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Why do we have to crash???
- Thread starter spinn
- Start date
As always MVIC, very well put!
Share prices are just one small "piece of the puzzle" in the leveraged derivatives environment. It's as if everything has been securitized.
Many high yielding hedge fund strategies are akin to naked put selling. IOW's if one leverages a carry trade they become a de facto short put on that spread. It's been 5 years since these relationships have seen even an iota of trade on the bid. No one has been compelled to liquidate with force.
That's about to change. Bernanke walks a tightrope. Prices and wages are firm but there's little elastictisity in Carry World. The inverted curve manifests danger in many subtle ways. Suffice to say, low borrowing costs are paramount when one is trying to make these plays.
Share prices are just one small "piece of the puzzle" in the leveraged derivatives environment. It's as if everything has been securitized.
Many high yielding hedge fund strategies are akin to naked put selling. IOW's if one leverages a carry trade they become a de facto short put on that spread. It's been 5 years since these relationships have seen even an iota of trade on the bid. No one has been compelled to liquidate with force.
That's about to change. Bernanke walks a tightrope. Prices and wages are firm but there's little elastictisity in Carry World. The inverted curve manifests danger in many subtle ways. Suffice to say, low borrowing costs are paramount when one is trying to make these plays.
Quote from Mvic:
What makes a crash more likely than a slow grind is that what took the market up was incremental buying and incremental adding of liquidity through leverage.
While there certainly was a lot of liquidity being pumped in to the system I think that at least for the last several months liquidity was being created by using leverage and this is bourne out by the margin numbers and by the increasingly tight spreads in all manner of bond derivatives.
What will take the market down hard is a repricing of risk, something that requires no selling, just a change in perception. The repricing of risk impacts the mountain of leverage which has been pyramiding in the rally as the leverage is often built of cash from selling premium in a variety of instruments. As we drop through levels positions have to come off which impact other positions etc., in other words it is a precipitated move. So far I haven't seen the panic unwinding that I expect to see if this downward move gets some teeth to it. I think a lot of people are still taking a wait and see (hope) attitude, though that could change today if we don't see some type of decent rally above at least yesterdays highs. People will be nervous gong in to the weekend at these levels.
Quote from eusdaiki:
Sources?
not that I don't trust you, just that I would like to read more on the subject...
I could be wrong, but I think the influx of capital relates to the curbs that are put into place when the markets plummet. Such was the case yesterday at the opening bell, when the Dow immediately dropped 200 and the Nasdaq, 50.
the question is wether is comming from the FED's presses or from brokers and investors buying "cheap"Quote from CalScholar:
I could be wrong, but I think the influx of capital relates to the curbs that are put into place when the markets plummet. Such was the case yesterday at the opening bell, when the Dow immediately dropped 200 and the Nasdaq, 50.
MVIC is refering to Fed Open Market activities. i.e. the purchase and sale of TREASURY securities.
Oft the presumption is that some of the 9b sold by dealers will wind up in other markets, like equities. At worst, it's just the Fed's way of providing a dose of temporary liquidity within the macro policy of being a bit restrictive.
Oft the presumption is that some of the 9b sold by dealers will wind up in other markets, like equities. At worst, it's just the Fed's way of providing a dose of temporary liquidity within the macro policy of being a bit restrictive.
Quote from Pa(b)st Prime:
MVIC is refering to Fed Open Market activities. i.e. the purchase and sale of TREASURY securities.
Oft the presumption is that some of the 9b sold by dealers will wind up in other markets, like equities. At worst, it's just the Fed's way of providing a dose of temporary liquidity within the macro policy of being a bit restrictive.
I see thanks. Are they allowed to purchase any security though?