I fundamentally believe that Big Government Intervention in our markets perpetuates the opposite of what the Big Central Planners at the Fed are marketing. This is not “price stability” – this is Price Volatility. And our industry is levering up (net leverage in the hedge fund industry hit its October 2007 high this month) on it again as it accelerates. That’s scary.
Obviously there was a 2008 market crash that Bernanke didn’t see coming, but his being ignorant of the risks embedded in fueling $150/oil with a US Dollar Debauchery policy doesn’t give him a hall pass on blaming the highest levels of price volatility that our markets have ever seen on the “market.” He is the market – at least in terms of establishing the cornerstones of rate cut and QE expectations.
Since the US stock market put in another lower long-term high at 1343 on February 18th (see the red circle in the chart below), volatility (VIX) is up +32%. That’s not price stability. That shows you what happens when the easy money music stops (fund flows into US, Japanese, and Western European equity markets peaked in the same week). And unless he opts for QG3 in May/June, it will stop.
One of the hallmarks of our risk management strategy is that real-time prices rule. Currently, we are seeing the confluence of a TREND line breakout in the VIX (> 17.88) and a TRADE line breakdown in the SP500 (1319). This continues to have me thinking that the SP500 is going to continue to make a series of lower immediate-term and long-term highs on rallies.
The VIX won’t be immediate-term TRADE overbought until it tests 21.70 again on the upside.
Keith R. McCullough
Chief Executive Officer