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Life Comes At Us Way Too Fast: One Banker’s Striking Explanation Why Nothing Makes Sense Any More
Life Comes At Us Way Too Fast: One Banker’s Striking Explanation Why Nothing Makes Sense Any More
Deutsche Bank’s postmodern philosopher-cum-credit strategist Aleksandar Kocic, who missed his true calling and instead of writing a sequel to Ulysses, Finnegan’s Wake or some other pomo stream of consciousness piece in the style of Lacan, Derrida, Deleuze (or even Foucault, Beckett, Ginsberg or Burroughs) was reduced, no pun intended, to predicting the future by describing the shift in yield curves or their “Greek” derivatives, has always had a way with words and he certainly uses them in his 2020 vol market outlook which can be summarized – and we use the term very loosely – as follows, in his own words: “We see last year as the final stage of an on-going process of vega collapse caused by the chronic lack of demand, disruption of the vol/leverage cycle, and activity of the Central Banks. At the core of these developments resides an emerging new perspective of uncertainty: On top of the structural drivers, low volatility levels, compressed vol risk premia, and flat vol forwards present an articulation of the flattening of horizons.”
Like we said, “a way with words.”
While it would be an injustice to the Deutsche Banker to summarize what he talks about in simplistic terms (the problem with post-modernism is that it can’t by definition be reduced, hence why nobody really reads it), what the Serbian strategist focuses on in broad strokes is the ongoing collapse of vega (and its deficit), which however may be approaching the “boundaries of vol decline” (i.e., the moment when the Fed loses control so to speak)…
“What Happens When The Market Can No Longer Pretend”: Charting Today’s Minsky Moments Dynamics
“What Happens When The Market Can No Longer Pretend”: Charting Today’s Minsky Moments Dynamics
Back in July, Deutsche Bank’s derivative strategist Aleksandar Kocic believed he had found the moment the market broke, which he defined as a terminal dislocation between market and economic policy uncertainty: as he wrote 4 months ago, it was some time in 2012 that markets “lost their capacity to deal with uncertainty.”
It was also some time in 2012 that traders and market participants realized central banks have not only taken over the market, but have no intention of ever leaving as the alternative is a crash that wipes out 8 years of artificial “wealth effect” creation and puts the very concept of fractional reserve and central banking in jeopardy.
This intention was confirmed last week when as Kocic again wrote overnight, it became clear – once again – that Central Banks’ main agenda “is management of the risk of policy unwind” which has two different aspects, especially for those who still believe there is such as a thing as a “market.” Kocic explains:
- On one hand, it is reassuring that Central Banks are cognizant of severity of the risk and are showing appropriate flexibility in adjusting their reaction functions to incorporate these realities.
- On the other hand, this is less good because it does not allow the market to reposition and, thus, normalize. By soliciting feedback from the markets, Central Banks are further encouraging bad behavior making things potentially worse by postponing the resolution further into the future.
This is also the “nightmare scenario” envisioned by Eric Peters: a world in which central banks inject more and more liquidity and “stimulus”, and yet inflation does not rise, resulting in greater and greater financial inflation, i.e., asset bubbles, and a Fed chair who is confused about the “mystery” of inflation.
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