Tue, 11/24/2020 – 09:31
…the speed by which implied vols have continued to collapse since then (with the latest risk boost from the announcement of Janet Yellen as Treasury Secretary – more on that later) has simply escalated beyond anything I could have anticipated…
Why? McElligott explains:
Well, US financial conditions are hitting all-time easiest levels in real-time (UST yield curves low and flat, Credit at tights, lower USD and said destruction of Eq vol)…
…which after the failed QT experiment and the scar-tissue contained therein has made “loose fin conds” an unspoken “de facto mandate” of the Fed and global CB’s.
Additionally, McElligoot notes that the announcement of Janet Yellen as Biden’s Treasury Secretary effectively greenlights:
1) “lower forever” policy support, big fiscal advocacy (even though the magnitude of that is dependent on the Republican Senate coalescing, which is difficult to imagine at this juncture) and,
2) quasi-debt monetization, as the Fed and Treasury evolve closer to one like-minded entity
And everyone’s all-in, as the cross-asset-strategist notes that
The feedback from clients is universally bullish into year-end, where any sort of corrective move would be a dip to buy – aligning into the post-election vol compression pairing with pro-cyclical YE seasonality and the upcoming financial conditions crush from uber-dovish CB’s in December ECB and Fed meetings
But McElligott does have a warning about this apparently premature exacerbation…
This actually / perversely brings forward the timing on profit-taking on the Calendar Spreads we’ve been advocating discussed to take advantage of this anticipated 2020 YE vol collapse vs stickier 2021 optionality, as the term structure steepening nears overshooting
Finally, we do note that while Nomura’s clients are buying every dip with both hands and feet, it appears the ‘Insiders’ are the ones selling to them…
Who are you going to believe – fast-money momo-chasers or the executives at the firms dumping into ever more stratospheric valuations?
Go to Source
Author: Tyler Durden