The Source Of The Next Crisis:

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#VIX #XIV #VXX #volatility

In 1992, the CBOE hired Robert Whaley to develop a tradeable volatility product on equity index option prices. A year later, in 1993, the VIX was born when the CBOE started publishing real-time quotes on the implied volatility of the calculated S&P 500 index options. In those early days, I very much doubt Robert ever imagined his volatility index would someday be the cornerstone of some of the world’s most actively traded ETFs. In fact, for the next decade, no VIX instruments traded at all, and it wasn’t until 2004 that the VIX future was listed. And then, it took another five years before the first ETF based on those futures hit the exchanges. But what a ride it’s been.

Nowadays, everyone knows the VIX index. It’s no longer some arcane index reserved for derivative traders, but instead a highly liquid, easily traded way to bet on future implied volatility. And I doubt most participants realize that last part. They are not betting on current volatility. They are not betting on future volatility. They are betting on future implied volatility. Remember that point. It’s important. We’ll come back to it later.
During the 2008 Great Financial Crisis, implied volatility went through the roof.

It had spiked during other crises, like Long Term Capital Management and the Asian crisis, but nothing like 2008.

The Great Financial Crisis saw VIX explode to over 90. It was truly mind boggling. The amount of future volatility the market was pricing in was unprecedented. No one trusted anyone, the financial system was imploding, and everyone was desperate to buy insurance.
Here is a chart of vix, set it to 1 week and zoom out.
I posted this not long ago, its pretty in depth but shows shorting vol is a larger phenomenon than just playing the index. With markets so overbought and vol so low I wonder if the bear market will open with a crash (or maybe the whole bear market will be a crash)?
How might Bitcoin/cryptocurrency prices crash irreversibly?

See also  How The Banking Crisis And Covid Lockdowns Killed Money Velocity (Death Of King Dollar)

This is one scenario in the blockchain industry that I believe is possible, but has yet to materialize. It’s my one big fear of the industry.

In natural systems, there is such a thing as a complete collapse. For example, there’s a famous case of reindeer that were introduced to a new environment, with few prey, and just kept growing and growing and growing… until total collapse happened.
Canadian households lead the world in terms of debt: OECD

The Party Is Over for Australia’s $5.6 Trillion Housing Frenzy

  • Value of nation’s homes equivalent to four times the economy
  • Risk that ‘a minor shock could become far more significant’

The party is finally winding down for Australia’s housing market. How severe the hangover is will determine the economy’s fate for years to come.

After five years of surging prices, the market value of the nation’s homes has ballooned to A$7.3 trillion ($5.6 trillion) — or more than four times gross domestic product. Not even the U.S. and U.K. markets achieved such heights at their peaks a decade ago before prices spiraled lower and dragged their economies with them.

Australia’s obsession with property is firmly entrenched in the nation’s economy and psyche, fueled by record-low interest rates, generous tax breaks, banks hooked on mortgage lending, and prime-time TV shows where home renovators are lauded like sporting heroes. For many, homes morphed into cash machines to finance loans for boats, cars and investment properties. The upshot: households are now twice as indebted as China’s.
Two Biggest Risks Now Are China and Inflation, Market Veteran Says

  • Investors overlooking potential risks: GAM’s Larry Hatheway
  • Risk is that inflation surges despite little evidence yet
Upcoming Recession Fears Resulting in a U-Turn by the Fed

FED: Financial Markets Are Posing a Danger to the Economy
Here it comes again, The Fed and announces bubbles that they create a little too late. The Fed October minutes are out.
Excerpt: Federal Reserve officials expressed largely optimistic views of economic growth at their most recent meeting, but also started to worry that financial market prices are getting out of hand and posing a danger to the economy.–fed-officials-fear-market-imbalances-possible-effects-of-sharp-reversal-in-prices.html
h/t SpontaneousDisorder

1 thought on “The Source Of The Next Crisis:

  1. All advanced Civilizations do away with ‘money’… Here on Earth, we have not yet achieved the first syllable of the word ‘Civilization’. From the “Iarga” encounter, which occurred in the mid to late ’60’s:
    “You disappoint us with this question about technical knowledge. The most dangerous natural law governing the development of an intelligent people states: a highly technological society does away with all discrimination or self-destructs. To supply technical information to a people like yourselves is a serious crime against the cosmic laws. The last thing that you need is technological information to increase the gap between your intellectual development and your almost nonexistent social development. Carry on playing with your Mars probes for the moment, as half of your world’s population lives in poverty and hunger. The only information you need lies in the field of societal standards.”

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