Tag Archives: USDIndex

Zook Suit

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I’m the hippiest number in town and I’ll tell you why

I’m the snappiest dresser right down to my inch-wide tie

And to get you wise I’ll explain it to you

A few of the things that a FACE is supposed to do

I wear zoot suit jacket with side vents five inches long

I have two-tone brogues yeah you know this is wrong

But the main thing is unless you’re a fool

Ah you know you gotta know, yeah you know, yeah you gotta be cool

So all you tickets I just want you to dig me

With my striped zoot jacket that the sods can plainly see

So the action lies with all of you guys

Is how you look in the other, the other, yeah, the other cat’s eye

— Peter Townsend

Plainly, and as anticipated, there is a great deal going down at the moment, so we might as well start with the most important developments. Topping the list is Zuck’s Capitol Hill testimony, scheduled to take place, not once, but twice, this coming week. On Tuesday, he will sit in front of a committee of the World’s Greatest Deliberative Body, and, given the latter’s historic and never-breached protocols of decorum, I don’t expect much drama. A better show is likely to take place on Wednesday, when he faces the wilder and woolier Lower Chamber. But on the whole I don’t see much intrigue in the pending exchange between our duly elected representatives and the world’s most high-profile Hipster/Nerd. Committee Members will look menacing, issue superficially difficult queries, and appear less than fully satisfied with the responses. And Zuck is sure to stick to the well-scripted, obsequious and cloying replies which, even as I type these words, his legion of overpaid lawyers is preparing on his behalf. I have a hunch that not much more will transpire after that, and that at least for a time, the entire episode will be dispatched to the level of focus now drawn by, say, the Las Vegas shooter investigation.

But all of this begs the most important question: what will he wear? I can’t remember an event with so much sartorial suspense this side of the Academy Awards. Surely he will shed his trademark vaguely blue/grey tee and chinos getup; in all likelihood he will shoehorn his way into a suit. But which suit?

One option will be to bust out his Bar Mitzvah ensemble, images of which I have helpfully sourced through a search from FB Frenemy enterprise Google:

Zuck’s looking pretty sharp here, but I find this choice unlikely for a couple of reasons. For one, he’s probably not going to be able to roll jacketless. Beyond this, it’s entirely possible that either: a) Mrs. Zuck (nee’ Priscilla Chan) has done the wifely thing and thrown these threads out; and/or b) trim as he may remain, he may no longer be able to comfortably wedge himself into this holy, historic outfit.

Thus, in all probability, he will have to bust out some new, or, at minimum, seldom seen, garments. And as someone who wishes him well in his astonishingly successful quest for global hegemony, I humbly suggest that he consider showing up in a wide-lapelled, high waisted Zoot Suit, the uniform of choice for the hep cats of the Roaring ‘20s. As many of my readers are too young to remember much of this high-flying decade, the getup looks something like this:

In addition to I believe setting the proper tone for his grilling, such a choice might help effect greater political balance — away from the measurably left-leaning vibe that Zuck has long exuded. To wit, careful pic observers will note the prominent presence of pinstripes that clearly bring to mind the wardrobe stylings of newly-appointed Director of the National Economic Council: former Cable TV sensation Larry Kudlow.

So formidable and terrifying are the Zuck’s powers of influence (or were, until at least a couple of weeks ago) that should he adopt my advice, he could set off a global fashion sensation. Soon, everyone from Paris Hilton to the Dalai Lama might be compelled to rock the Zoot, and that, at least from my vantage-point, would be pretty cool.

However, as important as this high-drama debate may be, we must move on, leaving the outcomes to Zuck and his tailor. Across our last couple of installments, I made the proclamation that the market’s already expanded volatility bands would further widen, and in a very real sense I was correct. Unfortunately, though, said widening has applied, well, quite narrowly, to the Equity Complex. Not much else is moving at all. The U.S. Treasury Curve does little but flatten, albeit at a glacial pace. In the wake of a somewhat garish late January selloff, The U.S. Dollar Index has wedged itself into a depressing/suppressed 3% band. Similar somnolent patterns have plagued the Energy Markets.

With brouhahas of varying configuration raging everywhere one cares to cast an eye, the question is: why? I met with one of the smartest and most successful macro traders of my wide acquaintance on Friday, and he was ready to pull his hair out at the stasis he observes across the risk factors upon which he is most focused.

And his beefs were not just limited to the price action in underlying instruments; he notes an absolute obliteration of options volatilities in this realm. He asked me what I thought, and I didn’t have a good answer for him. I did, however, agree that given the opacity that plagues the global capital economy and the rapid-fire stream of news bits (many blindingly irrelevant; others not so much), that: a) prices outside of equities should be more migratory; and b) some of these here non-equity options, instead of operating under fire-sale conditions, should actually be being bid up. I told him I’d look into it and revert back to him.

Anybody have any ideas for me? I am desperate to look smart and well-informed to this guy.

Still and all, there are some developments outside of the obsession-inducing world of individual stocks and associated indices that have caught my eye. One was that, with trademark anonymity, the Swiss 10-Year Note managed to slip below the Maginot Line of 0.0%, and now trades, somewhat improbably, at a negative yield:

Thus, a country which produces cheese, chocolate, watches and little else, an economy which is dominated by a deeply impaired, arguably insolvent banking industry, is actually paid by market participants for the privilege of lending to them. And the trend towards easy financing has spread to the neighbors they refused to fight – with or against — in either of last century’s world wars: yields in France, Germany, Italy and even freaking Sweden have declined materially over the last couple of weeks.

But if you’re hunting somewhere outside of equities for volatility, you may want to take a look at the Agricultural Complex, which has anyway shown something of a pulse this year:

As the graph’s caption explains, a good deal of this action is probably catalyzed by the Trump Administration’s well-thought-out, nuanced and impeccably executed trade skirmishes. I am supposed to be something of an expert in these markets, and, to the best I can discern is that the Chinese import a lot of Soy Beans from us, and feed them to their similarly imported Hogs. So the escalating tariff rhetoric is good/bad for Soy Beans/Hogs, as is reflected in the price action. I hope that I’ve made myself clear.

One way or another, the continued war of words on international trade and other pertinent matters is clearly driving investors somewhat batty. I truly wish that this cycle would end, but hold out little hope for this miracle any time in the foreseeable future. After all, it’s not as though we don’t have a great deal of other information to process and seek to monetize. Case and point, just this past Friday, after a somewhat surprisingly tepid March Jobs Report dropped, and just as investors were catching their collective breaths and maybe even trying to look on the bright side, Chair Pow took some questions from a reporter, and his answers offered scant comfort to anyone seeking it in that quarter. Perhaps owing to this end-of-week double whammy, the Atlanta Fed’s GDPNow tracker exhibited some renewed gravitational pull:

On the whole, however, I am inclined to believe that equities will continue to drive the risk pricing train. Last week, they rallied hard early and then sold off even harder, and Q1 earnings have not even begun yet. They start in earnest next week with the banks, which, in eerie consistency with the bizarre paradigms currently vexing us, have all scheduled their releases for Friday the 13th. I will be watching these tidings with a careful eye, and in particular for any hint of what Lloyd, Jamie, James and the rest have to convey about prospects for the rest of the year. The action will be fast and furious from that point onward, and here there is some good news to report. Not only have growth estimates retained a lofty 17% handle, but according to the infallible FactSet, positive pre-announcements have clocked in at a record high:

The chart further shows the skew of these happy tidings towards the recently beleaguered Tech Sector, but I have my doubts about the final outcomes there. Soon after Zuck gasses up his smoke and bids goodbye to Washington, he, Bezos, Serge/Larry and TCook and the others must face their own investors. If I were any of them, I might check in with my CFOs and see if I could possibly defer some revenues and/or accelerate some expenses. Given the horrific P.R. onslaught that has assaulted each of them lately, I think it’s a sound strategy for them to sandbag their numbers. Their stocks will sell off further, to be sure, but they can catch up later, and I just don’t think this is a good time for them to announce earnings moonshots.

One way or another, I expect their guidance to be particularly unpretentious. It’s just hard to imagine someone like Bezos stepping up to the podium and saying something akin to “me and the boys were poolside in Pacific Heights and we’re feeling pretty strongly that we can take our share of the NDX valuations from 50% to 90% this year”.

Guidance beyond San Jose will be especially important – given the looming and growing political risk — about which I have been expounding for the last several weeks. I continue to believe that these matters loom large on the horizon, and our fearless leader does nothing but fan the flames of his potential demise – through his trade tantrums, his attacks on companies like Amazon and – perhaps even worse – his more recent tweeting down of the markets in general. Again, all of the above portends a continued upward trajectory of volatility for the foreseeable future – at least for equities.

As for the other components that comprise the broader market, I reckon we’ll just have to see. My guess is that vol will spill over into the other asset classes; perhaps soon, but one thing is certain: until it does, it won’t.

But all of this is small potatoes. When all said and done, the only thing that truly matters is that you follow my example and make sure at all times that you look fabulous. I expect Zuck to act accordingly, and, my dear readers, you could do worse than bearing this mind yourselves.

TIMSHEL

The Revenge of Snoopy

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Snoopy he lives in a doghouse outside of town,

And Metropolitan Life took his picture down,

Investors didn’t care – at least for a while,

But now the stock has tanked, you can see Snoopy smile

— with apologies to Rick Derringer and the McCoy’s

As foretold in these pages (and elsewhere), it was indeed a big week for investment data and flows. We’ve a lot of ground to cover, so we might as well get to it.

Let’s start with the big news, which I am perhaps the only prognosticator to identify: Snoopy’s back, and showing his ire. As reported in these pages a full 5 quarters ago, Metropolitan Life Insurance Company of New York (MetLife), made the retrospectively tragic decision to dump its iconic Snoopy logo – in favor of some sort of new age graphic/emoji thing. I warned the world it was a bad idea at the time, and for any doubters, I offer the following illustration, which should tell you all you need to know about this questionable stunt:

Metropolitan Life Insurance Company Logo: Before and After Version:

I mean, c’mon? Do I need to say anymore? Well, maybe I do. In terms of market valuation, the Company fortunes’ while not rising to the dignity of that of, say, Amazon, continued to rise in acceptable fashion:

But then came the Q4 earnings report, and whammo! It was good night nurse. The headline catalysts involved something about them taking a charge due to having under-allocated reserves associated with (among others) annuity obligations. But I have a difficult time understanding how a company, whose main job is to get these metrics right, and who, oh by the way, will be celebrating 150 years of continuous operation at the end of March, could’ve screwed the pooch so thoroughly this past 3 months.

My best guess, as indicated above, is that Snoopy finally decided to make his displeasure known. And felt. After all, he better than anyone, knows the ancient proverb (typically attributable to the sponsors of the French Revolution) that revenge is a dish best served cold. Sleeping on top of his doghouse as he does, Ol’ Snoop has probably felt the bitter, chilly winds of early 2018 as much as anyone, and may have figured that the time had come to make his move.

Moreover, if I’m correct on that score, then Charlie Brown’s BFF must’ve decided to throw some shade on the entire global capital market, which (in case you missed it) suffered its worst week in several years, with our major equity indices dropping, in round numbers, 4%. Most of the carnage, of course, transpired during Friday’s ghastly session, and after a jobs report that not only showed impressive gig creation, but also evidenced, for the first time in several years, some bona fide upward pressure on wages. The confluence of these factors catalyzed another pattern absent from the proceedings in more than a decade: a contemporaneous selloff of both stocks and bonds:

So perhaps investors can be forgiven for being a little bit spooked here – particularly with the infantile behavior of our betters in Washington appearing to be reaching new, heretofore un-breached crescendos. I’ll spare you any (or much) commentary on this memo psychodrama. But let’s just agree for now that the sequence: a) is at best an unhelpful distraction to our return generation efforts; and b) is not likely to have run its course just yet.

Moreover, I do have some concern that with everything else we see transpiring, investors may be ignoring the looming (this coming Thursday) next round of government shut-down pantomime. In fact, I myself am a little bit worried here.

If I read the fallout from last week’s nose to nose budgetary battle, Team Schumer emerged with some egg on its collective faces, and have vowed to stand firmer this time ‘round. I don’t see a framework for the two sides coming together a second time in little more than two weeks. Best case, they may push through another temporary resolution, but this whole thing is getting beyond distressing. Both sides are dug in on this Immigration throw down, and you can be sure that this demagogue dance won’t end this week. Plus, the memo thing has done nothing to lower blood pressures on both sides of the aisles. Finally, if, as is likely, there’s another very short-term extension, all it does is set up for a more serious round of Thunder Dome next month, when our Treasury projects that it will actually run out of money.

In light of the foregoing, it’s perhaps small wonder that, higher interest rates notwithstanding, the USD cannot catch a bid for love nor money, and that even our much-beloved High Yielders are taking in water:

USD Dollar Index and High Yield Bond ETF: America to the World: Don’t Touch our Junk!

But I’m here to tell you that all is not lost. In fact, I rather believe that the big Groundhog Day stock puke is on balance a positive development. If nothing else it shows that such a thing (>2% selloff in the SPX) is, at any rate, possible. Moreover, while all of this hand-wringing was transpiring, the Q4 earnings juggernaut continued apace. There are a lot of ways to illustrate this. For instance, as of now (about half way through the sequence) the SPX is projecting out an impressive >13% year-over-year gain. In addition, and with respect to the critical metric of forward guidance (for Q1 2018 and beyond) we are in the midst of the largest intra-quarter upward revisions to bottoms up earnings in more than 15 years:

So it strikes me as funny, in a perverse, 2018 sense of the term, that those who have been whining about a lack of downside volatility are now complaining when a little bit of it manifests itself. I’d be happy to blame Facebook, Twitter, CNN, MSNBC, CNBC, NBC, CBS and ABC for this inconsistency of logic. In fact, I’d be happy to blame just about anyone other than myself.

We are facing some rocky conditions, though, and if I was going to worry about anything, it’s the afore-mentioned unresolved budget dynamic – transpiring, as it is, against the backdrop of a political dynamic characterized by an anger that is augmented by nothing except perhaps more anger.

For these reasons, next week may continue to be a rocky one, but from where I sit, and though there may be more downside pressure in the coming days, I believe that incremental buyers of stocks at these levels or lower will soon have cause to believe they made a wise choice to dive in at these valuation thresholds.

Yes, Snoopy is still out there and may not be done demonstrating his wrath, but I suspect that even this hot flash will run its course. I believe our favorite beagle will indeed regain his equanimity and, when the weather warms up, will take his place at shortstop, extending his stature as the only competent player on a Peanuts squad that features only 16 opposable thumbs (not one of them belonging to him). If you doubt this, just ask him. But don’t expect an answer, because he probably won’t even speak to you.

Then again, he never does.

TIMSHEL

Don’t Buy A Vowel

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Just. Don’t. Do It. Buy a vowel that is. Call it Kenny G’s Wheel of Fortune Rule for Risk Management. If you’ve been living under a rock for four decades, I’m talking about the ubiquitous, mindless Merv Griffin-created game show that works as a strong early evening sedative for millions of Americans (and, in modified form, apparently, Chinese as well). It is loosely based upon the ancient childhood game called “Hang the Butcher”, and involves contestants taking turns guessing letters until the population of blank spaces is sufficiently exhausted to enable one of them to reveal the phrase hidden in the in the blanks – a practice the solver undertakes with both unmixed joy and solemn, impeccable diction.

On the T.V. version, to the best of my knowledge, no butcher is actually hanged. Instead, show contestants/puzzle solvers actually receive both monetary and life-enhancing prizes such as a car or a trip to a fabulous vacation resort. Said players are warned in advance that they had better bring their checkbooks with them to the filming of their participation, as, at the close of every episode, state and federal revenuers are the first to greet them with immediate demand for the satisfaction of tax obligations tied to their winnings.

Often, TV programming quirks are such that “Wheel” is aired in the precise time slot as that of reruns of “The Andy Griffith Show”. And, though it pains me to admit it, this unfortunate turn of scheduling has caused more than one interruption in my otherwise sustained state of marital bliss: my wife is a serial “Wheel Watcher”, while I am a lifelong, borderline obsessive fan of “TAGS”.

Invariably, I lose almost all of these remote control standoffs.

So, in the interest of familial harmony, I myself have become a “Wheel Watcher”, and often marvel at the show’s ability to run its affairs (if the backdrop can be taken as a valid indication) with the set (wheel, puzzle board and all) directly established on such presumably problematic premises as the beaches of Waikiki, in front of the Liberty Bell, or even occasionally, atop a mountain in the Swiss Alps (the last of these with Pat in the obligatory lederhosen, and Vanna, natch, dolled up like a Swiss barmaid).

On the other hand, I find myself perpetually frustrated by what I am convinced is an overly dilutive tendency for contestants to waste their hard-earned winnings on the purchase of vowels. The earlier in a given contest this occurs, and the longer the puzzle sequence in question, the more the practice enrages me. I mean, how hard is this to grasp? If you’re an early spinner in a 5 phrase/30 character puzzle, and you successfully request a “T”, why on earth would you follow it up with the purchase of an “E”? You’re not likely to have solved the puzzle on that particular spin, so you’re only helping your opponents, right?

Thus, a critical corollary to Kenny G’s Wheel of Fortune Rules for Risk Management (KGWoFRfRM) is as follows: the importance of KGWoFRfRM stands in direct positive correlation to the length of the puzzle, and has a material negative beta to the number of spins that have already transpired.

Got that? Good, because I don’t wish to go over this again. Ever.

Unfortunately, however, my observation is that the market has been chockfull of the investment equivalent of over-enthusiastic, premature vowel buyers, committing such financial-equivalent sins as shorting the VIX at all-time lows, trading either side of Tesla, and seeking, yet again, to monetize on the still-yet-to-burst bond bubble of thirty years standing.

On the one hand, this breaks my heart; on the other, or so I remind myself, these dubious actions arguably ensure my continued gainful employment for as long as the band plays.

This past week (perhaps in a nod to Grandparent/Grandchild Week on Wheel) featured nostalgia-heavy motifs of the type of two-way market action that those of us in the geriatric set remember, on balance fondly. The SPX, while dead flat on the month, needed Thursday’s astonishing 1% rally to avoid the infamy of a full 100 bp downdraft. Overall, there was some downward pressure on virtually all asset classes, but the only market that evidenced noticeable pain was the U.S. Dollar Index:

 

With earnings substantially in the bag, the action remains policy/macro driven. If one wishes to solve the puzzle with only a smattering of consonants and (if you insist) a couple of vowels, it would appear that the ebbs and flows of valuation are for the most part being driven by two factors. The first, by all indication, is the tax reform psychodrama. And I don’t mind informing you that I find this dynamic particularly depressing. I do not believe that what’s currently on the table is either a critically needed unshackling of the masses from economic servitude (as one side would have you believe); nor is it in my judgment a cynical and diabolical handout to the economic elite (the gospel of their opponents). But this is the rhetoric that is being shoved down our collective throats every minute of every day, and I don’t see any possible end to the madness.

I predict that at the end of the process, victory and its attendant spoils will devolve to the side that manages to outflank their opposite numbers in rhetorical hysteria. That this is the dynamic which drives our governance outcomes is perhaps what depresses me most. But that’s where wemare, and my guess is that out of pure desperation alone, the “reformers” may win the day. But they have a hard slog ahead of them, and they can expect no help from anyone in the middle, because, politically speaking, there is no middle ground. “Praise be Nero’s Neptune, the Titanic sails at dawn” Dylan once sang “Everybody’s shouting, ‘which side are you on?’” he concluded. And he was right. About the shouting at least. But I’m not gonna lie: all of the noise is giving me a headache.

But if you want to track this nonsense, it might behoove you to keep your eyes on these yield curve trends, which are showing decades long flatness:

 

 

The other audible strain is the well-documented-in-this-space year-end tape painting sequence. According to my calendar, next Thursday is Thanksgiving: the traditional point in the season when such rituals are scheduled to commence. But just as we have already, and for several weeks, been subject to an onslaught of Christmas advertising (Thursday night’s “Wheel”, for instance, featured, by my count, at least 4 cycles of the car with the bow “Lexus December to Remember Sale”), so too have the market bids driven by a need to manufacture optimal year-end performance arrived in premature fashion.

And why not? With realized volatility on the indices in the mid-single digits, and with this year fixin’ to close with a record low of 4 days of down more than 1%, what could possibly go wrong?

In the spirit of the holiday season, I even offer you my blessing in these actions. Just don’t do anything really stupid, though, OK? Like the Grandpa last week who asked for a “J” (a “J”? No one asks for a “J” for chrissakes). It got even worse from there. Later in the show, that particular elderly chap’s granddaughter tried to by an “O”, and got dinged.

I’d like to be able to help these people, but some things are beyond even my considerable powers. So if you do make an investment decision to buy a vowel, and come up empty, though I’m sorry to have to say so, you’re on your own.

TIMSHEL

 

Viva La VV’s

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Fair warning to those have somehow failed to notice: as the rings embedded in my tree stump increase to uncountable magnitudes (i.e. as I grow older), I find my expository focus increasingly centered on eulogies, elegies and other forms of tribute to the dearly departed.  I don’t think I can stop this trend, because (let’s face it), the passage of time only increases the inventory people and things that went before, while my interest in everything else inexorably wanes.

So I noted with unmixed regret last week’s announcement by owner Peter Barbey (among other things the heir to the North Face/Timberland/Lee Jeans outdoor clothing dynasty) his intention to discontinue the printing and physical distribution of the venerable “Village Voice”.  Oh, the publication will forge on in the crowded and complex ionosphere, competing for what used to be called “mindshare” with a bajillion other on-line periodicals, but soon, those accustomed to the ritual of grabbing a copy of The Voice outside their favorite bodega, will find their routines rudely disappointed, and for all time.

Volumes can and will be written about the periodical: how it was founded in 1955 by Norman Mailer and a couple of his pals out of an apartment located in the neighborhood for which it is named, how it became a portal of passage for writers and artists, ranging from Literary Giants Alan Ginsberg, Ezra Pond, Henry Miller, James Baldwin and E.E. Cummings, to Music Critics Lester Bangs and Nat Hentoff, to cartoonists Jules Feiffer, R. Crumb, Matt Groening and Lynda J. Barry.  How it chronicled the cutting edge sensibilities of the Beat Generation, the Flower Power era, Punk and post-Punk.  And how, above all, and against significant odds, it endured for decades as the bible for local popular culture; its reach, extending well beyond Bleeker Street, well beyond Manhattan, well beyond America’s borders, extending, at least for a time, around the world.

The Voice, of course, has always been free in New York, but I actually used to plunk down the hefty sum of 5 clams to pick up a copy from time to time in Chicago.  It was the late ‘70s, and I was already casting my eyes eastward.  When I finally reached the, er, Promised Land of Gotham, I never missed an edition.  I eagerly checked the live show listings (chock full of formatted ads from venues long shuttered, including the Bottom Line, the Ritz, the Felt Forum, the Lone Star Café and, of course, CBGBs), sneaked a peek at the Personals, and read what articles captured my interest.

It was in the Village Voice, for instance, that I first read of an epidemic of untreatable viruses that were plaguing the neighborhood: a problem that a few months later rose to the dignity of a full blown global crisis: the spread of Acquired Immunodeficiency Syndrome – otherwise known as AIDS.

But in the end, The Voice almost certainly fell victim to the inexorable forces of what transpires at the intersection of cultural change and technological advancement.  The music clubs shut down.  Those looking for hookups found more efficient means of sourcing them.  Its (dubious in my judgment) progressive sensibilities got lost in an interminable stream of such doggerel – made available every microsecond on the web.  In sum, it might be fair to state that The Voice lost its voice, and this is hardly cause for celebration.

I reckon, though, we’ll survive, but I don’t think we’d doing ourselves any harm by taking a moment to mark the changing of the guard downtown.

Anyway, I’ve got a suggestion for moving on from our lamentations, for a new VV has emerged.  SaVVy investors already know this, but for the last couple of years, those looking to trade in the nooks and crannies of what is known as Volatility can avail themselves of something called the VVIX.  It measures the implied volatility embedded in options on the VIX index, which in turn measures the implied volatility priced into options on the S&P 500.

Got that?

Good.  Because unlike the VIX, which aside from the odd palpitation, has been a sleepy ride down a Local (i.e. as opposed to an Express) elevator, the VVIX has been quite lively of late:

 

VIX:                                                                           VVIX:

 

If you’re a bit confused here, I suspect you’ve got company.  But trust me, the VVIX is where the action appears to be.  To wit: while the VIX graph indicates that the implied vol of the SPX is a dreary, high-single/low-double digit affair, the VVIX rises and plunges to levels routinely around (and sometimes above) 100%!

Now, back in the days when Mailer and Co were cranking out The Voice on an inky, noisy, hand-operated printing press (i.e. when I first studied options theory), I was taught that an implied volatility of > 100% is, shall we say, problematic.  It implies that the underlying instrument, with significant one-standard deviation probability, can manifest a price change equal to or greater than its entire value. I can see how this is possible on the upside, but if my increasingly waning arithmetic skills have any juice at all left, this suggests that a single, high probability move will take the underlying instrument (in this case the VIX) into negative territory.

Somebody wake me up if the VIX goes negative, because it suggests that there are investors out there who will pay me for the privilege of holding options, and under the circumstances, I’ll take all I can get.

In fact, such a trade might be about the only low hanging fruit left in the entire global market complex, which continues to show very little sign of reaction to stimulus (positive or negative).  Last week featured some interesting news flow, but many markets barely budged.  The SPX did in fact manage to break a 3-week losing streak, but only to the tune of about 60 bp.  For all of the talk of equity strength, our favorite index has traded inside a 24 handle since just before Memorial Day, and, as I hardly need to tell you, Labor Day is just around the corner! Mathematically, the entire summer season range is under 4%, and at the moment, the SPX is below its midpoint. So perhaps we should be-calm ourselves as to the strength of this market.

Selected other asset classes are showing a little less sloth, perhaps as led by the decline to YTD lows of the US Dollar Index, and the impressive climb of Gold:

 

US $ Index:                                                     Gold:

 

Now, I should inform you that us stone cold ballers think of Gold as a currency, so the yellow rock rally can at least in part be viewed as yet another forearm shiver to our beloved green paper.

The main beneficiary, apart from Gold, of the dollar’s poor performance, was the Euro, which gained over 1% on Friday, most of which it copped in the afternoon, subsequent to the Central Bank speechifying at Jackson Hole.  It does appear to me that as is consistent with the urban myth, FX traders are displaying more sensitivities to global affairs than are stock jockeys.

I think, again, they may be on to something.  While next week, if there’s a God in heaven, should be quiet, we’ll have to burst out, from a standing start, come Labor Day Tuesday.  Perhaps top on the agenda will be untangling a brewing budget crisis, and who among us is brimming with confidence that we can avoid turning this routine exercise into a clown rodeo? Data will start streaming in, and the market action could come from any corner of our awareness, from Washington to Pyongyang, from Corporate C-Suites to the mean streets of Berkley.  We’ll be well-advised to remain on our toes.

I also want to reiterate (in part because I believe I was the first to record this thought) my belief that if investors want anything out of this congressional session, they bloody well better gin off some sort of selloff.  If bad behavior from the White House to Capitol Hill is met with nothing more than a collective market shrug, accompanied by a sustained unwillingness to part with favored holdings, then said bad behavior is rendered politically inconsequential, and will continue.  By contrast, if the market took a dive, I believe you’d see them pols busting their collective humps not only to pass a budget, but also to do something useful on Health Care, Tax Reform and Infrastructure.

I reckon, though, we’ll just have to see how that plays out.  In the meantime, if the spirit moves, I think you should pick up a print copy of the Village Voice – while you still can.  Put it aside for your progeny.  Let them know how we used to do it.  It will do them less damage than obsessing about the latest moves in the VVIX.  And, for those who were wondering, yes you can trade options on this index, raising the likelihood that, ere long, we’ll have the opportunity to turn our attentions to the VVVIX.

Good luck with that one, kids. Because, like James Baldwin, Alan Ginsberg, Norman Mailer, the Bottom Line and (soon) the Venerable Village Voice itself, I hope by then I’ll be out.

TIMSHEL