Volatility and Risk

Investment Analysis Clubs Macro Economic Trends and Risks
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You know that the market is volatile when a chart that is a week old isn’t current enough to help read the situation.

So far the stock and bond markets are falling but that’s quite different from a financial crisis where liquidity locks up (as happened in 2008), banks and brokerages fail and the system itself is threatened with collapse.

I watch VIX, the St. Louis Fed Financial Stress Index ( the degree of financial stress in the markets and is constructed from 18 weekly data series: seven interest rate series, six yield spreads and five other indicators), the Chicago Fed’s National Financial Conditions Index (NFCI, which provides a comprehensive weekly update on U.S. financial conditions in money markets, debt and equity markets, and the traditional and “shadow” banking systems) and the CCC-rated junk bond spread.

All of these are showing stress but VIX is the only one which is up-to-the-minute. When VIX rises to 50 and the Financial Stress Index > 5 there is a genuine financial panic happening. Note that this wasn’t the case in 2001 when the dot-com bubble burst, the NASDAQ Index lost 80% of its value and a recession ensued that lasted until 2002. There was not a financial crisis during the dot-com stock market collapse.

It’s a real concern to me when the situation is changing so fast that data which is 10 days old seems ancient. Crises tend to blow up very quickly.

I will keep an eye on this.
Wendy

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Dear Wendy,

This time will be worse. We can not simply solve the damage being done. We will reach for damage without a recovery for minimally three years. Great Depressions are not flash in the pan.

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I’m using the volatility to stock up on cheap stuff from TEMU. Shipments of less than $800 are still arriving on our shores without incident.

Stocks for the Long Run.

intercst

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Wendy,

I suspect that we have entered into a new world order. Or disorder.

In the early 70’s two things happened that set us up for inflation and market that didn’t see a nominal recovery for ten years, and a purchasing power for longer.

The first and on a national or worldwide level was when Nixon took us off the gold standard. This was a shock to the world trading system.

The second was more subtle but was related. The Texas Rail road commission opened the taps on all of the oil fields in Texas. This means that Texas ceased to be the swing producer of oil and the locas of control of oil prices shifted to outside of the U.S.A.

The changes in the world economic system were permanent.

I believe, as do some of the leaders of the world such as the leader of Singapore, that the old post WWII world trading order is gone.Finished. Caput!

As such the world that the economy was geared toward is also gone. It will take time for companies to adapt. What this means is that some really big names will become bit players, some will disappear altogether and new ones will appear and become the leaders of the business world.

In the 1970’s we did not see a bottom for 3 years. maybe 4. I don’t have the charts in front of me. I do recall that peak was actually some years before in the 1960’s.

In other words, we may be rocking along right like we were in the late 60’s and the bad stuff hasn’t even started yet.

Also, two observations.

One, the fall of the evil and oppressive Roman Empire led to a collapsed economy. I think we call it the dark ages and it lasted for centuries.

Two, the richest economies are ones based on trade. This is throughout history, the resources based economies can grow large and powerful, think Egypt, but the trade based economies seem to always eclipse them.

Cheers
Qazulight

Went defensive last year due to impending retirement. Nothing so awesome as market timing or anything like that.
.

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Everyone becomes an expert in macroeconomics when stock market goes down. They of course understand how all of it works.

On the other hand, when the stocks market goes up, they think they have some special talent to identify stocks.

In a few months from now, when the market is up, these experts will fade away with their gloom and doom talk. “They knew it all along” they will say.

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Dear Dividends,

You do not understand the basics involved.

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@dividends20 it’s differences of opinion that make markets…and keep METAR an interesting board.

Wendy :slight_smile:

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Of course I don’t understand basics. My charge is that other people claim expertise in areas they have not understanding of.

Even today, most “self proclaimed covid experts” still believe Fauci that covid came about because Chinese people ate bats in Wuhan market.

These same covid experts became inflation experts. They are now tariff, bond market and currency market experts.

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Indeed. I was watching CNN while waiting for the shop to change the oil in my car today. The talking heads were blaming today’s downdraft on TIG beating up on Powell. Or, is it that Powell is still refusing to give the “JCs” cheaper money?

Meanwhile, I have noticed the window on the side of my Yahoo Finance page has replaced the crude oil quote, with VIX.

Meanwhile…in response to TIG warning trading partners to not trade with China, China is warning trading partners to not “collude” with the US.

So, the two largest economies in the world are aiming to each have it’s own collection of trade colonies.

Steve

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JD Vance at Modi’s residence today. India US plan $500B+ in trade by 2030.
Musk Modi relationship is also very close. India is positioning to be the winner as China rivalry and global realignment happens.

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image1920×1200 136 KB

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Indian manufacturing wages make Mexicans look rich. Last September, Ford Motor announced that they would reopen a closed plant in India, to build cars for export only. My theory at the time was that Ford was planning to move Escape production from Louisville to Chennai

https://media.ford.com/content/fordmedia/img/im/en/news/2024/09/13/ford-prepares-for-manufacturing-in-chennai--india--focus-on-expo.html

After all the chatter last September, everything got very quiet. Then this, in February.

There was supposed to be a grand comeback. A roadmap. A blueprint. Instead, there’s radio silence. Ford Motor Company, which announced its return to India last September, now appears to be pumping the brakes on those plans. The much-anticipated January announcement detailing Ford’s India strategy never arrived. Now, sources say, the American automaker is re-evaluating its move and will not reveal a final decision before late summer.

Read more at:

Then, in March, Ford said it was only going to produce engines for export, not build cars.

https://www.business-standard.com/companies/news/ford-to-restart-chennai-plant-for-engine-export-no-plans-of-car-production-125031800498_1.html

Then TIG announced a 27% tariff on Indian goods, before he blinked. India could provide a lot of textiles to the US, replacing output from China/'Nam/Cambodia/Thailand/Bangladesh, which would all be tarrifed higher, until TIG blinked, except for China.

But the auto industry seems to have a special position in TIG’s mind. He might not embrace cars from India, while he’s trying to stamp out production in Mexico. It will be interesting to see what Ford does with that plant in Chennai.

Steve

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