VIX Not The Hedge It’s Supposed To Be?

My latest post for Alpha Baskets looks at the extent to which VIX works as a hedge for equities downside, accept for the times that it doesn’t. The logic is simple, fear/uncertainty increases as stocks go down so the VIX rises and the products tracking it then hopefully capture some of that reaction. I’ve always been skeptical of this because it is possible that stocks go down and the VIX also go down which is what happened on Monday as shown in this chart from Yahoo Finance. Please click through to read the entire post. Looking back at Vernazza from the start of the trail that goes to...

Brexit With A Vengeance

This week’s Market Update takes a long look at the Brexit and it’s fallout. I would add that markets appear to have not priced in this result based on the extreme moves in many asset prices including equities, currencies and income markets. It is of course the nature of markets to overreact in the face of uncertainty which is where this event is now. At some point the initial reaction ends and markets go back to sorting through fundamentals until the next big, scary event. Over an investing lifetime there will of course be many such events and while they are all “different” the result is always the same. The market figures them out at some point and move on. From the update; In trying to put context around Friday, the initial reaction was a fast, semi-panicked decline. The nature of fast declines is that they often snap back quickly. A fast recovery, should it happen, won’t be a surprise but would do nothing to solve the fundamentally uncertainties. The referendum is actually non-binding but for now there is no expectation that Parliament would not adhere to the vote. It is likely that separating would take a couple of years but that agreements would be put in place such that it wouldn’t be a complete and total separation. There is plenty of uncertainty about what will happen to growth rates for the UK and Euroland. Part of the justification for the European Union was to promote trade and while this report won’t make a qualitative assessment on the Union or the referendum, anything perceived as restricting trade will be...

Of Supernovas & Deflation

My latest post for Alpha Baskets covers a lot of ground and includes the following; A former colleague emailed me to ask what would happen to bond ETFs in the face of some sort of meltdown triggered one way or another by the myriad of distortions currently at play, or potentially at play in the bond market. Based on previous, albeit short lived, events we probably have a good idea. Market prices could trade away from IIV’s (ETF equivalent of NAV) but still trade. In that scenario you’d be able to get out might feel hosed in doing so. Of course you could just wait few days and probably trade closer to IIV. A fund could stop the creation/redemption process which could also cause a large divergence between the market price and the IIV but again, in that scenario you’d be able to get out. Please click through to read the entire post. Apparently it was selfie-day earlier this week. Yours truly in April at the Ferrari Museum in Modena,...

“Zombie Fed”

The weekly Market Update is posted at Alpha Baskets and includes the following; This week the UK will vote on whether to leave the European Union or stay in it, the so called Brexit vote. A few months ago, this was a fringe idea along the lines of whether Scotland would vote to leave the UK but of course the Brexit movement gained momentum and seemed very plausible. Over the weekend yet another poll had odd of the Brexit now receding which has lifted global markets.. As disruptive as this might be, the thought, or fear, is that if the UK leaves the union that other countries will then also want to leave which would make for an economically painful adjustment. Please click through to read the entire update. The picture is from a multi-agency training exercise held here in...

Prepare For A Bear

My latest post for Alpha Baskets looks at our latest encounter with a bear while hiking here in Walker. From the post; Two weeks ago we saw the bear again on a different trail. We were almost to our turnaround point and Roscoe took off running, this could have been to chase a squirrel but I looked up and saw the bear. Roscoe ran down a little hill and started to turn the corner toward the bear all the while my yelling his name over and over. Roscoe stopped and came back to me—no way to know if he came back because I was calling him or because he realized he’d be in over his head against a bear. As soon as I started trying to call Roscoe back, I started to reach for my phone to take a picture, never taking my eyes off the bear and then the bear took off. I doubt the entire encounter was even ten seconds. Please click through to read the entire post. This picture is a grizzly from Yellowstone in...