You’re not Gonna get Another Crash?

For those of you who haven’t checked out our Big List of Alts folks on Twitter (and VolTwit list), you may have missed the great thread/reply storm (we’re not sure what you call a bunch of replies nested in replies nested in retweets?) around what the next crash will look like.

It started with @squeezemetrics saying “You’re not gonna get another crash”. Strong words indeed, and a little off the cheek, perhaps – but then Resolve’s Adam Butler @gestalu weighed in with a little more historical/behavioral/structural perspective:

 

 

Now the wheels were greased for a full on tweetstorm across some of the best follows out there. @choffstein replied to our own @attaincap2 question on how this lines up with his liquidity cascade thesis, saying:

 

 

This was a great point by Corey – if not unscientific. It does feel like the market loves inflicting max pain on the most people, meaning if tons of us are protected from a sharp decline – maybe that’s not what will happen. But what if the market is less liquid now?  Maybe the fact that there’s more protection (in and of itself not proven anywhere), is belittled by the thought that there’s much less liquidity – especially in a crisis. Enter @ksidiii, sharing his thoughts on how there’s not enough market makers to act as a buffer – and calling out the thought that OTC exposure is down by showing there’s a TON of autocallable risk out there – pushing @gestaltu to come back full circle re-thinking if there’s triggers down below which could accelerate a move lower…

 

 

 

 

Which brought out the auto-callable folks, one of which we had on a recent pod talking structured products and buffered notes (Joe Halpern).  The view in our pod is there isn’t really any added risk here.  But FinTwit had different ideas, led by @nihilisttrader pointedly pointing out that the search for yield drives all of this, and those providing the yield are the ones taking on the “gap risk”:

 

 

Leading into, after a night of sleep, the conversation about how the government is likely to react in teh next crash to prop up the market with concentrated market maker activity, per @TradeVolatility

 

And lastly – to Inflation… by @breakingthemark, after some well placed rhetorical questions on what happens if we don’t backstop the market, if we don’t prop up market makers, if we actually let the market fall to where participants start to come in and buy…

 

Go check it all out for yourself by surfing between these different replies, and let us know what you think. Will the next down move be even faster and more nasty than the last – or rather tame and measured because the last was so nasty.

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