Category Archives: Stocks

Res Ipsa Loquitur


There are two big speculative shorts out there, just begging for squeezes. One of course is the record short position in Treasuries. Interest rates going up? Must mean short the long end, amirite? Not if recent history is any guide. The other is in volatility, where hedge funds are shorter than they were before the February massacre.

Wag The Dog

As I have said many times before, I believe the biggest mistake the CFTC has ever made is the securitization of VIX. This decision has allowed VIX futures, options and ETFs, trading in any and all of which provides staggering leverage on the overall market. Here’s a piece which shows both how easy it is to manipulate VIX, and the effect of VIX manipulation on the overall market.

I’m watching this as I write, as the manipulators crush price discovery. Of course the eventual consequences of this will be catastrophic – the “Volgasm” of early February was just the fat lady clearing her throat.


“Just a flesh wound,” said the Black Knight.

Fed Minutes

Another day, more blather from the Fed. Risk is “on” with a vengeance as the Fed continues to demonstrate its unwillingness to “take away the punch bowl” as Fed Chairman Martin put it.  Apparently there is no such thing, in their minds, as too much stimulus. We’ll see about that. In my view, a financial catastrophe is almost inevitable at this point. Overpriced stocks and the fear of inflation have always been a toxic mixture. Add in the overhang of aggregate debt somewhere in the neighborhood of 350-400% of GDP and you have a recipe for a protracted decline to well below fair value, unlike 1987’s brief shock.


VIX Shorts Crater Stocks

Well the bad news is I covered my shorts way too early.

The good news is that we seem to be rid of these inverse volatility products that have been plaguing the market. As I have mentioned before, authorizing securitization of the VIX was a really, really bad idea.

Sir Isaac, Where Are You?

One of the hallmarks of the 1720 South Seas Bubble was the proliferation of new ventures. Especially of note was one – that received funding – which gave its business as “A great enterprise, and noone to know what it is.” (BTW – still unknown)

Well, according to the WSJ, $14 billion has been invested in such companies so far this year.

Just Sayin’

Fun fact: The last time the S&P 500 futures gapped up > 0.5% and traded to a multi-year high before reversing to close negative on the day was January 3, 2000.

Two Easy Pieces

Another excellent piece by Matt Tabibi – The Great College Loan Swindle.

The education industry as a whole is a con. In fact, since the mortgage business blew up in 2008, education and student debt is probably our reigning unexposed nation-wide scam.

One for the history file from zero hedge – The ‘Hyper-Crash’ Is Coming – It’s Not The Everything Bubble, It’s The Global Short Volatility Bubble

  • Instead of being an external measure of risk, volatility has become a tradeable input – making it reflexive in nature;
  • As volatility falls, investors (using leverage) take bigger bets in the same direction, so lower volatility begets lower volatility.
  • The global short volatility trade is more than $2 trillion;

Making volatility easily tradeable will, IMO, turn out to have been the biggest regulatory error in history. It has long been possible to trade volatility by the use of long out-of-the-money put options, but this trading was never large and does not seem to have been pernicious.

Risk and volatility are equated in the algorithmic trader’s lexicon. But risk never goes away – it can be moved around but not eliminated. Tradeable volatility is giving the illusion that this axiom is false, that risk can be eliminated with a few taps of a magic wand on the VIX futures. I don’t think so.

The Bitcoin Market

A Bitcoin token now trades for about $7,000. In 2009, 10,000 bitcoins bought two Papa John’s pizzas. It has no value in any investment sense – it has no utility, cash flow or intrinsic value. The only reason for buying a token is the Greater Fool Theory, the notion that one can always find someone else who also believes in the theory who will pay you more for your token than you paid the lesser fool who sold it to you. Obviously belief in this theory has taken on manic proportions. Tulips, bah! What pikers.

This theory is generally falsified by a panic, which is characterized by the sudden disappearance of Greater Fools – and of course liquidity.

Unfortunately the stock market has become infected with this same notion, although the tokens in this case are a small number of ludicrously overpriced stocks. For example, the NASDAQ 100 index has been leading the market higher, but the index is driven by just 5 stocks that make up 45% of the index’s market capitalization. At the same time, 40% of NASDAQ stocks are below their 200-day moving averages.

This kind of situation has happened before. It has never ended well.