The lack of core trading liquidity appears to continue to wane. The last two expiries, December and the recent March one, have seen the highest daily volumes in the NYSE for five years. Expiries are where it’s at. The March expiry coincided with some FOMC revelations that multiplied the intrigue.

After the January expiry there was little VIX open interest and low open interest in the SPX puts as well, it appeared that the market would be susceptible, sitting with such limited downside protection, if they started to fall. They didn’t. My preferred and most successful gauge of shorter term market distortion, the RSI on the yield ratio - the relationship between bond yields and equity yields - had been suggesting the equity market was a buy since early January. It is similar now as it fails to show an overbought reading. Bond markets have been propelled higher by the Fed and once more bailed out equities by doing so.

Volatility has moved dramatically downwards once more. When retail money pours into index products as it has, volatility of indices has to fall. It is entirely logical. In other markets as well, volatility has been collapsing. The MOVE Index, Merrill Lynch’s bond volatility gauge, has recently hit all-time lows. Shocking news in bonds occurs regularly but the benign nature of the ‘Fed’s put’, which analysts enthuse has returned in the latest FOMC pow-wow, has driven complacency in bonds to very high levels.

Any protracted equity bear move is only going to happen with a longer  investor does not seem to have bought the dip. It is pretty rare to see  The last three times we have seen anything like we are witnessing now,

 (gauged by 2 month return of the S&P 500 compared  those were good outcomes. Consequently, with an apparent lack of retail verve, it begs the question 

  with 4.64 trillion yuan in the form of China’s Total  ‘de-leveraging’. Despite this record liquidity insertion, China’s manufacturing index fell below 50 to 49.2 in February. China’s economy, it appears, needs this money.

Central banks, apart from the Fed, continue to be liquidity helpful. Japan keeps buying its own bonds and owns just under 50% of its own government bond market now. Every yen it spends buying bonds   Since 2013, the BOJ bought the vast majority of all Japanese bond issuance. The release of funds from  risky assets, hunting for yield. The market relies on it. The Chinese money is a bonus.

The other equity bolster in buying terms once again  were strong, 2019 looks strong too. If you ever wondered why companies like GE continued for so long to beat its earnings report every quarter 

4 | ADMISI - The Ghost In The Machine | March/April 2019

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