• Correlation Between SPX and VIX
    Last week, many traders noticed that there was a divergence between SPX and VIX. It’s true if we look at the price series. Graph below shows the 20-day rolling correlation between SPX and VIX prices for the last year. We can see that the correlation has been positive lately.[caption id="attachment_327" align="aligncenter" width="564"] 20-day rolling correlation SPX-VIX prices, ending Jan 26 2018[/caption]However, if we look at the correlation between SPX daily returns and VIX changes, it? [...]
  • Correlation Breakdown
    The US equity market just reached new highs, and it broke many records.  For example, Bloomberg reported that the US market had not been overbought like this in 21 years.The S&P 500 Index’s superlative start to 2018 is making a contrarian technical indicator look silly. The benchmark gauge is poised to end trading Thursday with a 16th straight day in overbought territory, as judged by the Relative Strength Index. That would be the longest such run in more than two decades. A close abo [...]
  • Goldman Sachs Expressed Concerns About the Growth of Volatility Exchange Traded Products
    We have written about how the increase in popularity of VIX-related Exchange Traded Products could impact the financial market:Is Volatility of Volatility Increasing?What Caused the Increase in Volatility of Volatility?Recently, Goldman Sachs derivatives analyst Rocky Fishman expressed concerns regarding the impact of VIX ETPs positions on the markets.Fishman wrote to clients early Thursday morning that he has no concerns about the net number of shorts but is concerned about the impact a sudden [...]
  • U.S. market gurus who predicted selloff say current calm an illusion
  • Retirement savers, how much market risk can you handle?
  • Broad-basket commods funds post largest net inflow in seven years
  • Hedge funds hook shipping stocks grappling for recovery
  • U.S. 'junk' bond funds hit by second biggest cash withdrawals: Lipper
  • Computer-driven hedge funds lose out on volatility spike: HSBC data
  • Sorry, not sorry: Wall Street not quitting 'vol' products
  • Recent tax reforms in America will hurt charities
    DESPITE its oft-professed pro-market orthodoxy, America has always had an unusually large non-profit sector. Americans gave $390bn to charity in 2016, with the bulk of contributions coming from individual donors. Historically, revenues at non-profits tend to track GDP growth. The recent tax reforms imply that despite strong economic growth, charitable contributions in America are poised to fall for the first time since the financial crisis.The most significant threat to charities comes from changes to income tax. American taxpayers can choose either to “itemise” specific expenses, such as charitable gifts or mortgage payments, or take a “standard deduction”. In an effort both to simplify the tax code and to lower overall tax rates, the Republican-led Congress almost doubled the standard deduction to $12,000 for individuals and $24,000 for married couples. This will make filing taxes a lot easier for many. But it also means that far fewer Americans will have a financial incentive...Continue reading
  • The markets still have plenty to fret about
    BULL markets always climb a wall of worry, or so the saying goes. For much of 2017, the main concerns were political and the markets seemed to surmount them as easily as a robot dog opens doors (the latest internet sensation).But February has shown that the market is still vulnerable. The immediate trigger seems to have been the fear that inflationary pressures would cause bond yields to rise and central banks to push up interest rates; this week’s surprisingly high American inflation numbers will only add to the worries. In a narrow sense, that makes bonds look cheaper, compared with equities. In a broader sense, it increases the discount rate investors apply to future profits, lowering the present value of shares. (A caveat is needed: if higher rates reflect stronger growth, then estimates of future profits should rise, offsetting the discount-rate effect.)The immediate effect has been to create uncertainty for investors about the direction of central-bank policy, after many years in which it could reliably be assumed that rates would stay low. This translates into a more volatile market, as illustrated by the sharp jump in the Vix, or volatility index, in early February.The danger is that many investors seem to have treated volatility as an asset class, and have organised their portfolios accordingly. Eric Lonergan of M&G, a...Continue reading
  • China’s stockmarket plunge: this time it’s different
    A CHINESE new-year message from the American embassy in Beijing looked innocuous. It welcomed the Year of the Dog on Weibo, a microblog, with photos of the embassy staff’s pooches and a video greeting from the ambassador and his wife, each with a dog in hand. But it soon attracted 10,000 angry responses. The post had become an unlikely lightning rod for public discontent about the stockmarket.A plunge on February 9th had left Chinese shares down by 10% on the week, their steepest fall in two years. Some punters found solace in blaming the American embassy for the rout, which started on Wall Street. For others it was a matter of convenience, because their real target, the Chinese securities regulator, knew to disable comments on its Weibo account on such a grim day for stocks.Even so, their protests seem to have been heard. Before the market reopened this week, Chinese officials urged big shareholders to buy stocks to restore confidence. The Shanghai Stock Exchange warned...Continue reading
  • India’s state-owned banks endure a string of bad news
    Spot the $1.8bnOF LATE Indian bankers have felt an unfamiliar sensation: optimism. A 1.3trn-rupees ($21bn) bail-out from the government seemed to have cleaned up the bad lending decisions of years gone by. A new bankruptcy law gave them an edge in long-standing battles with recalcitrant borrowers. It seemed a few Indian companies, having for years eschewed fresh investment, might even start borrowing again.This week woes linked to mismanagement at India’s three biggest partially state-owned lenders plunged the bankers back to their habitual gloom. On February 14th Punjab National Bank (PNB) announced it was investigating a fraud worth 114bn rupees, equivalent to about a third of its market capitalisation. A few days earlier the State Bank of India (SBI) unveiled its first quarterly loss since 1999. And Bank of Baroda has hastily announced the closure of its South African operation, accused of having shady business associations there.The Punjab heist is...Continue reading
  • Men and women in economics have different opinions
    MEN may hail from Mars and women from Venus. But economists, surely, inhabit planet Earth, surveying it dispassionately. Alas, a new paper suggests that even dismal scientists divide on gender lines. Ann Mari May and Mary McGarvey of the University of Nebraska-Lincoln and David Kucera of the International Labour Organisation surveyed economists from 18 European countries, and found that differences in the wider population can survive even an economics education. Male economists are more likely than female ones to prefer market solutions to government intervention, are more sceptical of environmental protection, and are (slightly) less keen on redistribution (see chart).A similar study of American economists by Ms May and others also found men more sceptical of government regulation, more comfortable with drilling in the Arctic National Wildlife Refuge, and more likely to believe that a higher minimum wage would cause unemployment. Women were 14 percentage points less likely to agree that Walmart...Continue reading
  • Tax reforms prompt upheaval in the private-equity industry
    IN THE political cacophony surrounding America’s new tax law, the voice of the private-equity industry has been muted. This is perhaps unsurprising. The industry has managed in large measure to retain its favourable tax treatment, despite a threat from President Donald Trump to close the “carried interest” loophole on which it had grown fat.So few expected the announcement on February 8th from KKR, a big private-equity firm, that the new law was prompting it to consider converting its status from that of a partnership to a “C corporation” (a corporate-tax-paying firm). As The Economist went to press, a competitor, Ares Management, was expected to make a similar announcement. The new law may have a lasting impact on private equity after all.Tax has always been central to private-equity business models. The industry uses large amounts of debt, interest on which is tax-deductible, to acquire companies. So it has long been adept at minimising tax, both by...Continue reading
  • American banks pay depositors less than online accounts
    EVERYONE knows that interest rates are rising—except, perhaps, one group: American savers who have put $12trn in bank accounts. They have seen the government’s deposit guarantee, purportedly designed to protect them, become a ticket for banks to receive free money. For evidence, look no further than the ubiquitous bank branches dotting America’s high streets.Those seeking a home for their money find that, unlike petrol stations or grocers, banks are not required to post their most important price, the interest rate. Ask and you will be referred to a specialised member of staff. After a wait, numbers are typed into a computer, followed by pauses for thought, a bit of throat clearing and, often, comments that the current rates on offer may not exceed inflation. Then come hints, doubtless filtered through a compliance department, of the higher returns available on the bank’s investment offerings, which, of course, carry risks (and fees).Only then is the diligent customer told the...Continue reading