Wednesday, December 17, 2014
Today's big question
High yield has barfed, as hedge fund bozos with exposure thru the ETFs have no choice but to dump the entire market despite junior shale companies being the only junk in the system. Good gets dragged down with the bad.
Now, the ruble may still continue to barf, and oil may still continue to barf; the ruble is fundamentally worth nothing, and oil is fundamentally worth $35-$40 a barrel.
However, I found it interesting that yesterday's Zerohedge rumour of imminent Russian capital controls seemed to be enough to scare out the Micex shorts and get some oil & HY shorts to cover. This suggested to me that maybe the recent fast moves were overdone, and the short market has to clear out its overexuberance before any declines can continue. The drops were just too damn fast and too damn silly, I think.
As well, the apparently-now-fixed Vix hairiness might have been scaring people. And on top of that, the presence of a heavy pile of Vix 20 calls on expiry yesterday (so I read on a blog somewhere) might have been scaring the market. Today brings the Vix a new front month.
So the big question for today is this:
Once the Fed meeting ends and the statement is made, will that be enough to convince the US equity market that the collapse of the Russian kleptocratic state doesn't hurt anyone, that an oil collapse adds precious points to US economic growth (as well as growth in Japan and a better budget and current account in India), that high yield yields high because it's junk after all wtf do you want anyway, and that really everyone was over-reacting about an improbable apocalypse?
Or will the market ignore the Fed this month and keep puking equities (look at Ford ffs) and buying downside protection?
And even moreso, if we do get a Fed effect, does it last beyond today or tomorrow?
That's what I'm interested in seeing in the market.
I doubt, even in the best of circumstances, that everything would spring back 5% today, so I'm not worried about being in cash for now.