Thursday, April 2, 2009

More Observations: VIX - Sovereign CDS Divergence

As Zero Hedge postulated a month ago, the VIX - sovereign CDS inverse correlation is becoming more and more evident. Today's action is representative: as VIX continues to slowly trickle lower, US protection is 5 wider. With the G20 pledging trillions to battle every cough and sneeze of the markets, the question becomes what does all this mean for sovereign default risk, and thus VIX, and thus equity markets. With G7 or G20 or Gx debt soon to hit astronomical (this is a technical term) levels, how will all the interest cash flow be funded? How will skyrocketing sovereign deficits be funded? Who will keep on buying UK and German (not to mention US) debt after several failed auctions over the past 3 months?

Many questions with no answers - in the meantime, we either just crossed from deflation into inflation today (which is the most laughable thesis if one actually looks at macro data and the level of consumer wealth: for reference just dial David Rosenberg), or the market is just rallying on the biggest sucker rally in recent years with vanilla, smart, retail and all other sorts of money just hoping for the greatest greater fool effect in generations.


Cramer just pronounced the "market depression" that started post Lehman as over. Now we are merely in a recession.
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James said...

They dont have any idea what they are doing or getting into and its scary. In three years the economy will still be shitty and everyone will be wondering what where going to do with all this unpayable debt

Anonymous said...

As if Cramer had not cost people his minions enough $$ already!

In Debt We Trust said...

Ag traders might disagree w/you over the deflation-inflation hypothesis.

Grains are heading for technical breakouts.

Anonymous said...

VIX was actually UP today.. hmm.

Anonymous said...

"As Zero Hedge postulated a month ago"

How can Zero Hedge postulate anything? Is it not just a destination in cyberspace? Or did you do some special programming using Ilogs Cplex & Solver embedded in your Neural Network Computing cluster to automate the ZH publishing process.

I question your spin on things.