Risk Premium

Oil Trading "God" Loses $500 Million In July On Commodity Rout

It appears that after the great collapse of 2014, oil trading "god" Andy Hall refused to learn from his mistakes, and was convinced that oil would promptly rebound up to its historic levels. He was wrong, and as Reuters reports, after two consecutive months of 3% losses in May and June at which point he was up just 2% for the year, July was by far the cruelest month in history for the oil trader, a month in which he suffered a whopping 17% loss, one which lowered his aum by $500 million to $2.8 billion.

"This Is The Largest Financial Departure From Reality In Human History"

We have lived through a credit hyper-expansion for the record books, with an unprecedented generation of excess claims to underlying real wealth. In doing so we have created the largest financial departure from reality in human history. Bubbles are not new – humanity has experienced them periodically going all the way back to antiquity – but the novel aspect of this one, apart from its scale, is its occurrence at a point when we have reached or are reaching so many limits on a global scale. The retrenchment we are about to experience as this bubble bursts is also set to be unprecedented, given that the scale of a bust is predictably proportionate to the scale of the excesses during the boom that precedes it. Deflation and depression are mutually reinforcing, meaning the downward spiral will continue for many years. China is the biggest domino about to fall, and from a great height as well, threatening to flatten everything in its path on the way down. This is the beginning of a New World Disorder…

Global Stocks Jump After Greeks Vote Themselves Into Even More Austerity

And so the 2015 season of the Greek drama is coming to a close following last night's vote in Greek parliament to vote the country into even more austerity than was the case before Syriza was voted into power with promises of removing all austerity, even with Europe - which formally admits Greece is unsustainable in its current debt configuration - now terminally split on how to proceed, with Germany's finmin still calling for a "temporary Grexit", the IMF demanding massive debt haircuts, while the rest of Europe (and not so happy if one is Finnish or Dutch) just happy to kick the can for the third time.

Citi Identifies Contagion "Trigger Point" For More ECB QE

Should markets fret, and ECB action becomes necessary then we think the markets will price ECB action well before highly stressed levels. If we for instance take it view of the monetary policy stance impact seriously then market moves that take real yields to levels that persisted before the ECB started easing policy (negative rates started in Jun 2014) may be a trigger point.

Goldman's "Conspiracy Theory" Stunner: A Greek Default Is Precisely What The ECB Wants

"... the immediate aftermath of such a non-payment will be to push bond yields up across the periphery. This rise in the fiscal risk premium (Exhibit 3) will of course be limited, because the ECB will likely accelerate QE, including via the Bundesbank. That will push rate differentials, especially longer-dated ones, against EUR/$. We estimate that the initial fiscal risk premium effect could be three big figures, while the subsequent QE effect could be worth around seven big figures"

GoldCore's picture

A Greek exit from the euro would change everything. The greatest change being simply doubt and fear regarding the outlook for other vulnerable EU nations, EU banks and the EU banking and financial system. We discuss short and long term considerations, best and case outcomes, and wealth preservation strategies.

How To "Measure" Risk

While investor behavior hasn't sunk to the depths seen just before the crisis, Oaktree Capital's Howard marks warns, in many ways it has entered the zone of imprudence. "Today I feel it's important to pay more attention to loss prevention than to the pursuit of gain... Although I have no idea what could make the day of reckoning come sooner rather than later, I don’t think it’s too early to take today’s carefree market conditions into consideration. What I do know is that those conditions are creating a degree of risk for which there is no commensurate risk premium."

Oil Markets Can’t Ignore The Fundamentals Forever

Storage withdrawals and falling rig count have been the main sources of hope that U.S. tight oil production will fall and that oil prices will rebound. That hope is fading as it is now clear that recent withdrawals from U.S. crude oil storage are because of price, not falling supply, and that the drop in rig count has stalled. Present data, however, suggests that the global over-supply has gotten worse, not better, that overall demand for liquids remains weak, and the world economic outlook is discouraging. At the same time, market movements are not always based on fundamentals. In the long run, however, fundamentals rule suggesting the current price surge is at best premature.

No Really, Who Is Buying?

The cumulative three-month net flows into, or rather out of equities, is now the largest on record.  So, again, we ask: just who is "buying" stocks? Because the greatest rotation is here, and as far as non-central bank participants are involved, it is into bonds and out of stocks.

BoJ QE Exit "Out Of The Question," Former Official Says As Morgan Stanley Talks JGB Liquidity

"If the BoJ persists with its current pace of JGB purchases, then the incentive for investors to reduce their holdings any further is likely to dwindle away within the next 18–24 months, at which point liquidity may evaporate altogether," Morgan Stanley says, calling liquidity the "major theme" in the JGB market. Meanwhile, a former MoF official claims the BoJ is now in so far over its head that an exit from stimulus is "out of the question."

The Madness Of Negative Bond Yields

Confidence in the system likely hangs by a much thinner thread than is currently widely perceived. Since “risk asset” prices are soaring in much of Europe, the underlying currents of suspicion are well masked, but that certainly doesn’t mean they don’t exist. While we believe that central bank and regulatory interventions in the market are a major reason why so many bond yields have dropped into negative territory, the role played by distrust in the banking system is probably quite large as well – a suspicion that seems to be confirmed by the strength of the euro-denominated gold price.

Bonds Or Stocks: Which Bubble Is Bigger? SocGen Answers

Rich valuations point to the likelihood of low returns across asset classes. [W]e develop a cross-asset approach to risk premia and implement it across the asset classes. The results show that valuations are rich across the board. This indicates markets may become shaky as we get closer to the first Fed rate hike in nine years.