There comes a time when we all question the sanity of our belief system. It seems, last week was one of these times. The VIX (a measure of volatility in the S&P500) jumped 300% all the way to 60. Not only is that the highest level we have seen since March 2020, but it also implies that the market could move by 4% per day, every day, for the foreseeable future, which is not good.
It’s easy to dismiss these gyrations, and sure enough as of Friday the index was back down to 20, but when we have printed more than $50 trillion since 2011, it does beg the question, when will this party end? This brings us to Japan, which has been creating money out of thin air for much longer and now boasts a debt-to-GDP ratio of 263%.
Now, anyone who borrows in one currency to invest in another and totally ignores the risk that exchange rates can move, has no business managing money. However, that is a different story, and what’s a few trillion amongst friends. Fact is, Japan was up 28% year to date, before the markets finally realised that does not make sense and corrected the Chewbacca Defence, in a mere three weeks.
Warren Buffet also realized that putting all your money in Apple might be a bit much, and the bond markets finally understood that we may need a recession for the Fed to cut interest rates, but you know, recessions are not that good for company earnings. All of which brings us to the undeniable conclusion that markets will remain irrational until they don’t, and we better hope they never make sense.
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