The End of The Low Volatility Regime?

Before I get into today’s post on volatility, I wanted to share a good Umair Haque piece where he asks ‘Is There Any Price Americans Won’t Ask Their Kids to Pay?’ The post begins with:

We ask five year olds in American schools to perform ‘active shooter drills’.

He concludes:

What has really happened here? Older Americans shifted every kind of cost possible to their kids — human, economic, social, cultural — no matter how much it traumatized, wounded, or scarred them. They just appeared totally indifferent to their own kids’ plight.

First, the costs of school shootings and distrust and unsafety. Then the costs of inadequate education and healthcare, of a failing democracy, of a broken economy, one by one, as they aged. Their elders simply said: “you pay for all this. Whether now with dollars — or later, with your quality and quantity of life.” And so young people are ending up bearing the many costs of social collapse disproportionately — which is itself happening because their parents refused to pay those costs to begin with.

It is up to America’s young to change all this — not continue it. Their lives are on the line. This is no game. Their elders have failed them terribly, shifting the costs of never fixing a broken society to them. It is their challenge to rebuild, reform, and reconstruct the institutions that incurred such terrible costs in the first place.

OK onward to the markets…

It would be great if America had the same $VIX (measure of volatility in markets) as Tuscany (which I have pegged at 8).

We got a taste of that Tuscany VIX in 2017, despite what seemed a media and political VIX of 4o each day.

We have now seen that 2018 will not be anything like 2017.

The research team at 13D has a good piece out on ‘The End of The Low Volatility Regime‘. Take a read.

The conclusion:

As with all corrections in history, the long-term implications of last week’s market moves mean far more than the short-term outcomes. QE gave birth to algorithmic strategies dependent on unnaturally low volatility, from equities to bonds. The firms that created the strategies ignored long-term threats in favor of short-term returns. Regulators, enamored with the market’s trajectory and intimidated by the technical complexity of algorithmic innovation, turned a blind eye.

Last week offered a glimpse of the downside power of the post-crisis algorithmic revolution. We are beginning to see regulators awaken to the threat. It’ll no doubt prove too little too late after a decade of algorithmic experimentation in a low volatility world. The new machinery will be tested and more pain appears inevitable.


Also published on Medium.