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Pragmatic Capitalism

Practical Views on Money & Finance

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European Banks and Why the Deleveraging Has Only Just Begun

Why the credit crunch in European countries? Because this deleveraging was accelerated by the fateful decision taken by the European Banking Association of imposing European banks to reach a Core Tier 1 capital ratio of 9% by June 2012. It has not only broken the credit transmission mechanism to the real economy in Europe but caused a credit crunch as well.

Time for a Pullback? Get Some Greenbacks!

As we highlighted in our conversation in May 2012 – “Risk-Off Correlations – When Opposites attract”: Commodities and stocks have become far more closely intertwined as resources have taken on a greater role with China’s economic expansion and increasing consumption in Emerging Markets.

The Change in the Volatility Regime – Part 2

By Martin T., Macronomics “If you change the way you look at things, the things you look at change.” – Wayne Dyer, American psychologist Yesterday we touched on the implications relating to regime changes in the volatility space.  The phenomenon currently in the US is similar in Europe where European equity volatility trading has been… Read More

Long Dated Volatilities – A Regime Change?

The recent significant fall in implicit volatilities in recent days, means that long date volatilities (1 year) of most significant equity indices are now testing the frontier level between the post-crisis regime and the ultra low regime of 2004-2007.

Chart of the Day: Convergence Between VIX and V2X

“The two main drivers of equity volatility are for us, credit availability (Merton model) and revisions of earnings forecasts estimates. Equity volatility is also logically driven by the direction and the magnitude of revisions of forward earnings estimates. In 2010 and again in 2011, equity vol spiked while earnings forecasts remained strong.”