Angry Man Blowing His Top

Stock market’s “fear gauge” explodes to highest levels of this bull market

The VIX is near intraday levels it hasn’t sniffed since last year’s regional-banking crisis.

8/2/24 11:04AM

The VIX Index, a gauge of the implied volatility of the S&P 500 over the next month, is spiking as stocks tumble after the unemployment rate unexpectedly rose to 4.3% in July.

If the VIX holds around its current level of 29, this would mark its highest close since October 2022, when this this bull market started. So far, the VIX hasn’t yet exceeded 30.81, its highest intraday level during the 2023 US regional banking crisis.

The VIX is commonly called Wall Street’s “fear gauge” because when it takes the elevator up, the stock market is usually taking the elevator down, as is the case today.

Perhaps even more astounding than that is the move in the VVIX Index, which tracks the volatility of volatility. Think of it as VIXception. The VIX is based on option prices that give a guide on how much the S&P 500 is expected to move, and the VVIX is based on option prices that show how much traders think the VIX will move.

That metric has surged beyond 150, a more than 40-point jump. Dean Curnutt, founder of Macro Risk Advisors, flagged how unique this surge in VVIX is.

VVIX up 45... there are only two other days when it rose by more than 40... GME on 1/27/21 and XIV on 2/5/18. both of those nearly broke the SPX vol market.
— Alpha_Ex_LLC (@Alpha_Ex_LLC) August 2, 2024

Luke Kawa1h

US stocks just suffered one of their most stunning reversals in 32 years

Only four times in the more than 32-year history of the SPDR S&P 500 ETF has the fund opened at least 1.5% higher only to end the session down 1.5% or more.

And one of those days was today, with early enthusiasm over Nvidia’s strong earnings report turning into a wave of selling as speculative assets, chief among them bitcoin, cratered and dragged everything down with them. The S&P 500’s winners in particular saw heavy selling. Among the 15 stocks in the index that are up at least 70% year to date, the average performance on Thursday was down 5.6%.

The other occasions where US stocks have suffered such a violent turnabout:

April 8 of this year (the bottom, year to date!), when the White House said tariffs on China were going up to above 100%, kneecapping a nascent bounce-back attempt after a 10% drubbing in the three days after the Rose Garden tariff announcements. President Donald Trump would go on to announce that he was slashing reciprocal tariffs for 90 days the following session.

And the other two such instances both occurred in October 2008 (on the 7th and the 9th), as the fallout from the unfolding financial crisis was spreading after the prior month’s collapse of Lehman Brothers and the VIX Index, Wall Street’s so-called “fear gauge,” was routinely above 50, making immense volatility par for the course.

Tasha Matsumoto

Stocks sink as strong Nvidia earnings fail to ease Wall Street’s AI anxiety

The S&P 500, Nasdaq 100, and Russell 2000 all fell, with tech leading the sell-off.

Chicago Bears wide receiver Trent Taylor (15) fumbles a punt during the first quarter of the National Football League game between the Chicago Bears and Cleveland Browns

Matt Phillips5h

Insurance against Oracle default becomes favorite AI-bust hedge, Bloomberg reports

Volume in the market for credit default swaps — essentially a kind of insurance against a company defaulting on its debts — on Oracle is surging as the company has supercharged its borrowing to finance its AI ambitions, Bloomberg’s Caleb Mutua reports:

“The price to protect against the company defaulting on its debt for five years tripled in recent months to as high as about 1.11 percentage point a year on Wednesday, or around $111,000 for every $10 million of principal protected, according to ICE Data Services.

As AI skeptics rushed in, trading volume on the company’s CDS ballooned to about $5 billion over the seven weeks ended Nov. 14, according to Barclays Plc credit strategist Jigar Patel. That’s up from a little more than $200 million in the same period last year.”

A Hedge Against AI Crash Emerges as Oracle CDS Market Explodes

“The price to protect against the company defaulting on its debt for five years tripled in recent months to as high as about 1.11 percentage point a year on Wednesday, or around $111,000 for every $10 million of principal protected, according to ICE Data Services.

As AI skeptics rushed in, trading volume on the company’s CDS ballooned to about $5 billion over the seven weeks ended Nov. 14, according to Barclays Plc credit strategist Jigar Patel. That’s up from a little more than $200 million in the same period last year.”

Nvidia dunks on the doubters

CEO Jensen Huang and CFO Colette Kress dismantled most of the recent arguments and bear cases put forward by their naysayers.

Luke Kawa6h

Matt Phillips7h

Cipher Mining surges on additional AI hosting deal

Bitcoin miner turned AI compute power provider Cipher Mining jumped early Thursday after announcing a deal that fully leases its Barber Lake data center in Colorado City, Texas.

The deal — which is also giving a lift to IREN, another miner turned compute provider — is an expansion of a previous agreement with Fluidstack, a UK-based provider of GPU-based cloud networks. The new deal amounts to roughly $830 million in additional revenue over 10 years, Cipher says.

The market clearly loves it. But it’s worth pointing out that this agreement is a pretty good example of the byzantine financial structures that are increasingly accompanying plans for many billions of dollars of spending on the AI boom.

For example, Cipher also announced Thursday that it would be borrowing $333 million to finance an expansion of that Barber Lake data center through a private placement of debt.

That offering will be secured, in part, by the warrants Google received to purchase Cipher common stock worth roughly 5.4% of the company. (Those warrants, by the way, look a lot more valuable today, with Cipher mining up double digits.) Google is also backstopping Fluidstack’s borrowing plans to finance its build-out to the tune of $1.4 billion.

For now, this makes financial sense. Alphabet — one of the most successful companies on the planet — needs the computing power to compete in the AI race. And the quickest way to get that capacity is to essentially cosign leases for the smaller companies taking the lead in that build-out, thereby lowering development costs and helping to bring projects into existence.

But in this deal alone, things get awfully complicated awfully quickly, as Alphabet is essentially the prime customer of, an important debt guarantor for, and potentially a significant owner in Cipher Mining, once it transfers the warrants into an ownership stake of more than 5%.

This isn’t, on its face, a terrible thing. There are precedents for circular funding relationships in industries like aerospace, as it developed from the 1920s to the 1950s.

But financial complexity does have a history of essentially hiding the level and locus of financial risks a system is building up, essentially during periods of heady optimism.

Cipher Mining Signs Additional 56 MW, 10-Year AI Hosting Agreement with Fluidstack