The conditions for a crisis are already here. Regulation tends to be backward looking anyway. For example what chance would they have of preventing the buildup of the recent short VIX trade phenomenon that blew up? Approximate zero. There are so many markets in a dangerous condition today anyone of them could blow up as the crisis gets going.
Shorting volitility comes in many forms though. VIX is the most direct and was worth some billions. This article outlines more short vol strategies worth 2 trillion:
www.bloomberg.com/news/articles/2018-02-07/a-map-to-the-underworld-2-trillion-of-volatility-trades-here
For a fledgling asset class whose idiosyncrasies are understood by few, there sure is a lot of money swirling around in volatility trades.
Investment strategies and products married to market swings were thrust front and center by the worst market meltdown in seven years, in which the Cboe Volatility Index surged to its highest level since 2015. VIX-related securities were halted, volatility-targeting quants blamed, and options trading in benchmarks for turbulence ballooned.
Too big to ignore, it’s an asset class in its own right, with the might to push around the broader market. Getting a grip on it has confounded strategists and managers alike. Even its designers are amazed by its heft.
“It doesn’t surprise me that it’s become so big. What surprises me is that it’s in some ways sapped liquidity from other parts of the market,” said Michael Schmanske, the founder of Glenshaw Capital Management who previously worked at Barclays Capital and helped oversee the launch of some of the first VIX ETPs. “These guys have taken volatility to the next level and believe it needs to be part of a managed portfolio.”
There are two categories of securities linked to price turbulence, roughly speaking: ones tied to the VIX directly, and others that take their cue from the volatility of individual stocks. Altogether, estimates for the space are anywhere from $1.5 trillion to $2 trillion. Beyond that is the options market, which itself is an implicit bet on swings in shares.
now is not the time to look at this chart pic.twitter.com/k6KNcm2Tja
— Alastair Williamson (@StockBoardAsset) February 7, 2018
no shit t.co/Q9qMapvJnC
— Alastair Williamson (@StockBoardAsset) February 7, 2018
Credit Card, Student And Auto Debt All Hit Record Highs In December
www.zerohedge.com/news/2018-02-07/credit-card-student-auto-debt-all-hit-record-highs-december
The `Freight Train’ to Higher Yields Won’t Be Derailed So Easily
(Bloomberg) — It’s going to take more than just a few days of extreme turbulence in equities to keep Treasury yields down. The day after stock-market volatility surged the most on record and the Dow Jones Industrial Average suffered its steepest point drop in history, the 10-year yield resumed its march higher. It was up 6 basis points to 2.77 percent as of about 1 p.m. in New York. While that’s down from the four-year high of 2.88 percent reached Monday, it’s still above the first-quarter forecasts from59 of 63 analysts surveyed by Bloomberg.
confoundedinterest.net/2018/02/06/the-freight-train-to-higher-yields-wont-be-derailed-so-easily/
S&P Warns High Corporate Debt Could Trigger Next Default Cycle
The number of defaults by heavily indebted corporates could rise significantly amid tightening credit conditions, according to S&P Global Ratings.
Easy liquidity and underwriting together with low interest rates have contributed to a spike in the number of highly leveraged firms, creating a risk masked by relatively low default rates.
Removing the “easy money punch bowl” could trigger the next default cycle since high corporate debt levels have increased the sensitivity of borrowers to elevated financing costs, the ratings agency said in a Feb. 5 report.
Market tests Millennial Traders who’ve never seen a crash or rising rates: The generation gap is growing, and elders are worried.t.co/kb1Z1kb2F2 pic.twitter.com/LVw7pBNhiA
— Holger Zschaepitz (@Schuldensuehner) February 7, 2018
UST10Y 2.805, yields are moving higher
— Alastair Williamson (@StockBoardAsset) February 7, 2018
h/t SpontaneousDisorder