TIL: VIX Linked Investment Funds Could Feed A Downward Market Spiral

[katya422]

Steven VanMetre does a good job of spotlighting market mechanics.

It's all good, but you can start around 12 minutes if you don't have time for the whole thing.



Cliffs:

- trillions of dollars are sitting in investment funds linked to the VIX which hold a mix of equities and bonds

- when volatility goes down these funds buy more equities; when volatility goes up they buy more bonds [hedging strategy] - this is automated and set to VIX benchmarks

- when multiple funds hit their set volatility benchmark to sell equities/buy bonds that can drive equities downward >

the big sell off of equities = higher volatility = triggers equities selling in more of these volatility targeted funds >

the big sell off in equities = higher volatility>>>repeat [potentially]

- the end of QE and/or rate hikes could both trigger higher volatility

- the Russia/Ukraine event is adding to volatility

- Steve concludes "Let's hope it [volatility feedback loop] never happens but if does you could see the biggest spike in VIX, the biggest crash in equities that you have ever seen in your life."

Personally was unaware that there was such a large amount of "dumb money" operating like this that it could crash the market.

[Destor]

Does this mean it’s almost time to buy again?

[OPGenesis]

Convinced at this point the markets will always go up.

And if they are going to crash in the future we have a very long time to go before anything like that happens.

[katya422]

Does this mean it’s almost time to buy again?

Maybe?

Could also mean watch out when trying to catch falling knives. In the video he reviews the action from 2008 and how the Fed stepped in at that time.

As I understood it the Fed has acted as the counterparty when there are too many market participants piled in to one side of a trade...buying bonds when no one wants to buy bonds, buying equities when there aren't enough bids on equities. They are "injecting liquidity" by using their funds to keep the market from freezing up.

It wasn't mentioned here, but we have already been seeing liquidity issues.

It seems like this trade, though very sensible for individual humans making thoughtful moves to buy and sell, is potentially cancer when it is all done by computer. The bot doesn't care that following the same formula as so many other participants could mean worsening returns as the bot could end up selling equities while prices are dropping [making prices drop even more] and buying bonds while prices are going up [making prices rise even more] or the reverse .

Now I'm sure that the bots aren't all set to the exact same volatility triggers, and some are set to markers besides the VIX.

[katya422]

Convinced at this point the markets will always go up.

And if they are going to crash in the future we have a very long time to go before anything like that happens.

Well it's nice to see you with a positive attitude about something.

I guess so long as the Fed can keep printing and buying stuff.

Part of the last big CF was an inability to get good price discovery because for some things there were no buyers, therefore no market- some financial products were "priced to make believe".

[StackingPlates]

...the biggest crash in equities that you have ever seen in your life."

Sounds like the classic but this time it's different baloney garnered to maximize one's video hits/views.



Considering most of us were alive in 2008 when equities literally halved themselves over a six month period, I find the whole worst you've ever seen in your life verbiage just simple fear mongering / sensationalism. I also consider the odds of it happening fairly low based on historical data and safeguards enacted during that financial crisis. But who knows, maybe it happens maybe it doesn't?

But for anyone more than 15 years away from retirement, it shouldn't matter much anyway considering these are one's accumulation years. Use a sound investment strategy such as regularly buying into low cost index funds and shift to a more conservative asset protection strategy as you glide towards retirement. This would normally include lowering overall exposure to equities and increasing exposure to bonds, treasuries, and other more defensive assets that are not highly correlated with stock values.

[Duckliver]

It’s not fukking rocket science it’s basic logic that the further the can gets kicked the larger the inevitable correction.

Not to mention QE measures have been ratcheted up to insane levels at this point.

Powell is the market. The market is fake.

[OPGenesis]

It’s not fukking rocket science it’s basic logic that the further the can gets kicked the larger the inevitable correction.

Japans been kicking the can since the early 90's.

[ThatGuy950]

Japans been kicking the can since the early 90's.

And this is the result:





We’re in deep sht

[Schnitzl]

Just lol at all the expert analysts thinking they can predict what's happening. Stonks go up, stonks go down, sometimes sideways.

[entropy91]

Steven VanMetre does a good job of spotlighting market mechanics.

It's all good, but you can start around 12 minutes if you don't have time for the whole thing.



Cliffs:

- trillions of dollars are sitting in investment funds linked to the VIX which hold a mix of equities and bonds

- when volatility goes down these funds buy more equities; when volatility goes up they buy more bonds [hedging strategy] - this is automated and set to VIX benchmarks

- when multiple funds hit their set volatility benchmark to sell equities/buy bonds that can drive equities downward >

the big sell off of equities = higher volatility = triggers equities selling in more of these volatility targeted funds >

the big sell off in equities = higher volatility>>>repeat [potentially]

- the end of QE and/or rate hikes could both trigger higher volatility

- the Russia/Ukraine event is adding to volatility

- Steve concludes "Let's hope it [volatility feedback loop] never happens but if does you could see the biggest spike in VIX, the biggest crash in equities that you have ever seen in your life."

Personally was unaware that there was such a large amount of "dumb money" operating like this that it could crash the market.

Look up Mike Green's work on passive investing. There's always a bid for equities.

[katya422]

Sounds like the classic but this time it's different baloney garnered to maximize one's video hits/views.



Considering most of us were alive in 2008 when equities literally halved themselves over a six month period, I find the whole worst you've ever seen in your life verbiage just simple fear mongering / sensationalism. I also consider the odds of it happening fairly low based on historical data and safeguards enacted during that financial crisis. But who knows, maybe it happens maybe it doesn't?

I think that the titles are often sensationalized for click/views. The "worst ever" bit was right at the end FWIW.

And I don't know. I thought I did the last time it all went pancake shaped, but somehow the plates have been kept spinning way longer than I thought they might.

But for anyone more than 15 years away from retirement, it shouldn't matter much anyway considering these are one's accumulation years. Use a sound investment strategy such as regularly buying into low cost index funds and shift to a more conservative asset protection strategy as you glide towards retirement. This would normally include lowering overall exposure to equities and increasing exposure to bonds, treasuries, and other more defensive assets that are not highly correlated with stock values.

Don't exactly disagree, but when did we last see normal? Sort of why I thought this was worth sharing- because it illuminates a specific mechanism that I hadn't really considered that much. Maybe I'm an outlier on that.

When I last had a 401K it was 2001 or 2002 and you just had to pick from a limited menu of options. I don't recall any that were described as automatically re-balancing holdings between equities and bonds.

It’s not fukking rocket science it’s basic logic that the further the can gets kicked the larger the inevitable correction.

Not to mention QE measures have been ratcheted up to insane levels at this point.

Powell is the market. The market is fake.

Yeah. Have you followed Dowd? The former Black Rock guy who has been saying we have reached "peak debt"?

Japans been kicking the can since the early 90's.

True. I was following a blogger who wrote a lot about the financial situation in Japan back in '07; maybe even '06. Very colorful person...said that they Japanese learned about our magic money and decided to put it to use themselves...black hole of infinite debt.

Mark to make believe:

The game theory here is, 'If someone can unilaterally declare the value of assets, they will do this in such a way as to profit themselves.' Whenever anyone tells me something is worth $X, I usually tell them, 'It is worth only what someone will pay and that varies greatly.' Goldman Sachs was whining that they couldn't access 'liquidity' within the same time frame they then claimed they were sitting on a mountain of very valuable paper that people would be willing to pay lots of money for! If this were true, all they had to do was sell some of these papers if they wanted money. If I want money, this is what I have to do: sell either my labor or my stuff.

But they couldn't sell a thing. Since they could only sell at a loss or not at all, this meant their paper was worthless. Their stocks had been falling for over a month. They needed to bring the stock market back up and they needed to make their business look good. So they lied. To Bernanke. To the US people. To the world. The game theory stuff is silly if it doesn't include powerful people cheating quite blatantly and openly and often, violently. The governments of the world should be purged of all Goldman Sachs conspiritors. They have bent the world banking and trade systems all out of whack and they are responsible for the path the empire has taken. To line their own pockets and fill their own wallets, they have set up a system that must collapse, therefore, they are the agents of this collapse. Once Goldman Sachs got their paws on the levers of power, they yanked them in such a way, they would get richer no matter what.

http://www.321gold.com/editorials/su...kis101607.html

She did comic illustrations too:





Elaine was forecasting that the US government would go BK around 2020 back in 2006. srs.



From Jan 29 2006:

If the cheaper than inflation loans disappear (and they will!), this is the good scenario. The bad one is, the base, already pretty unstable, collapses and the bottom 2/3rds pancakes into extreme poverty. This can happen. That would lead to very explosive political actions not too different from Germany 75 years ago. Already, inflation is eating the lower classes alive, actually, the illness has spread to 80% of America's workers. There is no unrest only because of the super cheap loans extended to homeowners willing to go into hock up to the eyeballs.

In banking collapses, the money saved by thrifty people evaporates, quite literally. Namely, the government seizes it by fiat. They also will seize all valuables in bank vaults "in a national emergency" when they need funds for the IMF or someone. This is where the famous "keeping your money in your matress" comes from. Literally, people who keep money aside at home end up being the only ones with money.

[katya422]

lol

We are still doing this. Or something close.



Like a half a trillion a week that started September of 2019:

Slootya is like the bizarro CNN

okay...really lol. Information magpie who reads a lot and remembers enough to have an internal map, though not always with lots of clear details ready at a moments notice.

[StackingPlates]

Don't exactly disagree, but when did we last see normal? Sort of why I thought this was worth sharing- because it illuminates a specific mechanism that I hadn't really considered that much. Maybe I'm an outlier on that.

When I last had a 401K it was 2001 or 2002 and you just had to pick from a limited menu of options. I don't recall any that were described as automatically re-balancing holdings between equities and bonds.

Based on 100s of years of available data, I would suggest that "normal" is that equity values go up over long periods of time. During this time there will also be periods where they go down (sometimes sharply) as well as sideways. This is why most agree that time in the market beats timing the market the vast majority of the time. The power of compounding interest is real.

Most pre-tax funds should have an option to opt into target date retirement funds which will automatically adjust your glide path based on your estimated year of retirement. Vanguard has some of the more commonly available options: https://investor.vanguard.com/invest...tirement-funds

[katya422]

Based on 100s of years of available data, I would suggest that "normal" is that equity values go up over long periods of time. During this time there will also be periods where they go down (sometimes sharply) as well as sideways. This is why most agree that time in the market beats timing the market the vast majority of the time. The power of compounding interest is real.

Most pre-tax funds should have an option to opt into target date retirement funds which will automatically adjust your glide path based on your estimated year of retirement. Vanguard has some of the more commonly available options: https://investor.vanguard.com/invest...tirement-funds

Not disagreeing on the history. Though there have been some truly awful downturns that one would be better off avoiding if possible.

I'm aware of retirement date funds, but had not been under the impression that they were that dynamic. At least at the time I was choosing something it was described as a static holding of different percentages of large cap equities, small cap equities, and bonds- not as a fund that moved to more or less of different holdings based on volatility.

are you autistic or something srs? You definitely have mental pathology

You are retarded with regard to all topics on finance that you post your inside scoop on (which is just you vomiting up a video you just watched, don't understand but think it sounds serious and then come to the misc to get attention and feel secure).

When you get called out you say "I was only posting because I thought it was interesting and wanted miscers to debate the point" despite you writing your text as though you understand and are making assertions.


Cliffs:
You are a middle aged derp talking about and trying to get in on a basic subject because you think it is cool and don't want to pay someone to do it for you.
"Oh haha but I have to protect my own retirement funds because I am single"
I can almost, without a doubt, tell you that you will never understand what is going on or be able to effectively implement any of what you are trying to work out IRL.

And, as always...


Cheers.

I'm just watching the show. Something I have been doing off and on for decades. I haven't claimed any expertise and I don't own any equities or bonds, nor do I have a 401k.

I worked for a securities broker-dealer for a few years and that's how I picked up the habit. I would roughly equate it to following a sport in a half-assed sort of way when there happens to be a player, or team, or coach that gets your interest, or maybe it is a more exciting season than usual.

I remember Lehman. I was on Roubini's blog when their board was meeting with Fed officials. There was a poster there who went by Michael who was posting a play by play and who was in shock that they decided to let the firm collapse.



Kicking some Russian banks off of SWIFT looks like it may cause the ruble to collapse:





^^^
I would say that this qualifies as exciting, even for people that have never heard of VIX, or FX, or LIBOR.

Heck I just read recently that they ditched LIBOR because it was "problematic". lol

[badbart]

Glenn Beck is a loon, if you took his advice over the years you would be broke.

[OPGenesis]

.

LMAO.

Love how you followed up his ignorant response with another novel

REKT.