Right now if you look at VIX and you look at VVIX they’re lower than they were in Jan 2020, and in part they’re so low because commodities during Q1 and some of Q2 were really outperforming and helping mitigate losses for those with high exposure to equities. HOWEVER, now that the dollar is so high, and we’re in such a high inflationary environment, metals and commodities (gold, silver, etc.) do not tend to do as well because they’re extremely cost intensive to mine, transport, etc.
So I think we will continue to see a bit of bullishness based on these extremely low Volatility prints, but the moment everyone starts to realize they’re swimming naked (hedges aren’t working) then we will see Volatility start moving and fast.
I’ll just say it took us 6 months to drop 20%, and we’re just now getting the surprise event that forces a clearer push to the downside.
The market has not priced in a GDP recession or Earnings recession, but it is also not going to be “surprised” by those events. The fact that CPI came in way hotter than everyone expected and it didn’t give us that push down, I think the move to the downside will just continue to be very slow and choppy until we can get VIX and VVIX and MOVE indexes to really press up.
I’m still bearish overall, but it’s going to be very “spastic” which is hard on accounts. So see profit take profit, and if there is NOT a clear set up, don’t get yourself wiped out.
For a long time we’ve all been talking about the Yield Curve inverting (shorter dated yields being higher than longer dated yields) and everyone’s analysis was different, etc. So the question became Whose Yield Ratio is the right Ratio…like a contagion, all the yield curves are starting to invert.
Now even the three month and two year yields are inverting.