As reported by Zerohedge, Banana Republican economic confidence is at the highest level since 1929, if not forever. Compliments of their own bullshit-artist-in-chief. And really, who could warn them, they don't trust anyone who can be trusted. Needless to say this will be spectacular to say the least. The casino won't so much decline, as implode spontaneously due to non-stop mega lies and debt conflated as "GDP":
Despite the fact that all of the global risks coalesce this week - from trade war escalation (Monday) to Fed rate hikes on Wednesday - compliments of mass complacency, we are now very likely to see the highest volatility in U.S. market history. None of the risks are priced in, meaning that gamblers are still chasing the riskiest momentum sectors - small cap growth, pot stocks, and internet junk stocks at the end of the cycle. It's clear that some people like to learn the hard way - not at all.
Despite the fact that all of the global risks coalesce this week - from trade war escalation (Monday) to Fed rate hikes on Wednesday - compliments of mass complacency, we are now very likely to see the highest volatility in U.S. market history. None of the risks are priced in, meaning that gamblers are still chasing the riskiest momentum sectors - small cap growth, pot stocks, and internet junk stocks at the end of the cycle. It's clear that some people like to learn the hard way - not at all.
RISK OFF has not yet reached the U.S.
The consequence of not hedging is that volatility is now hyper-sensitive to moves in the underlying market. As we see via the middle pane (S&P 10 day % change), small downside moves in the S&P translate into massive moves in volatility. February saw the biggest one day percent increase in the VIX since 1987, on a relatively minor decline in the S&P. Compliments of "dynamic hedging", which is what caused the 1987 crash. Option pricing is non-linear ("convex") and impossible to predict ahead of time, other than to know that it will be wholly unaffordable.
Various prognosticators warned over a year ago what would happen if volatility shorts were forced to unwind. But those warnings were ignored, leading to February VolPlosion.
Subsequently, the February event itself had to be ignored, as the volatility short trade is still on in near-record size. What they apparently learned from February is that it's important to double down on a bad idea.
The defensive sectors (Utilities, Staples) are already rolling over. Which means there is no place to hide.
Subsequently, the February event itself had to be ignored, as the volatility short trade is still on in near-record size. What they apparently learned from February is that it's important to double down on a bad idea.
The defensive sectors (Utilities, Staples) are already rolling over. Which means there is no place to hide.
Gamblers are still massively overweight mega cap Tech. Last week's "reshuffling" of the S&P sector indices has led to even larger overweights in Apple and Microsoft.
The other thing the reshuffling did is that it took Google and Facebook out of the Tech sector and put them into a newly created sector called "Communications" that no one owns.
Which is why the Social Media stocks have lost their bid:
The other problem is that "someone" has been buying out-of-the-money put protection ahead of time. Which means that put protection costs are already elevated.
"Dynamic hedging" will now become "dynamic selling".
China Tech is re-imploding compliments of tariffs and rate hikes:
India is joining the downside party:
The fantasy du jour is that banks are a safe haven from rate hikes. Which is of course the exact opposite of the inconvenient truth.
The June rate hike saw the S&P banks take out the 200 day. And the March rate hike was a straight line test.
"Rising rates lift bank stocks, straight down"
As we can see from the lower pane, this has been a three wave correction of the first wave down in February:
