Hi Don.
"minding the thread"
what a tremendous little score... your post is.
New York Federal Reserve staffers are back with a rebuttal for everyone who says the record-low VIX signals complacency.
Worry not, economists and analysts at the branch wrote in a follow-up blog post, the character of today's freakishly low volatility isn't the same as that which prevailed before the financial crisis.
"This time may indeed be different, at least as measured by market participants' pricing of risk," the researchers wrote Wednesday.
The chief difference is that unlike then, investors today don't expect volatility to stay low forever. Traders who hold longer-dated volatility risks are paying noticeably more than they do for protection in the near term. This is new — before the crisis, sellers demanded similar returns for one-month and one-year volatility bets. Now there's a pretty big gap, "suggesting that investors may understand that volatility may increase again in the future."
To wit: the difference between one-month implied volatility and one-year is currently over 6%, about three times the historical average. This means investors expect higher volatility in the future and aren't sitting on the sidelines with unrealistic expectations of forever-lasting calm. "Based on this evidence, it seems that, despite the low level of the VIX, investors may not be so complacent after all," they wrote.
Looking at a VIX-like index with longer-dated options, the authors say the market is "pricing in implied volatility of around 19% in one or two years' time. It follows that implied volatility is priced to rise rapidly," they wrote.
Is it good or bad when people prepare for catastrophe? While the point of the study is to pour truth serum on claims investors are in a state of dumbfounded bliss, the authors note that healthy anxiety doesn't mean a correction is impossible.
"This is not to say that there are no risks or reasons for concern in the current environment," the researchers wrote. They only suggest "there are differences in how market participants are pricing risk."
It's good to know that at least we have a few staffers left at the NY FED..... since there are more vacancies
from the Wall street Journal.... on Sept 20th..... 2017
wsj.com
Sep 20, 2017 at 3:18 pm ET
The Problem of a Four-Vacancy Fed Board
When Stanley Fischer departs as vice chairman next month, how will the Fed continue to operate with a three-person board and four vacancies?
First off, Ms. Yellen said she will miss Mr. Fischer’s friendship and counsel.
She said, even with three members, the Fed will be able to carry out its responsibilities – though it will create some headaches. She said she hopes Randal Quarles will be confirmed as vice chairman for supervision, and she looks forward to working with him. And she said she hopes for more nominees going forward.
.
LOL........... how on God's Green Earth have even the potential for a majority of Vacant decision making
seats on the Board of A very important Global institution...
It's like ..... no I don't want to be anywhere near the scene of the detonation site.........
One of the Most interesting aspects of Mr. Quarles background is that as an attorney as Davis Polk &
Wardwell ...he stayed up late to read the reoranizations of the biggest American Industry of the time..
The railroads and the numerous OK corral gun fights among the wealthy entities in Western Banking....
(the European bankers and investors were huge owners of the DEBT of the Railroads.... and
the Great Northern Pacific Corner of 1901 that totally collapesed the stock market as the prices of
the cornered Stock...rose higher and higher
en.wikipedia.org
I need to write a dedicated post on the history of crashes associated with the Northern Pacific
it was and is Ground Zero for the model of systemic risks inherent in dynamic capitalism
---------------------------------------
wsj.com
Meet Randal Quarles, Trump’s Pick to Shake Up the Fed
The 59-year-old amateur pilot is expected to try to reduce the Fed’s influence on banks
Randal Quarles has said he would review rules about banks’ capital levels as well as the Volcker rule, which restricts banks from trading unless it is on customers’ behalf. PHOTO: ANDREW HARRER/BLOOMBERG NEWS
By
Ryan Tracy
Updated July 28, 2017 8:36 p.m. ET
20 COMMENTS
Randal Quarles became skeptical of government intervention during decades of work in the financial world. Now he is set to take the lead in shaping oversight at one of the greatest interveners of all: the Federal Reserve.
Mr. Quarles, who would be President Donald Trump’s first appointee to the central bank, is expected to be confirmed in coming months for a four-year term as Fed vice chairman for supervision. That would make him the most influential U.S. financial regulator and give him a voice on monetary policy.
His de facto predecessor, former Fed governor Daniel Tarullo, engineered broad new curbs on risk-taking by the largest U.S. banks. Mr. Quarles, a 59-year-old amateur pilot and former government official who has made millions advising and investing in banks, has a record that suggests he will seek to reduce the Fed’s influence on bankers’ decisions, rather than expand it.
Some refinements will undoubtedly be in order,” Mr. Quarles told the Senate Banking Committee on Thursday, referring to the U.S. regulatory regime. “The key question will be ensuring that…we do so while maintaining the robust resilience of the system to shocks.”
Mr. Quarles’s approach may conflict with that of Fed Chairwoman Janet Yellen, who supported Mr. Tarullo’s agenda. Her term as chair ends in February. Mr. Quarles has separately advocated that the Fed articulate a more rigid formula for setting monetary policy, an idea Ms. Yellen has criticized.
Friends and former colleagues said that if Mr. Quarles does try to change direction at the Fed, they expect him to move slowly and methodically, and to seek consensus. Cerebral with a wry wit, Mr. Quarles spent nights as a young lawyer at Davis Polk & Wardwell LLP reading the firm’s files on railroad reorganizations in the late 19th century.
“I had been interested in the history of that era,” he explained in a 2010 paper.
When asked, “How are you?” he has a stock reply, former colleagues say: “Better than average.”
Mr. Tarullo, who left the Fed in April, cracked the whip on the largest U.S. banks in part by employing the element of surprise. In “stress tests” and “living wills” examining how banks plan for the worst scenarios, he and other regulators ratcheted up their expectations over time and publicly rebuked bankers for perceived failings—scoldings that the regulators said were necessary to clean up what they saw as woeful risk management.
Bankers have called for years for more predictability in the exams, in part to avoid further public thrashings.
At his confirmation hearing Thursday, Mr. Quarles said the Fed should publish more information about the stress tests. “The benefits of the transparency outweigh any of the theoretical costs,” he said.
Mr. Quarles also said he would review rules about banks’ capital levels as well as the Volcker rule, which restricts banks from trading unless it is on customers’ behalf. He avoided specifics. “I don’t have a view as to whether [capital requirements] should be higher or lower,” he said.
During his career, Mr. Quarles has repeatedly criticized unpredictable policy-making. “When governments have discretion, markets and citizens cannot be sure how the government will act, and that uncertainty results in inefficiency, delay and politicization,” he wrote in the 2010 paper.
He said in 2015 that regulatory policy since the 2008 financial crisis “tended to make the government a player” in the financial sector when “it should be a referee.”
At the same time, Mr. Quarles has separated himself from others who claim the “free market” mantle. As a senior Treasury official in the 2000s, he advocated allowing foreign governments to have more wiggle room in dealing with bond investors—a policy opposed by some Wall Street money managers. He once called Timothy Geithner, President Barack Obama’s first Treasury secretary and an architect of the 2008 bailouts, “a very strong choice” for the cabinet position.
bloomberg.com
John |
