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Credit Markets Ain't Buying It, Warn VIX Should Be At 25
On the basis of the fundamental economic backdrop, Goldman Sachs sees VIX fair-value at least 19, with low-teens more consistent with ISM in the upper 50s (not the current sub-50 levels). However, credit (and FX) protection markets imply significantly more risk ahead with CDX HY stalled at 2month lows (while VIX hits 3 month lows). Given historical relationships, credit markets suggest a VIX of 25 is more consistent with reality (especially as Skew tail risk rolls down to normal risk).
Credit Risk has not normalized...
And while FX and Oil volatility has fallen, it has not fallen as much as equity volatility...
Leaving VIX a clear outlier.
As we noted previously, The U.S. economic landscape & cross asset metrics both suggest a VIX in the high-teens.
Point 1. The business cycle: In last week’s edition of The Buzz we estimated that baseline VIX levels of 18 would be justified given the current U.S. economic landscape. Our point is not that the VIX will go to 18 tomorrow. It is that trend VIX levels should now be 4-5 points higher than the average level of 14 experienced in 2013-2014 given the current state of the economy.
In the same way that we have argued that VIX levels in the high 20’s and above are consistent with recessions (and therefore the VIX should have dropped over the past couple of weeks) we also argue that VIX levels in the high teens are more consistent with the current ISM level in the low 50’s. VIX levels in the low teens are more consistent with ISM levels in the upper 50’s.
And the impact of rate hikes on volatility has historically been modestly higher
Charts: Bloomberg and Goldman Sachs
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Simply referred to as being "VXX-slapped"
FUCK YOU, EQUITY MARKET!!!!!! BASTARDS!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Same 'ole tale of woe for shorts but if you wait by the river long enough you get to watch the bodies of your enemies float by.
And your enemies can stay on life support for longer than you can stay solvent.
Drop the Equity Markets by 60%.
The VIX should show that.
Fed wants to raise but won't without the market up. USD/JPY, ES_F, VIX policy tools are about to give new meaning to the term Bulltard.
Get ready for the 3:30 ramp. Its comin' and Hell's comin' w/ it!
it is 3:30... START THE FIREWORKS!
Market is quiet, so volatility is low. Sideways is dead money unless you are short volatility, in which case expect to make money most of the time and go bankrupt the rest of the time. Cash and gold have been working. Old market saying is never short a dull market, but I'm staying short anyway because I'm trading small and my outlook is intermediate term.
I'm adding more to my short position, betting tomorrow will be a disappointment.
No juice in the market. Acts like it is waiting for news, otherwise known as free money. If there is a rally, I might add tomorrow and/or later this week...not today, though.
Take a look at this chart:
http://blog.kimblechartingsolutions.com/2015/10/sp-500-not-a-good-place-...
it seems like the past two days, DOJIA wants to break higher but failed at ended up flat, its the signal that tomorrow, traders/investors will bring the market down regardless of ECB's action. The rally is simply out of gas. And I bet the last 10 mins of today's trading will bring DOJIA into more loss.
FYI, I have accumulated over $100,000 short position over the past few weeks, adding $5000 more each days from here if rally continues.
I'm slightly net long so the rebound over the last few wks has put me net higher as the long posiitons recover but the short positions take hits.
Relative outperformance vs SPX is (or was) 6x. Problem is options have wasting lives....
I keep telling myself its insurance! We hope we don't have to use it and gladly pay the premium.
Still, I feel as though I have been fleeced.....Well it was certainly fun to see those puts skyrocket on Aug 24!
The 4 week Treasury auction was conducted today and drew the lowest bidder participation since January 2005. But the 4 week Treasury bill High Yield was the highest since February 2014.
Hardly anybody wants 'em. Wonder why...