Guest post by Vix and more.
The last four days have seen a dramatic decline in all things related to the VIX. The cash/spot VIX is down 26% from last Wednesday’s close as I write this and the VIX futures have followed the VIX down to varying degrees. The graphic below shows the changes in all the VIX contracts during the last four days – a period during which the entire VIX futures term structure has fallen sharply.
As is usually the case, the decline in the front month (June) contract is the sharpest of the group and has actually exceeded the decline in the cash/spot VIX during the same period. With the June contract set to expire at the open of trading tomorrow, it is not surprising that the contract have been as volatile as the VIX index in the last few days. Note that at the other end of the term structure, the back month (February 2013) VIX futures contracts have fallen only 6.8%, about ¼ of the decline seen in the front month futures. Given where we are in the current expiration cycle (right at the very end), the changes in the other months relative to the front month VIX futures are in line with historical norms.
The Trader wrote about Rajoy when Zapatero was kicked out. We asked ourselves how competent Rajoy was when it comes to solving the Spanish economic mess, inherited by Zapatero. Rajoy, gave a rather muted impression, and has since continued down the same path. Judging by the reforms and the action, Mr Rajoy seems to be stuck in the great Spanish denial, we have covered over the year. Rajoy needs to adress the real economic problems Spain faces, and not simply proclaim “Yesterday, the credibility of the euro won, yesterday the future won. Yesterday, the European Union won.”. A relevant question is whether Rajoy actually sees what needs to be done, or is he trapped in a “fantasy” world, just like Cervante’s Don Quijote. Some more on Rajoy’s credibility, by Bloomberg.
He clearly doesn’t get it,” said Gary Jenkins, founder of Swordfish Research Ltd. near London, who has tracked bond markets for more than 15 years. “Spain needs someone who can come in and grasp the seriousness of the situation and react to that, not just pretend everything’s okay.”
Then, he announced that since the banks’ funding problems were resolved he would continue with his plans to watch the national soccer team play that night and climbed aboard his government jet to fly to the Polish city of Gdansk.
After leaving Goldman Sachs, Monti was president at the Bocconi University. Since joining the political space, Monti has had serious problems with regards to “fixing” the Italian economy. People just don’t want austerity, and at the same time increased taxes. IN Italy, it simply doesn’t work. Would you pay, if you felt you are totally pushed into the corner? From Bloomberg.
“I didn’t pay it,” Di Pardo, 75, said of the levy that was the centerpiece of Monti’s austerity budget. “I get that we are on the edge of failure and disaster, but you can’t keep taking from ordinary people.”
“It’s not a huge amount,” said Dario Castiglia, chief executive officer of real estate broker RE/MAX Italia, which has about 200 agencies in Italy. “It’s just that Italians were used to not having any taxes for three years, and also it’s hitting home right when we’re in the middle of perhaps one of the worst recessions in decades.”
Some market charts from the second worst day of the year, by Doug Short.
The selloff in the benchmark S&P 500 was a steady downward slope to the second worst close of 2012, a loss for the day of 2.23%, just a few basis points from the 2.46% selloff on June 1st. What’s to blame? Take your pick: A week unemployment claimsreport, a nasty Philly Fed Business Outlook Survey, slowing worldwide manufacturing growth and rumors of bank rating downgrades.
The index is now up 5.40% for 2012, which is 6.59% off the interim closing high of April 2nd.
From an intermediate perspective, the S&P 500 is 95.9% above the March 2009 closing low and 15.3% below the nominal all-time high of October 2007.
First a 5-minute snapshot of today’s steady downward slope: