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Shock Over, Financial Markets Now Deleveraging at Trader’s Narrative





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No question, this was a financial shock that leaves everyone grasping for superlatives. But as measured by the TED spread and other financial health metrics, it is all but over:

ted spread spike 2008 financial crisis

Unlike the CBOE VIX volatility index which reached record territory, this spread has been higher actually. I’ll scrounge up a very long term chart. But the important thing is that the TED spread has now come down so much that even if it blips up, it has put in a lower low. So while we may see an uptick or two since nothing every goes up or down in a straight line, the chart suggests that things have calmed down.

But what the shock has resulted in is just getting underway. A complete re-ordering of the financial landscape: RIP the carry trade. Now watch as the currency markets drive the equity markets. They are after all a zillion times larger.

Can you tell which chart is the S&P 500 and which the Euro Yen cross?

spx or euro yen cross

A dozen spoos points and a slightly singed Swingline stapler to the first lucky guesser.

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2 Responses to “Shock Over, Financial Markets Now Deleveraging”  

  1. 1 Badcompany

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    Of course the upper one is the Euro Yen carry trade and the lower one is SPX, SPX made a double top in July and October of 2007.

  2. 2 BourningMarkets

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    Hi all.
    A good story I found about the RIP carry trade.

    (With a couple charts-links more, in my website -> spanish).

    And check out this longer term chart of TED:

    Fundamentally, this is an awful multi-polar mess: CDS, carry trade, CDOs, Synthetic CDOs, (de)leveraging, big margin calls, and (still) frozen interbank lending. All that on top of an ugly recession and earnings shrink.

    Technically, I expect an additional -20% before any respectable rebound (around S&P 700).
    That should help to “optimize” the motivation of world leaders. I see some complacency in the 15-N meeting design.

    Maybe I’m right, maybe wrong. Let’s see.

    Saludos.

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