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It Is Officially Dangerously Quiet In Markets [The Economist]
The Vix has dropped to its lowest since 2007. Bond volatility is creeping closer to the historic lows it reached a year ago. And foreign exchange volatility is back to the lows of 2007. This is all probably bad, says the Economist. “One reason folks on Wall Street are deeply sceptical, if not downright hostile, to the Fed’s policies is that they believe volatility is the natural order of things and artificially suppressing it via monetary policy is morally equivalent to price fixing, and more practically, bound to end in tears when the system’s natural instability returns. I don’t have much sympathy with the moral arguments; all monetary regimes fix the price of something in terms of money: bonds, short-term treasury bills, foreign exchange, gold. But I do worry that by squeezing out short-term volatility, we may be storing up long-term volatility. Hyman Minsky had spent most of the post-war years developing his thesis that stability begets instability, and died, in 1996, before he saw it vindicated with the ‘Minsky moment’ of 2008.”
Summer Stock Doldrums Set In Early [BESPOKE]
While there remains plenty of volatility in small cap and momentum stocks, the broader market has set into its usual summer complacency early, Bespoke says. “Over the last three months the spread between the S&P 500’s intraday high and low has been less than 5% (chart below). To find a three month range where the S&P 500 traded in a narrower range over a three month period, you have to go eight years back all the way to October 2006.”
‘Smart Money’ Blows Apple Trade [FORTUNE]
Goldman bought 4.8 million Apple puts last quarter. Morgan Stanley, meanwhile, reported that allocation to Apple among the top 100 investors in the stock fell last quarter to 2.0% — near the low end of its historic range of 1.6% to 4.5%. All of them blew it: recently, Apple shares began a run that put it at a 12-month high of $609.85. Shares are now up 10% on the year. “Performance headwinds from stock-picking,” Goldman wrote clients, “were compounded by poor market timing.”
“Only a fraction of SEC-registered investment advisers are examined regularly, and Mr. Gallagher said it is unlikely his agency would receive the resources from Congress to beef up oversight,” the Wall Street Journal’s Matthias Rieker reports. And the SEC is calling out for assistance. “SEC Commissioner Daniel Gallagher said that help should come from private firms, such as auditing firms, or from self-regulatory organisations like the Financial Industry Regulatory Authority.”
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