Why the credit crunch in European countries? Because this deleveraging was accelerated by the fateful decision taken by the European Banking Association of imposing European banks to reach a Core Tier 1 capital ratio of 9% by June 2012. It has not only broken the credit transmission mechanism to the real economy in Europe but caused a credit crunch as well.
Articles written by: Martin T., Macronomics
As we highlighted in our conversation in May 2012 – “Risk-Off Correlations – When Opposites attract”: Commodities and stocks have become far more closely intertwined as resources have taken on a greater role with China’s economic expansion and increasing consumption in Emerging Markets.
By Martin T., Macronomics “If you change the way you look at things, the things you look at change.” – Wayne Dyer, American psychologist Yesterday we touched on the implications relating to regime changes in the volatility space. The phenomenon currently in the US is similar in Europe where European equity volatility trading has been trading marginally below the VIX. [...]
The recent significant fall in implicit volatilities in recent days, means that long date volatilities (1 year) of most significant equity indices are now testing the frontier level between the post-crisis regime and the ultra low regime of 2004-2007.
Courtesy of our good friends at Rcube Global Macro Research, please find enclosed their recent note focusing on US Equities’ Long Term Real Returns. Enjoy!
“The two main drivers of equity volatility are for us, credit availability (Merton model) and revisions of earnings forecasts estimates. Equity volatility is also logically driven by the direction and the magnitude of revisions of forward earnings estimates. In 2010 and again in 2011, equity vol spiked while earnings forecasts remained strong.”
“Hope is definitely not the same thing as optimism. It is not the conviction that something will turn out well, but the certainty that something makes sense, regardless of how it turns out.” – Vaclav Havel
Many pundits have recently looked at the lackluster performances of Hedge Funds from the European crisis perspective. We would like to have a different approach, namely the one of volatilities.
By Martin T., Macronomics “What is at a peak is certain to decline. He who shows his hand will surely be defeated. He who can prevail in battle by taking advantage of his enemy’s doubts is invincible.” - Cao Cao The CDS market is a clear illustration of the surge of Chinese and Korean corporates versus the slow decline of Japanese [...]
While we already touched on the subject of “Rogue Waves” in our conversation “the Italian Peregrine soliton”, being an analytical solution to the nonlinear Schrödinger equation (which was proposed by Howell Peregrine in 1983), being “an attractive hypothesis to explain the formation of those waves which have a high amplitude and may appear from nowhere and disappear without a trace, the latest surge in Spanish Nonperforming loans to a record 10.51% and the unfortunate Sandy Hurricane have drawn us towards the analogy of the 1991 “Perfect Storm”.