Cantor Fitzgerald strategist Pete Cecchini, who we noted last week made a good call on the simultaneous faceplant by silver and stocks, has a new note out today suggesting you might want to buy some volatility protection. The reason: The end of QE2.
As 2008 made plain, liquidity and volatility are inversely correlated. As liquidity disappeared, even spreads in the Treasury market widened; the VIX spiked above 80; and spreads in the secondary market for secured bank debt traded wider than unsecured high yield credit. Analogously, the injection of massive amounts of liquidity over a short period of time has led to lower volatility in equities, credit and commodities markets (until last week)....MORE