Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Minyan Mailbag: What's the Breaking Point?


...intervention is staving off market forces creating an illusion of calm.

Prof. Succo-

I write this because I have read the comments on Minyanville regarding the macro climate and risk profiles and find myself in complete agreement.

I have been trading option volatility in the futures markets for a long time now. Over the course of the past 7 years I have managed to make some good coin shorting equity vol (via the S&P 500 futures) when volatility spiked upwards. I hedge when required and always cut my positions when volatility flattens.

Well, during the market lift yesterday and continuing this morning I have completely switched my position to a small net long vol on equities for the first time in a long time. The macro situation is the scariest and the most complacent I have ever seen. I am beginning to think that the only question is what particular event will break the back of equities. Key worries? The list is long. The trade deficit, pending housing slowdown, overextended credit, low savings rate, bird flu, Iran, Iraq, terrorism, etc, etc, etc. We may or may not have a serious plunge in equities, but anyone who looks closely at the risk profile has to be concerned.


Minyan Robert

Minyan Robert,

I view this as correct thinking.

The risk/reward, risk premiums, compression…however you want to look at it relative to the macro situation is astounding. I believe the low volatility in the face of it is due to the immense liquidity being provided; in other words, massive intervention by central banks and governments.

This intervention is staving off market forces creating an illusion of calm. Low volatility, just like high asset prices, encourages investors to take more risk, an essential ingredient in keeping credit expanding. Of course I believe this only delays and worsens the inevitable market reaction. We have labeled this "compression."

The lessons of the fall of the Soviet economy, a socialist system of resource allocation, have been lost on nearly everyone.

< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos