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Meet the Mueller Risk Index, Wall Street’s newest fear gauge

Lead Stories

Meet the Mueller Risk Index, Wall Street’s newest fear gauge
Matt Egan – CNN
Hedge funds and other sophisticated investors are adept at analyzing the latest economic and financial trends. Think: Earnings, unemployment, bond yields.
But how do you model for indictments that may move markets? Apparently, with artificial intelligence.
GeoQuant, a New York start-up that analyzes political risk in real time, launched a first-of-its kind gauge on Tuesday to measure the risk to the Trump administration from Special Counsel Robert Mueller’s probe. Fittingly, it’s called the Mueller Risk Index.

Stock market volatility wiped out investors betting against the VIX. That should make you nervous.
Emily Stewart – Vox
On December 14, 2006, Lehman Brothers and Bear Stearns reported huge earnings, helping push major US indexes toward record numbers. Fewer than two years later, both investment banks collapsed and their stocks became virtually worthless. JPMorgan bought Bear Stearns for $2 a share in March 2008 and that September, Lehman made the largest bankruptcy filing in history. The meltdowns precipitated the Great Recession.

Cramer Remix: Time to investigate risky VIX-related trading products
Elizabeth Gurdus – CNBC
The stock market’s multi-day sell-off two weeks ago reignited Jim Cramer’s battle against the risky, volatility-related exchange-traded products that were responsible for the brutal decline.
“I’m calling on Congress to investigate these instruments,” the host of CNBC’s “Mad Money” said on Monday. “I’m calling for the SEC’s enforcement arm to look into whether there’s culpability and manipulation, while the corporate finance department of the SEC should re-examine the reasoning behind allowing exactly these kinds of products … to be in the first place.”

Leveraged inverse ETFs grew to record in January
Assets invested in leveraged and inverse exchange-traded funds (ETFs) and products (ETPs) hit a record $87.3 billion at the end of January, research and consultancy firm ETFGI said.
Investors have blamed such complex trading instruments for exacerbating the vicious sell-off in global equity markets at the beginning of February.

Investors may have brushed off the correction, but the risks are still real
Martin Pelletier – Financial Post
For the most part, the past few years have been one of the most complacent periods in history for investors. While Canada has lagged behind due to its strong energy weighting, most other equity markets and especially the U.S. are benefiting from a very confident investor base eager to buy up any dips and market sell offs.
This isn’t a good thing as corrections are like mini forest fires which create a healthy and vibrant forest. The longer a forest goes without a fire, the greater the likelihood the next one becomes larger, more damaging and tougher to contain.

MrTopStep’s End of February Equity View
Davin Blythe –
Today, the new Fed Chair Jerome Powell will testify before Congress, delivering the semi-annual Monetary Policy Report, previously known as the Humphrey-Hawkins testimony. It’ll be the first time since Powell was sworn in that traders will get a chance to hear a significant amount of commentary from the new Fed leader. All institutional equity, Treasury, and currency traders will be watching closely.

China’s Derivatives Guru Seeks Commodity-Benchmark Dream Abroad
Alfred Cang, Andrea Tan – Bloomberg
Asia Pacific Exchange will start in May in Singapore: CEO Zhu; Refined palm oil futures will be venue’s first contract
One of the founders of China’s derivatives market is going offshore to move closer to his dream of developing global commodity benchmarks in Asia.

Exchanges and Clearing

Cboe Announces Successful Migration of Cboe Futures Exchange to Proprietary Technology Platform
Cboe Global Markets, Inc. (Cboe: CBOE | Nasdaq: CBOE), one of the world’s largest exchange holding companies, today announced the successful migration of Cboe Futures Exchange (CFE) to its proprietary Bats technology, a significant milestone in the company’s multi-exchange, multi-year technology integration.


ProShares Slashes Leverage on Surviving Volatility Products
Luke Kawa and Rachel Evans – Bloomberg
After this month’s volatility earthquake blew up a number of exchange-traded products linked to Wall Street’s fear gauge, an issuer of similar funds is trying to prevent any aftershocks.
ProShares Advisors announced changes to its investment objectives to reduce leverage on its Short VIX Short-Term Futures exchange-traded fund (ticker SVXY) and Ultra VIX Short-Term Futures ETF (ticker UVXY). The former, which allowed investors to bet against a rise in volatility, is now aiming to deliver returns equal to one-half the inverse move of the S&P 500 VIX Short-Term Futures Index. Previously, the product had sought to be a perfect mirror image each session.

4 Charts Showing Fear on Wall Street
Todd Salamone – Schaeffer’s Investment Research
For bulls last week, it was a good news/bad news story in terms of price action. Beginning with the bad news, equity indexes — including the S&P 500 Index (SPX – 2,747.30), Russell 2000 Index (RUT – 1,549.19), and S&P MidCap 400 Index (MID – 1,904.23) — did not follow through on the prior week’s rally. These benchmarks came into the week trading at resistance, as described in the above excerpt. In fact, the shortened trading week began with stocks drifting mildly lower, with most rally attempts being turned away at their respective weekly breakeven points — that is, until late afternoon on Friday.

Will The Fed Risk Unleashing The Inflation Genie To Calm Volatile Markets?
Seeking Alpha
The recent volatility spike that triggered cascading panic selling –with the Dow registering an unprecedented daily drop of 1,175 points– was enlightening with respect to the underlying risk that investors had increasingly been conditioned to ignore. As a result, the deeply entrenched tendency to buy-the-dip may have been shaken but overall investor confidence remains strong. Market expectations are relatively unchanged, especially as regards the policy path of the world’s most systemically important central banks. This has significant implications for investors who will have to adapt to a drastically changing macroeconomic environment, characterized by less artificial liquidity and more volatile markets.

British Pound: Volatility on Horizon
In June 2016, the electorate of the United Kingdom shocked the world by voting to exit the European Union by a narrow margin. Brexit was a rejection of the status quo and a vote that signified that citizenry of the U.K. did not want to accept political decisions made in Brussels or economic policy dictated from Frankfurt.
The initial reaction to the departure of the U.S. from the EU was ugly for the British pound which fell like a stone following the 2016 referendum.


Cboe Global Markets to Present at KBW Symposium on Thursday, March 1
Cboe Global Markets, Inc. (Cboe: CBOE | Nasdaq: CBOE), one of the world’s largest exchange holding companies, announced today that Edward Tilly, Chairman and Chief Executive Officer, and Brian Schell, Executive Vice President, Chief Financial Officer and Treasurer, will present at the KBW Cards, Payment and Financial Technology Symposium in New York City on Thursday, March 1 at 12:20 p.m. (Eastern Time).


World’s largest asset manager says get ready to ‘stomach complete losses’ in cryptocurrencies
Evelyn Cheng – CNBC
Investors should only consider cryptocurrencies such as bitcoin if they are prepared to lose everything, BlackRock Investment Institute said in its weekly report Monday.

The Crypto-Futures Revolution Is Just Starting
Nick Baker – Bloomberg
Futures linked to cryptocurrencies besides Bitcoin may have just gotten a step closer to reality.
Cboe Global Markets Inc., which introduced Bitcoin futures in December, finished upgrading the technology at its futures exchange over the weekend, according to a statement Tuesday. President Chris Concannon said on Jan. 17 that while it makes sense to bring derivatives to other digital currencies, his company wouldn’t act until the Cboe Futures Exchange’s software was overhauled. That’s done now.

World’s largest asset manager says get ready to ‘stomach complete losses’ in cryptocurrencies
Evelyn Cheng – CNBC
Investors should only consider cryptocurrencies such as bitcoin if they are prepared to lose everything, BlackRock Investment Institute said in its weekly report Monday.
“We see cryptocurrencies potentially becoming more widely used in the future as the markets mature. Yet for now we believe they should only be considered by those who can stomach potentially complete losses,” Richard Turnill, BlackRock’s global chief investment strategist, said in the note.

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Bergstrom is chief information officer of John J. Lothian & Co. He edits MarketsWiki and JLN Options.