Everything's Growing, but Professionals Prepare for the Worst

2. Juni 2021

World stock markets showed new all-time highs yesterday: the pound renewed the highest levels in the last three years, oil went above 70 - that is, everything was growing (except perhaps for cryptocurrencies - there the bubble continues to deflate).

It seems to be growing, and it's great. But the problem is that there is little factual basis for this. The growth is mainly driven by expectations that the success of the vaccination campaign will provoke an unprecedented economic boom and that one should not be late for this celebration of life. And for this you should buy here and now, and practically everything indiscriminately.

At the same time, the CBOE Skew Index (often referred to as the Black Swan Index because it measures tail risks - the risk that the price of an asset or portfolio of assets will change by more than three standard deviations from the current price), soared to a record high since August 2018. What does this growth say? The fact that professional investors are waiting for a collapse (not just a correction, but a collapse) and are trying to insure themselves against this case.

Recall that the most likely needle that will break the bubble in the stock markets is the tightening of monetary policies by the world's leading central banks. Yesterday's data on inflation in the Eurozone (reached the highest levels in the last couple of years) added another argument in favor of the fact that the time to act has already come.

In general, stratification in the modern world is increasing. Some buy in anticipation of growth, others sell in order to hedge against a fall. In some countries, it is already practically possible to walk without masks, while in others, such as Malaysia, a nationwide lockdown is being introduced at the same time. To speak about something in such conditions with unambiguity is at least too self-confident.

Following the meeting, OPEC + announced its decision on future coordinated actions yesterday. The basic plan to increase oil production by 2+ mmb / d by the end of July remains in play. So, it seems a little strange to buy oil at 70+ on the background of such information. However, this is what traders in the oil market were doing yesterday. Our position remains unchanged - current prices are an opportunity for selling, not buying.