No Worries Anywhere: Vol Not Priced For Budget Ceiling Debate

Tyler Durden's picture

Via Global Macro Monitor,

Do the markets price risk anymore?   That seems to happens when the world is awash with central bank based liquidity.

We do see the VIX creeping back over 10 after trading with 8 handle for its only second time in history last Wednesday.

Just as with about everything else, with the exception of crude, which now seems to be pricing in some geopolitical risk,  very few markets are pricing for potential political or geopolitical shocks.

See our post,  No Worries In South Korean Markets,  with their currency and stock market ripping higher this year all while missilies fly up north.   The KOSPI did fall almost 2 percent on Friday,  however.

Non-worries over a budget debacle are quite understandable, however,  since the conflict always seems to work itself out, especially now we have one party rule.

Here is Credit Suisse,

There is “no event risk” currently priced in options that allow investors to hedge against or speculate over potential volatility on the S&P 500, the main US equities barometer, according to Mandy Xu, derivatives strategist at Credit Suisse.

 

…The tranquility in equities presents something of a juxtaposition to fixed income, where jitters have risen in a portion of the US Treasuries market.

 

 

FT

 

We are expecting several stock negative forces to converge in October, which, we believe, will generate a market sell-off as stocks continue to march higher the rest of the summer adding to their already overextended valuations.

1) seasonality;

 

2) the Fed balance sheet should, or could be shrinking ;

 

3) China’s Party Congress may have concluded, removing the country’s implicit policy put, and thus increasing the risk of a China policy or economic shock;

 

4) the new U.S. Federal government fiscal year begins October 1 and if the Trump administration has not passed any significant economic legislation, the markets may begin to throw in the towel;

 

5) there will be more clarity on ECB tapering;

 

6) even more elevated asset prices as the risk markets grind higher through the rest of summer as we suspect, setting up for a potential blow-off by the end of September;

 

7) nervousness over the debt ceiling;

 

and, finally, 8) by then, the souffle now being baked and puffed up by the markets should barely be able to withstand the slamming of the oven door.

 

  – GMM

Stay tuned.

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Manthong's picture

Risk Schmisk…

Just buy buy…   bye bye bye

You’re magnetic ink

https://www.youtube.com/watch?v=AukFsBv2oDY

 

El Hosel's picture

"The Tranquility in equities presents something of a juxtaposition"......

 

https://www.youtube.com/watch?v=C35Zhdk2V4U

Pop3y3too's picture

"There is "no event risk" priced in."

 

Right. There IS no risk because we've all caught on that this is all just theater for the unwashed masses but we've taken our morning (golden?) shower.

goldenbuddha454's picture

Mitch McConnel has never seen a debt ceiling he couldn't breach.

wmbz's picture

The debt ceiling "debate" is just one massive joke and waste of time.

There is no debate just bullshit and the ceiling goes up. Always!

yogibear's picture

Expect the debt ceiling to double again in 8 years to about $40 trillion. That's a given.

youngman's picture

You think the Healthcare was a fiasco...wait until the Debt ceiling..it will be a disaster.....they will shut down the government for a long time....I actuallly have no problem with that.....they will have to live with what they make for awhile...

yogibear's picture

No risk with the PPT and Central banksters buying stocks. 

Justbuy the indexes, same as they do.