The End Of Volatility?

This morning, the VIX has a 9 handle. The stock market has gone 8 days without a move of more than 0.2%. Buffett, Grantham and others are arguing that this time really is different. In fact, they agree that the market has reached a permanently high plateau, although they do not dare us those words. Who are these people and what have they done with Warren Buffett and Jeremy Grantham?

Of course it is different. It is always different. History never repeats itself. In the first four months of 2017, according to Bank of America, central banks – mostly the ECB and BoJ – purchased more than $1 trillion in securities, a record rate. So of course that means blue skies forever.

And that blue sky is full of tree-tops. As the Chinese proverb goes, this too will pass. That massive liquidity pumping is not benign, it is a symptom of panic as economies refuse to respond to the therapy the bankers prescribe.

As John Hussman observes, these signs and portents are a call to lace up the gloves, not hang them up. Extended periods of low volatility and excessive bullishness are always followed by the converse. Commodities and trade are quietly collapsing, GDP barely has a heartbeat and subprime defaults are rising, especially in cards and autos, pension funds are struggling, valuations are beyond extreme.

Beware the gathering storm.

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