The danger, it seems, is that it feels so obvious. And the obvious, of course, is always a risky proposition in the stock market. But it’s hard to imagine the lack of volatility lingering much longer, especially in the face of … well, everything.
Just how calm has it been?
a gauge of expected stock market volatility, finished below 10 only 26 times from 1990 to 2017, according to Bloomberg data. Since May, we’ve seen 17 of these historically low readings. Unless they’re shorting volatility, it’s tough out there for day traders to scalp profits when the swings are so minimal.
Obvious or not, Eric Peters of One River Asset Management, in our call of the day, says there’s, indeed a shift coming. A big one. He explains in a LinkedIn post just how “extraordinary” the current situation is and where we go from here.
“All previous periods of extreme asset valuation required investors to imagine a vastly different tomorrow, a wildly optimistic future, a steeper slope,” he writes. “But today, they expect the opposite. Due to unfavorable demographics and over-indebtedness, investors expect the slope to flatten, perhaps forever.”
Then why are returns so high and volatility so low?
“Because of this flattening, they also imagine perpetually low interest rates, which they then use to justify extreme valuations across other asset classes, in an endogenous loop that is increasingly disconnected from the real economy,” Peters says.
So, for investors to keep selling volatility at these historically low levels — a strategy that has paid off incredibly well during this run — he says they must see a tomorrow that looks exactly like today.
“They must imagine that bond yields won’t rise despite every major central bank looking to hike interest rates and exit QE,” he says. “They must imagine that economies at or near full employment will not create inflation; that GDP will neither accelerate nor decelerate; that governments will tolerate historic levels of income inequality despite citizens voting for the opposite; that strongly rising global debts will be supported by decelerating global growth.”
There’s more, but you get the idea.
His bottom-line advice: “Given the unprecedented volatility-selling in this cycle, I can imagine a historic reversal.” Now’s the time “you must begin finding thoughtful ways to get long volatility.”
Key market gauges
smashed through another record over the weekend, rising above $3,300 for the first time. The crypto continues to defy and confound the naysayers, more than tripling in value for the year. Keep an eye on the volatile currency for more wicked swings this week.
No sign of any volatility explosion yet for equities this morning. Futures for the Dow
are edging higher early. Asia markets
closed with modest gains, and Europe
is caught in a tight trading range. Gold
is flat, while crude oil
is lower as OPEC kicks off a two-day meeting.
Get ready for those contrarian juices to start flowing. According to Yale’s one-year investor confidence indexes, these are the most bullish times on record. Smart money and dumb money alike agree the stock market will be higher a year from now. We’re talking just about 100% of both institutions and retail investors are on the bull train.
The Heisenberg Report blog posted this chart to put it in perspective:
What could possibly go wrong?
new diversity chief criticized the contents of an employee’s memo that went viral inside the company for suggesting the search giant has fewer female engineers because men are better suited for the job. She said the employee’s memo “advanced incorrect assumptions about gender” and is “not a viewpoint that I or this company endorses, promotes or encourages.”
A securities fraud conviction has finally humbled “pharma bro” Martin Shkreli, who took to social media over the weekend to apologize to everybody for being such an ass. Actually, no he didn’t.
are on the earnings docket ahead of the open.
says it will sell $1.5 million worth of debt partly to “further strengthen its balance sheet during this period of rapid scaling with the launch of Model 3.”
U.S. Secretary of State Rex Tillerson said in a meeting in Manila, Philippines on Monday that North Korea will have to stop launching missiles if it wants to hold talks with the U.S. At the weekend, China agreed to tough new U.N. sanctions against North Korea. For its part, North Korea threatened “thousands-fold” revenge against the U.S. for new sanctions.
maker FoxConn says it’s building a $10 billion Michigan plant.
“I’ve seen what’s coming. And it’s a big self-driving truck that’s about to run over this economy” — Former Facebook
exec Antonio Garcia Martinez, in a BBC piece discussing the threat of an autonomous future.
“Every time I meet someone from outside Silicon Valley — a normy — I can think of 10 companies that are working madly to put that person out of a job,” he added.
There’s been a fair amount of economic data to absorb lately, but things quiet down a bit this week, with the highlight coming on Friday in the form of the Consumer Price Index.
As for what’s on tap today, we’ll get the Labor Market Conditions Index at 10 a.m. Eastern, along with the Federal Reserve’s consumer credit number after the market closes.
Read: Here’s why Americans are missing out on a big payday.
$3,136 — That’s not only the record high bitcoin hit at one point on Saturday (it has since gone higher), but it also marked the 3,136th day of the cryptocurrency’s volatile existence, according to Bitcoin News Service.
Why are CNBC ratings at a 22-year low?
The brutal saga of one extremely evil railroad crossing.
What is Harvard University hiding? Hint: It has something to do with Asian-Americans, or lack thereof.
Have smartphones destroyed a generation?
The best movies of 2017 … so far. And yes, that includes the movie with Harry Styles in it.
Calling all marijuana tourists: California has THE spot for you, and — bonus — it’s on the way to Las Vegas!
I’ll leave you with Pauly Shore doing his best Stephen Miller:
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