- Just how rampant is the fraud in today's markets?
- How last week's volatility spike nearly crashed the system
- Why a massive price correction is both necessary, inevitable & overdue
- Why the future of our democracy itself hangs in the balance
If you have not yet read Part 1: The Worst Threat We Face Is Right Here At Home, available free to all readers, please click here to read it first.
As I recently wrote, what broke in early February was volatility itself. The volatility trade is one where tremendous firepower is concentrated because of a massive concentration of computer trading strategies that are all keyed off of volatility.
One of them is the so-called “risk-parity” trade, where computers are balancing and rebalancing a blended portfolio of stocks and bonds based entirely off of what the volatility index is doing.
So if volatility is falling, these algorithms are buying stocks. Said another way, if you wanted to rig the cash market to go higher, you could either buy a huge amount of stocks directly, or you could buy a much smaller amount of index futures. Or you buy sell an even tinier amount of volatility.
If you sold volatility, you're be said to be “short volatility.”
And who is “short volatility”, as revealed in their most recently released meeting notes? The Federal Reserve.
This is critically important because…