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Very Low Volatility

April 24, 2023

So far the month of April has been remarkably boring with regard to the financial markets including stocks, bonds and commodities. This is quite surprising especially when considering the extraordinary events happening around the globe. The NASDAQ is, of course normally a wild ride, yet in all of April the difference between the highest and the lowest prices is only 2.5%. The S&P 500 has traded 19 straight days without being down 1% or more. It hasn’t done that since 2021. The maniacal rollercoaster in the interest rate (bond) markets that we experienced in March has also settled down although the 10-year rate has been steadily climbing. On the commodity front, crude oil ROCKETED higher at the beginning of April as the Saudis talked about a production cut from OPEC, yet almost the entire price rally on that news has been retraced. That’s pretty benign…

When we take a look at a chart of the standard volatility indicator – the VIX from the CBOE we see remarkably low volatility…

March came in like a lion and went out like a lamb. The VIX numbers were pretty hectic in March and yet gave way to the lowest volatility of the year. What happened? Was there a peace treaty in Ukraine? Did OPEC decide to produce more oil to calm the markets down? Did all the feuding politicians in Washington DC go on sabbatical with the debt-ceiling circus fixed?

The quick settling of the financial world from March has many scratching their heads and asking how. Part of the answer seems to be that the start into earnings season has shown mildly positive surprises in earnings – clearly nothing shocking one way or another. The tranquility of the stock market seems to be predicting that the OK reports will continue. The Fed Funds Futures are predicting a 90% chance that there will be a .25% rate hike in May. Expectations of a DECREASE in interest rates coming up this fall have dissipated. Maybe that predictability for the near- medium term is helping calm fears…

Here are some of the positive news pieces recently:

  • US Manufacturing at 11-month high- prints 50.4 (expansion) in flash April vs 49.2 prior, well ahead of the drop to 49.0 expected.
  • US Services at 6-month high - prints 53.7 (expansion) in flash April vs 52.6 prior, well ahead of the drop to 51.5 expected.

Here are some of the negative news pieces recently:

  • Credit is tightening across the economy and defaults are rising. Corporate bankruptcies are edging up as are personal loan defaults, mortgage defaults credit card missed payments and car loan defaults.
  • Money supply growth from the Fed fell to a 50 – year low. Sounds like panicky kind of news, but don’t forget the Fed created trillions of dollars during Covid.
  • The median selling price of a previously owned home fell 0.9% from a year earlier to $375,700 in March - the largest decline since January 2012.
  • The Philly Fed Business survey unexpectedly puked to its lowest (ex-COVID lockdowns) since March 2009. Analysts expected a rebound from -23.2 to -19.3, the headline plunged to -31.3 in April.
  • Initial jobless claims were expected to tick higher last week, and they did, up to 245k (from 239k prior and higher than the 240k expectation). That is basicallyin line with the highest level since Jan '22

Lots and lots of people are still worried about an imminent economic meltdown. Generally, when many people are worried about something in the financial markets, it doesn’t come to pass. That is not to say we don’t see a lot of risks or that we think a serious recession couldn’t happen. But we get more afraid when the general consensus is that things are peachy and rosy.

Your portfolio should be balanced so market volatility is not keeping you up at night. You should have a safe portfolio that you can withdraw from if the stock market is not doing well. You should be able to handle some rollercoaster in stocks, cause that’s what they do. In the long run, the stock market is rigged to go higher. In the short to medium term – your eyeballs can pop out if you have to much risk on. Everyone should own some gold and we are encouraging people to learn how to earn interest in gold on your gold deposits and make it a long-term part of your investment strategies. Reach out to us if you need help with that and please make it a focus to spend more cash rather than use credit cards in your day-to-day activities. That will help hold off the nightmare that a central bank digital currency would be for Americans’ liberties!

Regards and good investing,

Greyson Geiler