Quote:
Originally Posted by K2
I personally think risk (as represented by VIX and junk bond swap curve over treasuries) is undervalued and that we are close to a major cyclical peak. This is a natural process and not a catylism for the US or worldwide.
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For the last 18-24 months I have been going on about how ridiculously low risk premiums in the financial markets are. Every time I start on the topic they just moved lower once more… I just don’t buy into the opinion that the global situation has changed and a crash is no longer possible.
LTCM alone managed to crash the market in 1998; today there are thousands of hedge funds jumping at every opportunity to make a few bps to outshine the benchmark. Trades get bigger and bigger, they are more sophisticated than ever and turnaround time shorter and shorter. Market liquidity never seems to be an issue and getting out of a trade is too easy.
Well, if I learned one thing over the years, the exit door always looks big enough until everybody running for it at the same time. Another phenomenon I have noticed recently is the fact that people become more and more generous with their stop losses and while the trades/traders became more sophisticated they also seem to be a lot less market savvy. I can only wonder what will happen when things start to get in motion. Taking stops too late and too furious will only accelerate a storm to the exit door.
Will I make money from my view? I doubt it, the way things are going I will probably have thrown in the towel by the time the move occurs...