All Time Low for US Corporate ROE

From Deutsche and FT Alphaville....Hard to see how this chart is consistent with equities having an attractive return on capital at these levels.





While it is not particularly relevant to this--it is an excellent illustration of how low vol has fallen that a 10-15bp back up in yields feels like a bond market earthquake.

And further updating the state of the world--looks like my injunction to "listen to Draghi" and pay EUR 2y1y was more timely and prescient that I could have hoped...and while I may have been wrong to be skeptical of Poloz and the BoC hiking next month, that and continued USD weakness has given CAD a nice bump.




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Leftback
admin
June 29, 2017 at 7:00 PM ×

Timely. What a difference a day makes.... you could almost hear the bank insiders running to the exits and screaming "SELL" yesterday after eager punters bid up the share prices for the increased dividends.

Several here have posted or commented about the risks of vol selling. VIX spiked about 40% today already, and I remember a few quants suggesting that if it jumped 50% then it could be a little bit naughty for those who were constitutively short gamma.

Thing is, can anyone with a long memory remember a day when spooz were down just 1^% and VIX was screaming to the moon like this? The market action does support the idea that vol may have become a significant asset class all on its own.

We raised a large pile of cash earlier this week and last, so mainly this is armchair theatre at the moment, but we have owned some puts in the inverse vol ETF SVXY for a while.... just for the fun implied by a possible outsized spike in implied vol!

Analysts have predicted that if the VIX were to jump by 50% that the resulting pressure on punters who are short vol might force significant selling pressure in the underlying index, i.e. spooz. Regular readers will be aware of the reflexivity inherent in that type of feedback loop.

Presumably there will be many machines programmed to sell vol at VIX = 15 and buy SPX at SPX 2400, but what do the rest of the machines do if SPX 2395 is taken out later today? Or SPX 2300 next week?

No, that could never happen, it would be a 4-5% drop in the spooz.... unthinkable, right? ;-). It is a cliché but this is going to be an important close.

Maybe Yellen called the top, proclaiming there would be no more crises in her lifetime. Of course she is 70.

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Shawn
admin
June 29, 2017 at 7:15 PM ×

puts on an inverse vol etf, i may need a diagram for that. :) indeed, vix spiking 40% to the unheard of level of....14?

I thought the same thing when I read that comment from Yellen. She'll wind up wearing that comment...but whose lifetime are we talking here?

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June 29, 2017 at 7:16 PM ×

It is kind of an interesting question though, when we consider macro-sectors such as corporate etc., where does ROE come from. If corporate ROE hits all time low, probably something else somewhere else some all-time something is happening. What can that be?

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Detroit Red
admin
June 29, 2017 at 7:36 PM ×

Yellen is 70?! She doesn't look a day older than 69.5

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Shawn
admin
June 30, 2017 at 3:33 AM ×

She's hiking because she's 70 1/2, and having reached the mandatory age to pay the deferred taxes on her IRA, no longer has an incentive to hold up asset prices. Kaboom.

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checkmate
admin
June 30, 2017 at 1:03 PM ×

LB,
Thanks, interesting thoughts.

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johno
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June 30, 2017 at 8:22 PM ×

Shawn @ 3:33, love it!

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