Release straight from the bowels of the NY Fed
Realism must precede optimism or the optimism will collapse as the tsunami of reality comes ashore.
Monday’s Pfizer announcement followed pivotal elections by only a few trading sessions – an election I have posited as the most hedged individual event ever. Markets were already in a state of acute instability prior to the news, having been spurred sharply higher by the unwind of hedges and short positions.
Those positioned bearishly had suffered only deeper impairment, while derivatives markets were moving toward dislocation. Holders of puts were in liquidation mode, while those that had written out-of-the-money call options (and similar derivatives) were facing rapidly escalating exposure. In the leveraged speculating community, the more sophisticated strategies were performing poorly. In particular, long/short strategy performance was suffering the effects of a brutal short squeeze along with violent rotations. A marketplace consumed with momentum was all Crowded together in the favored technology and “stay-at-home” stocks.
The Pfizer news showered gasoline upon the bonfire. It was a melt-up dislocation and short squeeze as intense as I’ve witnessed over recent decades. Segments of the market traded as if some hedge fund and sophisticated derivatives strategies were “blowing up”. As for long/short strategies, things went from bad to cataclysmic. From Bloomberg: “…Market winners and laggards switched positions at the fastest rate on record Monday.” Attacked savagely, the persecuted bears were hit with a fateful blow. A “bear” ETF lost 11% of its value in a chaotic Monday trading session.
Sure enough, such a market outcome “statistically never could happen.” In reality, such a freakish backdrop created a high likelihood of just this kind of mayhem and market dislocation (either up or down).
At some point, the thing actually has to happen. You can only keep talking about the thing for so long before people start to get wise. And most people, especially those in the public who understandably don’t following the thing closely, or the things related to it, are incredibly patient. Time and time again, they […]
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It’s an illusion. I am not out of sync. The market was out of sync. 😄
Monetary policy can be implemented through outright purchases or sales of securities, which permanently changes the size of the Federal Reserve’s System Open Market Account (SOMA) portfolio.
COVID-19 cases are once again skyrocketing across the U.S., this time reaching record-highs of over 140,000 total cases a day. Many states are reporting record-highs in average daily cases, positivity rates and hospitalizations, and data shows how this…