For almost a month now, the market has gone literally nowhere. Despite news of the passing of the American Health Care Act, the Continuing Resolution, or “stellar” earnings reports…nothing seems able to excite either the bulls or the bears.
The only thing more boring than the market over the past few weeks has been the volatility index which recently hit lows not seen in over a decade.
As was noted last week by John Mauldin:
“There have been only 11 days out of some 6900, going back almost 28 years, when we’ve had a sub-10 VIX. When I look carefully at those dates, the word complacency leaps to mind.”
He is right. And the problem with complacency, like everything else in the world, is that it comes and goes in cycles. The chart below is the MONTHLY read on the volatility index as compared to the S&P 500 index. I have marked the previous low levels of the volatility index and the subsequent corrections.
It should be noted the correction in 1994, while small was following the recession of 1991 as the market was just beginning to enter into the “dot.com” craze. The current environment more closely resembles that of 2007 as the market heads toward the END of a bullish phase with valuations extended, exuberance high and fear extremely low. (I have marked a similar correction back to the 2011 support levels.).
Like high levels of margin debt, low levels of volatility is not a problem…until it is. Falling levels of volatility, like rising levels of margin debt, are not good leading indicators to predict a change in market behavior. However, margin debt, corporate leverage, volatility, when eventually ignited by some catalyst, is the equivalent of throwing a stick of dynamite into a tanker of gasoline.
But that is a story for another day.
For now, the market remains boring as investors rush to “buy in” to the bull market exuberance.
It seems as if investors will never learn.
In the meantime, here is what I am reading this weekend.
- Trump Talks Trumponomics With Economist by Tyler Durden via ZeroHedge
- 6-Month Window & A Fiscal Fumble by Jason Leach, CFA via FusionPoint Capital
- Why Comey Dismal Is A Negative by Edward Harrison via Credit Writedowns
- America’s Economy Is Adequate Again by Matt O’Brien via Wonkblog
- Tax Cuts & The Stock Market by Jeffrey Kleintop via Charles Schwab
- Trump Stuck In A Low Growth Trap by Robert Samuelson via RCM
- Glass-Steagall Reboot Worse Than Disease by Allan Golombek via RCM
- Killing Banking Rules Will Bring Downturn by Mark Thoma via Fiscal Times
- Pay Attention To The Hard Data by Charles Lieberman via Bloomberg
- Clock Is Ticking On Tax Reform by Jeremy Scott via Forbes
- Pressure Is Building To Raise Rates Faster by Tim Duy via Fed Watch
- Tax Plan Would Blow Up The Deficit by Rob Garver via Fiscal Times
- Why Tax Revenue Projections Are ALWAYS Wrong by Richard Rahn via Washington Times
- There’s No Growth – Stunning Warning For OPEC by Tyler Durden via ZeroHedge
- The Bond Market Didn’t Get The Memo by Caroline Baum via MarketWatch
- What’s The Deal With Low Volatility by James Picerno via Capital Spectator
- The Great Narrowing Of The S&P 500 by Wolf Richter via Wolf Street
- Perfect For All Of Eternity by David Stockman via Daily Reckoning
- Get Ready For Lower Market Returns by Michael Santoli via CNBC
- Losing Control by Eric Parnell via Seeking Alpha
- Stock Market Still Has Room To Run by Michael Kahn via Barron’s
- Don’t Wait For Recessions To Sell by Anora Mahmudova via MarketWatch
- As Optimism Multiplies, Risk & Disappointment Expand by Doug Kass via Real Clear Markets
- Storytelling Animals by Charlie Bilello via Pension Partners
- A Bear Market Approaches, But A Bull Run First by Howard Gold via MarketWatch
- Are You Done Looking For A Top Yet? by Avi Gilburt via Nasdaq
Research / Interesting Reads
- Pension Tension II: Don’t CA My TX by Danielle DiMartino-Booth via Money Strong
- Dalbar 2016: Investors Remain Own Worst Enemy by Tom Allen & Mark Hebner via IFA.com
- You, My Friend, Are Crazy by Meb Faber via Faber Research
- Good Banks, Bad Banks by Chris Whalen via Daily Reckoning
- ETF’s Reach $4 Trillion In AUM by Value Walk
- The Time Seems Very, Very Different by Denis Ouellet via Edge & Odds
- The Pig Has Exited The Python by Mark Hanson via MHanson.com
- Is $1 Million Enough To Retire? by Taylor Schulte via Kiplinger
- An Accident Waiting To Happen by Jason Zweig via Intelligent Investor
- Why 401k’s Are Vulnerable To Tax Reform by Gail Marks Jarvis via Chicago Tribune
- Why Are Markets Ignoring Black Swans by Nouriel Roubini via Project Syndicate
- Financial Lessons From Mom by Carrie Schwab-Pomerantz via Schwab
- Investors Ignore Central Investing Principles by John Hussman via Hussman Funds
- Record Close But No Cigar by Dana Lyons via Tumblr
- A Lot Of Smart People Using Those 4-Words by Jesse Felder via The Felder Report
“There is nothing riskier than the widespread perception that there is no risk.” – Howard Marks