Quick Thoughts On Volatility, Repo Market, Trade, Slowing Economy And New Highs

Nov. 14, 2019 1:54 PM ETVXX, UVXY, TVIXF, SVXY, VIXY, VIIX, XXVFF49 Comments


  • Volatility has not picked up despite a choppy market, impeachment proceedings, a slowing economy, and banks afraid to lend to each other.
  • The Fed takeover of the repo market should be concerning you.
  • The trade war continues to provide short-term economic headwinds on top of the "slow growth forever" trend.
  • And through it all, stocks are still trying to set new highs.
  • Each week, members of Margin of Safety Investing get a few "Quick Thoughts" pieces to help sort out the market and investing strategy. Here's Thursday's Quick Thoughts.
  • This idea was discussed in more depth with members of my private investing community, Margin of Safety Investing. Get started today »

Volatility has not reared its head despite so many seemingly volatile factors. Slowing growth, trade wars, impeachment, flattening earnings, banks afraid to lend to each other... none of it matters apparently.

Remember, I showed you this chart of the volatility index a couple weeks ago:

VIXHere's where we stand today:

VIX TodayBasically the same place, and yet...

VXX continues to fall...the iPath S&P 500 VIX ETN (VXX) continues to fall. That's the futures roll-over deterioration of that security. That's why VXX trades are only for very short swing trading and day trading.

We're going into the third week with some of us holding a little volatility hedge. The goal here is to get out as whole as possible. Maybe we'll get a little lucky and make some money. This is a hedge remember, so presumably a few stocks are making you money in the meantime.

I still think we have a seasonal rally in December and January. So, I think the better set-up is coming. Either cut your losses on your VXX trade or be stubborn and try to make a buck into Thanksgiving. Historically, that's a good play. Today? Who knows.

The Banks Are Afraid To Lend To Each Other

The Federal Reserve has essentially been nationalizing the overnight repo market that banks use to lend to each other. What does that mean? It means the banks don't want to lend to each other or are short on cash. Either way, that's bad.

The Fed has transacted about $3 TRILLION in overnight loans since early September now. Remember, those loans get repaid the next day, but yet, the Fed balance sheet has expanded by about $28 billion so far in just several weeks. Look how sharp a turn this is:

Fed Balance Sheet RepoThere's a lot of reasons banks are short on cash. Initially, the reason was that

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This article was written by

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Disclosure: I am/we are long VXX. 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.

Additional disclosure: I own a Registered Investment Advisor, but publish separately from that entity for self-directed investors. See relevant terms and disclaimers at the website of Bluemound Asset Management, LLC. Any information, opinions, research or thoughts presented are not specific advice as I do not have full knowledge of your circumstances. All investors ought to take special care to consider risk, as all investments carry the potential for loss. Consulting an investment advisor might be in your best interest before proceeding on any trade or investment.

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