Mean Reversion

Valuations: It Is Different This Time

"Stock investors have been waiting on the Godot of growth for most of this century and one can’t help but wonder at what point they’ll get up and leave the theater..."

RBC Is "Astounded" By The Magnitude Of This Rotation

This is "classic 'shorts outperforming your longs' stuff," notes RBC's head of cross-asset strategy Charlie McElligott, as he warns Friday's VaR-shock is a worst-case scenario against a backdrop where post-financial-crisis highs in 'net' and 'gross' exposures are currently deployed by the majority of equity hedge funds. However, he does offer a silver-lining for stock dip-buyers (and what to watch for).

RBC's Mean Reversion Model Is "Exploding Higher" As The "Rotation" Begins

Amid yesterday's "nothing-burger" from the big-three event risks, the market initially shrugged off any worries. However, as RBC's head of cross-asset strategy, Charlie McElligott notes, "all of the juicy stuff continues to occur under the surface within the US equities complex."

RBC Warns Equity Markets Have Entered The 'FOMO' Stage

It’s risk-parity heaven right now, notes RBC's head of cross-asset strategy Charlie McElligott, with global equities (developed and EM) AND fixed-income all continuing their torrid rallies, but McElligott warns this is a classic "from worst to first" PM-grabbing into a new "Fear Of Missing Out" stage of the equities-rally.

What Is Causing China's Yield Curves To Invert: UBS Answers

The inverted curve reflects a contradiction between market expectations on policies and economic fundamentals. On one hand, the slowdown of economic growth may prevent the back end of the yield curve from further going up. On the other hand, financial institutions' funding costs have kept rising but the financing costs for the real economy measured by loan rates have not risen that much.

RBC: Welcome To "The Insanity Loop"

"It's a classic 'pennies in front of a stream-roller' / 'negative skew' return profile - a Taleb distribution...The problem is….IT KEEPS WORKING, because market expectations for rates / curves / inflation expectations remain D.O.A., which perversely keeps the major global central banks 'reflexively easy'..."

Bill Blain: "My Prediction Is That Around October 12 Markets Will Get Horribly Interesting"

"There are just too many contradictory currents out there. The unsustainability of burgeoning consumer debt, unfeasibly tight credit spreads, the sandcastle foundations of student loans, autos, housing and the CLO market, China, Trump, politics.. worries about what follows Brazil in the EM market, and whatever... The risks of a massive consumer sentiment dump."

Bill Blain: "Take The Red Pill, And Let’s See How Deep This Rabbit Hole Takes Us"

"The bottom line is yesterday’s slight bounce back in what remain Risk-Off markets feel about as solidly supported as an alligator in the Washington Mirror Pond.If there is a theme to what’s really going on, its “tedious inevitability.” So, with due respect, “bear” with me (geddit? see what I did there?). Take the Red Pill, and let’s see how deep this Rabbit Hole takes us. "

"Vol Be Crazy": Deutsche Wants To Know When The Insanity Will End

"one of the main themes this year has been the fall in vol. We argued three months ago that FX vol looked cheap given elevated policy uncertainty, but a pick-up was unlikely while the global growth pulse remained strong. Vol has since collapsed further."

"Someone Is Blowing Up": RBC Warns China-Induced Unwinds Are Escalating

"Something is off the past few weeks...  somebody’s ‘mean-reversion’ strategy (likely a stat arb / quant fund) has triggered ‘stop outs’ as the underlying commodities space now ‘catches down’ to the behavior already exhibited across the energy equities space throughout the course of 2017."

It's Different This Time...

Throughout history, financial bubbles have only been recognized in hindsight when their existence becomes “apparently obvious” to everyone. Of course, by that point is was far too late to be of any use to investors and the subsequent destruction of invested capital. This time will not be different. Only the catalyst, magnitude, and duration will be.