After ‘Great Liquidity Crisis,’ JPMorgan’s Kolanovic, Nomura’s McElligott Look Back And Ahead
Is the worst over?
That's the question on the lips of most market participants following the worst week for US equities since the crisis, a stretch that included another "worst since 1987" day, found the commercial paper market frozen and witnessed the Fed being forced to backstop money market funds and expand swap lines beyond the G-7 in order to prevent a public health crisis from morphing into another financial meltdown.
The answer to the question is: It depends.
If you're asking whether t
If we see fatality numbers like Italy is seeing — 650+ in the last 24 hours — all bets are off.
Yeah I suspect this… insane as it seems… is the calm before the storm. In a few weeks we’re going to be uppercut by unemployment and economic contraction. Everything could literally go to near zero if people start dying hundreds a day. No liquidity. No bids on anything that isn’t related to immediate survival. Economic Ice Nine.
Mar 20, 2020
Bellerophon Therapeutics, Inc. BLPH, +430.97% (“Bellerophon” or the “Company”), a clinical-stage biotherapeutics company, today announced that the U.S. Food and Drug Administration (FDA) has granted emergency expanded access allowing its proprietary inhaled nitric oxide (iNO) delivery system, INOpulse(R), to immediately be used for the treatment of COVID-19.
https://www.marketwatch.com/press-release/fda-grants-bellerophon-emergency-expanded-access-for-inopulser-for-the-treatment-of-covid-19-virus-2020-03-20?mod=mw_quote_news
This is BS. This drug will do almost nothing at present. It is based on Sars – 1. Sars 1 presented very quickly. It was not hard to catch it from it’s early stages, where this sort of drug has its efficacy. Sars 2 is now known to be fairly advanced by the time it presents therefore the window for using such a drug would be largely closed. If it ever has efficacy it will only be once we have a test that will identify a person at an early stage of infection before any symptoms.
All these pharmaceutical interventions are, at best, months away. My calcs say all hell will break loose starting in April and will continue to ramp up well into the summer before some what abating. We are stuck with NPI and that you can’t buy.
Kolanovic predicted a lot of things some Rosy Scenarios some not…. Everyone did the same thing including Newton in his law of gravity.. He is wonderful reading and great depth of understanding so we all proceed ahead enhanced by his efforts… Timing is everything and looking realistically from a distance where your eyes are focused ruled the day none the less…..
My concern is future earnings as they will relate to core organic valuation. I find it hard to believe that there won’t be future shoes to drop. Obviously deleverging has a current role as traders attempt to rebalance but the dynamic current shocks are a long way away from being placed into earnings reports, then, that process of sequential earnings losses will take several quarters to be processed and digested. It may take a full year to get the economics of this shock into perspective. Hence, I agree that volatility will decline from current levels but vix will linger in the stratosphere and not fall back to Earth anytime soon. Nonetheless, people will bet on perceived future earnings and be willing to accept potential earnings shortfalls linked to recovery. Normalcy will take time with sustained multi trillion losses and super weak earnings in a recession, so no hurry to jump in.
“That loop is turbocharged by the inverse correlation between volatility and market depth. As the former rises, the latter becomes impaired, which in turn amplifies the effect of a given buy/sell flow on prices, leading to wild swings.”
So why did volatility decline on Friday while the S&P dropped 4%? Much as I am a fan of Mr. Mcelligot’s efforts to bring order to the chaos under normal times, these are not normal times. I recall him saying recently that ‘there just wasn’t much left to sell’. That never made much sense to me, and here is where I reluctantly part ways with anyone who plays six dimensional chess while standing in front of a charging rhino.
Volatility is so high, that global systemic deleveraging is running the show Risk managers are telling their traders to sell everything. Buyers are scarce, end of story.
I’ll give you all a simple insight: The market does not exist -it is a figment of the human mind. It does not ‘return to equilibrium’ in a way that real-world systems do. The market behavior you see is all part of one long narrative. The human mind (when functioning normally) values the market according to the principles of ‘marginal utility’. And right now charts showing the market is oversold have much less value (or utility) than the peace of mind that comes from being in cash.
And if a stock represents a series of cash flows, then for many companies, expected positive cash flow is turning negative, if not zero. Zero cash flow is not a normal market condition, it is a symptom of the apocalypse.
No. That’s not correct Bob. He said there wasn’t much vol.-targeting exposure left to pare. Since then, vol.-targeting exposure hasn’t moved.
That is verified by every, single model on the Street. I can show you a dozen charts. It’s a fact. I would encourage you not to debate this with me because it isn’t debatable. He was, in that case, referring specifically to the vol.-targeting universe, which I very clearly spelled out at the time. (I’ve spelled it out a half-dozen times since then). This is math. It’s not a “discussion”. Here: https://heisenbergreport.com/wp-content/uploads/2020/03/VCSensitivityAnalysis.png
And your question about the VIX, don’t forget that although this particular case is extreme, VIX down/stocks down is hardly unprecedented. Neither is VIX up/stocks up. Also, think about options expiry. Also, this, from Crise, who predicted this a while back:
https://twitter.com/5thrule/status/1241093244290838528
H-Man, the market is driven by the news. All this gamma flow trading is driven by the news. It is reactive not predictive of what is to come. The only thing it does, it magnifies the news to the upside or downside.