Volatility Goes On A Rampage

World financial markets are suddenly in complete disarray.

Volatility is exploding. Stock futures are losing and gaining hundreds of points in the blink of an eye. 

The Plunge Protection Team (PPT) has sprung into action. We can see its rescue attempts quite clearly today — but they're having to work hard to keep the markets green. The indices rise, then plunge, then rise again.

Last night, from the close of trading on Monday Feb 5^th through the first 4 hours of open trading this morning (at which time this piece went to print), we saw the PPT step in over and over again.  Dow futures were down -800 points and then a few hours later were up +250 points.  They then dropped back down -250 points, but within an hour of the cash open, everything exploded higher again, up roughly +500 points:

While such gyrations are normal during highly volatile moments, it’s pretty clear that there’s official intervention in play to try and stabilize everything.

Of course, the PPT is knows it has to succeed today. There’s nothing more dangerous to these inflated markets than the loss of faith that “they” are in control.

And that perception is dangerously close to giving way.

What if these official interventions fail today?  Or tomorrow?  Or next week?  In our minds this is a case of when, not if, and the result will be pretty shocking to most people.

What happens when that loss of perception of explicit centralized market control is lost? 

When that happens, you need to be prepared for the markets to simply shut down while ‘they’ sort everything out. And when the markets eventually reopen, be prepared for whatever stock holdings you have to be discounted, all at once, by some large value — perhaps 50% or more.  If that sounds unlikely, please consider that this is exactly what happened this morning to people who were correctly positioned for rising volatility.  The markets for those products were suspended. 

Global Markets And Correlated Assets

There’s no difference anymore between the US equity market compared to the European or Asian equity markets.