Last week was very volatile and it was chalked up to the following:
- Omicron
- The Fed removing the word 'transitory' from 'inflation'
- A potential increase in the speed of the tapering process
- Higher probability of rate hikes
- Lack of liquidity
- And correlations going to 1 as everyone who is (leveraged) long panic sells at the same time and buys USD and Treasuries
The part I do not get is how much of this is really new information? Maybe only the increase in the speed with which the Fed is going to stop buying bonds? We were already expecting rate hikes galore in 2022.
Cleary market participants can't keep a position on to save their lives and roll out of it the moment it goes against them. I get the argument that index levels were elevated because of the liquidity being provided by the Fed and the chance of this disappearing would lead to a repricing. But wasn't that priced in as well?
Hedge funds got throttled trying to make some returns before the end of year.
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