Loading ...Red Queens Narratives
Beyond the PEG ratio, there has been an accumulation of bearish signals for the past weeks. Of course, many participants do not pay attention to that, as bears are assumed to be “idiots” (this is the new market paradigm).
But people may have noticed bearish divergences on US large cap indices from a long-term perspective, as well as very low trading volumes, negative internals, compressed volatility, a rising SKEW index, hyper-concentration (everyone loves the FAANGs right?), lower liquidity, and extreme risk-on positioning in the system. In other words, the level of complacency has never been so worrying.
Moreover, if Zoltan Pozsar is right, then we might get another bank liquidity crisis soon (please stop sending GIFs from Dude, Where’s My Car, I think everyone got the joke).
Last but not least, yields are suggesting that the economy is about to reverse.
There are many factors which can explain that: slow vaccination rates in many parts of the world, new infectious waves catalyzed by variants, negative effects of economic distortions caused by Western central banks, etc.
Like it or not but the bond market is almost always right when it comes to the macro picture.
But of course, it is not when the avalanche begins that one should start thinking about thinking about buying protections.