‘Things Have Changed’: Quants Could Sell $276 Billion In ‘Down Big’ Tape

The systematic crowd has done all it can. The burden of sustaining the equity rally is on you now.

That’s an oversimplified version of the message from Goldman’s Scott Rubner who, in a rare afternoon note sent late Tuesday, said “things have changed.”

“I am tactically bearish,” he wrote. “I do not send emails in the afternoon. This goes against every email rule that I follow.”

You have to admire the austere discipline of a man who adheres to strict email rules in the 21st century. I’m an ascetic living in self-imposed exile and even I don’t have email rules.

According to Goldman’s estimates, CTAs have bought nearly $143 billion worth of global equities futures over the past month, putting their long position in the 95%ile on a one-year lookback. The vol control universe, meanwhile, added $24 billion over the same period, pushing their exposure rank to 100%ile. The same is true for risk parity, according to Rubner.

Goldman FICC & Equities

All in all, Goldman estimates systematics bought $173.8 billion across global equity futures over the past month. Overall exposure is now the most elevated in more than a year.

That creates a downside asymmetry. In an “up big” tape over the next month, systematics would be buyers of just $25.2 billion, Rubner said, while in a “down big” tape, there’d be $276.3 billion to sell.

Volatility has, of course, receded of late. One-month realized collapsed alongside what, until Tuesday anyway, was a very narrow range of closing spot outcomes.

The compressed distribution, illustrated above, was conducive to the realization of a latent bid from vol-sensitive strategies. Recall that heavy use of very short-dated options has served to supress close-to-close vol, while earnings-related dispersion can likewise tamp down index-level volatility.

Ultimately, a number of vol-suppressant dynamics conspired to create the conditions whereby systematics re-allocated and re-leveraged, helping support stocks in the face of myriad macro headwinds and rampant uncertainty.

Now, those buyers are “out of ammo,” as Rubner put it. The title of his note: “May Downside.”

Related: Kolanovic, McElligott Weigh In On Collapsed Stock Volatility

Leave a Reply to therealheisenberg Cancel reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

5 thoughts on “‘Things Have Changed’: Quants Could Sell $276 Billion In ‘Down Big’ Tape

  1. Every day I read these posts religiously to see the “underworld” I can’t really discern any other way. Politicians and monetary types kvetch over a few billion in maneuvering while quants have $276 bil to dump. I feel like I’m walking down the center of the Santa Monica freeway at rush hour where everyone but me is in a big fast car. To say the least it is a bit unnerving.

  2. And let’s not forget that in many (most?) years this past decade, the single biggest bid has come from corporate buy-backs. If the margin-contraction forecasts of Mike Wilson et. all play out as advertised, that creates a huge pocket of weakness to the downside.

NEWSROOM crewneck & prints