DuncanIn addition to the birthday of my better half tomorrow, another important date comes next week. No, not PPI or GDP. Rather, Feb 27th will mark the one year anniversary of Vol. I remember it well. We met after four down days and a nice down open, I throwing all caution to the wind. Then came the worst day since 2001, down some 58 S&P — and still no worse day since then, despite some perilous moves. Vol has never really looked back since then. The trigger that day was not subprime, credit, bank losses, the Fed, or housing. Merely a big down open in China after some huge gains. And what a year it has been for Vol. After nearly a 60% increase on that day alone, it went on to triple over the summer and fall, and now settle around double where it was a year ago. I would like to raise a toast to our good friend or fierce enemy, Vol. What a year it has been. Can't wait to see where we will be a year from now!

Wil Kenney remarks:

I for one know my brow sweats a little more as Vol increases, and from time to time that can be frightening.

James Bitumen replies:

There is nothing wrong with Vol, nor is it to be feared. It is what it is. There is nothing wrong with a rising market, nor is there anything wrong with a declining market. Change outside of a rather longstanding pattern is only that, change.

The market is no different today than what it was a year or two ago. It's simply removing levels of leverage one level at a time — we are at the exactly same spot. There are more levels to be removed. The key to trading the market is identifying where and when these levels will be removed from the system.

We are in the process of a credit bubble unwind. An institution owns an asset — no debt. Global rates at historic lows following the late-90s equity bubble deflation, 9/11, recession. They borrow against the asset at very low rates (just like the housing nightmare we are seeing not just in the US, but UK, Spain, etc.), and toss the free money into various asset classes all over the place — emerging market equities, Google, hedgefunds. What is considered equity to the asset manager is simply borrowed money. Borrowed money on top of borrowed money. The problem: economic growth never before has been so tied to asset price growth (housing primarily — ~30% of US workforce is tied to real estate). This is why the Fed has been so fiercely content to hit the ease button: They need to pump in liquidity in order to support asset prices, which they hope will protect bank balance sheets that have ballooned.



 This is a gig I wouldn't miss for the world. Rory Stuart is a great guitar player I worked with back in the day. He's also a handball champ and authored a book on artificial intelligence. Music is a popular theme on DailySpec, and this is a chance to hear the real deal.

Friday, April 27, sets at 9:00 and 10:30pm: RORY STUART QUARTET with Mark Shim - tenor saxophone, Chris Tordini - bass, and Ari Hoenig - drums, will be performing at: CORNELIA STREET CAFE 29 Cornelia St. (just off 4th St., between 6th and 7th Aves.) (in Greenwich Village, NYC). Admission is $12 ($9 for students with ID). Reservations: 212-989-9319.

Rory Stuart is one of the freshest new guitarists in jazz. He has a full sound with a long lean style of playing. His quartet has the energetic flow of the Coltrane quartet. Rory Stuart knows the tradition even while pushing most broadly out from that tradition. -Coda


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