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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Jon Koplik who wrote (7477)	12/15/2006 11:32:38 AM
From: John Pitera	Respond to of 33421

Art Cashin comments-- "BIS Makes quite a statement on the high levels of investor confidence witness by lowest implied volatilities in stock and bond markets in years. Actually the implied volatilites of stock and bond markets is the lowest since the 1970's when these derivative products largely started and the 1980's when derivatives became a more of a part of institutional capital management and allocation. There has certainly been much more transfer and repackaging of risk in the past 5 to 10 years. The communications technology explosion with the microchip, the internet and electronic communication have been inextricably linked to the explosive growth in these Global risk transfer transactions. John --------------------------------------- Cashin’s Comments December 12, 2006 I Think I Heard A Theory Like This Before – We have droned incessantly over the last few weeks about a hypothesis that shifts in petro-dollar reserves might be used as a geo-political weapon or, at least, a wedge. That hypothesis may have received a bit of a boost from a report from the Bank for International Settlements (BIS). Here’s part of what Dan Moliniski of Dow Jones Newswire wrote on the report. ab “Worries that central banks around the world could shift their reserve allocations away from the dollar were one contributing factor to the greenback’s sharp post-Thanksgiving decline. But while such concerns have focused mainly on what the Asian central banks would do – which have amassed dollar assets as they sought in the past to stymie currency appreciation to keep exports growing – the latest update on central bank reserve allocations, courtesy of the Bank for International Settlements, highlighted the actions of oil-exporting nations. The member states of the Organization of Petroleum Exporting Countries, according to the BIS’ December quarterly report, continued to cut back on their dollar deposits in the second quarter, while at the same time increasing their deposits in euros and other currencies. OPEC dollar deposits decreased by $5.3 billion, while their euro – and yen – denominated deposits rose by $2.8 billion and $3.8 billion, respectively in the second quarter. “The share of U.S. dollar liabilities to oil-exporting countries fell from 67% to 65% in a single quarter, while the euro share rose by 2 percentage points to 22%,” said the report, comparing first quarter data to second.” The numbers cited are not huge and the data is a bit dated. But with money continuing to pour into the reserves of the oil producers, it is a trend to keep an eye on. There was another part of the report that caught our eye. Actually, it was in the report summary and dealt with the remarkable level of confidence in the markets seen around the globe. Look at this paragraph: This general confidence could also be discerned in the behaviour of a number of market indicators. In mid-November, implied volatilities in bond and stock markets reached their lowest levels in years, while measures of risk appetite showed that the retrenchment by investors after the sell-off in May and June had been largely reversed. Not even events such as the reported $6 billion loss by a large hedge fund or several instances of political instability in emerging markets in September seemed to dent investors' confidence. “…..implied volatilities in bond and stock markets reached their lowest levels in years…..” That’s quite a statement coming from BIS. It looks like things are priced to perfection.