Wall Street Love; Main Street Violence (VIX)

We’ve spoken with increasing regularity in this space about what we feel is the inevitable breakdown of civil society in America. What we haven’t been so clear on is a timetable – when it will begin, and thereafter, what particular action will be needed once the difficulties present.

Because of the nature of our readership and the business that we’re in, it’s likely that the vast majority of you are insulated to some degree from the conflicts that have afflicted the citizens of St. Louis suburb, Ferguson, Baltimore, Chicago, and most recently, New York.

The tensions that have manifested in these locales are not isolated occurrences, are not limited to these particular hotspots, and are not over. Ferguson, Baltimore, et al. will continue to see conflict, as will other cities north and south, on both coasts and through the middle for a great number of reasons that we haven’t the space to enumerate today. Suffice to say that an array of forces economic, social, moral and spiritual have brought us to this point, and our engagement as a nation with the outside world has also played a role in the outcome.

BE-A-BOY-SCOUT

All that notwithstanding, we’ve repeatedly encouraged you to make common cause with others who apprehend the situation as you do and to forge the strongest ties possible with them in order to have a strong social network when the crisis arrives. We’ve begged you consider a rural retreat, either a small patch of land or something more robust, if resources permit, and to attempt to create an agricultural base that’s self-sustaining.

These same relationships and agricultural initiatives, we’ve also stressed, can be developed in the city, and we emphasize again now that if you’re bound by the walls of a metropolis then you’re doubly bound to initiate moves in this direction immediately.

Most important of all – and here we entreat you, implore you, beseech you, urge and appeal to you – not to stick your head in the sand, nor to rely upon the law to extricate you from any mess that may shortly ensue. Look at things straight on and take the appropriate action.

CLIMATE-CHANGE-COMIC

It’s never pleasant to be the bearer of solemn news, but we feel ourselves duty-bound to offer the following, as well.

Be sure to acquire for yourself and your immediate circle a reasonable stash of food and fuel, tuck it away in a safe place, and if you haven’t already done so, acquire for yourself by legal means only a weapon and sufficient ammunition to load (and reload) it with.

We’ll have more on the matter in coming weeks.

But now…

We’re going to take a look at one item before signing off today – the widely watched volatility index and so-called ‘fear indicator’, the VIX.

The VIX is an invention of the Chicago Board Options Exchange (CBOE) and essentially measures the cost of buying options on the S&P 500.

Last week it dropped to its lowest level in five months, indicating investors are feeling confident that stock prices will continue to rise for the next three to six months (higher readings are generally indicative of fear – and lower stock prices – for the intermediate future).

Have a look –

VIX-ANNUAL-CHART

The sub-12 reading means options were recently priced lower than they have been since early December, and for some people this is an ominous sign. These folks will tell you that because options are cheap, investors are therefore complacent – but whether they might become more complacent or a whole lot more complacent, they can’t answer.

Bottom line is the VIX is low, so buying PUTs as insurance against a freefall in the indexes is a frugal proposition, and investors who are worried about that prospect should certainly avail themselves of such a purchase.

But will the VIX go lower?

We believe it will.

Why? Because we’re convinced that this is the bull’s last, glorious leg up – the most powerful blow-off leg – and that it therefore, by definition, will be a most ludicrous, unhinged and ethereal affair, where everyone gets giddy-lovey-cozy with his broker and does nothing but buy stocks for the sheer joy of watching his money leave his pocket.

The ‘mania’ phase is how some people call it.

Don’t get scared out of your long positions yet, friend. The bull lives.

And VIX could easily drift toward 10 or lower.

Many happy returns,

Matt McAbby

See what people are saying...

  1. Joel

    Where’d you guys go?

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