Thursday, October 22, 2020

Morning Note: The "Worst Risk-Reward Profile" (of credit markets)

Asian equities traded in mixed fashion overnight, as 9 of the 16 markets we track closed in the red. Less than rosy economic reports and rapidly rising covid numbers have European stocks down nearly across the board this morning; 16 of the 19 bourses we follow are lower as I type. U.S. major averages remain choppy, as traders await final word on a pre-election "stimulus" package; Dow down 116 points (-0.41%), S&P 500 down -0.40%, Nasdaq down -0.65%, Russell 2000 down 0.19%.

The VIX (SP500 implied volatility) is up 1.12%, NDX (Nasdaq vol) is up 1.68%.

Oil futures are up 1.27%, gold's down -1.43%, silver's down -2.02%, copper futures are down -1.57% and the ag complex is up 0.08%.

The 10-year treasury is trading lower (yield higher) and the dollar, to the chagrin of commodities bulls (those trading in gold, silver and base metals in particular), is up 0.35%.

Led by banks, Verizon, healthcare, financials and industrials, while pulled lower by silver, gold, tech, Eurozone equities and materials, our core portfolio is down -0.39% so far on the session.

Keeping it quick this morning (giving you time to read this week's main message posted yesterday, in case you missed it), I'll leave you with the following from hedge fund manager Boaz Weinstein; he in essence laments (yet intends to exploit) the demise of the debt market pricing mechanism that I discussed in yesterday's post:
“I find today the risk-reward profile of credit to be basically among the worst, relative to other things, I’ve seen in my career. A VIX at 20 used to be quite a feat. Here we are at 30, and the credit market hasn’t blinked.”
Have a great day!

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