🇺🇸 The CBOE S&P 500 Left Tail Index ($LTV) is the $VIX of crash protection and it just jumped 20.56% today.

Where VIX measures at-the-money volatility in $SPX, LTV measures deep out of the money puts, isolating left tail hedge pricing. The velocity of the move (+20.6% yesterday) matters more than the level, although this is the over the 75th percentile already.

Simultaneously we've had the obvious 29.6% jump in oil volatility since the war started, but only 6.3% for gold volatility over the same period. In a bigger tell, volatility on $HYG blew out 24.7%, and $VVIX (fear of fear) had an 8.41% day.

They're insuring against rising crash potential, as well as against the would-be concurrent spike in VIX.

Short-term volatility protection is getting a bid, but the deep end of the curve is still in contango, and VIX is elevated but not insane. VIX being up to 21% of VVIX is something to watch, however. In a nutshell:

The market fears the war and the consequent spike in energy prices in the near-term, and it worries those situations could become so severe that severely levered companies get squeezed.

Stay safe out there...

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🇮🇷🇮🇱🇺🇸 Change in Traffic Around the Strait of Hormuz

Just graphically illustrating the fact that traffic is down 90%, completely changing the nature of the game...it's not about marginal cost right now.

It's about rationing to the highest bidders.

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🇺🇸 Two recent dynamics (plus the left tail hedging we discussed) point to future events.

1️⃣ The Gold ETF (the one that screws you if it blows out, $GLD) saw the largest outflows in a decade. November 2016 was the Trump Shock: his initial election, dollar spiked, rates spiked, and the “reflation” trade hit gold hard.

This one is probably more about seeking capital from your winners.

2️⃣ Everyone is short the Dollar. You know what that means. IMM non-commercial positioning at -$18.9B is essentially the most extreme short dollar position in this entire 3-year window.

Let a high oil price via this war cause demand destruction, or let us a see that credit turmoil (in the above post) bloom, and you'll see a short squeeze in the Dollar that rips a whole lot of faces off.

I should note that the Shanghai gold price has barely budged.

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🇺🇸 Volatility, baby.

So retail is piled into $SVIX during a war, expecting calm. Trump has trained them to be a bit foolish.

This is a real commitment, and given somebody is buying volatility protection ($VIX 28.7, $VVIX 127, $LTV 18.1, $VIX1D 28.44), they're risking a squeeze against themselves as the buying of VIX futures is mechanically forced.

Looking at (1) volatility in HYG rising another 20.7% today and (2) the high yield spread lagging like nothing's happened, it wouldn't be crazy if we open up at VIX 30 tomorrow (a definite danger zone).

That said, it could also just mean the market expects months of elevated volatility, something like sustained VIX 25.

Watch that spread. That's unlikely to stick. And the oil price just keeps mounting...stay out of growth and stay the hell out of momentum.

Let that VVIX ratio hit 0.25, and you'll regret it doing any differently.

This is not financial advice, sir, this is a Telegram...

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🇺🇸 That was definitely a bottom in wheat.

In fact, it was the first bottom in an exquisite triple bottom. And now wheat's up 22.6% from the first post & even roughly 7% from the second. The gain in the hard was a slight touch better (we'll get to that).

It's now at 9-month highs at 623'4 for hard & 616'6 for soft. This is a technical change of character with some fundamental tailwinds. But that's the easy value money...

The Dollar may (and likely will) make all this stuff correct soon, and if so God bless it. That being strenuously said, the easier play is short & environmental: the world needs hard wheat, the Azov sea is bound up with ice, and Russia can't easily export Argus—long Kansas City, short Black Sea.

The ice breaks up in 3-4 weeks. That doesn't necessarily mean the premium evaporates domestically, but the trade definitely weakens.

The other will require more explanation...

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🇺🇸 Let's finish up talking about wheat. There's much to hit on this weekend.

Why short Russia's? Only 62% of export potential due to (1) 25cm of ice in Azov and (2) that strong ruble everyone talks about. What's the other play? A little bit more long-term (2-5 months probably) parsing of wheat types. A recent market update stated:

"HRW wheat basis bids were largely steady in the southern U.S. Plains, with protein premiums rising for railcar shipments to Kansas City, signaling flour mill demand. Spot millfeed values steadied after declines due to ample supplies and muted demand amid market uncertainty."

In other words, we're too low on hard, high-protein wheat, and premiums for moving it are rising, but the ratio is about 1.01x (5Y 10th %ile). It tends more toward 1.03-1.05x historically, and it should. You can't bake bread with the soft stuff.

So it's long Kansas City HRW, short Chicago SRW. This sort of thing requires keeping an eye on both winter wheat condition scores & the March 31st USDA prospective plantings.

Neither this nor the last post contain any financial advice whatsoever...

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