I don't know but it feels a bit like the time just after the Bear Stearns liquidity injection and prior to Lehman. The fed was getting hyper involved in keeping credit flowing while hardly anybody noticed.
Exactly. That's exactly what I was thinking. They like to make these decisions over the weekend. Probably will let them crash until Friday. I just don't see how we can bail everything out if it gets to that.
I think you guys are still fighting the previous war. It might be news to you, but the Allies have won and the Germans have lost. On a serious note, this time around, the leverage in the system is hidden elsewhere. Citibank CDS is higher than it was 2 weeks ago, at 145 vs 55 but nowhere near the levels where it was in 2008. More or less consistent with equity declines, for example, it's still lower than it was in 2012 and that's with everyone unwinding risk last few weeks. Banks, in the great American tradition, will get bailed out (it's a matter of liquidity, not solvency, so it's just a matter of forcing them to use the discount window). Everyone else will get fucked and there are plenty of firms that are appropriately positioned for that already.
I don't know, obviously, cause I am a quant monkey. However, if I had to guess it would be either one of The lower tier corporate debt markets and stuff right above the investment grade threshold. Those guys have pretty shaky business to begin with and will drop like flies once they can't refinance. Short LQD, long IEF is the trade for that one (you can even do it in options) Non-observable leverage providers like VC and PE. When that money gets pulled, it would get very painful very fast. No real way to exploit it except for maybe short BKLN or other leveraged loans providers. Non-profitable unicorns that have already gone public. That would be tech sector specfic and I think is playing out as we speak. PS. What's DD? Dunkin Donuts is the only thing I can think of!
Isn't too late for this type of trade? Spreads have already widened considerably. As I type this Treasuries getting smoked. Looks like end of risk parity as we know it.
Good article regarding same theme https://www.ft.com/content/4d5cac08...9e233c8#myft:notification:daily-email:content However, the golden era of risk parity — when both bonds and equities rallied — may be over, Morgan Stanley analysts warned. They reckoned that with bond prices so high, even if normal correlations reassert themselves, they are unlikely to provide the portfolio ballast they once did. That is a bigger challenge for risk parity than a bout of losses, argued Paul Britton, the head of hedge fund Capstone. “Risk parity was a brilliant idea 20 years ago, but there's no more juice to squeeze out,” he said. “It’s in a dangerous position now.”