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The February Vol. Spike ‘Shattered All Previous Events In Terms Of Fragility’
Back in December, BofAML noted that in a world where vol. spikes (and hence SPX dips) mean revert with remarkable rapidity thanks to the deeply-ingrained propensity of investors to view fleeting risk-off episodes as the only "alpha" opportunities (and yes, that's a misnomer on purpose) against a backdrop where benchmarks only rise, investors "no longer fear shocks, but love them."
The increasing rapidity with which intermittent flareups collapse has been a defining feature of markets over the p
Given your dislike (perhaps better phrased as disdain) for Nassim Taleb it’s interesting to read your articles, as the two of you seem to agree on more than you disagree – at least with respect to market commentary. Although this piece you’ve written may get lost in the shuffle of some of your more voluminous reports, this has been one of my favorites to read (maybe that speaks to the bias in my views more than anything?).
The inherent fragility created by a vol-suppressant regime, whether manufactured by CBs or organically unfolding, and I’d contend it’s the former, is a poet juxtaposition. The relative calm completely masks the fact that true stability can be better engendered, in my opinion, through periodic turbulence, turbulence that should only be silenced by the market participants themselves and not the rule-setters (read: CBs). When the turbulence is so short lived, the transferring mechanism in terms of information is broken and people start doing stupid things (RE: inverse VIX ETPs, etc.).
Fascinating stuff, to me.