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Is Risk-On About To Switch To Risk-Off?
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
Cranking markets full of financial cocaine so they never correct simply sets up the crash-and-burn destruction of the addict.
Human memory being what it is, almost three years of risk-on euphoria has created the illusion that risk-on is The New Normal that will continue on for years to come. Perhaps, but there are converging signals that suggest the risk-on trade is about to reverse polarity to risk-off. These include:
1. Junk bonds. Two charts below (one from Lance Roberts and the second from Chris Kimble) suggest the risk-on extremes have reached the point of reversal.
2. Soaring U.S. dollar. Without going into detail, it's increasingly clear that the soaring USD is destabilizing the global foreign exchange (FX) markets. FX has been the source of many of the risk-on carry trades that have been driplines of financial cocaine for global stock markets.
3. Reversal of the Federal Reserve's quantitative easing (QE) programs.Though the stock market has roundly ignored the withdrawal of $600 billion of free money for financiers stock market stimulus all year, the October end of the QE asset buying program now looms large.
The Fed has already trimmed its asset-buying binge from $85 billion/month ($1 trillion/year) to $25 billion/month. Risk-on proponents claim that this reduction has been replaced by Bank of Japan and European Central Bank QE programs, but this belief fails to take into account the diminishing returns on BOJ and ECB stimulus.
THose spigots have been open for so long that adding more monetary stimulus no longer moves the needle positively. Rather, the extreme measures push the global fianncial system into increasingly risky territory.
4. Geopolitical spillover. One key element of the risk-on trade is the magical-thinking belief that the U.S. stock market is completely decoupled from geopolitical dynamics. In other words, Japan and Europe can sink into recession, China's growth can slow, the Mideast can be destabilized by multiple open conflicts and none of these issues will ever matter, as long as "the Fed has our backs," "corporate profits keep rising," etc.
Geopolitics matter even if only because global dynamics cause global players to switch from risk-on to risk-off as markets destabilize and carry trades dry up. Highly leveraged traders must delever, and that selling on the margins tends to topple dominoes that lead straight to the core.
The market for high-yield bonds is a well-known canary in the risk-on coalmine.These two charts should give anyone pause--the canary is stiff and cold but has been propped up in its cage by risk-on cultists fearful of any intrusion of reality:
The VIX, a measure of volatility, has been suppressed by risk-on euphoria for so long, 13 looks high. Market participants seem to have forgotten that the VIX can go to 30, never mind 13:
I've marked up a daily chart of the SPX (S&P 500) to show the megaphone topping pattern has broken lower, and the key support of the 20-day moving average (1992) and the previous high (1991) has been broken.
The last time SPX broke below the 20-day MA, the market swooned in what now looks like a warning shot that the risk-on trade was at risk of reversing to risk-off.
The weekly chart of SPX shows how long the risk-on trade has run. Markets typically touch their 50-week moving averages occasionally, just as a statistical mean reversion dynamic. The SPX hasn't kissed its 50-week MA since late 2012, and hasn't visited its 200-week moving average since 2011.
Even the most avid Bulls should grasp that market corrections of 10% to 20% are statistical features of all markets. Cranking markets full of financial cocaine so they never correct simply sets up the crash-and-burn destruction of the addict.
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No...
What is this strange term “Risk-Off”?
Is that Greek, Chinese or Klingon?
It is a term once used by great ancient civilizations before the great destruction that nearly destroyed mankind.
Just like every risk off period, buy as much as you can because in a couple weeks everyone will be screaming "risk off"! Repeat.
Been short SPY two weeks now...Caught the absolute top. Will re-load more leap puts on any significant pop. The Fed lost control when the currency wars started. They will try and keep the indexes flat as the dollar gains strength against all other currencies - But that's just desperation. When the fraudulent Scots vote comes in "NO" (and it will), expect a move higher - Then, load the boat SHORT!
"Even the most avid Bulls should grasp that market corrections of 10% to 20% are statistical features of all markets."
Markets, perhaps. Casinos, no.
Agree with you for the most part, but Casinos eventually crash too. Ask Donald Trump.
unfortunately, this particular casio owns the majority of the soveriegn debt "markets" and in a fiat monetary world, this is the only thing that matters, unless of course that fiat was no longer accepted. The problem being that this would apply to all fiat.
Are "markets" about to recouple with reality?
LMFAO!!!!!!!!!
ah.. no.
What's really going to be funny is when all the BTFD'ers here think they're BTFD yet another time, but this time it ain't a dip.
Unless you truly believe the market will go up forever, one of the "dips" won't be a dip.
And you'll buy it all the way to the bottom, even though you know how fake the market is. That will make the pill so much harder to swallow.
It is concievable that the market could continue to rise ala BTFD & BTATFH until one day, you wake up and it is frozen - you cannot trade. I think that it will be allowed to crash and all of those FRNs will be herded into USTs, but that's my opinion, and to hell with timing it.
Are the central; banks about to stop buying eminis with thin-air money?
No.
The answer is no.
correct, the line is 17,000 on the Dow and in meme is still a "slow recovery"...
the other meme is that "interest rates will slowly rise", so a slow average increase from 2.4-2.7% on the ten year will start to trend...
so it is written, so it shall be...
collateral? who fucking cares as the central banks now own most public "markets" and they are using "mark to fantasy" accounting.
Every week of ATH's... just makes the eventual crash worse.
Definitely getting paranoid. Definitely.
Everybody get your heads down, this is gonna be a big one.
That's what I keep hearing since 2009 ... now 5 years in a row ... you better wake up ... get used to SnP minimum 3000 within the next 1-2 years.
After that another round of buying the panic on the cheap for Buffet and friends.
And the sheeple paying the bills.
Nothing changed.
Humans are a failed experiment.
ignored the withdrawal* of $600 billion of free money for financiers
*Reported withdrawal- who knows what they are doing but just not telling the public.
Risk off!? Now that's funny.
http://www.goldsqueeze.com/technical-analysis/vix-has-a-new-upleg-begun
another related post from earlier today
I remember when shooting-star candle stix were the shit, TA is dead 10 yrs. now...
Replaced by the BTFD acronym and all the research that goes along with hitting the buy button..
Speaking of overpriced cocaine(easy money) fueled buying binges.
Microsoft bought Minecraft for 2.5B today. Talk about market overvaluation.
http://techcrunch.com/2014/09/13/lessons-learned-from-zynga-rovio-and-fl...
http://www.reuters.com/article/2014/09/12/us-mojang-microsoft-idUSKBN0H7...
What a shitshow. They overpay just to get a depreciating asset's app onto their mobile phones because the original developer refused to port it to windows CE 7.xx/NT 8.xx mobile oses.
I guess this time for real then? Like those 99999999 previous times when it was a sure deal? Dont make me laugh, you guys got any money left to even trade? Shorting markets for months if not years, buying gold that just keeps on going down and Putlers fanboys must be loading up on worthless rubles that are at record lows.
Here I was thinking, dollar would be worthless by now and gold will be 5000 today, based on some articles few years back. Oh well, someone is banking hard on tinfoil hat crowd.
Also: See very next post.
As I've been saying over and over and over:
Financial system is now just a video game, much like sony playstation network
As you just witnessed now, NSA overrode the system instantly, on order from the White House of course
That's why world is just moving out of the system, abandoning USD
...slowly abandoning all fiat and all paper contracts.
We are doing business in central and south america on handshakes.
The caveat is the occasional son or sibling that contacts me and trys to change the deal. I tell them to speak with their father who usually kicks their fucking ass and then calls me back to apologize.
It's old fashion I know, but far more reliable. Keep spinning that paper you stupid fucks...
soon my friend, soon.
There will be blood on the streets, banker's blood
History never fails to repeat
What do you get paid with and what channel?
We are still using fiat, but once a deal has been made, the fathers/CEOs and I expect it to be carried out. Any failure on either side will result in real consequences for the employees/family involved. Yes, this may involve bribes, but if the bribes in question are not in America, they are not my fucking problem.
I see it as both of us cutting out the useless paper-pushing middlemen (on both sides of the border). Both of us are saving our profits in real assets (mostly land, PMs, and diesel fuel). I suspect that this is going elsewhere as well.
Nothing wrong with bribes as long as it works for both sides
I am impressed
And yes, primary dealers and major funds like Warren Buffett berkshire, Bridgewater etc are storing oil, aluminim, iron ore you name it and selling derivatives on it
That's why economy is collapsing. Shortage of energy and commodities due to gambling, not natural shortage
TRUST is the purest form of money
The sons are asking for those deals where you deposit some money into their account so that they can use it to pay a bribe to speed things up?
There are three major printing presses in the world today, the US, China, and Euro....
Right now the ball is in Europes hands to print a few T..... US is all in until the next false flag event.
China probably wont do anything, near term, because they are the ""smartest"" of the bunch.
The first chart look is spread wide. Looks like a fucking is coming.
An American, not US subject.
I notice Lance Robert's stuff is conspicuously absent from Financial Sense lately - since early 2013 or so... He was a regular there. I don't think it quite meshes anymore with the Poop-lava's new & improved 'theme' when they decided to switch formats from cautious and critical, to full-on Bull - read: The memo went out to 'vacuum in as many suckers as you can while this party is rockin'...'
Who still believes in those massaged numbers and charts????
ZH is getting old.
That was then but this is now.
Then you have the weather
derivatives at 1000x,
interlocking chains of connections that did not exist prior to 2008,
jewish control of the FED for going on 40 years,
and Jessica Chastain.
Taken altogether, they constitute a new pair o' dimes.
The past is not a harbinger of the present.