'Volfefe' Index A Sign Of The Times

by: The Balance of Trade

J.P. Morgan creates a new index linking Trump tweets to moves in the rates market.

Some words have the potential to jar markets more than others.

The current environment is governed by macro concerns rather than corporate cash flows.

May you live in interesting times. - Chinese curse

In the grand scheme of things, we do not live in interesting times. Or at least not during times of large-scale upheaval and conflict on the order of, say World Wars I or II.

Sure, we wake up to news - real or fake - and move along with our days. But in history's great arc, we have to remember that we've got it good.

That isn't to say, though, that there isn't anything happening in the world today. As ever, there are challenges, hurdles, and exciting developments that we must grapple with, both individually and as a larger community.

Twitter As Cause of Financial Market Movement

"Let them eat cake." That would fit within Twitter's maximum allowable word count, correct?

The famous words attributed to Marie Antoinette ignited the French Revolution, Robespierre's never-ending bloodletting, and ultimately Napoleon's rise to power.

So far, Twitter hasn't got its four-word world changer quite yet.

But the sitting U.S. president has been quite active on Twitter. It's no secret that Donald Trump has many die-hard supporters in the U.S., as well as those who would rather see him move on to the next stage of life in 2021.

Love him or otherwise, President Trump has found it fitting to use Twitter quite regularly during his tenure in the Oval Office:

The president has averaged roughly 10 tweets a day since the start of 2016, with 10,000 tweets occurring after his inauguration in 2017, according to JPMorgan’s analysis.

- Bloomberg

There's an Index For That

J.P. Morgan demonstrated a flash of humor and good marketing with its new "Volfefe" index.

Volfefe attempts to find a link between Trump's tweeting activity and movement in the bond market. Citigroup has done similar research in the FX space, according to CNBC.

J.P. Morgan has demonstrated a statistical link between Trump's tweeting activity and implied volatility in 3Month-10Yr UST swaptions.

- Investopedia

Rising volatility on swaptions speaks to a readiness on the part of those who trade the instruments to pay up for the rights to such a swap, indicating that expectations for rate swaps to become increasingly shaky in the immediate aftermath of Trump tweets.

The report from J.P. Morgan goes on to mention that not all tweets are created equal in terms of ability to generate market commotion. There are some trigger words that are more likely to fit the bill, including those listed above.

I encourage you to watch the above (short) video in its entirety. You may imagine that more left-leaning media outlets are having a field day with this. My take as a nation we've just gotta laugh sometimes. Regardless of where you sit on the spectrum, take it in: Life is short, and honestly we sorta don't live in interesting times right now. (That's mostly a good thing!)

Depends On How You Want to Look At It


Much of Trump's twitter activity involves retweets. It is noteworthy that much of his original tweeted statements do not appear to move markets.

As is so often the case, you can take a variety of views here. One person might be horrified by the president's ability to move markets with a filter-less few words. Others may take this as politics bypassing mainstream media and giving straight talk directly to the people.

While I think both of these sides have a point, my own take is that it is not in a nation's best interest for its leader to be too active on a social media site, for a variety of reasons.


While the times may be pretty dull compared with other, more pressing times in human history, U.S. economic policy is creating a spike in uncertainty now. Not the end of the world, but something to keep your eye on.

What does all this mean for you as an investor or trader? There are some takeaways, and here are a few:

Exogenous events - such as Tweets or headlines - are hogging the limelight. We've seen markets move higher and lower on these events over the last couple years; don't expect it to end just because you are tired of it or because it doesn't fit your investing style

It may heat up before it cools down - we're approaching the 2020 election cycle. I believe this one has the potential to be particularly contentious for markets, given the very different directions taxation, debt, foreign policy, and economic trajectories could take depending on who holds office in 2021.

Expect the president to mute some of his activities when it's time for him to close. While the rhetoric may yet get even more polarizing and forceful, I think Mr. Trump will become more reluctant to use social media as a way of reaching his audience as it regards market-related topics such as monetary policy or trade.

May you live in Volfefe times, my friends.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.