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The Market Has Never Been More Fearful Of An Extreme Event

Tyler Durden's picture




 

"There's something going on in derivatives land," is the warning from ADM's Andy Ash and as Paul Mylchreest notes the relationship between VIX and SKEW suggests the options market is pricing in the possibility of a major market event. The process enables professionals to maintain the illusion of calmness in VIX while hedging their positions (as they attempt to unwind as we have shown). Whether this 'event' is a crash or melt-up is historically unclear but given the taper and the trend of the last few years, we suspect the former more likely that the latter.

 

Via ADM Investor Services' Paul Mylchreest,

A rather thought-provoking chart which we've been looking at is the ratio of the SKEW (the chance of an extreme or outlier event, i.e. OTM versus ATM options) versus the VIX (the expectations for more 'normal' day-to-day volatility - the price of hedging implied by ATM options)... and is an indicator of how the market is pricing the possibility of a potential black swan event.

You can see how extended we are right now… (actually at record highs)

 

We can’t help wondering when Bill Gross tells the world that he is selling volatility, whether he is, in fact, selling ATM vol and buying OTM vol ???

While (curiously) 2000 didn’t register, the two previous highs in the SKEW/VIX ratio were 1994 and 2007 which turned out to be pivotal dates in terms of changes in market direction.

One up and one down... Which does it look like this time?

*  *  *

Think briefly about who is buying and who is selling? Thiunk about who is buying deep OTM protection? Smells like the professionals are a little less sanguine than their chatter suggests...

Institutional clients are dumping equities off to retail clients... thank you very much...

 

and those that can't dump their assets are hedging aggressively (while maintaining the illusion with VIX that all is well)

 

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Mon, 06/23/2014 - 13:38 | 4886173 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

The FED is either going to win or lose. I will hedge on the win and bet on the loss.

Mon, 06/23/2014 - 13:43 | 4886186 Arius
Arius's picture

"The process enables professionals to maintain the illusion of calmness in VIX while hedging their positions"

Talk about taking bullshiting to a new level ...

this market guy really has a nose for news, no need for inside information any more  .... just trust the market guy... BS to a new level

Mon, 06/23/2014 - 13:46 | 4886203 LawsofPhysics
LawsofPhysics's picture

For those not in the club (who are already on the lear jets going back into their gated communities in Montana or private islands);

"Don't try and interpret or predict this market, that's impossible.  Simply try to recognize the truth, there is no market for true price discovery"

Mon, 06/23/2014 - 13:52 | 4886218 pods
pods's picture

If the market is pricing in a black swan event, by definition that is not a black swan event.  

pods

Mon, 06/23/2014 - 14:12 | 4886289 LawsofPhysics
LawsofPhysics's picture

Yes, the "unforeseen" event will only become clear after the fact (when two of those lines "recouple"- if ever).

Mon, 06/23/2014 - 15:03 | 4886488 WordSmith2013
WordSmith2013's picture

It doesn't get more extreme than this:

The BIGGEST Coverup in USA History

 


Mon, 06/23/2014 - 16:24 | 4886848 svayambhu108
svayambhu108's picture

Just like the Holliwood bear, hidding under the trees, this commet planet of yours will hide from the sattelites follow you until it kills you

Tue, 06/24/2014 - 08:24 | 4888692 TeamDepends
TeamDepends's picture

Planet X is the Derivatives Death Star.  And hey, what's that coming up over the horizon?  RUN FOR THE HILLS!!!!!!!!!

Mon, 06/23/2014 - 15:23 | 4886489 WordSmith2013
WordSmith2013's picture

There's also this:

 

Comet-Planet Identified, Orbital Trajectory Verified by Renowned Astronomer

 

Carlos Muñoz Ferrada: 
Single Most Important Video on the Internet

^^^

 

 

Mon, 06/23/2014 - 18:42 | 4887272 Overfed
Overfed's picture

An undetectable, hyper-dimensional comet-planet that is six times larger than Jupiter is coming to kill us all!!!! C'mon, dude.

Tue, 06/24/2014 - 07:37 | 4888621 shovelhead
shovelhead's picture

Knock knock.

"Who's there?"

"Candygram."

Tue, 06/24/2014 - 00:25 | 4888273 adr
adr's picture

The sun most likely has a small brown dwarf companion star orbiting unseen. Almost all stars are part of a binary system. However it would never enter the inner solar system. It could however come close enough on an elliptical orbit to cause material in the Oort cloud to dislodge and head inwards towards the sun.

New comets would enter, essentially a comet storm. The outer planets would take care of most of them, perhaps becoming new moons if enough material is available and condenses around an orbit. Perhaps a few would make it to the inner planets, maybe hitting the Earth. Could be the cataclysm that turned Mars into a dead planet.

This is the plausible scenario, if it exists. The companion star would remain billions of miles away and never be seen. Only its gravity would be detectable. Even so we would probably never detect it due to the cycle unfolding over millions of years, the deviation from the baseline would be too small to detect over a few decades.

The point is if a dwarf star does exist, there is nothing we can do about it and there isn't any way of knowing if it would cause a catastrophe. The polar shifts have nothing to do with Planet X but a natural effect of the Earth's rotation and core. The polar reversals happen mutch shorter intervals than the supposed effects of the eliptical orbit of a companion star. Polar reversals have been proven, the companion star is still a fringe theory.

Mon, 06/23/2014 - 14:55 | 4886450 debtor of last ...
debtor of last resort's picture

Pods, there are no black swans. Central banks, isda, shadow buyers (Belgium), several PPT's are watching markets closely. Everything is papered over, until the larger public throws in the Spiderman towel.

Mon, 06/23/2014 - 15:22 | 4886547 BanksterSlayer
BanksterSlayer's picture

ditto ... Jim Rickards says if you can see an event coming, that is not "the" event that will take out the market. Events that you can see can always be dealt with or manipulated into some illusion of submission.

 

Mon, 06/23/2014 - 23:59 | 4888234 Godisanhftbot
Godisanhftbot's picture

A White Swan  that needs a bath?

Tue, 06/24/2014 - 00:43 | 4888308 pakled
pakled's picture

I call these brown swans.

Mon, 06/23/2014 - 13:59 | 4886242 Amish Hacker
Amish Hacker's picture

Please, a Lear jet is so 1%. Join the .01% and treat yourself to a Gulfstream G650ER (http://www.gulfstream.com/products/g650er/).

Mon, 06/23/2014 - 14:49 | 4886417 Save_America1st
Save_America1st's picture

yeah, well some of those .01%'ers just might not be as safe in their luxury Gulfstream jets as they think they are. 

This guy got wacked harder than a banker with a loaded nail gun!

http://www.dailymail.co.uk/news/article-2646565/Charred-wreckage-private-jet-claimed-lives-billionaire-Lewis-Katz-six-revealed-emerges-pilots-didnt-time-issue-call-help.html

Kinda similar to the way Hastings was taken out, don't ya think?

http://www.dailymail.co.uk/news/article-2344232/Renowned-reporter-Michael-Hastings-33-dies-tragic-crash-finding-fame-bringing-Stanley-McChrystal-touching-account-losing-early-love-Iraq.html

Mon, 06/23/2014 - 15:04 | 4886490 Eirik Magnus Larssen
Eirik Magnus Larssen's picture

You're referencing the Daily Mail. Your argument is invalid.

Mon, 06/23/2014 - 15:49 | 4886686 OceanX
OceanX's picture

Travolta has a 707:  https://www.youtube.com/watch?v=5vHkTxavNNs

I think it even has a dance floor and disco ball!

Mon, 06/23/2014 - 17:44 | 4887130 Amish Hacker
Amish Hacker's picture

And, unlike Hastings and Katz, he's stayin' alive.

Mon, 06/23/2014 - 17:44 | 4887129 MeelionDollerBogus
MeelionDollerBogus's picture

Never underestimate the power of magnetic trees.

Mon, 06/23/2014 - 14:10 | 4886285 JRobby
JRobby's picture

Paraguay

Mon, 06/23/2014 - 15:03 | 4886484 WeNeedaRealGovt
WeNeedaRealGovt's picture

Breaking news - ZHer-r-r-rs still run of the mill GOPTEAs.

Mon, 06/23/2014 - 17:41 | 4887121 John_Coltrane
John_Coltrane's picture

Only if his life insurance policy, Joe Biden, goes first!

Mon, 06/23/2014 - 17:38 | 4887113 MeelionDollerBogus
MeelionDollerBogus's picture

"But what's really going to bake your noodle is, if I hadn't told you to watch out for the dropping price of silver when you bought some, would it still have dropped?
Have a cookie, you'll feel right as rain"

Mon, 06/23/2014 - 15:41 | 4886632 midtowng
midtowng's picture

The smart money is selling and the dumb money is buying. We must be near a top.

Mon, 06/23/2014 - 14:31 | 4886364 zaphod42
zaphod42's picture

There will either be inflation or deflation.  Unless, of course, prices stay the same.  

What we are seeing is all smoke and mirrors.  The whole thing is rigged, and you and I don't have a clue.  Meanwhile, distractions abound, and anyone with a clear mind knows this entire edifice is going to implode any moment. 

Good luck in the casino on Wall Street.

Craig

Mon, 06/23/2014 - 15:41 | 4886629 disabledvet
disabledvet's picture

Any formula based upon the assumption that inflation will be the bail out is inherently flawed.

The goal of QE was to create inflation or "stimulus"...yet as soon as even a whiff of inflation appeared (just last year) the Fed announced the end of QE. So for sure...the USA got hit with a huge inflation last year...but simultaneously prices for raw materials collapsed.

The dollar moonshot...the economy has contracted...and the "theory" is that "if only we had stayed the course." The fact of the matter is the Fed is now unwinding QE...and as it does so the train wreck of the American economy is revealing itself.

I want to sell out of that treasury position but I just can't bring myself to because it so plainly fits the data. Namely "recession with a massive over extension of credit." In short inflation leading to default leading to a price collapse.

In debt.

I think where the real leverage problem is "from within the Bank" is in the basis trading. The Bank is trying to widen the spread in order to "create" growth (liquidity to be used to buy back stocks, buy Alstom, take Coke private!)...but this is generating huge profits for Wall Street but with no recovery in sight putting a veritable potpourri of financial instruments and even entire Government Agencies "in the wood chipper."

"Just in time for World War III" it would appear.

Mon, 06/23/2014 - 13:38 | 4886175 Shizzmoney
Shizzmoney's picture

This is all subterfuge. The Market needs to realize they have one more year of DOW, S&P, and RUssell to infinity.

August 2015, when the debt ceiling stuff comes up again, is when the *real* fun begins (bondzilla)

Mon, 06/23/2014 - 13:47 | 4886205 AccreditedEYE
AccreditedEYE's picture

Agree

Mon, 06/23/2014 - 14:05 | 4886246 LawsofPhysics
LawsofPhysics's picture

Is that when the Fed finally "untapers"?  I simply don't see it.  The energy producers really seem to be forcing the central bank's hand here.  I simply see a slow but steady decline the global standard of living from here on out (barring the application of function fusion reactors to power cities of course).

Tue, 06/24/2014 - 22:29 | 4891878 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

What proof is there that the privately held federal reserve is really tapering?  Oh!  They told us they were.

 

Tuco

Mon, 06/23/2014 - 14:03 | 4886259 buzzsaw99
buzzsaw99's picture

bondzilla is a myth

Mon, 06/23/2014 - 14:32 | 4886314 Dr. Engali
Dr. Engali's picture

Please. How many debt ceiling 'crisis' have we seen over the past few years? The next one will pass without incident as well. 

Mon, 06/23/2014 - 13:39 | 4886177 Top Gear
Top Gear's picture

Get In There, Mortimer, and Buy!

Mon, 06/23/2014 - 13:40 | 4886179 fonzannoon
fonzannoon's picture

the only "extreme event" that can take down the market is actual growth. anything else will be greeted by btfd.

Mon, 06/23/2014 - 14:16 | 4886290 Dr. Engali
Dr. Engali's picture

We are on a permanently high  plateau. Growth would be celebrated by BTFATH. Take the blue pill Fonz. The steak is juicy and delicious.

Mon, 06/23/2014 - 14:33 | 4886365 fonzannoon
fonzannoon's picture

I'm with you. I am all about the world cup and enjoying the tranquil markets. What could go wrong?

Mon, 06/23/2014 - 15:25 | 4886558 thamnosma
thamnosma's picture

I can't recall any extreme events in the recent past, so I think we're good to go.

Mon, 06/23/2014 - 13:40 | 4886182 hegemony
hegemony's picture

Does anyone know what time the market opens today?

Mon, 06/23/2014 - 14:46 | 4886414 dontgoforit
dontgoforit's picture

The market is closed today and tomorrow.  Yes we have no bananas.

Mon, 06/23/2014 - 14:58 | 4886468 debtor of last ...
debtor of last resort's picture

Not in your lifetime bro.

Mon, 06/23/2014 - 15:44 | 4886662 MeelionDollerBogus
MeelionDollerBogus's picture

We have markets?
I know there's prices, I know they're pushed by central banks & their minions, but markets?
I didn't think we had any of those left.

Mon, 06/23/2014 - 13:41 | 4886184 LawsofPhysics
LawsofPhysics's picture

Odd, that's not what the VIX is saying...

Mon, 06/23/2014 - 13:54 | 4886228 credittrader
credittrader's picture

Read the post again. VIX is more applicable to 'normal' day-to-day vol and hedging... SKEW (or OTM vs ATM vol) indicates 'fear' of considerably larger moves (and signals how far away from B-S normality options markets expect events top unfold)... so VIX can stay low as fear rises in the extreme snowing the standard investor who relies on VIX for his fear (or complacency) indication. Of course, there is a limit to the steepness of the vol skew before it bleeds into the ATMs (and thus VIX) but we are not there yet.

Mon, 06/23/2014 - 13:56 | 4886235 LawsofPhysics
LawsofPhysics's picture

Thanks captain obvious. (FYI, it's called sarcasm)

Mon, 06/23/2014 - 16:37 | 4886904 credittrader
credittrader's picture

LMAO - sorry mate.

Mon, 06/23/2014 - 14:49 | 4886422 NotApplicable
NotApplicable's picture

And if people start paying too much attention to SKEW, it'll just have to be managed like they do the VIX, by manipulating the inputs until the output looks good.

Mon, 06/23/2014 - 13:44 | 4886196 AccreditedEYE
AccreditedEYE's picture

The sheer statement of this insures that nothing will happen to the market... If everyone believes it, it cannot happen. So says the behaviorists.

Mon, 06/23/2014 - 13:46 | 4886202 Freddie
Freddie's picture

Reminds me of Goodfellas when Joe Pesci tells Ray Liotta "evertything is beautiful - you worry too much."

This is just before Tommy tells Henry that he is being "made" or becomes a made man in the Mafia.  Seems Tommy should have worried more.

https://www.youtube.com/watch?v=LlQCW02Tbxc

Mon, 06/23/2014 - 13:52 | 4886217 q99x2
q99x2's picture

Ya, mid-July the S [will] HTF. Until then BTFATH.

Mon, 06/23/2014 - 13:55 | 4886230 Frank N. Beans
Frank N. Beans's picture

the second chart looks a little like the United States

Mon, 06/23/2014 - 14:48 | 4886421 dontgoforit
dontgoforit's picture

FL looks institutional.

Mon, 06/23/2014 - 13:57 | 4886234 buzzsaw99
buzzsaw99's picture

Institutional clients are dumping equities off to retail clients...

Excuse me but it looks from here like they are ALL SELLING. Since retail is not a net buyer the market can never go down. It's simple really.

Mon, 06/23/2014 - 14:06 | 4886272 Amish Hacker
Amish Hacker's picture

But...but...if institutional clients are selling, and retail clients are selling, who's buying? Oh, right, I forgot about the world's central banks. Thank goodness! Without them, we never would have arrived at this state of permanent stability.

Mon, 06/23/2014 - 15:23 | 4886550 reload
reload's picture

In London, the extreme action in Equity Derivatives is the flurry of redundancy notices. The foot soldiers are being culled - no need for pricing of risk anymore abviously. Order flow is virtually non existant. Not asking for or offering sympathy, but right now a chair at an Equity Derivative desk is not where you want to be sat. 

Mon, 06/23/2014 - 13:59 | 4886241 I Write Code
I Write Code's picture

Veeery interesting.  VIX is a measure of actual stock movements so maybe it doesn't have to be separately controlled, but options pricing has separate sentiments involved and the Fed has not seen fit to try to control the options contracts.  Hohoho.  Should be able to reverse-out an implied volatility, or a curve of implied volatilities given different rate scenarios.

Mon, 06/23/2014 - 14:17 | 4886303 buzzsaw99
buzzsaw99's picture

well done. nearly flawless. funny because earlier today charles hugh-smith worried aloud about inflationary blowback if the fed continues on the current path. that worry is of course ridiculous when one considers the yawning abyss on the opposite side. the fed can never quit buying, ever, and the whole world knows it, especially the imf.

Mon, 06/23/2014 - 14:12 | 4886294 yogibear
yogibear's picture

They can take this market as high as they want it to go.

Unless the Federal Reserve communicated directy to the banks and on paper that their holding stocks for years there will be that uncertainy and fear.

Mon, 06/23/2014 - 14:19 | 4886316 orangegeek
orangegeek's picture

that retail/institution/hedge fund graph keeps showing up

 

i count about 8 times that I've seen it in a ZH article - Dec 13 revision - time for an update folks.

 

it's source is BOAML - so that means the opposite applies/do the opposite

Tue, 06/24/2014 - 05:35 | 4887131 atoast2toast
atoast2toast's picture

Agree, hedge funds missed this rally in 2013 as has been pointed out ad nauseam here. They are shorting this all year so far and getting nailed on it. The FED keep pumping it up and accomodative policy keeps them covering. Might be an illusion but if the smart ones are being fooled what chance does ZH reader Joe6Pack have.

edit: this is a measure that they made up, skew ÷ vix

skew has been at this level before this year (before the NQ got slammed in the spring). VIX has fallen and that is why this measure has moved up. SKEW is only around since 2012 or so. 

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=XX%3ASKE...

"These initial results tell me that the absolute level of skew does not tell me much about the returns on the S&P 500 on the following periods of time across different time intervals".

http://seekingalpha.com/instablog/462226-surly-trader/40367-option-skew-...

Is this a replacement "canary in the coalmine" since the "NYSQ margin at all time highs" one has not crashed the market?  


Mon, 06/23/2014 - 14:23 | 4886332 rosiescenario
rosiescenario's picture

"Whether this 'event' is a crash or melt-up is historically unclear..."

 

This is not an "either or" deal.....appears obvious that there will be a crash quickly followed by a melt up so as to maximize Goldman's gains.

Mon, 06/23/2014 - 14:36 | 4886379 russwinter
russwinter's picture

Chart A is a pump and dump pure and simple. 

Mon, 06/23/2014 - 14:41 | 4886396 atthelake
atthelake's picture

If there is an "extreme event", how will it affect the average American? What are the possibilities and probabilities?  How many of you/us  are stocking up? I know many cannot but are Americans, who can, stocking up?

Mon, 06/23/2014 - 15:43 | 4886652 MeelionDollerBogus
MeelionDollerBogus's picture

Bamafones, toasterovens with iPod docks, all the sentshells. All set for D Opocalypse!

Mon, 06/23/2014 - 14:43 | 4886406 tommylicious
tommylicious's picture

not sure i buy this one.

Mon, 06/23/2014 - 15:42 | 4886643 MeelionDollerBogus
Mon, 06/23/2014 - 14:47 | 4886418 Al Huxley
Al Huxley's picture

YAY!  Finally, after a hundred years of getting their asses kicked and being bag-holders for the pros, retailers are FINALLY on the right side of the trade!

Mon, 06/23/2014 - 14:49 | 4886423 wakablahh
wakablahh's picture

So tempted to try market timing.. My guess is we should be safe at least until current upcoming elections

Mon, 06/23/2014 - 14:56 | 4886451 The worst trader
The worst trader's picture

Funny but all the ETF's AND ETN's are all in the red for the day by about 3% yet the true VIX is up 3% WTF?

Mon, 06/23/2014 - 15:05 | 4886494 Bemused Observer
Bemused Observer's picture

If we ever DO start to see actual economic growth, these guys aren't going to know what it is. They may well panic.

"OH my God! I have to sell NOW! Look at those numbers...they're liquidating EVERYTHING! They must be in big trouble!"

"Relax...relax. I've been through these things before, way before your time. Those numbers? They're sales, Pete. They're sales..."

"Sales? What the hell is THAT?" Looking at the figures once more in disbelief, he puts his head in his hands and begins to sob uncontrollably. "It's over...it's all over. I'm ruined..."

"No, no, no...Sales are a good thing, Pete. It means they're finally finding buyers for those Sole Phones, those sneakers with cell phones in the bottoms...And the ad campaign, "Walk Around With Your Phone On Your Feet!" went viral. Well, now they're actually selling some..."

"But then they'll have less! The warehouses will be emptied if this keeps up!"

"They'll make more, Pete, they'll make more."

Pete shakes his head in disgust. "I just can't figure this market out Bob. Nothing makes sense anymore."

Mon, 06/23/2014 - 15:12 | 4886515 kurt
kurt's picture

Hey 'lil Fellers

Did it ever occur to you that the outsourcing of computers and services by the U. S. Government might result in rouge feeds out of the NSA monitoring databases, that investors, houses, hedge funds are being listened to and screened for inside information, coupled with the actors' dirty little secrets, or that authorized individual are doing unauthorized filtered data grabs of trading and decision making content? They could do all that under the cover of the "wor on terr". There is at least one nation that receives a "direct" unfiltered feed of all NSA data.

Oh, this must be paranoid. Why would anybody be tempted to gather inside information to make sure bets to make millions. One could never suspect it could happen by those who are in the position to know exactly how to avoid detection. 

Mon, 06/23/2014 - 15:21 | 4886545 Ban KKiller
Ban KKiller's picture

Playbook!

Mon, 06/23/2014 - 15:17 | 4886529 Market Rage
Market Rage's picture

People can be skeptical all they want, but there is something going on since last Wednesday.  The futures seem like they're being propped, but without any follow-through buying.  Sellers need to hit critical mass and get this bitch market heading south.  Absolutely no volume either.

Mon, 06/23/2014 - 15:24 | 4886553 JaKst3r
JaKst3r's picture

How many times do you hit post when you've rediscovered your longing for change?

Mon, 06/23/2014 - 15:24 | 4886554 JaKst3r
JaKst3r's picture

Can you say "incoming jihadist clusterfuck"... Well, the wine is nice and the weather is clement.

I think i will book a week in my hotspot for decleansing - i.e. total forget the world hedonism, might as well, I've not broken anything in a couple of years :P

*I must drink lots of milk

Then when i get back.. i will move into downsized accomodation, save up a big fat reefer and give myself spiritual blowbacks

Then if someone lights this fire i can go chill somewhere hot, but not too hot and fuck gorgeous women, sail on the backs of turtles and grow a big plot of fuck all y'all shrooms :)

Thats the hedged plan.. obviously... plan A will be watch london turn into whore city and reap some profit/rewards

Now where is that hunger games hottie when you need her................

Mon, 06/23/2014 - 15:24 | 4886555 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

Lambs. Meet Slaughter.

Same thing, again and again.

Mon, 06/23/2014 - 15:35 | 4886598 Ban KKiller
Ban KKiller's picture

What are the counter party risks with derivatives, again? What is the unwind process in a panic situation...say lack of liquidity?

All they are waiting for is to pick out who will be left paying. Any guesses? Your assets are mere shadows...sucker!

Mon, 06/23/2014 - 15:50 | 4886689 Yen Cross
Yen Cross's picture

     This is the global equity markets.

     The vultures are retail and hedge funds...Smart money is sitting in the bus taking pictures.

Mon, 06/23/2014 - 20:06 | 4887586 hairball48
hairball48's picture

The divergence of the retail and institutional graphs is all you need to know, to know what's coming next imo-- a crash.

But my crystal timing ball isn't any better than anyone elses. But I'd say sooner rather than later.

Mon, 06/23/2014 - 23:54 | 4888222 AdvancingTime
AdvancingTime's picture

I agreed ugliness lies ahead. I love the way it is always being kicked out a year or two and never going to happen tomorrow. It is as if we can't handle what is coming at us and need more time.

For a long time I have been trying to develop a scenario for a market "super crash" and a reasonable map that would arrive at such a situation. Below is an article looking at how it could happen sooner rather than later.

http://brucewilds.blogspot.com/2013/01/flash-crash-on-steroids.html

 

Mon, 06/23/2014 - 23:04 | 4887953 P-Mack
P-Mack's picture

So retail, instituitional and hedge funds are all selling and the market is hitting new highs?

Either that second chart is complete bullshit or there is a fourth participant (i.e. central banks) missing from that chart. 

If they are a missing participant on that second chart, then that basically suggests the dynamic of the market has changed and the first chart is also not an accurate reflection of relativity.

Think about it... if a central bank is investing in a more risky asset, they are going to hedge their exposure. Equity prices rise, derivative prices and issuance in absolute terms rise.

Don't you think the biggest central bank experiement in history in conjunction with sustained period of low/negative interest rates and aneamic growth will have some implications not seen in previous years!???

 

Mon, 06/23/2014 - 22:45 | 4888081 HDaryl
HDaryl's picture

Where's the $29.1 FED buying overlay?

Mon, 06/23/2014 - 23:09 | 4888126 andrewp111
andrewp111's picture

A geopolitical event can change everything. Everyone can see that ISIS could soon become the Caliphate, and send oil north of $300

Mon, 06/23/2014 - 23:52 | 4888217 AdvancingTime
AdvancingTime's picture

 The more and more I study derivatives it now appears the main goal of QE may have been to hold up the underlying value of assets that feed into and support the massive derivative market more than help the economy.

QE has up to now stopped an implosion of derivatives and the resulting contagion and shock that would have spread throughout the financial system. In postponing this collapse the Fed has created a whole slew of new problems. More on this subject in the article below.

http://brucewilds.blogspot.com/2014/03/derivatives-house-of-cards.html

Tue, 06/24/2014 - 00:58 | 4888327 I Write Code
I Write Code's picture

Fundamentally, yes.  Short term I think the (equities) melt-up is about to enter a new leg upwards.  I'm not sure this is what The Janet wanted, but it's what she's got.

Tue, 06/24/2014 - 02:51 | 4888432 kareninca
kareninca's picture

Look, an extreme event has HAPPENED ALREADY!!!  Airline ticket prices have DOUBLED in the last three weeks or so!!!!!!!!!!

I posted about this recently (since I price tickets a lot), and ZH has an article about it today.  Okay, I know it's not a "markety" thing, but if it is not some temporary blip, it is huge!!!!  And it's been like this for over three weeks, so it already isn't temporary!!!!

Over at the ZH article on the topic, posters are just typing in the usual stuff re how much they hate the TSA, how they drive everywhere now, blah blah blah.  Come on, WHY HAS THIS HAPPENED???  Will someone write about this, and explain it to me????  I think this is very important, but is getting no attention.

Tue, 06/24/2014 - 03:50 | 4888468 AlgoCZ
AlgoCZ's picture

 

You can see sentiment of primary dealers of the FED ( banks) in this chart:

http://www.finecharts.com/charts/967-ewg_and_sentiment_of_banks.htm

It is derived from daily open market operations of the FED.

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