Higher for Longer
Volatility is Here to Stay
Markets Have Forever Changed
Everyone’s got an opinion, especially when it comes to the ““markets”” (we like to double-quote “”markets””, as true price discovery was lost long ago — hat tip to Chris Martenson at Peak Prosperity). It’s all guesswork, but it is sure fun to play.
One of our favored calls:
#HigherForLonger
FOR VOL: we expect to see more volatility than is expected for longer than expected. Said another way – we like the chances that we are experiencing a secular change in volatility: a paradigm shift. A big driver for our thesis is the move in rates:
Driving Factors
In a credit and debt-fueled world – rates play a big role. We’ll also give three shout-outs:
The initial volatility jolt in Feb 2018 when it only took a medium-sized fast move in the market for some volatility products (XIV) to fall off the face of the earth.
The inflation genie is now officially out of the bottle (seeds have been sown for decades).
The Covid jolt (which changed most everything).
Once we look at things through our “bullwhip lens” it all makes more sense.
The Bullwhip Effect
DEFINITION: a phenomenon where small changes in retail demand can cause larger variations at the manufacturing level.
CHAOS THEORY: similar concept where a small initial change can create much larger/different outcomes over time. AKA The Butterfly Effect.
This bullwhip chaos appears in a many charts. Yes, we can make lots of “Covid” excuses for the chart chaos, but it’s still there. It’s everywhere. And with the ever-growing interconnectedness of the planet – it will remain most everywhere
…higher for longer.
Disclaimer: The information contained in this article is for informational purposes only and should not be considered as investment advice. The information presented in this article should not be interpreted as a recommendation to buy, sell or hold any security or investment. Before making any investment decisions, it is important to do your own research and seek advice from a qualified professional. Investing in securities and other financial instruments carries a high level of risk and may not be suitable for all investors.