Has Fed induced liquidity pacified the VIX Index Bears?

The VIX Index (fear indicator) seems to think so.

VIX-index

The above monthly chart of the VIX indicates that we are closing in on the 2007 lows and we are well aware of what came next. To be clear we are not forecasting a repeat event, but it is worth revisiting how markets were positioned then versus now:

table

The major difference between the 2 periods is the level of government induced liquidity programs aka QE. This has had the effect of reflating a credit bubble (more so in corporate and sovereign debt than real estate mortgages) and now includes a Chinese real estate debt bubble.

“Markets can remain irrational longer than you can remain solvent.”
John Maynard Keynes

This old saw rings true now more than ever – we remain vigilant for any indications of ‘rationality’ returning to the market and suspect that may begin with higher interest rates across the curve.

Best Regards

Greg
Greg Silberman CFA®, CAIA, CA(SA)

Chief Investment Officer

Advisory Services offered through Atlanta Capital Group.

Securities offered through Triad Advisors, Member FINRA / SIPC

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