International markets traders banter

[hhse]

See for yourself

https://marketsci.wordpress.com/201...dly-following-the-vix-futures-term-structure/
https://marketsci.wordpress.com/201...ing-volatility-etps-term-structure-following/

As acknowledged by study, it's too simplistic to verify. Things that were not considered were: negative roll yields on volatility products; volatility tends to spike, and not gradually creep up. Also, entry/exit points - it's easy enough to pick in hindsight.

Having said that, I'm sure there are people trading it successfully. However, it would be easier to go bearish volatility during times of backwardation as these last for shorter time frames as can be seen from the urls graph.

 

[sinner]

As acknowledged by study, it's too simplistic to verify. Things that were not considered were: negative roll yields on volatility products; volatility tends to spike, and not gradually creep up. Also, entry/exit points - it's easy enough to pick in hindsight.

Having said that, I'm sure there are people trading it successfully. However, it would be easier to go bearish volatility during times of backwardation as these last for shorter time frames as can be seen from the urls graph.

marketsci trades about half of their client money using a strategy based on this foundation with good results. I think the other half uses the same foundation as a partial signal on VIX ETP mean reversion trades. The required refinements to turn it into a proper strat are not too hard to find in the blogosphere, lots and lots of people researching the VIX ETPs now

Term structure (buy backwardation, sell contango) is a valid signal in a lot of commodity futures as well (decent results had from doublesorting with momentum). The basic premise is that backwardation is the result of current demand being higher than future demand, so if you can catch the instrument as the term structure turns you will probably be able to front-run a bunch of demand. (here is a realtime example of demand causing backwardation http://www.zerohedge.com/news/2015-...a-distorts-mid-east-oil-price-baffles-traders)

What you're describing is essentially the ability to pick tops and bottoms in the term structure, but these other strategies are simply betting on the momentum of the current term structure.

--
On another note, it looks like another night of weakness in US markets == EUR strength. By my available measurements (SWFX Sentiment Index), it doesn't really look like the market is crowded, so I doubt this is a short squeeze or anything. Money flowing in weird directions.

 

[CanOz]

I'm guessing the bund /eurostoxx is showing a similar correlation...where is the risk off trade going if it's not into interest rate products?

 

[Wysiwyg]

Wicked selloff U.S. near the close. Didn't know their match up was before close as opposed to our 10 mins. after the close match up.

 

[kid hustlr]

I'm guessing the bund /eurostoxx is showing a similar correlation...where is the risk off trade going if it's not into interest rate products?

Was thinking the same thing. ZH (take it with a grain of salt obviously) suggested mechanics seem to be different at the moment. Where is everyone running for cover?

EDIT: Then again why would you buy a bond yield nothing

 

[sinner]

I'm guessing the bund /eurostoxx is showing a similar correlation...where is the risk off trade going if it's not into interest rate products?

90 day bills? physical cash? gold? overseas? credit money doesnt have to slosh around in the system, paying off debt causes it to be destroyed.

theres no meaningful long term negative correlation between stocks and gov bonds, the relationship youre expecting only really got underway in 2007. keep in mind that the long term return for US stocks and US bonds since 1982 is actually pretty similar.

 

[sinner]

where is the risk off trade going if it's not into interest rate products?

 

[shouldaindex]

Off August Lows:

Hang Seng 0%
ASX 3%
FTSE 3%
Dow Jones 4%
Shanghai 11%

Europe, U.S expected looking at gains tonight based on futures.

 

[CanOz]

Europe, U.S expected looking at gains tonight based on futures.

A gap open you mean?

 

[shouldaindex]

An hour ago it looked like it, looks like futures have pared back some of the expected gap.

 

[Smurf1976]

90 day bills? physical cash? gold? overseas? credit money doesnt have to slosh around in the system, paying off debt causes it to be destroyed.

I don't have any figures, but if the market loses say $10 billion of total value then that's really just a reflection of the current price of shares. There doesn't need to be anywhere near $10 billion of money actually removed from the market, all it needs is a few keen sellers and a lack of buyers.

Borrowed money is another one. If you've got debt and can't find a means to invest it profitably then simply handing the money back to the bank, thus making it effectively disappear, is a very valid option.

 

[sinner]

I don't have any figures, but if the market loses say $10 billion of total value then that's really just a reflection of the current price of shares. There doesn't need to be anywhere near $10 billion of money actually removed from the market, all it needs is a few keen sellers and a lack of buyers.

Yup, didn't we have a conversation about this re Gina Reinhart in another thread yesterday?

The market losing $10b is, as you say, a valuation not cashflow metric. But regardless of volume, those who sold will receive a credit for their sale. If the purchase was on margin then a goodly chunk of that credit will be returned to the margin lender. The rest has to go somewhere, it's an axiom of accounting.

 

[MARKETWINNER]

According to Goldman Sacks group, S&P 500 would approach its all-time high in December 2015 and their year end target is 2100.

http://www.bloomberg.com/news/artic...history-shows-u-s-stocks-rebound-needs-months

When Will It End? History Shows U.S. Stocks Rebound Needs Months

Others are even more optimistic. For example Oppenheimer is calling S & P 500 at 2311.

http://www.cnbc.com/2015/09/02/s-bold-call-2311-for-the-sp-500-by-year-end.html

Oppenheimer's bold call: 2,311 for the S&P 500 by year-end

After this selloff, globally markets should rebound strongly in the coming weeks and months. I believe current global selloff and volatility has created opportunities in almost all types of markets such as developed, emerging and frontiers markets. Frontier markets have more opportunity on valuation and growth. Within 2 decades, the Frontier Markets will be home to nearly half of the world’s population.

Why invest in frontier markets?

They have rapidly rising middle class

They are some of the world’s fastest growing economies

They have more undervalued stock markets in the world

Some investors view Asian and African frontier markets as a more attractive investment destination than emerging markets. There are great opportunities in frontier markets such as Sri-Lanka, Bangladesh, Vietnam, Nigeria and Kenya.

In addition, current situation has created another great opportunity. We should not forget following two things as well.

•Interest rates low
•Commodity inflation nil

Companies in some industries such as Grain Elevators, meat companies, Airlines, ship and aircraft builders etc will be next winners in the global markets. Commodity currencies will go down further. Frontier markets will have more opportunities due to attractive valuation. Their currencies are also stable.

There will be great opportunities in DOW and NASDAQ as well. In addition, there will be emerging commodities such as Tea and solar. Finally there will be more demand for defensive stocks such as health care and food related stocks.

My ideas are not a recommendation to either buy or sell any security, commodity or currency. Please do your own research prior to making any investment decisions. Please note that I do not endorse or take responsibility for material in the above hyper-linked sites.

 

[sinner]

Associated Press already banging on the drum

http://abcnews.go.com/International/wireStory/wobbly-euro-economy-bigger-push-central-bank-33446420

Sorry Mario, but $1 trillion over 3 years is not going to cut it anymore.

Warming up the money cannon:

http://www.telegraph.co.uk/finance/...ummets-commiting-to-more-QE-if-necessary.html

Mr Dragh repeats his comments on QE flexibility. The ECB is ready to "adapt the parameters of the programme" if needs be.

The ECB has shifted the issue share limit of bonds it is able to buy from 25pc to 33pc, in order to ensure "smooth" and "complete" execution.

Nice try Mario, but I think you and Janet are going to end up wheeling out the big gun.

 

[sinner]

EDIT: LOL ignore me, I forgot to have my coffee this morning.

 

[shouldaindex]

So what are the chances of Yellen doing QE4 instead of a rate hike?

 

[sinner]

So what are the chances of Yellen doing QE4 instead of a rate hike?

Rate hike is not happening man.

I remember I was in Hong Kong about 6 months ago for work, was watching Bloomberg with a colleague and all the talking heads were giving off very convincing noises about rate hikes and so on.

At the time the market implied probability of rate hike in September was like 70-80%.

I was trying to explain to him how they can't hike rates, because it would entail a reduction in their balance sheet (or significant real GDP growth) and I just couldn't see balance sheet reduction (or GDP growth) happening.

Fast forward to today, market implied probability of rate hike in Sept is <20%, basically the market is now pricing for March 2016 rate hike. Most everyone betting on the curve to steepen also got creamed as it continued to flatten.

Ask yourself, do you think the Fed balance sheet will contract or expand by March 2016? GDP to contract or expand? Because however you answer that is also the answer to the probability of rate hike.

As for QE, well, so long as the US Federal budget has a deficit larger than the trade deficit, I think we can expect more QEs and POMOs from the Fed. The less Treasury flow the rest of the world buys, the more flow the US corporate sector and Federal Reserve itself must buy.

 

[PinguPingu]

No rate hike = no change in liquidity for EM's = Shanghai bounce next weel?

 

[shouldaindex]

I'm unsure how the U.S Market reacts to either a hike or no hike.

Like to hear any further opinions.

It may even be a lose-lose or win-win scenario, people just want the news either way.

 

[sinner]

I'm unsure how the U.S Market reacts to either a hike or no hike.

Like to hear any further opinions.

It may even be a lose-lose or win-win scenario, people just want the news either way.

US dollar, US credit, US stocks just spent the last 6-9 months "pricing in"/anticipating a rate hike!

I think there would need to be a surprise decision to move the markets significantly, either a hike or a cut ...25bps either way ain't gonna move much at this point.

I also assume the market will probably punish any perceived inaction, so a "no hike" move will not be good for sentiment. Better to do anything than nothing, I am sure the market will be thinking.