Sticky Inflation will cause a Second Leg Down
This idea is to emphasize the risks sticky inflation will have on the world economy.
The idea is my own interpretation of Cem Karsan warning on Aug 18th.
In the 9 minute interview with TD, Cem warned everyone of the recent decline to the Day of. 19th.
He also used the words "Time to be cautious" nearly 10-15 times in a 9 min interview that was incredible.
----------------- Notes from Interview along with my charts to explain ----------------------------
Realized Vol over the last 30 days is structurally higher than where the vix is
We have naturally slide to lower fixed strike vol
OTM Calls are at a steep discount
That is a function of vol being compressed into a decline
As that happens, Vanna and Charm flows gain strength.
These are buybacks from vol compression
Dangerous Period, Quarterly Cycle
VERY IMPORTANT TOPIC FOR PEOPLE TO UNDERSTAND
If you look at the Feb / March 2020 Covid Decline this is a great example
OPEX in March and September are a time to be cautious.
It means that the Tail is Fatter of the distribution
OPEX FLOWS IN LOW LIQUIDITY ARE CAUSE FOR CONCERN.
The Way I measure low liquidity is with a popular GAMMA index to track liquidity, G
AMMA has been its lowest levels for longer since the pandemic Crash in Mar 2020.
The Feds sticky price inflation has actually been very strong, you haven’t heard much about that
China is coming back on and Stimulating which should ironically stem more inflation and harder for long term inflation to come down.
If you look at the 10 year, its starting to RAMP back up and DXY (the dollar index) is also ramping back up
Inflation is likely to remain, even though it is likely to decline, longer term inflation is likely to stabilize at higher levels
And make the Fed be much more aggressive going forward.
That is basically what the Fed has been telling you none stop for 2 weeks, but the market just hasn’t been listening
CEM ended the interview with these words...
The slide in the skew in the market is particularly dangerous
The idea is my own interpretation of Cem Karsan warning on Aug 18th.
In the 9 minute interview with TD, Cem warned everyone of the recent decline to the Day of. 19th.
He also used the words "Time to be cautious" nearly 10-15 times in a 9 min interview that was incredible.
----------------- Notes from Interview along with my charts to explain ----------------------------
Realized Vol over the last 30 days is structurally higher than where the vix is
We have naturally slide to lower fixed strike vol
OTM Calls are at a steep discount
That is a function of vol being compressed into a decline
As that happens, Vanna and Charm flows gain strength.
These are buybacks from vol compression
Dangerous Period, Quarterly Cycle
VERY IMPORTANT TOPIC FOR PEOPLE TO UNDERSTAND
If you look at the Feb / March 2020 Covid Decline this is a great example
OPEX in March and September are a time to be cautious.
It means that the Tail is Fatter of the distribution
OPEX FLOWS IN LOW LIQUIDITY ARE CAUSE FOR CONCERN.
The Way I measure low liquidity is with a popular GAMMA index to track liquidity, G
AMMA has been its lowest levels for longer since the pandemic Crash in Mar 2020.
The Feds sticky price inflation has actually been very strong, you haven’t heard much about that
China is coming back on and Stimulating which should ironically stem more inflation and harder for long term inflation to come down.
If you look at the 10 year, its starting to RAMP back up and DXY (the dollar index) is also ramping back up
Inflation is likely to remain, even though it is likely to decline, longer term inflation is likely to stabilize at higher levels
And make the Fed be much more aggressive going forward.
That is basically what the Fed has been telling you none stop for 2 weeks, but the market just hasn’t been listening
CEM ended the interview with these words...
The slide in the skew in the market is particularly dangerous
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