The Bank of England and London's bullion banks plan to begin releasing data on the amount of physical gold actually stored within the London gold vaulting system. Will this data provide anything meaningful? Probably not.
"I’m worried that this stock ‘melt-up’ move is extraordinarily mechanical right now - almost entirely the aforementioned forced-covering, not high conviction induced-buying - and may be sending a 'false signal' which is potentially dragging-in new buying on the breakout to new highs. This could lead to a scenario where a market can 'collapse under their own weight'."
"At this frantic vol buying pace, with VIX +17% on the day, it won’t take much longer until further mechanical deleveraging is triggered from these extremely popular retail and ALM vehicles Long story short, be prepared for another deleveraging wave (which could be happening ‘real time’ as I send) the longer vols stay at these levels, bc they’ve just been ‘stuck’ so low in recent weeks."
What are the implications from the shift toward passive investing? According to JPM there are two big ones: i) Markets become more brittle and systematically risky; ii) Crashes, when they happen, will be bigger and worse iii) Markets become less efficient
While expectations are low from Thursday's ECB meeting, it may ultimately boil down to Draghi’s communication about asset purchases. Any hint of QE tapering would spur a large-scale sell-off in the rates market, according to most Wall Street strategists. Here is what else the sellside thinks will happen.
"...we have the precedent from a much earlier time (the 1930s) when the defection of just one member from a currency union caused the system to unwind rapidly. And we can clearly sense the seeds of another popular political revolt in other member countries; a flurry of upcoming elections and referendums provides an immediate catalyst...We believe we are approaching a dramatic fulcrum point in public opinion in Europe."
The market continues to “buy into” growing long-term narrative that CBs are shifting from notional “flow” of QE purchases to yield targeting / curve steepening goals and desire for more fiscal policy. To anybody being intellectually honest, this should be interpreted in the long-term as “a path to tightening.” Long-end weakens, curves steepen.
Where's Vladimir Putin when we need him? Having saved the world yesterday by spiking crude oil with his comments, the return of bond traders today sees a resumption of risk-parity fund deleveraging (as bond-stock correlations neared record highs).
Levered long financials... Treasury curve steepeners... Fed Funds selling... USD buying... Dump defensives... Dump 'low vol'... As one veteran trader scoffed this week, "Janet better not disappoint this time, everyone's back on the same side of the boat again."
In recent months, BofA notes that the speed of mean reversion in the VIX has been particularly striking by historical standards. Since the end of QE3, VIX spikes have had very little persistence, generating low cumulative volatility relative to the previous 25 years, underscoring BofA's thesis of a fragile market that features rapid jumps from states of calm to states of stress and back.
After years of seeing the Fed operate within this “reflexivity conundrum. the markets have already spoken (meaning already financially tightened enough) to a point where the Fed ONCE AGAIN has to back away from their “hiking threat.” Back to “none and done,” which will likely merit a pretty violent rally in risk and reversal in rates."
The old Wall Street expression is “They don’t ring a bell at the top.” This snarky adage is usually employed by those saddened financial managers who ride a successful investment to a peak and then watch in horror as it reverses course to a level below their cost basis. A pity this notion is misguided, since the market frequently “rings the bell.” It is just that most market participants are not listening. Perhaps they should be listening now.