Another no volume, no action day added. People have been busy buying lately, and volatility has collapsed. We are hearing the Goldilocks scenario about to unfold, while junior quants are telling us “time to sell vol”. Whatever one thinks of the market, please review what the market did did after the Real Smart Money sold. In 99 Goldman Sachs went public, in 2007 Blackrock went public, in June 2011, Glencore went public. This time, Facebook might just be selling the Top. On the other hand, many think “this time is different”….
So, the Economy is doing so great, that investors now eagerly want to pay the US to lend them money. With negative rates, this is simply crazy, but people are obviously obsessed with the return of the money, than the return on the money. The craziness goes on as the Comitee obviously thinks this is a great idea for investors. From the latest minutes;
He also noted that bid-to-cover ratios remained at healthy levels for all Treasury securities, with particularly high demand for 4-week bills. The elevated bid-to-cover ratios in 4-week bill auctions in late December were related to the rule that bounds bill auction stop-out rates at zero. The question was asked if it made sense for Treasury to permit bids and awards at negative interest rates in marketable Treasury bill auctions. DAS Rutherford noted that there were operational issues associated with such a rule change, but that the hurdles were not insurmountable. It was the unanimous view of the committee that Treasury should modify auction regulations to permit negative rate bidding and awards in Treasury bill auctions as soon as feasible. Rutherford noted that any decision on this policy change would likely be made at the May refunding. (full press release here).
Below are three volatility charts as the vix nears completion of a six month descending wedge pattern. This pattern should resolve within the coming week if not sooner.
Skew VS Vix
Nothing too definitive here. A similar divergence formed prior to the July selloff in equity but it has also given false divergences in the past so nothing too conclusive.
Market is continuing frustrating many. As assets have climbed higher, despite the pros being bearish, the tide is now turning. The bears have been “proven” wrong, and are now joining the bulls. With the absence of volume, the collapse in vol, and now the bears joining the bulls, things could start to get very interesting going forward. It is not time to get overly bearish yet, but watch that 1300 level. From Bloomberg;
Strategists at the biggest banks are capitulating on their bearish forecasts after the best start to a year for global stocks since 1994 and gains of more than 7 percent in emerging-market currencies.
Just two weeks after saying that investors should “remain cautious,” Larry Hatheway, the chief economist at UBS AG (UBSN), raised his recommendations on global shares and high-yield bonds in a Jan. 23 note to customers entitled, “Wrong, but not too late.” Royal Bank of Scotland Group Plc (RBS), and Benoit Anne, the global head of emerging-markets strategy at Societe Generale (GLE) SA, said their estimates for developing nations were proven wrong.
The MSCI All-Country World Index (MXWD) climbed 5.7 percent in January, surprising strategists at Bank of America Corp. (BAC),Goldman Sachs Group Inc. (GS) and Barclays Plc (BARC) who had forecast first-half losses because of Europe’s debt crisis. JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C), which predicted the rally in stocks, say it will continue as the U.S. housing market rebounds and China eases lending restrictions to bolster economic growth. (Full article here.)
Hudson giving an overview of current affairs with a fired up Lauren Lyster fresh back from Davos.
Guest Post by D Short.
The Q Ratio is a popular method of estimating the fair value of the stock market developed by Nobel Laureate James Tobin. It’s a fairly simple concept, but laborious to calculate. The Q Ratio is the total price of the market divided by the replacement cost of all its companies. Fortunately, the government does the work of accumulating the data for the calculation. The numbers are supplied in the Federal Reserve Z.1 Flow of Funds Accounts of the United States, which is released quarterly.
The first chart shows Q Ratio from 1900 to the present. I’ve calculated the ratio since the latest Fed data (through 2011 Q3) based on a subjective process of extrapolating the Z.1 data itself and factoring in the monthly averages of daily closes for the Vanguard Total Market ETF (VTI). Note: The Q4 data won’t be released by the Fed until March 8th.
IBM and Procter & Gamble have sold bonds with the lowest interest payments on record for US marketed corporate issues, as investors accept low returns for the safety of owning debt from secure companies, http://ftalphaville.ft.com/thecut/2012/02/02/864831/highly-rated-us-industrial-bonds-set-records/
Britain faces spending cuts “almost without historical or international precedent” over the next few years and, painful as the squeeze has been so far, it amounts to less than a 10th of what is planned by the 2016/17 fiscal year, http://ftalphaville.ft.com/thecut/2012/02/02/864861/ifs-warns-on-scale-of-spending-cuts/
The bill to revamp City regulation includes a “gaping hole” that could prevent important warnings from reaching the chancellor of the exchequer , Ed Balls, Labour’s shadow chancellor, has told the FT. Mr Balls – an architect of the current regulatory system which dispersed power between the Treasury,http://ftalphaville.ft.com/thecut/2012/02/02/864631/balls-sees-gaping-hole-in-city-revamp/
Foreign first-time-buyers are clambering to get into the London office market as sovereign wealth funds and cash-rich individuals seek stable assets amid the uncertainty in the global financial markets. http://ftalphaville.ft.com/thecut/2012/02/02/864611/foreign-buyers-snap-up-london-office-space/