“Strike A Match. Nothing. Two Times. Nothing.” But Eventually…

For some folks, Wednesday’s risk rout came as a surprise.

See, for a whole lot of investors, it’s not readily apparent that benchmarks can go down as well as up. And to the vol sellers out there, it was certainly starting to seem like forgoing carry out of a healthy respect for risk was an outright foolish thing to do in the current environment.

But usually when people start to feel like nothing can go wrong, the old “pennies in front of a steamroller” analogy applies. And while Wednesday’s market bloodbath and concurrent vol spike wasn’t all that black swan-ish in the grand scheme of things, on a 40-day rolling lookback window, it was a 4+-sigma event:

CC2

So what happened?

Well, we know what happened. Trump was effectively accused of obstructing justice by the FBI Director he fired and then subsequently Twitter threatened him.

The better question is this: “why now?”

That is, Trump's administration has been in a constitutional crisis since the day he was inaugurated. So with the ECB still in the game (for now) and with Kuroda still persisting blissfully in Never Never land (literally), why did everyone decide that Wednesday was the day it all had to come apart?

The first answer is simple: it has to unwind one day, so why not Wednesday?

But beyond that truism, there’s more nuance. Specifically, the apparent erosion of support from Republicans threatens the viability of the Trump agenda.

Here to talk a little more about this is Citi’s Hanz Lorenzen, who also mentions the flows data we highlighted this morning and the point Richard Breslow made on Thursday about watching credit for signs the fear is spreading and core positions are being unwound.

Via Citi

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