up......
this is one of the best posts and comment threads in recent weeks (or longer) *****
I feel like many people have the misconception that the people working at the Fed are the dumbest people ever. I think they may have planned this whole thing out from the very beginning, every step of the way. They are certainly not working in the best interest of us Americans, though, no doubt about that.
However, they have this uncanny ability to manipulate the markets anyway they see fit, with almost zero competition to call them out. They may have been purposely trapping everyone into shorting the dollar, buying every type of contract possible against the dollar, and I wouldn't be shocked if they knew other countries would start throwing dollar-denominated bonds out there.
Here's how I think this thing is playing out. The IMF threw out the gold thing (again!), I know they do this all the time, but it's possible they are serious this time. The Fed will probably be the one telling them whether and when to go through with it. Next, the Fed (which very well may be in position to profit handsomely from a reversal) does something/says something to strengthen the USD. I have no idea how the G20 meeting could play into this, possibly.
These simple steps could bring the USD higher and ,in turn, puts pressure on equities (obviously gold prices will have some pressure to the downside). This drop in equities will drive the VIX higher, this will cause some to start running to safety (AKA treasuries).
Now why would the Fed possibly need to spark interest in USTs? We'll they only have $15B left to prop the market up themselves, they know that others are probably willing to keep bidding as long as the Fed is there, too. By sparking the extra scared money into going the UST route, they can fill the hole they will create in two weeks when they exit that program.
At this point, the banks have gotten quite fat off the run-up and may be playing this reversal also. Everything seems to be lining up.
Whatever the Fed does over the next two to four weeks will probably be in the best interest of the Fed and planned out well in advance. I don't think they are making mistakes here.
I appreciate any feedback on what I am missing.
Next, the Fed (which very well may be in position to profit handsomely from a reversal) does something/says something to strengthen the USD. I have no idea how the G20 meeting could play into this, possibly.
As to this particular point of yours, I have heard/read of many folks in that same camp. As to the G20, there are a number of countries that would prefer the US to have a strong dollar. Seems everytime turbo timmy goes overseas or chats about an upcoming g7, g20 type of meeting, he lets out his drivel about the "USA is committed to a strong dollar". Let's see if he says it yet again. Obama of late has been doing the "strengthen bank regs and capital" song again in advance of the g20 as well.
Always love to see your take Andy and thank you. Also, helpful to know you were an analyst on the buy side (from another thread).
I note your comment on the VIX that hitting 29 is will result in a move higher....if you are so inclined, how did you come up with 29 as a pivot point? thanks much!
thanks andy.
What_Me_Worry, I think it could even be less complex than that. Most of the hole left by the Fed (and was $300bn really that big of a deal considering 1T+ of supply, but that's a topic for another day) is going to be covered by yours truly, the megabanks.
If you're sitting on billions of 0% deposit funding, are you going to lend your humongous reserves to that same consumer that nearly made you bankrupt in the first place, or ride the yield curve and earn a nice 3.5% by sending the money back to Uncle Sam?
Look at the flow of funds again, credit is collapsing all over the place. Federal borrowing is merely replacing private credit and I have to think that banks are more than happy to get this free ride instead of going funky with SIVs, conduits and shady off balance sheet biz as they were obliged to do for the last decade.
I didn't consider this point in detail. I am under the assumption that the banks are clearly aware of how f'ed up their balance sheets are and need to keep things as liquid as possible. I am assuming the big banks won't touch long-dated treasuries with too much of their free capital.
I guess I was focusing more on the long-term treasury funding problem. I am thinking there will be no problem filling the short-term issues, since those interest rates are near 0% there must be a ton of competition for them (even without the Fed).
I thought the Fed is currently paying interest on the big banks' money right now?
Well, it doesn't get much more liquid than the Treasury market, does it?
I am pretty sure there is historical precedent to this (Japan, 90s US recession). Looks natural to me: ride the yield curve, pocket the slope, try to recapitalize-as-you-go, and hope the bad loans don't kill you before you're out of the woods.
From a macro perspective, you could argue that the "new" savings arising from a more frugal private sector are channeled to Treasury via the banking system. It's the same as before, only it doesn't transit through China with goods coming in the other way.
Andy,
The way I see it, the markets can easily go parabolic from here as performance anxiety gets more intense. Then watch the VIX collapse and stay down. Some are selling vol, some are buying it. We'll see who ends up right.