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Options Market Signals 2007-Like Crash Risk, Goldman Warns
Although US equity prices have demonstrated a remarkable propensity to completely disregard apparently unimportant things like macro fundamentals, forward earnings estimates, and top-line growth projections, we’ve long argued that eventually, reality will come calling and the farther stretched valuations become in the meantime, the more painful the correction will be. As we noted on Sunday, the cracks are starting to form as DB became the first sell-side firm to predict that EPS will in fact not grow in 2015, prompting us to remark that “EPS growth in 2015 [is] now a wash (if not negative), which implies the only upside for the S&P 500 will once again come from substantial multiple expansion.” Against this backdrop of declining revenues, declining earnings, and pitiable economic projections (thanks a lot Atlanta Fed Nowcast), we bring you yet another sign that a “correction” may indeed be in the cards: an epic decoupling of put prices and S&P P/E ratios.
Here’s Goldman:
Long-dated crash put protection costs on the SPX have more than doubled over the past 9 months. We believe it is an important development to watch as it implies investors are increasingly concerned about downside risk even as US equities trade near all-time highs. Based on our conversations with investors over the past few months, it appears the increase in long-dated put prices has largely gone unnoticed among equity and credit investors. In fact, Investment Grade credit spreads have actually tightened slightly over the same period. The rise in long-dated equity put prices may signal an increasing fear that a substantial market correction is on the horizon, despite low short-term put prices which suggest low probably of a near-term drawdown vs history.
As you can see from the following, this is no trivial divergence — it’s actually quite the anomaly:
Furthermore, the usually tight correlation between the cost of OTM put protection and CDS spreads looks set to break down entirely as the CDS market doesn’t seem to be pricing in the same type of nervousness as the options market...
...and as Goldman notes, the fact that CDS spreads haven’t followed the price of put protection higher likely indicates this is a function of fear rather than forced hedging...
Nine months ago, equity put prices were undervalued relative to CDS spreads on S&P 500 companies. The rise in put prices has more than compensated for this undervaluation. Further, it is surprising how little CDS spreads have moved over the period. While some have suggested the rise in put prices has come from investors or financial institutions that are increasingly required to hedge, we would have expected to see an increase in similar CDS spread levels if this were the primary driver of the increase in put prices.
…and we can certainly understand why some folks are fearful, what with investors being completely oblivious to macro…
...and equally out to lunch as it relates to what they're willing to pay for $1 of earnings…
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Goldman floats this giant matzo ball the day before Yellen opens her pie hole.
Coincidence.
No, now jump you fuckers!
The road goes on forever and the party never ends.... GS has these beans that will protect you, just sign here and we need a little bit of your blood for the ink.....
Thats the cue for an abrupt rally tomorrow. GS has some PUTS they want to sell you
Look at those stawks absolutely rocket higher off intraday lows post Goldman Warnings!
It's another form of Jewbilee, Moshe!
Buy MOAR Stawks! They're getting cheeeeeaaaper all the time!!!
Now THIS is the doom porn I come to ZH for. Just that it was written by Goldman Sachs, which kind of makes it the anti-whatever of what they are saying.
The NY Fed is the Guardian of the SPY.....backed by unlimited ones and zeros
Solid piece. Peeps voting with their pocket books are always worth a look.
No one believes CDS contracts will ever be honored, so why should they respond to market conditions?
could send a few fed "heads of state (and fed)" to SA for non-conformance sword meets real peoples world...
Goldman Sachs itself along with it's broker clients Saxo, Tickmill, IG and the rest are probably shorting these SP500 put options as we speak.
No one believes CDS contracts will ever be honored
Wait.......what?
What's Mr. Yellen going to do tomorrow? Will he (she?) remove the word "patient" from her 45 minute diatribe, thus signaling a rate hike and crashing stock market?
I say (drum roll please) NO.
Reason: Goldman Sux just predicted a drop in the stock market. Translation: The stock market will go UP. (They want all the suckers to sell today)
Mark my words. I consulted the mystical cat that lives down the street, and Mister Whiskers is never wrong.
Mr. Yellen, in a voice incredibly similar to Woody Allen, will keep everything as is, lest she incur the wrath of the true OWNERS of USA, Corp., ala the bankers.
See Nomi Prins, 'All The Presidents' Bankers,' for more detailed information.
The greatest wealth transfer from savers & taxpayers writ large, to corporations, banksters, the financial sector in general, governmental non-workers, the MIC, & Fed Racketeering, Inc. cannot be interrupted. It's far too successful.
You watch that shit trade today? Effing HFT Buy program ~ 1:58. 100 K shares 8 cents over trade, Following in seconds by 200 K at up ~ 5 cents followed seconds later by 400 K. Worked to drive the price up ~ 20 cents in less than 10 seconds tops. MoFos.
I thought the Economic World was coming to end today.
Looking at the ES it is just another day of BTFD. Who knew?
haha, ebay p/e is 1152
I know icahn was hoping ali baba would buy ebay, so he bought a ton of it.
isn't that the truth?
looks to me that spx will explote to the up side
2500+
strong but untenable rail
Look out for a GS short squeeze and then . . . Off to the Moon, Baby !
We don't need no damned fundamentals. Hell, we don't even need a real economy.
That's a good thing, because we don't have one.
HFT and Big Data are directly infusing fiat fiance into Wallstreet.
Zimbabwe style....so DOW might go beyond 24000 before the party is over.
Waiting patiently (forever) to put my shorts back on.
One day.
Good! Maybe the severe Kp 9 geomagnetic storm hitting Earth right now will fucking wipe Wallstreet out today!!!
Come join us at www.gunsgrubandgold.com
Free to join! Looking for new members, community, etc!!
^^^ The GS of preppers has spoken ^^^
Yea they need sellers to help them buy with both hand without driving prices up too much ahead of the FED bump. You know we will go up at least 5% in the wake of whatever the FED says.
When buyers stop buying, they need the shorts loaded up to push it ever higher and PROVE that higher rates are GOOD for the market
Muppet trade = long puts.
Missed the parade , eh ??
Participants should stick to the issue itself, not plunging down questionable toilet graffiti reflecting their own sexual problems or other banalities. As I see it, this website was created for a better quality discussion of issues the main stream keeps silent of.
Indeed, I do think Yellen will say the right things to prop up to new ATH, see here:
http://tripstrading.com/2015/03/17/sp500-next-move-a-wave-3-v-iii-up/
Puts will not pay off when this baby blows.
Exactamundo.
I've toyed with the idea of placing some on, but decided its a waste of money.
What is the reasoning behind puts not paying off?
flacon - "What is the reasoning behind puts not paying off?"
Threat to national security. That's always the 'reasoning'.
That, and " It's for the children."
Or the reason - for those of us stupid enough to have own puts on bank stocks on July 15th of 2008 - is that the SEC can arbitrarily jump in to prevent short-selling 'speculation' in bank stocks when they're diving. They were diving because they sucked, not because of short sellers. But banning short sales and requiring dealers to locate stock for their naked short postions had the immediate effect of lifting all bank stocks around 25% or so.
I was delighted the few days before that SEC decree because I would probably never had to work another day in my life IF they would have just let the markets run their course. I wasn't greedy or bottom-ticking - I was just right for once: the big banks sucked and were way overpriced. Chase warned. Freddie Mac and Fannie Mae had to be bailed out. Banks sucked and they were tanking hard.
I had a sizeable chunk of out-of-the-money puts months before that eventually went in-the-money as I expected. What I didn't expect is that market rules were only for peons. The SEC could 'rule' without warning that market forces were no longer fair for the poor banks and shorting their stock was no longer allowed. I wasn't an idiot for speculating, I was an idiot for assuming market rules applied to everyone and the SEC was there to ensure 'fairness'.
Threat to national security. That's always the 'reasoning'.
That, and " It's for the children."
Would you rather get bailed in?
"tanks in the streets". The question is will those tanks be our own or not...
UN tanks on US streets.
UN soldiers from third world nations.
Keeping your wives and daughters safe.
What could go wrong?
ISIS has UN standing?
ISIS is the UN without blue helmets.
When everybody..put writers...market makers....governments....Joe6.... goes officialy insolvent at the same time it will matter not who saw it coming. The winning bets will never be paid if this crash is as epic is everyone is expecting.
That's why so many expect a global distraction.
It would have to be big.
Life altering.
The're cancelling the Kardashians?! (life altering)
It wouldn't be life altering if it happened every 15 years.
Marilyn Monroe was the last generational voluptuous Icon we tragically lost.
If the script holds, the Kardashian family still has a long upside run for all 57 sexes.
Research in progress for the next sex bomb of the 20's.
Thats why im going Aussie gold miners, and hold that share certificate close, Im all in on a penny stock ASX- RMS.I dont believe you will have a chance moving more than a few grand a week between accounts when the party starts you wont be able to buy those gold shares fast enough with 100% daily price increase. Now i can sit here and massage my balls.
It should be an event where cash is king and you get to buy cheap with blood in the streets........gold skyrocketing will likely be a later event.
You tell people Puts won't make you money but you have a crystal ball telling you that government will go broke with the next crash? Sorry, ain't gonna happen. Not just yet. The governments havent even raided public and private pensions yet.
Lemme guess. Delusion is your middle name and confusion is your favorite pastime.
My middle name is pussy and my favorite pastime is eating.
I'm going to go with "what is counterparty risk" for $500 Alex.......last go around .gov stepped in to halt the domino effect.
Is that like contributory negligence?
LOLOL.....................
Why not buy vol through the VXX?
Dec 31/14, based on trading advice from a guru, shorted Euro, oil, copper using Puts.
Account was up over 500% in January. The day the Swiss closed their peg I was up over 3000% on that short Euro position alone.
Aside from multiple other trades in between (shorting oil and the Euro mainly), same guru's heads up led me to buy Dow Puts March 6 and two trading sessions later enjoyed a 330 point decline in the Dow, and a 800% return on that Put position.
So you people go ahead and think you cant make money on Puts.
The trades are all at the guru's blog if you care to study them:
http://armstrongeconomics.com/2015/03/
So, you can either whine or get to work making crazy money.
Not trolling you, Troll. Just curious.
Have you received and cashed the check?
When would it make sense to have a market collapse?
Before or after the Pope (Satan) visits the US?
Probably wont happen until the "fall" of 2015.
September - December looks good.
My invoice is in the mail.
Before I'm thinking by the actions of my clients.
They have been exiting since the new year,just about all out now.
No one left except 401k money.
Young fools. Only now, at the end, will they understand.
Do those "young fools" need to be employed in order to have a 401k? Does it matter if they already have a couple hundred thousand in student loan debt? I think I see a potential flaw with your logic.
Don't be upset, young fool.
You sound like you have nothing to lose anyway.
We are doing quite well asshat, but I do have one at a "good school" already.
Don't be such an assuming douche.
Forced conscription will take them both from you.
LOLOLOL......................
Good luck with that. "Laws" that cannot be enforced are not really laws at all, besides, we are probably "more equal" than you...
everyone knows that laws are only for the "little people". You really aren't that bright are you?
well, soon they will have one, no, two places something to invest their 401k, hopefully they open before Yellen starts raising the interest rates, because it's gonna be a bloodbath.
GBTC and COIN
I am thinking that this will hit no later than June 30, 2015 myself.
You like visiting ghost towns?
That's what the market is right now.
Going to Hawaii in June. Need to get back!
Kapoc saturates with water after 24 hours. Suggest horse collar BC, remove CO2 cartridge before putting it into checked baggage.
Earthquakes and the kind of stuff that's coming do not fit into predictable schedules.
"Honey, let's not go to San Fran in October, they have a 6.5 scheduled for the 23rd".
Best just to be ready now and let the others go nuts with panic on the day.
Fear earthquakes that release methane gas.
Gas that blocks out the sun for 3 days.
Then it will get hot.
That sounds like a credible narrative for a false flag.
Look, if the nuke testing in the Nevada desert didn't shake Cali off into the ocean, they're gonna have to come up with something else.
Chuckie, let someone else light that match, please.
"Before or after the Pope (Satan) visits the US?"
Wait, I Dear Leader Obama (Satan) is Satan (Satan).
Obozo is the false prophet, the liar.
Francis is the anti-christ, the deceiver.
I don't know why people are getting them confused.
That sounds like a credible narrative for a false flag too.
This sounds ominous for next fall. Sir Isaac Newton's prophesy for Sept. 23, 2015-his prediction takes one exactly to the Day of Atonement 2015. Combine this with the Four blood moons information and you have a convergence of important data and thought. Google it.
Who cares, imbecile. Why don't you go read some tea leaves and shut up.
For a Black Swan, your awfully dismissive of the mystical.
@Sweet Cheeks
What the hell are you on about? Newton's "end of the world" prediction is the year 2060.
Missed it by >< that much.
Slde rules back then were only accurate to 3 places I bet.
"we’ve long argued that eventually, reality will come calling and the farther stretched valuations become in the meantime, the more painful the correction will be."
+1
that day will come sooner or later
Barring a jubilee, yes, and by "correction" you mean WWIII of course.
yup - stretched valuations.
Interesting that GS did not release the firm's VAR or DV01 - -
... That's nothing behind the curtain - Wizard of OZ
... I am no one, I am no one - Sound from Regan in the Exorcist
NoVa
"Goldman suggests a "substantial market correction may be on the horizon."
well shit...they would know right?
They are pure as the wind driven snow and only have your best interest at heart...
Not sure I have ever seen a better buy signal than Goldman saying a correction is on the way.
Yes, do the opposite of what they say.
But get the timing correct.
Buying now would be stupid
Shorting now would be stupid.
Shorting the fall would be smart.
A good liar will throw the truth in sometimes to keep you off balance.
Plus GS can now say,we warned you.
Truth is a variable, yours, mine or theirs.......
They see how everyone positions in the market to what they say...so nothing is a slam dunk. They may be telling the truth...they may be a contrarian signal, you don't know which is the correct interpretation this time.
Always appreciate the latest Goldman headfake, thanks for keeping us in the know fellas!
Summer is going to be a slow season.
I bet volatility hits an all time low during summer season.
Minus PPT trading, of course.
Makes sense, but daily trading evidence doesn't suggest allocation % moves from equities as a class, but instead very large, annoying large to small cap buying programs that have fucked technical Russell trading for nearly 7 weeks. With the big indices down ~1%, RUT continues to snap strongly on pre-Yellen volume, and has threatened to crash thru Unch several times. So it seems 'someone' views it as a currency issue, rather than an overall growth story -- at least for now.
Bingo!!
I guess now would be a good time to put on the backcatchers mask as Tom Cruise did.
The name of that film requires no mention here.
just get it over with already... the anticipation is klling me
Seriously yo, tomorrow FED will increase rates, Friday Greece will default, and the shit storm will be blamed on "Greece unoforseen default." The FED will excape untouched. FUCK U BENYELLENKE!
If Goldman stops selling koolaid, that's not a good sign.
Then prepare for the next QE to drive the markit (sic) higher. I wouldn't trust Gollum Ball Sacks if they told me it was daylight outside without looking myself.
Fuck the ziotribe Fraud street.
if goldman says there is a market correction coming does this mean the market has a coupla thousand more points to run before goldman calls the top with a great time to buy recomendation?
...I thought the same thing. This isn't helping to reaffirm my negative bias.
Further, it is surprising how little CDS spreads have moved over the period.
Liquidity discount?
Furthermore, the correction of a public company's "artificially" inflated share price doesn't necessarily imply a lower debt service capacity.
The only thing I can think of other than stacking, is selling puts at a good premium on companies that produce something, have low or no debt and pay a dividend. Worse case scenario short of an apocalypse is you get stuck with a company that would ride out financial turmoil to come.
CAT? They'll need dozers and backhoes to dig all of the mass graves.
I'm building an inventory of sticks and stones.
Getting ready for WW 4.
I'll make a killing.
No, politically hooked up companies that can use .gov to protect their balance sheets. Kind of mercenary behavior on my part but it has worked so far. A lot better than buy and hold.
Bullish Tesla, then?
Solindra........oh wait.
Then you better have substantial cash on deposit to cover the possible margin requirements, should the stock be put to you, which requirements are getting stiffer each month.
In order to show confidence in p/e's this high the Fed must normàlize.
There is no other way.
Heck of a way to fight the Taliban. Now the folks who cut that check know who their master is...and it certainly isn't God.
Do you know where the "horizon" is on the 44th floor of 200 West Street, vs the horizon on the first floor???
You can see 12 miles further for every foot that you stand taller or if you prefer:
http://mintaka.sdsu.edu/GF/explain/atmos_refr/horizon.html
By that logic, the 'crash' will be seen far sooner by Goldman than denizens of
ZH.
Or Lord Blankfein could just be full of ????? ????????.
zh: dont do this to your readers: the pig is going to run the market. they dont have a choice. you will get the undeserved slaughtered.
Wouldn't it just be fucking awesome if a Giant Meteor stuck Goldman Sucks Offices? That would be like planet earth taking a giant shit.
Pain a target on LB's bald head.
That would then be God doing His own Damn Work.
QE4,....QE4....QE$...We want MOAR
When did QE3 stop?
F' Goldman. I wouldn't trust that Den of Thieves anymore than I would a U.S. politician or central banker.
They all depend on lies and deception in order to remain in power.
What are earnings?
They're mostly a suggestion in this reality.
There are positive and negative earnings, but they have the same meaning in this universe.
By Moar Stawks
I continue to think that too many are expecting the top, and trying to call it, for it to be imminent.
I also believe that we haven't blown nearly enough hot air into the American balloon to make a 100% recovery-proof crash, in the eyes of the Pharisees. Remember, the entire point of what's going on is to collapse the American government by forcing a "foreclosure." This invalidates the Constitution and paves the way for the Marxist, neo-feudal, New World Order.
It's going to be Mr. Toad's Wild Ride for the foreseeable future, for sure; head fakes galore and multiple instances of "It's the big one, honey! I'm comin' to join ya', Elizabeth!" But I believe that they will all get stopped before a full-scale meltdown actually manifests. This will go on until even those of us who understand basic math decide that this asanine game of musical chairs is never actually going to stop.
THEN - look out below.
Yes, I have an approximate date range in my head. No, I'm not going to say so here, as I could well be wrong. But I really would be shocked if the actual bottom fell out in 2015. There are still too many people looking for it to happen, even if the majority are guzzling the Fed Punch. That "smart money that's almost all out"? Yeah. Those folks need to get caught too, or the 100% collapse and foreclosure of America doesn't happen. And that is the one true objective in all of this.
/$0.02
If the "muppets" are being told a top might be near, then "The Squid" is selling them expensive put premium. Which only means one thing; we aren't anywhere near a top.
www.traderzoo.mobi
Yup - still plenty of fresh pink and prime anus rims out there, softly puckering for a gentle kiss from the squid.
If everyone has put protection there will be no crash. You can't predict this stuff.
According to Natixis:
http://www.ge.tt/5osnEOC2/v/0?c
March 13, 2015
What are the differences in economies where debt ratios are very high?
Debt ratios (public, private and total) are at present extremely high in a vast majority of OECD countries. How does this change the functioning of these countries' economies?
• Fiscal policy becomes more restrictive and can hardly become very counter-cyclical due to high public debt ratios;
• The private sector deleverages, and monetary policy can no longer use the credit channel;
• Central banks have an incentive to conduct expansionary monetary policies to facilitate deleveraging.
In countries where debt ratios are very high, we can therefore expect to see:
• Weaker growth (a restrictive fiscal policy, private-sector deleveraging);
• Deeper recessions (lack of counter-cyclical capacity of fiscal and monetary policies);
• And yet a sharp rise in asset prices (equities, real estate), due to expansionary monetary policies and long-term interest rates that are lower than growth rates.
Paradoxically, excessive debt ratios can be positive for equities and real estate.
Potter isn't selling. Potter's buying! And why? Because we're panicky and he's not. That's why. He's pickin' up some bargain.
Potter traded on insider information.
Any recommendation from The Squid should be taken with the George Costanza rule - do the opposite!
Soooo..its just costs a shit ton more to bet on a fat tail event that may or may not occur.
There's your article in one sentence.
It's 3:25 PM. Let's ramp this market up !!!!
Green for the day? It is St. Patrick's Day, after all
Correction?
Surely they mean collapse?
Just mark it all ZERO!
That's all any of it's ultimately worth....
I wonder how much Goldman paid to keep this article at the top of the page?
Probably more than my tuna sandwich cost me today.
Little things like this tell me how things really work.
Cheaper than paying for a direct ad on the website?
NOT a fan of GS or their culture. However...
The amount of irrational exhuberance in the comments only confirms that a market top is forming. Can't say when until it happens but to ignore the technicals and fundamentals is a good way to end up broke.
Just sayin.
"Just sayin."
I'm so fucking sick of that phrase I could scream.
Craaaaaaaaaaaaash will ya, for the love of God. I am so tired of hearing this, move on.
The market will either go up or down. I want to be an anal cyst when I grow up.
You already failed as an anal cyst...the market can also go side ways...
Ha!
BREAKING: HLF news. Will Bloomberg TV have Bill on tomorrow???
Tyler, I have a word of advice for you, something that may take this site to a higher level. If I am wrong, so be it.
We all think we know things will fall apart soon, maybe they will.
I am no trader and so my advice is given from a different perspective.
I see charts on this site often and opinions from many experts in the field who have proved their success in the past. As you know the rules have changed and it doesn't matter much as they are broken often times anyway.
With HFT and Algos only a physicist could make sense of, this site as well as the MSM and other sites are attempting to measure what is happening today and will happen tomorrow based on what is percieved as common sense in equity management and prudent investing criteria from the past, which was relevent only a few short years ago.
In order for you to really see what is going on and will happen is to think differently and chuck the data and the sources which was relied on in the past as they have no bearing on this illusion we call a market today but is rather a virtual investing scheme which is no longer worked by humans but only directed to some extent by the employers of the programmers who invented the algos.
If you could set up an HFT system which can replicate an actual one, but run in parralel with the real market it may give you insights which history may not give.
I am taking a guess here, but the model still follows the pre historic Neilsen model; eyeballs sell soap.
A vast variety of articles and a free form comments section, with positive and antagonistic relationships formed.
A family reunion and bar fight all wrapped into one package.
Unique, informative and entertaining. Good Job everybody, Bonus checks are in the mail.
Goldman is just telling us that it really IS different this time, for them at least. That first graph just shows them 'breaking away' like the breakaway civilization they are.
It's different this time, but even Goldman is afraid to believe it. Bernanke could probably explain it to them, but maybe he hasn't, or they didn't believe it. I'm not sure if Yellen could explain it to them or not. And as to who's right - that's uncertain, too.
wolf
first of all is goldman the wizard of oz? does the analyst have a name? goldman says.. that means nothing...
whats goldmans first name? then of course puts cost more, what puts? deep out of the moneys? in 87 the volume of deep out of the money puts was exceptional. everyone knew it. it was prophetic, the official rationale was that investors?(who are they?) were selling puts and when those deep out of the money puts went into the money the game was over. how do you know if a large volume of puts is selling or buying initiated? you dont really, you can guess, the price goes higher, and the volume goes up. option selling is what the big institiutions do. they have the power to move the market at expiration and collect the premium.
a helluva a lot has happened since 87, now derivatives are the thing. options are horse and buggy. and goldman, who the hell is goldman?
To be honest.. I've lost patience with ZH pricks..
If you have'nt figured it out by now.. fk you.
Whatever....if your not convinced...you put your money where your mouth is or ,,, I'm wasting my time
Pump Prop Pimp Prolong CRASH.... Repeat
We are GS and we are here to help.....and do Gods work.
I've put my money where my mouth is in a BIG way...
1.) Sold my condo last November
2.) Bought land in Costa Rica (built house, barn, greenhouse)
3.) Bought a mountain of long-dated, out-of-the-money XLF puts
4.) Bought a lot of physical gold
Yet, here I am. Why...??
Because there are people in this world who "get it" and those who don't. I choose to spend my time hearing ideas and reading the comments from those who are intelligent enough to see things as they are.
Will the collapse happen today or tomorrow..?? I don't know. But it will. And a majority here on ZH get that.
Good day to you.... and please don't let the door hit you on the way out...
There's an inverted yield curve in a number of countries now and IF there's any "spill-over" effects which could take unknown forms that aren't understood right now, then things could move into various other markets across the globe having negative economic effects.The BEAR can return the favour bigtime.
There is simply a shortage of institutions willing to tie up for years the reserve capital requirements in order to sell long dated out of the money puts. That market strategy is perfect if one has an infinite money supply.