Guest Post by Macro Story.
I found something rather odd on Tuesday. The implied volatility skew was up 4.5% on the session, a decent move but nothing abnormal. The vix was also up 16% at the close and at one point 25.3% intraday. So on their own nothing abnormal.
But when you consider what each value measures then things become interesting. Very simply stated the vix measures implied volatility for options “at the money.” The skew measures implied volatility for options “out of the money.” Again this is a simplified explanation.
So in basic theory if investors see no risk in the market both the vix and the skew will be low as implied volatility for all options is low. As fear begins to creep in you would first see it in the skew where investors begin buying out of the money options as insurance and or speculation against “tail events.”
Australia’s agricultural commodities market resumed trading on Wednesday morning, a day after ASX, the exchange operator, shut it down in the wake of the collapse of MF Global, the FT reports. The exchange had said it took the decision on Tuesday to close the grain and wool markets “until further notice” given the large amount of outstanding contracts held by the US broker,http://ftalphaville.ft.com/thecut/2011/11/02/720671/australia-grain-and-wool-futures-resume-trading/
Regulators should have powers to limit banks’ ability to pay bonuses and dividends if they run into severe financial difficulties, according to the chief executive of HSBC. The FT reports Stuart Gulliver told a panel of parliamentary members that it would be “absolutely reasonable” for the Bank of England’s new financial policy committee to control such payments in extreme circumstances,http://ftalphaville.ft.com/thecut/2011/11/02/720611/hsbc-chief-backs-tighter-regulation/
John Paulson’s investors have signalled confidence in his ability to recover from severe losses in his flagship hedge funds, with the great majority choosing to keep their money with a manager who personally oversees $30bn in investments, http://ftalphaville.ft.com/thecut/2011/11/02/720581/most-investors-sticking-by-paulson/
In reality it is a vote on whether to stay in the Euro or not. A “no” vote would totally close Greece from refinancing it’s debt, and would cause a default and probably a goodbye to Euro.
Parliament to vote on the referendum probably later this week. If referendum is rejected, we will get new elections, as the current government would resign.
It will take several months to draft what the people are to vote about, so don’t expect any voting until next year. There might be legal issues with regards to the situation as the Greek constitution (article 44) does not permit referendums on fiscal matters.
Europe organized as always….
Don’t forget that secular bear markets can last for a very long time. The 1907 “panic” has so far been “replicated” by the 2008 crisis (still active). The 1907 crisis lasted for a very long time. Yes, this time is different, but not everything is better now, but one thing constant is the stupidity of people. From DShort.
Federal regulators have discovered that hundreds of millions of dollars in customer money has gone missing from MF Global in recent days, prompting an investigation into the brokerage firm, NYT DealBook says, http://ftalphaville.ft.com/thecut/2011/11/01/717731/regulators-investigating-mf-global/
Greece’s prime minister unexpectedly announced a referendum to approve a second EU bail-out deal for his austerity-hit country, less than a week after it was agreed with international creditors at a EU summit, http://ftalphaville.ft.com/thecut/2011/11/01/717581/greece-calls-referendum-on-eu-bail-out-2/
China’s official purchasing managers’ index for October fell to its lowest since February 2009, Bloomberg reports. The PMI fell to 50.4 in October from 51.2 in September, the first fall in three months.http://ftalphaville.ft.com/thecut/2011/11/01/717611/asian-pmis-come-in-low/
Money Printing and Inflation. This time is NOT different. Must see video with Mr Fergusson.