It has been a rather peculiar market for the past months. Big ups and downs have produced a rather “strange” market. With mean reversion and correlations running at extremely high levels, one should not forget what this implies. With the holiday season coming up, vol will probably be sold off further, and create the inverted panic, where less experienced traders soon will start puking vol. Earlier this week we got this comment from one of the bigger desks in NY, “man vix is going below 20, this market simply isn’t realizing that vol”. As per usual we will quote Taleb, “buy vol when you can, not when you must”. This is probably the most true about vol we have learnt over the many years of options trading we have been involved in. Don’t forget to review correlations and the implications on the markets. This time around, we also have the HFT Algos, that will exaggerate every move if we get a big one. CSFB had a good report out earlier this year, view below;
Yesterday was another pathetic questioning in the MF Global scandal. It is rather clear, the financial industry is a highly unregulated area, poorly overseen by the regulators. The story is always following the same path, the CEO, the CFO, the board did not know anything. The Risk manager seems always to have been asleep. The same goes for Soc Gen, UBS and now MF Global. We can’t but wonder what do these high fliers get paid for? While staying at the Ritz Carlton, Corzine was asked some more questions during yesterday’s hearing. One of the better “live” articles on the matter, by National Hog Farmer. To be continued, that’s for sure;
Committee questions on Tuesday, a trio of MF Global executives may have thought they’d slipped the noose. In the face of increasingly exasperated committee member questions, the executives – responsible for the eighth-largest bankruptcy in U.S. history and the odd, potentially criminal, loss of an estimated $1.2 billion in customer funds – exhibited amnesia symptoms, reciting a wide range of variations on “I don’t recall.”
But immediately after the executives were dismissed, the CME Group’s Terrance Duffy gave testimony under oath that contradicted former MF Global head Jon Corzine’s claims of ignorance regarding the disappearance of customer funds.
In the days just prior to MF Global’s demise, CME – tasked with auditing MF Global’s futures business – had auditors reviewing the firm’s segregation reports. The Oct. 26 and Oct. 27 reports, said Duffy, showed the firm in full compliance.
While majority are focusing if Santa is coming or not, we try thinking about the “extreme” events that could happen, with the latest developments in Europe. With the Euro zone in a total mess, the dynamic tensions could soon start to get out of hand. Beyond all the summits, conferences, politicians shaking hands, there is real life. People in Greece are feeling the pain. The same goes for Spain and the other “suffering” nations. Unemployment is hitting new highs, people are forced working for less, many of the well educated are leaving their home countries. All this is creating massive frustration among people and governments. People earn less, governments collect less taxes, while the “creditors” demand austerity. This whole situation risks turning into a total “de unification” of Europe. We might have a Santa rally, but let’s not forget, Europe is boiling below the surface. Remember what happened in former Yugoslavia? Below great paper on what caused the break up of Yugoslavia. Change Slovenia to Germany, and Kosovo, Montenegro to the PIIGS, and we get a sense of deja vú. From David Chandler;
The problem of Yugoslav fragmentation had been a subject of concern since the mid- 1960s, as economic reform and increasing exposure to the world market highlighted the uneven economic development within the federation. More industrialised republics which had greater financial contacts with the West, such as Slovenia and Croatia, came to resent the subsidies and cross-payments to the less developed regions, such as Montenegro, Macedonia and Kosovo.
JPMorgan sold $1.25bn of 30-year bonds on Thursday, paying historically low interest rates in spite of mounting concerns about banks around the world, the FT says. The bank benefited from plummeting yields on US Treasury bonds, http://ftalphaville.ft.com/thecut/2011/12/16/803211/jpmorgan-snares-record-low-rates-in-bond-sale/
Barclays Capital is preparing for the sale of more than €1bn worth of German apartments, reports the FT, citing people familiar with the process as saying the bank has held discussions about the sale of the portfolio with private equity buyers, http://ftalphaville.ft.com/thecut/2011/12/16/803071/barcap-set-for-e1bn-sale-of-german-property/
A draft prospectus prepared for the latest eurozone bail-out instruments includes explicit warnings to investors that the euro could break apart or even cease to be a “lawful currency” entirely, says the FT,http://ftalphaville.ft.com/thecut/2011/12/16/802921/efsf-prospectus-may-warn-of-euro-break-up/
Research in Motion, the Canadian manufacturer of the BlackBerry family of smartphones and the PlayBook tablet, responded to falling profits, product problems and investor disenchantment by cutting its co-chief executives’ salaries to $1 each next year and pledging a “comprehensive review”. http://ftalphaville.ft.com/thecut/2011/12/16/803021/rim-co-chiefs-salaries-cut-to-1-each-amid-crisis/