McCullough: Don't Chase U.S. Stock Market FOMO - 4 28 2020 12 32 32 PM

Let's talk deflation that is continuing. Deep Quad 4 deflation.

You can see that oil was down -20% when I got up this morning, and then it was -6%, then -10% in a day. That has Oil heading towards what was the low end of the range yesterday which is now lower.

To construct the range I’m using Oil vol just north of 200. That's around where Oil Volatility (OVX) is. OVX is the equivalent of Oil's VIX. If I’m using that level of volatility I can get to an 8 handle on WTI. That’s why I have $8.40 as the new low end of the Oil risk range.

This crash in WTI is obviously creating a severe problem in the High Yield market.

Don’t forget that yesterday, while U.S. Equity market futures FOMO people were chasing the stock market, High Yield (if you look at Cross Asset Class volatility) wasn’t really doing anything.

In fact High Yield only moved 1 basis point. There is a tremendous amount of debt deflation associated with this oil move.

It’s been a leading indicator and it continues to be this morning. No it’s not what people at Goldman Sachs are going to be telling you or Mnuchin with his big checks this morning. If you want to go ahead and chase that FOMO you can.

But that’s certainly not what I’m doing.

McCullough: Don't Chase U.S. Stock Market FOMO - 4 28 2020 12 29 28 PM