On October 14 we outlined that VVIX was not buying the VIX “chill” and suggested:
“….but watch this closely. It has led to small hiccups before…”
The hiccup proved to be rather “brutal”.
VVIX gave us the “signal” pre the first Corona collapse, and it gave the second “signal” going into this move lower, but Corona is nothing new…
VVIX has continued higher, but chasing protection here looks very late.
Dow Jones 2020 vs. 1930 Today:
1. Stocks have higher multiples
2. The global economy is more leveraged
3. The central bank created this imbalance just like then
GS Strats estimate global equity net length for the systematic trend community stands at $67bn (vs. roughly $57bn 1m ago). In a large sustained move lower over a month, sales could range from $43bn to $122bn globally
Conclusion: skewed to the dowside, but not massive massive numbers.
ANT IPO is now 872x over-subscribed in the retail offering, that is the 4% part that is not already spoken for by anchor investors or non-strategic). The non-strategic institutional size of 16% was oversubscribed by 284x.
That would mean that the retail demand is >$0.6 trillion and the non-strategic institutional part >$0.8bn. The anchor demand that took up 80% of the offering was most likely “over-subscribed” as well but there will not be any numbers on that.
$1.4 trillion is greater than Brazil GDP.
It is roughly the same size as all the money (“cash on the sidelines”) in Money Market funds as per latest data from Haver.
It is 3x bigger than the latest expected EU PEEP expansion.
One begs to wonder if this cash actually exists in the trading accounts…
Timing of tax hikes and fiscal stimulus:
1. Biden could move immediately to increase corporate taxes to fund his proposed infrastructure program, including making tax increases retroactive to January 1, 2021. Will there be a wave of tax related selling ahead of this?
2. A $2trn fiscal stimulus package and infrastructure bill would likely be introduced as part of budget reconciliation in March/April 2021 if a Blue Wave materializes.
“we maintain our forecast of a EUR400bn PEPP extension to the end of 2021, flanked by a lengthening of the PEPP reinvestment commitment, additional longer-term refinancing operations and an improvement in the TLTRO-III terms. We believe that the hurdle for a cut in the deposit rate remains high, requiring significant further Euro appreciation for the “wrong” reasons”
So many narratives on the mighty USD, but it has done nothing since mid July. Take it a little higher and all those shorts need to start covering quicker (chart 2).
With EU returning to lockdown, you did not even need Lagarde to tell you the Euro is not feeling great (chart 3).