{"id":30717,"date":"2018-02-08T20:44:50","date_gmt":"2018-02-09T01:44:50","guid":{"rendered":"http:\/\/olduvai.ca\/?p=30717"},"modified":"2018-02-08T20:44:50","modified_gmt":"2018-02-09T01:44:50","slug":"worst-case-scenario-emerging-morgan-stanley-warns-selling-has-shifted","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=30717","title":{"rendered":"“Worst Case Scenario” Emerging: Morgan Stanley Warns “Selling Has Shifted”"},"content":{"rendered":"
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“Worst Case Scenario” Emerging: Morgan Stanley Warns “Selling Has Shifted”<\/a><\/span><\/h3>\n<\/div>\n
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Confirming JPMorgan’s “worst case scenario”<\/a> <\/strong>that forced de-levering in vol-based strategies would lead to retail ETF outflows and create a vicious cycle downwards, Morgan Stanley’s Christopher Metli warns that today\u2019s moves lower are likely not being driven by systematic supply \u2013 this appears to be more discretionary selling<\/em><\/strong>.<\/p>\n

Risk-Parity funds are seeing some of the biggest losses in history…<\/p>\n

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But, as we previously detailed<\/em><\/a>,\u00a0JPMorgan offered hope<\/a> that this vicious circle of de-leveraging could be stalled – and had been in the past – by dip-buyers from greater-fool retail inflows.<\/p>\n

In the past, just as we have seen this year, these risk-parity-correlation tantrums have been cushioned by equity market inflows<\/strong><\/u>, and we note that, in particular, YTD equity ETF flows have surpassed the $100bn mark, a record high pace.<\/p>\n

If these equity ETF flows, which JPMorgan believes are largely driven by retail investors, start reversing, not only would the equity market retrench, but the resultant rise in bond-equity correlation would likely induce de-risking by risk parity funds and balanced mutual funds, magnifying the eventual equity market sell-off.<\/em><\/strong><\/p><\/blockquote>\n

Which could be a problem…<\/p>\n

As ETF outflows are surging…<\/p>\n

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And as Morgan Stanley’s Christopher Metli – who previously explained what happens when VIX goes bananas – notes, today\u2019s moves lower are likely not being driven by systematic supply \u2013 this appears to be more discretionary selling.\u00a0<\/strong><\/p>\n

Systematic supply from vol target strategies is largely out of the way now, while consensus trades are getting hit<\/strong>:\u00a0 NDX is underperforming SPX, momentum is down 1%, and the Passive Factor is up, indicating actively held names are underperforming names better held by passive funds.<\/p>\n

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So why now, even though the systematic supply is largely out of the way?<\/strong><\/em><\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n<\/div>\n<\/article>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

“Worst Case Scenario” Emerging: Morgan Stanley Warns “Selling Has Shifted” Confirming JPMorgan’s “worst case scenario” that forced de-levering in vol-based strategies would lead to retail ETF outflows and create a vicious cycle downwards, Morgan Stanley’s Christopher Metli warns that today\u2019s moves lower are likely not being driven by systematic supply \u2013 this appears to be […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[18435,273,500,7477,18434,2443,4318],"class_list":["post-30717","post","type-post","status-publish","format-standard","hentry","category-economics","tag-christopher-metili","tag-equities","tag-market-collapse","tag-morgan-stanley","tag-risk-parity","tag-stock-markets","tag-zerohedge"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/30717","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=30717"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/30717\/revisions"}],"predecessor-version":[{"id":30718,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/30717\/revisions\/30718"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=30717"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=30717"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=30717"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}