Lead Stories

Why Market Volatility Is the New Normal
Heather Pelant – Market Realist
The news surrounding market volatility is almost enough to make one bolt under the bed, never to invest again. The headlines often speak of “roller coasters”, “turbulence” or “markets getting roiled”. Even colleagues of mine will begin to question their investment plan, and they are all trained to know better.

Wall Street sanguine as it heads into worst earnings season in six years
Wall Street is greeting what is expected to be the worst earnings season since 2009 with a gigantic shrug.
Though there has been some selling in recent weeks, there’s been no panic dumping of stocks, even though forecasts for S&P 500 first-quarter earnings have tumbled since Jan. 1, thanks to the surging dollar, falling oil prices and another severe winter. The earnings season unofficially kicks off Wednesday with results from aluminum company Alcoa (AA.N).

Confusion About Fed Policy Causes Erratic Market Behavior
Bob Lang – CBOE Options Hub
As investors and traders try to game the Fed and their next move, we find that a lack of clarity and vision about policy once again have players on edge. It’s playing out like a game of ‘chicken’ and ‘musical chairs’ all at once, who wants to be left holding the bag when the exit doors are used, but who wants to be left out if the rallies continue? Further, it seems everyone wants to be first and fast, but rarely does the early bird get the worm. Trying to game the Fed’s next move is fraught with pain and regret, but it really doesn’t have to be like that.

Disaster Is Inevitable When The Two Decade-Old Stock Bubble Bursts
Six years after the Global Financial Crisis, the U.S. stock market continues to soar to new heights with nary a pullback or correction. In this piece, I will explain why the stock market is experiencing a new bubble that is actually another wave of the bubble that has existed since the mid-1990s.
A two-decade old bubble? Yes, you’ve read that correctly.

The Great American Invasion Into Europe’s Debt Market Has Begun
Just when debt-addicted American companies were starting to worry that Federal Reserve Chair Janet Yellen was going to take their proverbial punch bowl away, along came Mario Draghi.
The European Central Bank president has made borrowing so cheap in the region that foreign corporations are selling record amounts of debt. Forget the deeper, bigger U.S. corporate-bond market. Borrowing in euros is all the rage these days because it’s about 2 percentage points less expensive to do so.

U.S. stocks’ volatility expectations muted ahead of earnings
Investors are staring at the first quarterly decline in U.S. corporate profits in six years – but the message coming out of the options market for now is not to worry.
Earnings reporting seasons are typically choppy periods for stocks, but the number of S&P 500 companies expected to see a jump in volatility is lower than where it stood a year ago or even at the same point in 2013, according to a Reuters analysis of options data.

Royal Dutch Shell to Buy BG Group for Nearly $70 Billion
Dealbook – NY Times
Royal Dutch Shell said on Wednesday that it had agreed to buy the BG Group for nearly $70 billion, creating a formidable global player in the fast-growing business of producing and selling liquefied natural gas.
BG, which was once part of British Gas, is particularly attractive to Shell because it is a major player in liquefied natural gas, whose use is growing fast despite a recent slump in prices.

Gold Declines as Some Fed Officials Favor Raising Rates in June
Joseph Deaux – Bloomberg
The precious metal has fallen out of favor with investors who anticipate that rates will rise this year. Holdings in exchange-traded products backed by gold are at the lowest since mid-January, while U.S. government data shows open interest for New York futures and options has declined in the past two months.

The Fed is split on when to raise rates
Business Insider
The Minutes from the latest FOMC meeting show that the Fed is split on when to raise interest rates.

Forget Interest Rates, the Fed Has Another Big Decision to Make in the Next Year
In case exiting years of zero interest rates won’t be hard enough, Federal Reserve officials have another challenge approaching quickly: when to begin unwinding trillions of dollars of bond purchases that constitute the world’s largest fixed-income portfolio.
Less than a year from now, the Fed must decide whether to reinvest $216 billion of proceeds from Treasury debt maturing in 2016, or shrink its balance sheet by allowing it to expire. By not reinvesting, the Fed would increase the supply of securities available to investors and put upward pressure on yields.

Here’s a Look at Q1 Market Volatility (SPY, VIX, USMV)
David Fabian – InvestorPlace
With the first quarter in the books, we have successfully logged about 65 trading days so far this year and some might say that it has been a frustrating journey. The most notable thing that can be said about 2015 is that market volatility is back and may be here to stay for the foreseeable future.
Breaking it down by the numbers, we have had 19 days with percentage moves in excess of 1% in either direction. That represents nearly one-third of all activity, with another handful of days barely missing the cut.

Economics and history: Economic history is dead; long live economic history?
The Economist
TWO years ago, in a very interesting paper, Peter Temin bemoaned the decline of economic history as a research topic at universities. He took the example of what happened at the Massachuettes Institute of Technology (MIT) to prove his point. There, the subject reached its peak in the 1970s, when three members of the faculty taught economic history. But from then it declined until economic history vanished both from the faculty and the graduate programme around 2010.

***JB: Not Options related but I thought it was interesting (for full disclosure I’m a nerd).


Euronext call outlines exchange dilemma
Like Jeffs – Futures & Options World
Some of the world’s largest clearing brokers reacted angrily on Wednesday to a decision by Euronext to keep running only a portion of its servers after a technical glitch wiped out three of its main client portals.
But the call by Euronext highlights a recurring problem in the market namely: what is the appropriate reaction by an exchange in the event of a technical problem?
Euronext’s technical glitch on Wednesday, its second in ten days and the fourth in four months, affected three of its main Common Customer Gateways used by members to route orders to the exchange on behalf of their clients.

BATS sets monthly records for options, European trading
Kansas Business Journal
March was good to BATS Global Markets, with the company gaining market share for its U.S. equities, options, European equities and foreign exchange trading.

MIAX Options Exchange Announces Volume and Market Share Records; Ranks #1 in Time at NBBO and Tightest Average Bid/Offer Spread Width among All Pro Rata Options Exchanges
Press Release – MIAX
MIAX Options Exchange (MIAX) announced today that for the month of March 2015 MIAX achieved new daily and monthly record volumes, with an average daily volume of 1,006,217 contracts and over 22,000,000 executed contracts for the month, or 2.2 times March 2014 volume. Also during March, MIAX executed over 7 million contracts more than its previous best month. MIAX’s 7.18% of overall equity options volume is a new monthly record and represents a doubling of March 2014 volume.

(NOTE: This link goes to their main press release page. None of the links to this story work as of this writing.)

Regulation & Enforcement

Funds Managing $76 Trillion Draw IMF Scrutiny of Increased Risks
Kasia Klimasinska – Bloomberg
Bond funds may be exposing customers and the financial system to more risk than some investors realize as money managers seek higher returns in less liquid assets, the International Monetary Fund said in a report recommending improved oversight.
“The role of fixed-income funds, which entail larger contagion risks than traditional equity investment, has expanded considerably,” the IMF said Wednesday in a chapter on asset managers in its latest Global Financial Stability Report.


How would Russell do it?
Press Release – Russell Investments
Global multi-asset manager Russell Investments has launched a novel online experience that allows U.S. institutional investors to participate in a web-based, interactive game navigating real-life investment challenges and select their preferred course of action from three options. The situations encountered in the How would Russell do it? game are inspired by real-life challenges that Russell Investments’ non-profit, pension, healthcare and defined contribution clients face on a regular basis.


Read This Before You Short VXX and XIV
Adam Warner – Schaeffer’s Investment Research
You can short these two diametrically opposed volatility products, but it’s not going to be simple.

Why Market Volatility Is the New Normal
Heather Pelant – Market Realist
A way to handle the uncertainty is to think about not cashing out or staying on the sidelines. Instead, you should consider the following:

Why You Should Sit Tight through the Market Volatility
Market Realist
A way to handle the uncertainty is to think about not cashing out or staying on the sidelines. Instead, you should consider the following:

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