Third Mania in Two Decades
This is a great observation by Hussman:
An annual volatility of 9% implies a daily volatilty of about 0.6%, which is like saying that a 2% market decline should occur in fewer than 1 in 2000 trading sessions, when in fact they’ve historically occurred more often than 1 in 50. The spectacle of investors eagerly shorting a volatility index (VIX) of 9, in expectation that it would go lower, wasn’t just a sideshow in some esoteric security. It was the sign of a market that had come to believe that stock prices could do nothing but advance in an upward parabolic trend, with virtually no risk of loss.So the probability estimate of a minor decline had become off by a factor of 40; 1.6 orders of magnitude. Very far off, in other words. I think it is fair to be calling this a third mania in two decades. (From 1998-2008 you have 98-99, 06-07, and now.)
I also think there is something in particular about the younger boomer generation - that was raised by television - that is highly susceptible to buying into these momentum-driven bubbles. Our friend in New York has been flying off the handle because of these minor declines since late January.
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1 comment:
I began investing in 1969, and "grew up" on the undulating but flat market from 1966 through 1982. I began selling the highs and buying the lows in 1971. But by 1982 the market changed as interest rates declined from their 15% highs in a steady trend until late 2015.
With Federal debt careening out of control and U.S. allies still purchasing Treasury paper, one must wonder how long this benign rate environment will last. Thus far, the 90 day t-bill rise from about 15 basis points (mid 2015) to 170 basis points has been benign.
Caveat emptor
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