Nomura’s Charlie McElligott Explains Why Stocks Rallied In Face Of Depression
Nomura's Charlie McElligott knows many market participants are stunned right now.
And not just by the size of the bounce in equities off the March lows, but also by the apparent resilience of the rebound.
It's just not "right", some folks indignantly proclaim, railing against the apparent injustice of a Fed-engineered surge in assets that "should" be struggling mightily to catch a bid.
Instead, global stocks were close to logging their best month since 2009.
But this is no real "mystery",
Beautiful summary H; as someone who learns a bit of the language before he travels anywhere, that connected with me.
Is the sandwich long equities and the Coke a hedge? How far can we stretch this metaphor?
Sadly, the leveraged specs will have more impact now that share buy-back activity is being ratcheted back. That has been the overwhelmingly largest bid in the market for eight plus years.
Ah well, anyone else here remember when capital markets were venues where providers of capital funded entrepreneurs and existing businesses?? Back then the financial sector was an intermediary and did not represent the kind of share of GDP it does now. Since 1976, I’ve watched the transformation of financial markets from a funding mechanism into playgrounds for speculators.
But, as our Dear Leader rightly reminds us, there is no point to grousing about it. It’s the reality.
Oh, the irony of Mitt Romney grousing about “takers” in a room full of private equity dudes.
The rapid increase in the equity markets is (lucky for issuers) a perfect backdrop for debt offerings and some add-on equity offerings. We will see.
Brings back a memory which has really stuck with me. In the 70s I was a wild-ass speculator in metals and ag markets. But i could see that old school “seat of the pants” traders were going to be pushed aside by more sophisticated model and math-driven actors so I went to business school and learned about options and such.
After I finished up I returned to Wall Street and resumed my career as a financial parasite. At the time my father questioned me. “Why do you want to work in a field that produces nothing of value? Why not look to work at a manufacturer that actually produces things?”
Needless to say I brushed his advice aside because spec trading was too much fun. But his question has become increasingly relevant in recent years.
I wonder if the backlash against this will gain more of a footing as populists take over both political parties?
Thanks for the summary. It helps make the financial gyrations make sense. Smart companies are making sure they have the capital structure sufficient to make it to the other side. We should see a pick up in long term borrowing and net equity issuance.
I’m a bit sad we bid good bye to negative gamma (for now at least) it provided great options trading opportunities for a few weeks. The prevalence of systemic strategies and option hedging in modern markets, which H details so well on these pages, is the main reason I dismiss most commentary about investor sentiment in financial media, emotionless machines control the gyrations of our markets, just as surely as one day they will rule the Earth.
I will be much happier than to learn Coke in a foreign language. I would love to find a book or article to step me through the fundamentals of this analysis. Please suggest, ANYONE, book titles or other educational material.
Great post Dr H. After all this talk about “gamma” from you, it is finally sinking in through my thick skull what the heck you have been rattling on about.
2B of gamma in the graph around this level looks almost flat compared to where it was at in Feb. I think some of this melt up is CTAs and thin liquidity. A huge chunk of the run, maybe 40% is overnight index futures, just following nikkei and dax. We get some follow-through fomo in cash markets, but you are not seeing the massive jump in the last 5/10 minutes from dealer delta/gamma hedging you saw from oct 19-feb20. Of course if CTAs flip long as McG and others thing at 2900-2925 then we could see a real positive gamma build.