A bit over a year ago we were experiencing an "All Up" market, as risk was priced at sunshine forever levels and leverage soared; on average, hedge funds had two dollars of margin debt for every dollar in net assets. Then, the crisis hit and we had an "All Down" market where risk became poison; by March this year hedge funds were down to 14 cents of debt for each dollar of net assets. As we say in the business, everyone was "puking" risk and leverage.
And what about now?
Within less than three months we are back to "All Up", albeit from much lower levels. Everyone is out looking for a bargain and falling all over themselves so as not to miss out. Every financial market I am following is furiously discounting a V-shaped recovery. Stocks, junk bonds, dodgy sovereign debt, CDSs, commodities, yield curve spreads, volatility indexes, ship charter rates... everything is moving upwards in lockstep. Risk appetite has come back with a vengeance. Hedge funds were up to 28 cents of margin debt in April.
I am very amused...
So, I am constructing the Official Hellasious V-Recovery Financial Index (OH-VRFIN), also to be known as the Oh, Very Funny Index (tm).
Here's what I'm doing: from a starting date of Monday, March 2, 2009 I calculate percentage changes in the following:
Here's what I'm doing: from a starting date of Monday, March 2, 2009 I calculate percentage changes in the following:
- S&P 500 Financial Sector Index (SPF).
- Volatility Index (VIX, inverse).
- Crude Oil (WTI futures, spot month).
- Copper (Comex futures, spot month).
- Baltic Dry cargo ship charter index.
- iTraxx High Vol Index (inverse) - that's the CDS index for "junk" names outside the US.
- Yield spread between 10-year and 2-year Treasuries.
As of last night the average gain of the seven components was +44.8% and thus the Oh Very Funny Index had a value of 144.8. The simple annualized rate of gain in these past 2 1/2 months is, therefore, a very sharp +215%. Now, that's what I call discounting a V-shaped recovery!
The chart below breaks out the individual components of the index (click to enlarge).
Very interesting. I guess the market is treading up for the most part. I need to follow it more, but I don't. Too much CC debt right now.
ReplyDeleteGeek humor...
ReplyDeleteThis comment has been removed by the author.
ReplyDelete@ Debra,
ReplyDeleteDeb, I have read mine Kampf. Very good comments by you recently. The interesting thing about Hitler was that unlike all other politicians I know, I need to go back to Marcus Aurelius to find an exception, Hitler was a philosopher. A poor one certainly and a very misguided, certainly an evil one but, nevertheless, a philosopher. Is that part of the reason for his endurong appeal. We need more politicians with a philosophy, certainly no more Hitler's.
SS
@ topic - Nothing To Fear
ReplyDeleteDink said _ "wouldn't it be ironic if I'm the one thats banned from Sudden Debt? After Greenie repeatedly called him an idiot, Deb described the genitalia of her former conquests, anonymous racists use vile slurs, and you/Thai/Marcus regularly get into street-rat-crazy-brawls? Sometimes a dink has to take a break from the over-leveraged, unsustainable U.S. economy ... And Yo, he might be more lenient if you'd stop trying to convert everyone to orthodox Judaism."
Nothing to fear - Hell has finally agreed to guest postings so we can get away from the drudgery of repeatedly going over how bleak the U.S. economy is going to get before people pay back all that they owe - like never. I'm to submit the first guest post. The topic is:
The Love that No One Dares to Speak - Among The Orthodox, Fundamentalists and Mormons. I'll need some help.
Deb - If you could contribute some physical descriptions of the "unmentionables."
Yoyomo - If you could give us some details on how it feels? I assume you'll be in no position (prone) to have seen much of what goes on.
Hell - Has promised to contribute something on the economics of S&M.
Thai - Counting on you for the critical critique, splitting the hairs so to speak, but please not literally.
Dink, Marcus, Joe, Anon, et al - sorry you guys will have to wait until the next guest post unless you have some really exceptional insights, I believe Hell is thinking of doing something on the onfluence of sunspots on market cycles and the Austrian school - o.k. so be patient your turn will come.
Send contributions to: Lubavitcherislove.org
As always
SS
Wow, I can kind of respect why Hell is calling us all to order because I can no longer keep track of just WHERE I have said one thing or another, and my respondants have the anarchical habit of answering me on a different thread than where I posted my comments on...
ReplyDeleteBut, hey you guys, this is really really fun, and I love Hell's post, and SS's comment/post ?
Hell has very imaginative, original responses to this very morose, cretinic financial crisis that isn't one, by the way...
If we are all going to go down the tube in a flood that theoretically at least was made illegal after Noe, we may as well have fun doing it, right ?
Cheers.
deb
ReplyDeleteWe really don't need more people (even people like me) to tell every one else how to live. Not as leaders, at least.
"everyone was "puking" risk and leverage"
ReplyDeleteVery elegant. And now they're on a binge again. Hmmm.
SS, sorry but the wit of your sarcasm escapes me.
ReplyDeleteDink, so what about the camel (pseudo) spiders?
Hell, were you really planning on making MONEY on that tm ?...
ReplyDeleteI thought fondly of all you guys this evening as I handed over a pocketful of snails to my next door neighbor whose wife prepares them to eat...
That way they don't go to waste, right ? And I even somewhat misguidedly allowed them to reproduce (at my garden's expense...) before finding them and handing them over...
Great idea. Should you add Commercial Paper to the index? If I remember correctly, it measures the amount of lending between banks.
ReplyDeleteHell, another question if I might.
ReplyDeleteAt what point could we use a dropping trade deficit as an indicator that The Fed WILL engage in significant quantitative easing?
Would it have to be negative for a while? Or is there some % US debt held by foreigners that you think we need to hit before QE becomes "realistic"?
I am guessing you must have modeled this through already.
Yoyomo,
ReplyDelete"so what about the camel (pseudo) spiders"
I'll add to May 15th so the current comment section can stay related.
@ Thai,
ReplyDeleteReal good article tonight on the "Financial Armageddon" web site about randomness in economics, includes mention of fractals, Mandelbot and why much Nobel Laureate Economics is fundamentally wrong.
SS
SS- Thanks.
ReplyDeleteMy favorite way of looking at fractals is in the biological sciences but I see them in economics when I stare at an issue long enough.
ReplyDeleteI prefer to think of them as infinite dimensional structures of smaller building blocks (or modules) iteratively combining to form larger modules or building blocks, each with links allowing individual and groups of building blocks to cooperate or not cooperate with each other (or with larger modules, etc...).
... Kind of like a infinite dimensional constant in an infinite dimensional equation.
For life, the fractals is just a fractal of cooperation.
I know you like philosophy (I really have read almost no philosophy in my life except what I look up on the internet as my interest so carries me), don't you call this recursive or self referential philosophy?
I learned about this from Douglas Hofstadter of Godel, Escher Bach fame.
The analogy is very useful to understand physiology since much of medicine is about how various building blocks (molecules, cells, organs or organ systems, etc...) cooperate (or don't cooperate) with other building blocks.
Thus we see the loss of cooperation between certain building blocks in the brain (one is taken out by stroke or disease, etc...) causing a man to mistake his wife for a hat.
Or you can see "fractal like" structures in the modeling of super computers and artificial brains, or in the whole discussion (often takes a darkly racist tone) of g-factor and intelligence, ... in fact if you really look close enough at any area of medicine, you will see them.
Economics seems no different than biology so it makes sense.
Nice work,
ReplyDeleteI started following your blog recently.
As Jesse's Café Américain recently said
'Never underestimate the power of greed and fear over memory and prudence.
So much for:
ReplyDelete"Message heard loud and clear.
Will do"
Come back to the last post to discuss your exposition of fractals with me, Thai. It looks like another variant of structuralism to me, and THAT I know something about...
ReplyDeleteI am going to TRY to get a business going with A NEW, GREEN IDEA of mine. I don't want to make money off it, I want OTHERS to make money off it with decent wages, and non environmental raping practices. I am excited about this... I will keep you posted on the extremely PRACTICAL translation of all of our high faluted ideas into the REAL WORLD OF WORK... Sounds fair, doesn't it ? Now, to WORK. LOL LOL LOL And you thought I wasn't capable of it, didn't you ?...
By the way, nobody answered the question I asked in the last post. It was a real question...
Yo, I took Hell's statement in context.
ReplyDeleteHe has never asked us to stop chatting before so I thought he wanted us to shut down the prior conversation.
Is this not what you were asking Hell?
... I guess Dink's question is a good one if you would be willing to clarify.
Deb, re: fractals, Okie passed me this link.
I know nothing about structuralism so I will need to look it up but thoughts around fractals have existed forever in almost all fields of thought so it certainly wouldn't surprise me.
I am rather visual and I just happen to see them everywhere, just the way I am hard wired I guess.
Regards
About commenting...
ReplyDeleteThis is an economics and markets blog, in the expanded sense. While I am a rather permissive "host", as everyone has no doubt noticed, staying within the subject bounds and respecting a modicum of brevity are desirable.
For example... spiders??? And I don't mean SPDR's..
H.
re: Site integrity(?)
ReplyDeleteFolks, perhaps out of respect for our host and ourselves we should think of taking our discussion somewhere else. I believe Thai has a little used blog site up. If he wants he could commission a contribution by someone to kick things off.
SS
SS, Be glad to do a simple analysis of the cost of rising health care to the economy, or the cost of growing corruption within Federal government. And submission of the short studies would not be contingent on posts being approved.
ReplyDeleteHel,
ReplyDeleteDo you know if this statement is true?:
"As noted in the first article, the BIS is completely above the law.
It is like a sovereign state. Its personnel have diplomatic immunity for their persons and papers. No taxes are levied on the bank or the personnel’s salaries. The grounds are sovereign, as are the buildings and offices. The Swiss government has no legal jurisdiction over the bank and no government agency or authority has oversight over its operations."
@ Marcus
ReplyDeleteSounds good to me, let's see what Thai says.
SS
Just out of curiosity Hel, the spider comment caught your attention but comment #32 on the May 8 post slipped your radar:
ReplyDelete"We need to invade some poor country.
How about Cuba? We kill a few million people in Cuba easy and the women are hot, the army must be getting tired of raping Iraqi women, and I heard on youtube that they often smell bad."
@Marcus, I would be happy to read any post you care to write on why you think health care costs are skyrocketing.
ReplyDeleteI think we all agree health care cost escalation is a major issue- you all know it has always been my big issue.
In fact, as I think on this, and remember Hell's comment that household debt is made of housing, education, etc... It seems to me we have really been/are in the midst of 4 major bubbles right now: housing, health care, education and retirement and that all of these have contributed to our current predicament.
Do any of you see any other bubbles I am missing?
Is there good data suggesting federal corruption is worse than in the past? This would be serious.
@Thai
ReplyDeleteThe question was do you want to host this (Marcus et al) on your blog page and move our often extraneous conversations there as they appear to be wearing out Hell's welcome?
SS
SS,
ReplyDeleteLets keep calm here. I admit my first reaction was to think of Goya's "Saturn Eating His Children", but I have since meditated upon the matter and found Hell's request to be politely worded and fair. Perhaps a solution would be for Hell to put another website under his Links (FT Alphaville, etc.) so that after reading him and commenting appropriately those that wish can link over and go street-rat-crazy (my new favorite phrase).
So, I'm waiting to hear Hell's propositions (he he...) for what we can do about all the extracurricular studies we are indulging in on his site.
ReplyDeleteFrankly, I would miss Hell's humor if I cleared out to Thai's blog, even if I really like Thai and others here.
Plus, I've already stated that I feel like I have a MISSION here...
I agree with Dink- Hell has always been the perfect gentleman.
ReplyDeleteDeb I don't think it fair to ask Hell to come up with a solution to this tragedy of the commons.
Please understand, it is quite easy to create a personal free blogger account.
If you make your own blog, and you want to have an off topic conversation, you can post whatever you want on your blog and then just create a comment saying something like "off topic conversation" with a link on it to your post.
Actually the best place to do is just add your links to the very bottom of the "links to this page" area but I have not figured out how to do this yet (or I actually would have done it a while ago) and am unsure it it requires Hell's permission or not.
If anyone knows how to do it, please speak up.
Its....alive
ReplyDeleteThai, "Is there good data suggesting federal corruption is worse than in the past?"
ReplyDeleteI have read about the enormous growth of K Street in Washington. Other factors that show evidence of an "increase in corruption" might be out there also.
Like to present charts and other data but can I post that here, or are we limited to hot buttons to another site?
Dink, If you think my exchanges with Thai are street-rat-crazy, you don't know the street.
ReplyDeleteOne of the things I like about Hell's blog is his obvious passion for the subject presented dispassionately. I plead guilty of ad hominen behavior and I will try to avoid it, but I don't think its a virtual knife fight.
The game is over, but some people keep playing nevertheless. What's more, some onlookers, seeing the action are fooled into thinking that there is a there, there. This is all by design as the big boys are looking for bagholders. They will either find them, or not. Either way the gigue is going to be up.
ReplyDeleteWith that in mind we have been, for the better part of the last three months anyway,experiencing the effects of massive denial by a number of market participants. The fools will have to learn their lessons the hard way, with the next and most viscious leg down playing the role of the strict school teacher, or more accurately, cruel drill Sargeant.
Keep your eyes open and prick up your ears for the inevitable,
"Now drop and give me fifty!"
Much of the non-economic discussion has migrated to Dink's new link (above). We're having fun!
ReplyDeleteHow is the index looking now please ?
ReplyDelete