Why are such bets even legal?
Why not label these Bets rather than Funds? This would make it much clearer to everyone that these are in no way investments in the economy, but are just a form of legal betting.
Why is this financial betting even allowed to be part of the U.S. financial system? It doesn't help any businesses outside of finance. It appears to me to be more like a parasite that has taken over the host.
Please, someone explain to me how these portions of the article relate to each other:
"While investments in these funds have been substantial recently, their combined value is just $4 billion, a blip in a market worth trillions of dollars."
"When that happens, watch out, these people warned, as they estimated that $2 trillion in investor money had been directly or indirectly wagered on the markets remaining quiet."
1
A long time ago in an America far far away the banks used to beg for my deposits and pay a 5-6% dividend. Now the US Government has borrowed money from me (the public) by waying of selling treasuries..and lending (OUR)
money to the banks for some 1.5%
All this liquidity is left over from the 2008 financial meltdown, and we the public are still being punished for the misbehaviour of the banks in the first place. Have I got it right, ??
And the government wants to offer me a CD paying less than the inflation rate ??
Have I got the jist of it ??
2
Investors who imagined a smooth ride just because Trump and his pirate regime are happy to bend over for the Chamber of Commerce and the country club crowd are seriously deluded. The president himself is fundamentally unstable. Everything else flows from this unfortunate state of affairs.
1
Isn’t it ironinic that calm, cool President Obama had a steadily improving economy and slow rising stock market with little volatility and the volatile Trump with his over top tax plan has created mercurial, scary stock market where the ultra rich usually are the only winners.
2
Always remember, like 2008, when the Wall Street bunch and their financial scams turn into Humpty Dumpty, they will have nothing to lose, and the American taxpayer will, once again, be picking up the tab.
Let’s create another index that tracks the volatility of the investors betting on the volatility of the market. And another index that tracks the volatility of the volatility of the volatility of the market. This is obviously an excuse to justify what other circles simply call “gambling” and provides absolutely no social value.
2
You gotta admit the timing of Rosneft share sales with Trump's crazy business practices is alarming, no? Where did the missing $2 billion go, Russia, if you are listening...
I have little sympathy for people who lose money trading in bizarre vehicles like VIX and XIV, and Bitcoins too for that matter. I mean really, all one is doing is betting against some other investor on who can correctly guess what the future is going to do. What happened to investing in companies that are building our future? Company stock rises because the company innovates and increases productivity and/or market share. Innovation is something humans have always done, and this is why stocks trend upward and reward the patient investor. Contrast that with investing in tulips, Bitcoins, or the VIX. There is no innovation just greed that drives the price up.
This article contained in my mind one of the best and most interesting explanations of what has been going on in the market recently. I've heard people speculating that algorithms might be involved in the wild swings we saw on Monday and Tuesday but didn't really understand why or how until I read this:
"That was because as XIV and SVXY plummeted, traders were forced to scoop up hundreds of millions of dollars in VIX futures to cover the short positions they had on the index. That drove it higher and prompted computerized trading systems to sell stocks and bonds by the truckload."
It would be nice to know if this narrative can be substantiated. Is anybody who runs an algo strategy willing to say on record that this happened to them? Have those people been burned?
5
"Nonetheless, he said on Tuesday that he was still WAGERING 21 percent of his portfolio, or $600,000, that volatility would fall as it had in the past."
It used to be that people didn't refer to these transactions as ''WAGERING". Finally Mr. Gold is calling a spade a spade. A fund based on the inverse of the VIX is certainly wagering. It is crazy that such financial transactions are legal. Could we at least bring thoroughbreds into the picture to make things more fun?
3
I know someone who is STILL paying on their 2006 CDS hoping it finally comes in.
Has there been bad news the last two days, i notice the stock market has made remarkable gains the last two days...according to Trump the stock market goes down on good news, so it stands to reason there must be horrible news out there somewhere.
1
It should also be kept in mind that ETFs that "bet" on a return to volatility had a horrendous 2017, a perversely ironic result given the Trump presidency, perhaps the most volatile first year of any president in modern history. Had one "invested" a mythical $100,000 in the VXX or UVXY funds on Jan. 3, 2017, he or she would have lost 95% of his/her investment through Jan. 31, 2018. As opposed to the complete one day wipeout of VIX or SVXY, the aforementioned funds had a "slow drip" destruction of value over those 13 months. Needless to say, investing in these "funds" is akin to rolling the dice in Vegas. For example, at around 6 pm on Monday afternoon during extended trading, SVXY plummeted to 10 (it had closed at 72) then actually worked its way back up to 17 before ending at around 10.5. True "gambling" in every sense of the word. The carnage will be great, especially for already over-leveraged hedge funds.
2
People who put their money into exotic derivates are not investors, they're gamblers. As such, they should be prepared for big losses when their luck goes south. Investors put their money into stocks and bonds that will have long-term value and profit, and are not bothered by these bounces in the market.
7
“The world won’t end tomorrow, but there has been such a massive bet on stability and low volatility that this could lead to a multiyear unwind.”
That's a scary thought.
Most downturns are fueled by a runaway trigger, kind of like a bump stock on a gun.
I believe that the massive tax cut bill over did it. Too much for business and wealthy Americans and not enough for middle class Americans.
The economy just wasn't that bad. You can't mantra jobs, jobs, jobs, tout we have full empl and then cutback on immigration in the same breath.
Consumerism runs 75% of our economy but the largest personal debt in history and the threat of inflation and higher interest rates could put damper on long term growth that will nag at us for a while.
And beware damage to the housing market, which is another bulwark of our economy. The effect of the tax bill hasn't been fully felt yet in that sector.
The 10% Salt cap, coupled with higher interest rates, may erode that market in the near future, where renting for young people may be the norm of the future. Disastrous if that happens.
Yes many people will see a tax break, that's great, but how long will its effects last when healthcare rates go up (nothing done on that) plus higher inflation. So most of us are quickly left back at square one, except with a huge budget deficit to pay for, in what amounts to, another larger transfer of wealth to the top percenters. Oh yeah, ... and, very likely, an economic ticking time bomb recipe.
4
Would someone who is an expert on these instruments kindly explain for the rest of us (those who remain open-minded, anyway) how their existence benefits the broader market and the world?
10
I've been waiting for that answer since the last time these devices blew up in our faces ten years ago.
6
Wall Street Scumbaggery includes manufacturing volatility to make more money, even if it hurts investors. Never miss an opportunity to hose the little guy, right?
2
All of the small investors are also betting that other investors will continue to want to bet. There doesn't necessarily have to be anything real behind an investment. The tulip craze, Enron, etc... I suppose if there is a dividend then that's something, but otherwise it's just belief that others will continue to believe.
Meanwhile real physical outward phenomena seem to be happening (eg climate change). A bystander effect, fear of guilt (and it's possible deleterious effects)?
By the way JB, I'm not exactly sure why I posted under your comment, other than just my thought that we often place blame on others without thinking if there is anything we could do that might make the situation better.
People often justify the stock market on a societal scale by saying it's a way to efficiently pool resources to good causes with just rewards to the investors.
I realize I'm stumbling into a treatise length argument, so I'll just leave it with this: do we want to fight till the end for strict justice, or do want to allow for the hypothesized virtue of Grace.
I thought gambling was illegal in New York City...
Amazing how a bunch of gambling dummies can potentially clobber the world economy again!!
7
I'm not amazed. Jamie Dimon forecasted this as the regular cost of doing business with him before Congress.
2
People will never learn. Dot.com, Housing Bubbles and Den of Thieves all over again. Unfortunately since banks can bet with people's money it affects all of us. Glass-Steagall anyone? What ever happened to making money honestly?
8
Exchange funds are simply a marketing product with no or little regulation. These funds represent 33% of the total stock market which is simply scary.
A third of these funds (10% of the total stock market) are simply meaningless and hold no real value on paper.
If regulators do not intervene by placing harsh conditions on ETN and ETF management firms, the next stock collapse will come quite quickly.
9
Let this be a wake-up call to all average Americans who are relying on their 401K savings to see them through their retirement - after the Robber Barons try to take away OUR Social Security, which we have paid for our entire working lives.
Your money is not safe in stocks because the International Mafia Robber Barons have control of all of them. Their only goal is to dump the market every few months/years and steal YOUR money. Get your money OFF the craps tables they call "markets" and put your 401K savings into no-load U.S. Treasuries at T. Rowe Price or another reputable firm. You will still get the tax benefits but won't constantly lose "wealth" to the Robber Barons.
Or, put your money into IRA CDs at your local bank/credit union and watch your money like a hawk.
YOUR life depends on it because the Robber Barons are trying to steal it all.
7
This is precisely what we did after the 2008 crash. Once we had recuperated all that we lost, we took it out of the money market fund that our broker had put it into, thanked him for his time, and walked our money over to our local bank. We aren't making the big returns from this skyrocketing, but volatile market, but at least we can expect that we're not going to lose 15 to 25% of our money when the market goes south.
Really? There's something out there more terrifying than "derivatives"?
Doubt it.
11
It's just the latest reincarnation of derivatives.
6
These VIX type ETF's are based on derivatives strategies. I lost money in VXX a few years ago and realized that you needed a PhD to figure out how they work. I have an MBA from a top IVY and I was swamped trying to figure it out. If nobody can figure out how it works, don't buy it. I learned my lesson.