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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum
GLD 375.93-1.8%Nov 14 4:00 PM EST
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To: 2MAR$ who wrote (98275)1/25/2013 12:04:51 PM
From: Cogito Ergo Sum1 Recommendation  Read Replies (1) of 217780
 
From: Canuck Dave1/25/2013 11:50:18 AM

 of 224362
This is interesting:

Here we hand over to the guys at Zero Hedge who think something fishy is going on: “What changed in June? Well , as some may recall, something very substantial – the head of the Fed’s Markets Group (it’s trading desk), got a new head, Simon Potter, who has been rumoured to have a different style to his predecessor Brian Sack. His style involves the relentless selling of VIX to take advantage of a market which is drowning in reflexivity (the theory of reflexivity states that investors and traders biases can change the fundamentals that assist in determining market prices) and in which the movement of the volatility surface has a far greater impact on the underlying asset than any fundamentals or news flow. Namely, if you want to send the market higher (and have an infinite balance sheet at JV partner Citadel courtesy of your backstop) then just sell, sell, sell VIX.”

Finally the VIX manipulation, if Zero Hedge are right, is even more sinister. The VIX should fall and equity markets rise when fundamental conditions improve in the economy, that is the theory. If the Federal Reserve are selling VIX they are effectively putting the cart before the horse and trying to persuade the markets everything is ok, despite the all too apparent backdrop of general economic malaise. I would imagine this is based on some warped ‘Friedmanite’ economic thinking that the wealth effect from the markets will prompt the long awaited economic recovery. I wouldn’t bet on it.

CD
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