Hi Don,
as we watch this trend of selling volatility, the trend of ultra low global interest rates and the trend of relentless
global stock appreciation, the old says from the 1950's TV show starring Jackie Gleason comes to mind.
... "One of these days Alice, one of these days.... Pow..... right to the Moon!" as Hyman Minsky famously
wrote about and as many of us have noted... the "stability is inherently destabilizing"
What all of this leads up to is a market that has essentially sustained itself through cannibalizing on itself, binging on cheap credit to finance trillions of dollars of stock buybacks, even as these same companies barely improved their productivity at all. With record low government bond yields globally, as well as dramatic contraction of volatility in risk assets such as stocks and equity options, the world’s investment funds are desperately seeking yield. This has led them to park money comfortably in the stock market, hoping that it continues to trend higher, as well as buying government debt during quantitative easing with the knowledge that the FOMC was providing all the buying pressure necessary to keep bond prices headed higher. And finally, this led to greater bets against volatility as fund managers began to feed into the depression of volatility by selling it more and more, which of course pushes the VIX and options premiums in general even lower.
-- the market is able to follow a trend much longer than anyone who were to fight it can stay solvent...... -g-
we have years and and years and Trillions and Trillions of Quantitative easing and the BOJ and the ECB
are still exceptionally accommodative... while the trend to automation, Machine learning, deep learning,
and AI enable more to be done with fewer people.... thus the labor shortage problem and the absence of
a broader swath of wage push inflation.
John |
