Release the Crackups

Nothing Ever Happens...Until it Does

The “nothing every happens” crowd is being properly dispatched this morning as every asset across the board with the exception of food, energy, and cash USD is getting nailed. We have been warning about this potential convergence in Fly recordings here and here as well as recent letters for weeks on end. To repeat for those who are new: the precious metals crash in late January touched off a VAR shock that has been rolling from one corner of the market to the next in seemingly random fashion (quant pairs on Feb 4th, private credit BDCs, software, financials and high yield spreads, etc). This phenomenon which I call the Era of Rolling Blowouts, or “Release the Crackups” as a play on the Kraken, is something I broached back 2024 (and as far back as 2018 in another life — see Things Touch Off section here). It is the big brother of Snapcount.

VAR shocks are how a few AI articles that might have been waved off by the sellside as internet bearporn six months ago end up plastered across the WSJ and commented on by the Fed. Severe market action requires an explanation, but complex, non-linear, unstable systems that have reached criticality don’t need much of a reason. Sometimes a snowflake starts an avalanche.

The market makes the news, not the other way around.

I have been warning that, as with Unleash the Crackups in 2018, this almost inevitably ends one way in history: Risk Off. But the missing piece was volatility in the underlying collateral which investors use to leverage their holdings, i.e. US Treasury securities and other fixed income. If UST volatility were to rise, the degrossing would be forced upon the market, and when it happens across assets simultaneously with cash levels at historic lows, it’s “elephants through a keyhole.”