Friday March 23, 2012 6:16 AM CST
Here are some articles on the TVIX meltdown yesterday
Zero Hedge reports CS wil re open issuance of TVIX shares. As ZH observes, where was the SEC?
http://www.zerohedge.com/news/credit-suisse-publicly-announces-reopening-tvix-share-issuance-hours-after-private-leak-crushesTVIX was tied to the futures market.
The next report suggests that Credit Suisse is issuing more shares now. This might allow TVIX to eventually recover. Zero Hedge in a later post assumes the NAV will rise gen the pop in risk.
http://finance.yahoo.com/news/tvix-collapse-rocks-volatility-market-061429849.html
At the same valuation and market cap, Facebook has one tenth the revenue of Google.
The TVIX episode reminds me of the 'Portfolio Insurance' debacle in 1987. Designed to prevent losses in a meltdown, it was later determined that portfolio insurance actualy hastened the decline of stocks in October 1987. With hundreds of ETFs and ETNs the potential for meltdown is higher than ever. Add off exchange traded derivatives, and you have a devil's brew. Come to think of it, a subprime mortgage was an off exchange traded derivatve.
Here is an article on the diminshed volume. There are also additional off exchange markets where stocks are trading which has decreased volume.
http://finance.yahoo.com/news/2012-rally-stock-prices-trading-161237226.html
We suspect any losses in TVIX would be offset by gains in HDGE over the next year, HDGE has not such difficulties as it literally represents shorts on actual stocks.
Goldman Sachs is famous for saying one thing to clients and doing another for its own account.It is now toutting stocks as a great buy; could GS be shorting the same stocks it is peddling?
Comstock Partners
At the peak (in 2000) of 1550, the optimism was over 66.8 (extreme optimism is above 61.5%) at the peak in 2007 (at 1570) it was 69.2% and presently at (1405) we are at 68.2%. At the market trough of 2002 at 770 the optimism was 33.9% (extreme pessimism is under 55.5%) we were at 30.9 % in March of 2009 at 670. The latest movement up has not been confirmed by either the Transport Index or volume. We would expect this stock market to fall sometime soon if the rhythm the market has experienced over the past 14 years continues.
Read more: http://www.businessinsider.com/comstock-partners-we-are-in-a-secular-bear-marker-2012-3#ixzz1pwHF70wN
Cmstock Partners offers an explanation of the current cycle going back to year 2000 in this link above. They do not discuss the incredible over valuation of real estate in Brazil and China and every other emerging market. That will be another key but, this is a well done explanation. If you do not have time to read it now, be sure to do so this weekend. The optimism index is supplied by Ned Davis Research NDR. NDR was a favorite of Marty Zweig when he was featured on Wall Street Week.
Thsi analysis is in line with my expectation that the market will get cut in half, again. As Comstock observes, hard to believe but yes it is coming.
Meanwhile at the Dubai Boat Show...The helicoptor is really a handy touch, don't you think?
It's Great to be King
Mel Brooks, History of the World Part II
http://www.businessinsider.com/photos-check-out-the-amazing-scene-at-the-2012-dubai-boat-show-2012-3#and-a-good-place-to-go-if-you-need-a-small-hovercraft-21
Funny - this thing with TVIX wasn't even mentioned on CNBC yesterday. I am just catching up with the story - I thought it was round #2 of the problem. Apparently not - just Round #1 that has continued without being solved for a MONTH! So, yeah - you are right, where was the SEC? Same place that they were in 2007-08...
Posted by: Julie Turner | March 23, 2012 at 08:13 AM
Julie
Now that I think about it, the SEC is about as helpful in seeing what will happen in markets, and the danger
as the CIA is in seeing what will happen in the mid East and the danger to the US
the SEC did not see the ETF danger and the CIA never saw the Arab Spring coming in Libya and cannot figure out how to help in Syria
Let's put both out of business and let them get real jobs...
Posted by: Dennis Elam | March 23, 2012 at 08:50 AM
agreed - they can pick up trash on the highways along with the rest of the cons that are actually in prison...can you say chain-gang??
Posted by: Julie Turner | March 23, 2012 at 09:02 AM