Wall Street will be the last to know. They generate systemic risk, but ironically they don't hedge for it. There's nothing but self-interested bullshit emanating from Wall Street right now...
The Big Short Squeeze
Financial advisers are not paid to manage non-linear "fat tail" binary risk. In a world with zero volatility, statistically rare "events" are prohibitively expensive to hedge, therefore those hedge funds that actually still hedge use put spreads which give at most protection for a 10-20% decline. Anything beyond that and the second leg of the spread cancels out the first.
ZH: June 4, 2015
Hedge Funds Have Never Been More Exposed To Risk
"hedge funds raised net exposure to a record high of $785bn notional at the beginning of Q2 2015, up 6.1% QoQ and more than double the pre-crisis peak of $373bn (Q2 2007)."
Who will tell me when to sell? No one, you're fucked.
I say this because for some reason Etraders look to Wall Street and the financial media to tell them when risks of a "non-linear" event have accumulated to extreme levels. But unless said event can be monetized then Wall Street and its sycophant press will be the last to know.
Still invested in "Imagined Realities" after all this time
"There are times when an investor has no choice but to behave as though he believes in things that don't necessarily exist. For us, that means being willing to be long risk assets in the full knowledge of two things: that those assets may have no qualitative support; and second, that this is all going to end painfully. The good news is that mankind clearly has the ability to suspend rational judgment long and often."
"I still believe that the attempt by central bankers to prevent the private sector from deleveraging via a non-stop parade of asset price bubbles will end in tears. But I no longer think that anyone can say when."
"China is set to record its weakest growth in GDP in 25 years. Yet it seems to have entered a bull market and may be where we deploy much more of our risk capital next year. That's because the recent exuberant run up in onshore Chinese equities seems to me to amply demonstrate the power of imagined realities."
It's called conflict of interest. Something the Idiocracy hasn't learned. Yet.
Those of us bloggers who make assessments independent of a conflict of interest and independent of worrying about our mark-to-market P&L, are "off the radar" for Wall Street. We are safely beyond their purview. We don't exist.
Index put/call ratio:
Therefore, we can safely assume that they can't see it coming. Because unlike 2008's Big (Subprime) Short, there is no way to monetize a binary collapse of statistically "unknown" termination. Everyone 'knows' it will end, but they don't know which day. And to them that's all important. They need precise timing of the inevitable in order to monetize it. Hence we know that the crater shall be deep and wide. And the RomneyBots who rail away at the "47%" and the foodstamp "Socialism" they generated, will be a sad footnote in history.
By their own hand.
The new Sodom and Gomorrah has been judged. There is no way that this could all end more "abruptly" and "unforeseen".