The dust has settled after last week and the LOW VOL derivatives are back to picking up dimes in front of steamrollers

Erm not really and here’s why.

This is my second post on equities. Being a spot guy I need a favour – cut me a little slack.

You can not “un-ring” the vol bell and a new cycle is with us. I’ve been speaking to some big synthetic desks and apparently we have 1.2 trill USD of implicit short vol to unwind. Mainly via complex instruments – mutual and pension funds had better check their central risk books. A modern day CDO if you will.  Fundamentals are sound – oh goodie.

However, the all seeing laser eyes are on US CPI this week. That’s right – laser eyes.  Watch out for more punishment for dip buyers. Bridgewater nailed it. They would though wouldn’t they. 160 yards might help me listen to them:

“Historically shocks of this magnitude find their troughs in panicky selling,” Bridgewater’s co-chief Investment officer said said in the email, seen by the FT. “I’ve been amazed at how little ‘capitulation selling’ we’ve seen on the desk . . . The ‘buy on the dip’ mentality needs to be thoroughly punished before we find the bottom.”

Even Goldman’s are surprised at the dip buyers mentality.

Patrick Reid
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