Tuesday, June 14, 2016

Market comment, and further Brexit comment

Well, I got 100% on my second intro math of finance test, so I only need 83% on the final for an A+. Now all I need to do is actually study this stuff for the exam.

By the way, last night we learned why the gold forward contract price must be nothing other than today's gold price times the cost of money: if it's not, the difference can be arbed away by big money for guaranteed profit at zero risk.

Again, a really neat bit of economics that I didn't learn in economics class.

As for market comment?

Well, as of this moment, intraday $VIX has exploded 50% higher to 22, yet SPY is only down a couple percent. ($VIX futures are still in a flattish term structure but following the intraday move higher, with the front month expiring today).

That suggests to me that what the market is doing is merely buying downside protection without a passionate desire to actually dump their positions. That looks like underlying confidence. Though of course that could fly out the window as it did last August. Though everyone's probably thinking of last August anyway.

Someone with more market knowledge can move in to correct me here.

So right now I'm still 80% single-long S&P 500, not sold anything, but looking to possibility to short $VIX with HVI.to in the future depending on what happens with the looming Brexit binary outcome that's driving all this silliness.

And what should Brexit's effect be on the US economy? Well, per the analysis of a leading international trade & monetary economist:

1. If the pound falls then the Euro rises, and that shouldn't negatively affect US exports. US buys nothing from the UK anyway, so US imports aren't negatively affected either.

2. the EZ and UK would either try to counteract the damage to their economies through expansionary policy, which would benefit US exports to the EZ and UK; or they will double down on idiotic austerity, which destroys their economies further and reduces US firms' foreign competition. Net no big deal.

3. Nevertheless, the market would piddle its panties as the whole investment world would have to re-allocate to the new reality.

4. Then the market would start to piddle yet more on concern for future exit votes for any other country hurt by EU austerity policy, plus a German exit because Germans just love pulling infantile fucking snits don't they.

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