Less Noise, More Signal Ben Kizemchuk: Bank reserves are now scarce. Expect high volatility
Oct 9, 2025
Ben Kizemchuk, a portfolio manager at Wellington Altus, dives into the intricacies of market volatility and liquidity issues. He examines the unusual behavior of 'garbage stocks' amidst deleveraging and discusses the implications of rising inflation on investment strategies. Kizemchuk highlights how the VIX's recent trends, combined with the scarcity of banking reserves, signal potential market stress. He also provides insights on defensive portfolio positioning and the evolving role of stablecoins in the financial landscape.
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Garbage Stocks Rally Indicates Deleveraging
- Many 'garbage' small-cap stocks rallied together, a signature of deleveraging and short-covering. Ben reads that as institutions buying back shorts and degrossing, not a genuine small-cap rotation.
Tax + Treasury Issuance Drains Bank Reserves
- September tax drains plus heavy Treasury issuance removed large sums from bank deposits and lowered bank reserves. Combined with ongoing QT this pushed reserves below critical levels and tightened liquidity.
Prime Desk Lending Drove Market Leverage
- Lending to non-depository financial institutions (NFDIs) spiked in 2025 and then slowed as reserves tightened. Reduced prime-broker lending forced funds to delever, pushing market repricing and volatility.
