Brainstorming Tuesday

1. Yesterday was strange one in some respects as volatility was sold down agressively and in emerging market terms has even reached just before crash levels - it is amazing though that the Bloomberg article claims the opposite that those levels signals no black swan which is as pathetic as it gets. Whenever such reluctance levels are reached the opposite is the case and we are back at July 2007 levels - rings a bell I guess.

excerpt 1

Options Show No Black Swan in Emerging-Market Stocks

The MSCI Emerging Markets Index’s historic volatility, a gauge of price swings during the past three months, fell to 12.1 last week, the lowest level since July 2007

excerpt 2

1M-3M Volatility Term Structure Plunges To Steepest In Years (VIX/VXV)

Submitted by Tyler Durden on 10/11/2010 14:54 -0500

• Market Crash
• Risk Premium
• Volatility

The ratio between VIX (implied vol as determined by 1 month out SPX options) and VXV (3 month Implied Vol) has just dropped to the lowest it has been since the end of 2006. After hitting a post-Lehman high of just under 1.3, VIX/VXV has plunged to 0.7917, a steep drop of 0.07 in just one day, as near-term equity vol is being aggressively sold, even as forward implied vol remains resistant to day to day changes in the market. Whether or not this is predicated by the QE2 event occurring somewhere inbetween the 2 term points is unknown, and irrelevant, but traders certainly seem to be far more comfortable with 1 month volatility and are selling much more of it than its longer-dated cousin. However, as Chris Cole pointed out earlier, this could be a very dangerous underestimation of the possibility for an exponential jump in near-term vol, in a time when correlations are near all time highs.

Here is the chart of VIX/VXV:

2. NUKEs found in Japan deployed by N.-Korea is a news we never get to see on MSM but the implications are big to say the least.

excerpt

Six North Korean atomic bombs located in Japan, five have been seized by the police

Posted by benjamin

October 11, 2010

The North Korean government smuggled six nuclear weapons into Japan to use as blackmail against the Japanese government, according to a senior Japanese public security police source. Five of the bombs have been seized by Japanese authorities but the sixth is located in the basement of the headquarters of the General Association of Korean Residents in Japan (Chosen Soren) and police have been warned it will be set off if they try to seize it. The discovery of the bombs by Japanese authorities confirms the original warning about the North Korean plot to attack with Japan that from a KGB agent who claimed to report directly to Russian Prime Minister Putin. The nuclear blackmail is linked to a failed Federal Reserve Board crime syndicate plot to start World War 3 on the Korean peninsula in a bid to stave off bankruptcy.