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Kolanovic: Tuesday Was “No Surprise,” Should “Not Be Fitted To Political Narrative”
Just hours before Wall Street's "Gandalf" weighed in on the proximate cause of Tuesday's equity meltdown, we asked a simple question: "Is Marko Kolanovic Right?"
In that post, we explained (again) why CTAs (the trend followers), risk parity, vol targeting, and other programmatic/systematic strats may pose a systemic risk to the extent they exacerbate large drawdowns.
As noted, it's likely that these strats are overexposed to equities given recent one-way price action and still suppressed vol
Marko’s explanation makes more sense (to me), than political risk reassessments, for Tuesday action. The negative political risk developments related to policy negotiations and legislative viability have been extant for a while now, and it seems unlikely that investors/traders just suddenly realized the risk and re-positioned. Although, that doesn’t mean D.C. developments weren’t wind at its back.