The "Low Volatility" Vicious Circle

Tyler Durden's picture

Having been told by she-that-knows that low volatility is not a signal of complacency, it appears Citi's Matt King disagrees. Unlike 2004-2007's "virtuous" cycle of low vol begetting low vol, 2013-2014's lower volatility is leading to a decidedly "vicious" circle that will likely not end well for the Fed and the world's central banks' "financial stability" mandates.


The Virtuous circle...

The Vicious circle...

Simply put - it is different this time - Low vol breeds low vol – but not always in the way you want

And bear in mind that markets are entirely disconnected from fundamentals...


This will not end well... (remember what happens in an illiquid market when the HFTs decide to sell)


Source: Citi's Matt King

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hedgeless_horseman's picture



Buybacks don't help volume, either, except on the day of the trade.  Those shares just sit on the shelf.

slaughterer's picture

I plea for the end of the "not end well" trope on ZH.  It makes this ultra-snarky, ultra-intelligent site look as dumb as the people it mocks.   What the fuck does ever end well?

TheSecondLaw's picture

What the fuck does ever end well?

Sounds profound, until you think about it.

Wait What's picture

on a long enough timeline...

d edwards's picture

"All's well that ends well." Wm. Shakespeare

Rainman's picture

The quarterly 2/20 gets paid out in 6 trading days !! Go long everything !!

Da Yooper's picture

that will likely not end well for the Fed and the world's central banks' "financial stability"


Those riggers & manipulating shysters derserve everything that happens to them

Sutton's picture

The Fed is run by a 70 year old woman. It's days are over. 

NoDebt's picture

You think she's got the chops if this goes all 2008 again, with interbank lending grinding to a hault and credit drying up?

Me neither.

Rainman's picture

Hundred years of carnage was a nice run, huh ? 

AdvancingTime's picture

It is human nature to link certain traits when we take measure of a person. Sometimes this is based on age, height, weight, how a person wears their hair and many other factors concerning both appearance and things like speaking style. This is an area that Yellen has a problem or falls short.

This is why so many successful people have worked with media coaches in an effort to remove annoying habits, take off the rough edges, and help them polish their public persona. In short, Bernanke, whether you liked his policies or not came across as the all knowing uncle who had your best interest at heart and projected himself as understanding the forces playing out. This led people to believe he had a handle on things and would guide us through what lay ahead.

When a picture appears in the media Bernanke tended to appear in a thoughtful state, reassured and even a bit arrogant but in the end competent. An air of confidence helps to keep people following a leader and as Winston Churchill said "If you're going through hell, keep going."  It is beginning to appear the media has not extended such a generous public image to Ms. Yellen and this will take a hard toll on the Fed. More in the article below.

BigRedRider's picture

With a half trillion bucks tied up in margin accounts, there's going to be a lot of blood and guts blown out when the fed's free money faucet stops and the get rich quick bubble bursts...and the fed is on it's last skid of ink and last shipment of paper.


I do have a mop if that will help.

donsluck's picture

I can't believe you actually think ink and paper are required in this day-and-age.

AdvancingTime's picture

Modern Monetary Theory often referred to as MMT to its many believers removes much of the risk ahead and guarantees that we will always be able to muddle forward. MMT also known as neochartalism is a economic theory that details the procedures and consequences of using government-issued tokens and our current units of fiat money.  Newly acquired tools like derivatives and currency swaps  allow us to print and  manipulate away problems.

While reading an article about the growth of debt in China's non-financial sector I was forced to reflect on how debt is effected by the interest rates. In Europe the ECB had to step in to halt the economic collapse of Spain, Italy and several other countries that were on the brink. What you pay in interest on debt does matter except in the manipulated land of MMT. Have we been lulled into complacency by the extraordinary actions taken by central banks and governments over the last six years? This is a key question we must face. More on this subject in the article below.