All things are never equal, and they are not equal now x.com/i/article/2112…
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Really good audience, I went last and they were engaged. Jared has a high quality group of subscribers!
This week, I hosted my annual Daily Dirtnap conference in Nashville. About 140 people were in attendance, with some of the brightest minds in finance as presenters. And a party at Nashville's greatest underground club!
Everything about it was perfect. And thanks to all those ails so I could focus on the content. We'll be doing it again next year.
Thanks to speakers: @TgMacro, @EricBalchunas, @barryknapp, @VD718, @Seawolfcap, @JanvanEck3, @CultishCreative, @MebFaber, @cafreiman, @pboockvar, Mark Lapolla, John Burns, and Marcin Zdunek.
If you want to come to the best financial conference on earth, you must be a subscriber to The Daily Dirtnap. DM me for details (and a discount).
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Ironsides Macro retweeted
TLDR: movement in the $VIX and VIX options yesterday far outstripped moves in the SPX. there's information about market fragility here that we should be mindful of.
the VIX and SPX are negatively correlated. run the regression and it's on the order of -80%. but the slope of the IX per change in the SPX) is time varying. we have periods when the VIX moves a ton relative to the SPX move (Feb'18 volmagedon). in contrast, 2022 brought an extremely dull VIX, muted reactive to moves in the SPX.
yesterday, especially from 12:30 to 1:30pm, both the VIX and $VVIX moved a great deal relative to the move in the SPX. I show this below (thank you, Claude). typical VIX beta (% move in VIX per 1% move in the SPX) has been around 7. yesterday it reached on the order of 50. from 12:30 to 1:30, SPX down just 60bps...VIX up 29% (50x)...
talking my own thinking here, but there is no security in markets better equipped (at a low price) to hedge a near term crash than a short-dated out of the money call option on the VIX. this is what got really bid yesterday. the Oct 25 call (expires Wednesday) went from being worth 6 cents in the morning to more than $1 a few hours later. it exploded not just because the VIX rose so much, but because "vol of vol" surged as well.
no security is more "spot up, vol up" than the VIX itself. it will be interesting to see if this was a one-off or indicative of a larger shift in behavior where investor seek to cover deep left tail risk.
the VIX and SPX are negatively correlated. run the regression and it's on the order of -80%. but the slope of the IX per change in the SPX) is time varying. we have periods when the VIX moves a ton relative to the SPX move (Feb'18 volmagedon). in contrast, 2022 brought an extremely dull VIX, muted reactive to moves in the SPX.
yesterday, especially from 12:30 to 1:30pm, both the VIX and $VVIX moved a great deal relative to the move in the SPX. I show this below (thank you, Claude). typical VIX beta (% move in VIX per 1% move in the SPX) has been around 7. yesterday it reached on the order of 50. from 12:30 to 1:30, SPX down just 60bps...VIX up 29% (50x)...
talking my own thinking here, but there is no security in markets better equipped (at a low price) to hedge a near term crash than a short-dated out of the money call option on the VIX. this is what got really bid yesterday. the Oct 25 call (expires Wednesday) went from being worth 6 cents in the morning to more than $1 a few hours later. it exploded not just because the VIX rose so much, but because "vol of vol" surged as well.
no security is more "spot up, vol up" than the VIX itself. it will be interesting to see if this was a one-off or indicative of a larger shift in behavior where investor seek to cover deep left tail risk.
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Any disinflationary impulse from the Fed’s rate hike(s) is likely to be swamped by the longer run inflationary effect on financing government debt x.com/i/article/2109…
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The Fed policy path started the fire in the long end, but even with October hike expectations cooling the correction intensified. x.com/i/article/2107…
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Monday Morning Briefer Brief, by @barryknapp ironsidesmacro.substack.com/p/monday-morni…
The Fed, perhaps unknowingly, is betting the ranch on the K-shaped economy being particularly special, perhaps hoping for a productivity prize at the bottom of the box.
The Fed, perhaps unknowingly, is betting the ranch on the K-shaped economy being particularly special, perhaps hoping for a productivity prize at the bottom of the box.
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Insightful observations from Anna, the economic justification for this hiking cycle is weak. The Chair has another agenda in our view.
Debate on cause of rise of the long term bond yields:
Two models, both produced by economists affiliated with the Fed:
1) ACM (it’s all real yields/growth/ppl expect Fed to hike)
2) KM (it is term premium)
Warsh picked the former interpretation. As did the rest of the FOMC, implied in the SEP
More than a year ago, debate on whether tariffs would generate persistent vs transitory inflation:
Two models also from Fed affiliated economists:
1) tariffs generate persistent inflation (new research)
2) tariffs deflationary in the long term, and initially a one off price change (from a long standing structural model that proved to be correct in 2018)
The FOMC adopted the first interpretation, until facts showed otherwise today.
Tell me that economics is not a dismal science.
At least the Fed should debate about this, disagree. That is not what the SEP show.
Group think is rearing its ugly head inside the Fed again.
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We sounded exceedingly bearish during this interview on Sunday, for context I had just won a big golf match! What is happening in the rates market today is what we expect to persist until and unless the Fed ends their ill-advised pursuit of target intended to communicate determination to avoid deflation. As Goolsbee put it, there will be pain.
If Fed embarks on additional rate hikes, that'd be a 'massive policy mistake': Economist cnb.cx/4iEO8Ta
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Monday Morning Briefer Brief, by @barryknapp ironsidesmacro.substack.com/p/monday-morni…
The Fed policy path, not inflation or term premium, explains the pressure on the ‘world’s most important asset’.
The Fed policy path, not inflation or term premium, explains the pressure on the ‘world’s most important asset’.
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If Fed embarks on additional rate hikes, that'd be a 'massive policy mistake': Economist cnb.cx/4iEO8Ta
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Resilient consumer?
If you take a deep breath and look at the trend in the control series of retail sales the picture that emerges is the adverse demand shocks/detox (government spending growth deceleration, immigration, tariffs) bottoming out in January, and the subsequent al stimulus more than offsetting another demand shock (energy). The fiscal stimulus is fading. @SaraEisen @KellyCNBC @EconguyRosie
If you take a deep breath and look at the trend in the control series of retail sales the picture that emerges is the adverse demand shocks/detox (government spending growth deceleration, immigration, tariffs) bottoming out in January, and the subsequent al stimulus more than offsetting another demand shock (energy). The fiscal stimulus is fading. @SaraEisen @KellyCNBC @EconguyRosie
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Monday Morning Briefer Brief, by @barryknapp ironsidesmacro.substack.com/p/monday-morni…
Rate hikes will only stabilize the long end of the Treasury when they drive interest sensitive sectors into a deeper ditch. Doubling down on Powell Fed unbalanced policy is a mistake.
Rate hikes will only stabilize the long end of the Treasury when they drive interest sensitive sectors into a deeper ditch. Doubling down on Powell Fed unbalanced policy is a mistake.
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Reflections on 9/11 , by @barryknapp ironsidesmacro.substack.com/p/reflections-…
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Ironsides Macro retweeted
Ahead of Friday’s CPI report, @barryknapp assesses the inflation outlook and the Fed’s potential rate path.
He explains what may be the “knife edge” for markets and what could lead to a “decent pullback” in equities.
For more: schwabnetwork.com/?CID=SM:Twitte…
He explains what may be the “knife edge” for markets and what could lead to a “decent pullback” in equities.
For more: schwabnetwork.com/?CID=SM:Twitte…
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Monday Morning Briefer Brief, by @barryknapp ironsidesmacro.substack.com/p/monday-morni…
It’s time to dust off the Fed tightening playbook. The volatility shocks have been larger during the QE era. Record low equity implied correlation could turbocharge a pullback.
It’s time to dust off the Fed tightening playbook. The volatility shocks have been larger during the QE era. Record low equity implied correlation could turbocharge a pullback.
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