The VXX is an ETN designed to track VIX futures. Investing in VXX is essentially equivalent to exposure to daily rolling long position in the first and second month VIX futures contracts. An investment represents the implied volatility of the S&P 500 at various points along the volatility forward curve. What is the relationship between VXX and VIX? Read the rest of this entry »
My followers must know by now that my favorite finance commentary in the blogosphere is “Tyler Durden’s” zero hedge. Recently, I cited zero hedge in their analysis that implied correlations are at extreme highs. Once again, the JCJ, or the CBOE Implied Correlation Index almost hit 85 today, the highest level in history. Here’s Tyler’s thoughts. Read the rest of this entry »
“Cutting back willy-nilly on high-return investments just to make the picture of the deficit look better is really foolish,” says Joseph Stiglitz, a Noble Prize-winning professor on the European economy. Read the rest of this entry »
In my previous macro posts I analyzed how implied correlations are skyrocketing. As we gear towards the final weeks of low volume summer activity, we are witnessing fundamental problems and uncertainties escalating in the market. Retail investors are losing confidence in the nature and culture of capital markets, institutions are losing ground and flying to safety as yields on treasury bonds have plummeted, and high frequency trading shops control the rest of the limited market activity. Here’s a look at some empirical charts posted on zero hedge highlighting just how “lock step” the markets are these days. Here’s a fascinating analysis “Tyler Durden” highlights:
“Among U.S. stock market sectors, correlations declined very modestly, but remain at near-record highs. Five of the ten industries we track still have correlations to the S&P 500 of at least 95%, and the lowest correlations are around 83% (Utilities and Consumer Staples). Four months ago the lowest correlations were 65-66% (Health Care and Utilities).”
Asset allocation explains 90% of the variability in a portfolio, a common thesis in the investment community. State Street recently published a report that details how investors should structure their portfolios and allocate assets from a different approach, leaving behind pieces of Modern Portfolio Theory (MPT). Here’s what they have to say and what it means. Read the rest of this entry »
(source: zero hedge)
Gold has been an extremely interesting trade, and fascinating benchmark to watch the last few months. After hitting a high of 1266 in mid-June, gold pulled back to 1156 at the last week of July. In general, the gold market has been through a lot of rough patches, given the current uncertainty of the summer’s volatile environment and macro influences. Here’s a brief technical outlook. Read the rest of this entry »
Back in April the 10-year bond yield hit 4%, but since then, yields have taken a huge hit, dropping to below 3%. Earlier this year, strategists were advocating shorting treasuries on anticipation of inflation and eventual raising of interest rates. For many, this has been a complete disaster. Read the rest of this entry »
The economic data point that everyone was waiting for all week scheduled for Friday 8:30 AM was a disappointment, sending the market futures lower. Here’s a look at the employment situation, and how working age population growth is outnumbering job creation.
Tyler Durden at Zero Hedge is famous for his pessimism towards Wall Street, his hatred for Goldman Sachs, and lack of trust in overly optimistic sell-side analysts. Here’s another hilarious outtake, this time criticizing Bank of America’s Economist Neil Dutta.
“Well, Neil, your permabullish forecast has once again come well short of reality. It is time to admit you have been wrong, and no, saying next month’s NFP will finally be better is just not going to cut it anymore: even Christina Romer got that memo. So please spare us the sugar coating and for once tell the truth as you see it, and not as your corporate overlords at 1 Bryant Park demand you spin it. For your own sake.”
Read the full rant here: http://www.zerohedge.com/article/it-time-bofas-economist-neil-dutta-change-his-permabullish-tune
I wanted to share this a week ago when I came across the article on Wall Street Cheat Sheet. The following piece shows some startling statistics demonstrating that we have a fundamental problem, a widening gap between the rich and poor. The middle class that America was so famous for is now deteriorating, as the rich are getting richer and the poor are getting poorer. Michael Snyder of The Economic Collapse does an excellent job of breaking down the numbers and reasons behind this trend. Although we have been primarily concerned with the labor markets, European failures, financial reform, double dip, and deflation, the evaporation of the middle class should not be overlooked.
Once again, Barton Biggs, co-founder of Traxis Partners, has changed his viewpoint on the economy. In an interview with Bloomberg earlier today, he has become bullish, reversing his bearish stance earlier this month. His timing has been pretty good. Read the rest of this entry »
The George W. Bush tax cuts signed into law in 2001 and 2003 are set to expire this year. With all the bearish outlook on the budget deficit sparking economists’ attention, the American tax payer has to wonder, and perhaps begin to prepare for what’s to come. Democrats are hoping the tax cuts expire as they believe any other action would prevent growth and recovery while Republicans are concerned that without tax cuts, businesses will not have the capital they need to reinvest, hire workers, and bring the economy back to full recovery. The following is an interesting recommendation by WSJ columnist Alan Blinder. Read the rest of this entry »
The following article is by Philippe Bacchetta, Cedric Tille, and Eric van Wincoop, renowned economists and contributors to VoxEU, one of my favorite macroeconomic research commentary. The authors argue that macro fundamentals are only part of the equation explaining recent economic activity and poor performance. Rather, the three economists pose that it is shifts in risk perceptions that has caused such recent negativity. This is a very interesting piece that uses the Lehman crash as an example, and the Greek debt crisis to support the argument.
Tail-risk hedging is an emerging trend in the world of alternative investments, especially in today’s volatile economic climate. The concept entails protect against major, but low probability, market risks that could cause the financial markets to decline tremendously as did by the flash crash and major losses during the collapse in 2008. I read an interesting post by Felix Salmon on Pine River Capital Management’s approach to tail-risk. The investment firm launched a new fund that essentially acts as insurance against major downward movements.
“Is It Possible to Hedge Tail Risk?” By Felix Salmon
“Tail-risk hedging the talk of the town” By Christine Williamson
