Note Précis June 12,2019: Volatility Warp Adds Up to What – Into mid-2019 in this market cycle, it is appropriate to assess what volatility warp adds up to. At the systemic level, recent events and challenges of the last decade exist amid a creep of politics back more into monetary affairs. As opposed to trader activity that supplies liquidity to markets, investors have not always been as passively reverential as they appear today. Despite quantitative ease, to be considered at the fixed income level is the longer term impact on country and company financial structures of aspects like negative yields in benchmarks like Japanese JGBs and record low German Bunds. Being a safe haven did lead to challenges for Switzerland. To us, the ostensible stability of exchange rates between the U.S. dollar, the Yen and the Euro appear underscoring complacency and the Renminbi needs watching.
Equity pricing worldwide seems to vacillate but inconsistently almost daily or intraday recently, in so-called risk on/off versus fixed income, especially U.S. Treasuries. Equity valuation has a growth dimension and yet much continues to be made on just beating consensus. Issues of delivery loom that seem glossed over. Fears of slowing growth globally and trade tensions have affected emerging country investment, including of the long term direct variety. In public markets, the latest 2% annual growth in S&P 500 quarterly earnings compares to 7% long term growth and the double digit growth earlier in this earnings cycle. Bifurcation abounds.
We believe that volatility warp risks add up to a need for more selectivity and quality assessment than seems generally accepted as an investment principle today. We also see precious metals to be hedges, current skepticism notwithstanding. StrategeInvest’s independent consultancy operates as Subodh Kumar & Associates. The views represented are those of the analyst at the date noted. They do not represent investment advice for which the reader should consult their investment and/or tax advisers. Any hyperlinks are for information only and not represented as accurate. E.o.e