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Hope all goes well… “You can make money being long or short,” said Road Runner, the market’s top volatility trader. “You just can’t fall in love with a position.” Late Wed, the S&P slipped 20-points on Greece. Then jumped 20 on Thurs. Friday it rallied on a great jobs number but closed lower. “Equity vol prices tell you people remain nervous.” On down-days there’s no scramble for puts. “The oil pop was a bear mar

Hope all goes well… “I’m not smart enough for nuance,” said the CIO. “So I focus on the obvious.” The S&P closed the month -3.1%. 10yr yields fell 53bps to 1.64%. 5yr/5yr inflation swaps fell 18bps to 2.12%. “This is so obviously not a risk-on year, January tells you all you need to know.” Volatility jumped across all assets. And in a highly-leveraged world, volatility’s not your friend. “This isn’t a year to buy

Hope all goes well… “Know what drives me crazy?” asked the CIO. “When people say a trade is crowded; what does that even mean?” By traditional measures, the short oil trade has been crowded. The long dollar trade too. “If the short Euro trade is so crowded, why can’t it rally for more than a day?” There are times when markets mean revert, and times when they trend. “Speculative systematic traders keep piling on these

Hope all goes well… “How is it that investors are lulled into believing things are not changing?” asked Yoda, high in the Rockies. “When everything’s changing.” Energy, exchange rates, interest rates. “And when markets start changing their nature, why do traders not stay small and nimble?” continued the S&P 500 market’s biggest local. “Why do they cling to their dip buying belief, when deep within their psyche th

Hope all goes well… “The last few years, every time vol popped you sold it,” said Roadrunner, the equity market’s biggest volatility trader. “This year, that changes – 2015 will be special,” he continued. “The S&P vol curve is flat for 9mths, at 19.5-20.0, which tells you it’ll be volatile; that’s good for the market, it’s great for traders, it’s bad for buy-and-hold investors.” And terrible for guys with leverag

Hope all goes well, and that your 2015 is something special; filled with adventure, mystery, flexibility, prosperity. Dusted off an anecdote from a hot day that I’ll never forget (see below). Back next Sunday with full wknd notes. Week-in-Review: Mon: China loosens LDR, Japan approves $29bln economic stimulus spending, Greece fails to elect president (Jan 25th elections), Weidmann reiterates opposition to sovereign Q

Hope all goes well… “I see him, right there, look!” shrieked Teddy. Charlie and I pressed our faces to the window, searching for the sleigh. “Santa gives magic flying dust to his reindeer you know,” continued Teddy, proud of his insights. “Damn, that’s what I should’ve asked for,” sighed Charlie. I smiled, savoring the moment. “Santa doesn’t give magic dust to kids, we’d crash into airplanes,” explained Teddy, certai

Hope all goes well… “Three days ago would’ve said we’d start 2015 long stocks,” said the CIO, capping another year of strong outperformance with a December nosedive. “But after this 5% three-day rally, I don’t know anymore.” He’d gotten short in late Nov; a few days too early. “I covered after the employment report, at the highs.” Then watched stocks sink straight to Dec 16th. And having missed the deep dip, he’d beg

Hope all goes well… “The final 15-minutes on Thursday was crazier than October,” said Roadrunner, the market’s biggest volatility trader. “Option buyers paid any price.” The vol of vol index (what people pay for VIX options) finished at 141; a wk ago it traded 70. In Oct with the S&P 500 at 1815 it topped at 138. “Perhaps a fund or two are blowing up, or the real S&P move hasn’t happened yet.” But either way,

Hope all goes well… “Chinese A-Shares rallied 22% in 10-days,” he said, atop NYC. As we discussed investor behavior, cultural differences, psychology. Sharing ideas about the year ahead. “There’s more trading in A-Share futures than the S&P 500.” Chinese index volume exploded in recent weeks. “These guys respond instantaneously.” There are no more eager gamblers than Beijing boys. “The Topix has doubled in 2yrs,