22 December 2017: No volatility

Sometimes a picture tells more than a zillion words. The graph below is on volatility. The blue line is stock market volatility in 2017, as measured by the VIX, the so-called fear index compiled by CBOE. The red line shows volatility in an average period. A number of matters stand out:

  • The overall level of volatility in 2017 is much lower than on average.
  • The highest levels of volatility in 2017 barely reach the lowest levels in the average period.
  • The line depicting volatility in 2017 is less spiky than the other line: volatility has remained much longer unchanged in 2017 if compared to other periods.
  • The spikes in 2017 are much lower than the spikes in the average period.

In general, our models need volatility to make a profit. Danny Daredevil suffers from a lack of volatility. Adventurous Anny is put into hibernation if markets remain (too) calm. Solid Suzy remains active much longer than usual (she hasn’t held cash a single day in 2017). Lazy Larry is the only one who profits unconditionally from a period like this: he gets rich while sleeping. (But his (financial) pain might be unprecedented if the situation changes…)
People ask us: will 2018 be the same as 2017? Of course, These Dutch Guys are no clairvoyants. But history might teach us something. The current situation reminds us of two other periods in the last decades: 1995/1996 on the one hand and 2006/2007 on the other hand. We all know what happened after those periods. The masses went wild and started buying stocks like there was no tomorrow. And, finally, it all ended in tears with two of the biggest stock markets crashes in history (in magnitude only surpassed by the Wall Street Crash of 1929). In the last couple of months, we have witnessed the same behavior: more and more people start investing in the stock markets. The explosive rise of bitcoin is the ultimate proof that the madness is among us.
So, basically, there are two answers to the question. If 2018 will be the same as 2017, we can be sure that 2019 will bring a stock market crash. If 2018 is not the same, it is likely that we will return to circumstances which are characterized by levels of volatility which are more in line with the red line in the graph above.

white-chapel-logo-smallUS stocks closed higher on Thursday, mainly helped by energy stocks. The latest economic data, which pointed to slight slowing from strong previous readings, further supported the market. Chances of overheating have shrunk for the moment. The Dow rose 0.23%, the S&P 500 added 0.20% and the NASDAQ recorded a small gain of 0.06%. Volatility eased further: the VIX dove deeper into single-digit territory. The fear index closed at 9.62 points (-1%). UVXY ETFs took a loss and closed more than 1% lower. XIV ETNs profited and gained almost 1%.
Danny Daredevil was not able to stay away from the red figures. His RSS dropped to just below 0%. Adventurous Anny is holding cash. Her RSS remained at 23%. Solid Suzy and Lazy Larry recorded a small gain and their RSS rose to 104%.
None of our models gave a trading signal at the end of yesterday’s session.

Model Holds Start date

RSS

YTD

QTD

AAR

Danny Daredevil UVXY 1 January 2016

-0.41%

-75.29%

-28.52%

0%

Adventurous Anny Cash 6 March 2017

22.91%

22.91%

13.28%

30%

Solid Suzy XIV 6 March 2017

104.09%

104.09%

39.52%

145%

Lazy Larry
XIV 6 March 2017XIV

104.09%

104.09%

39.52%

145%

RSS = Return Since Start | YTD = Year-To-Date | QTD = Quarter-To-Date | AAR = Average Annual Return

 

RS_v05-smallRené’s Reflections @ Friday: Are you a left clicker, or a right clicker?

Blender is a professional, free and open-source 3D computer graphics software toolset used for creating animated films, visual effects, art, 3D printed models, interactive 3D applications and video games (Wikipedia). It was created back in 1995 by Dutch software developer Ton Roosendaal and has since gained immense popularity in the world of professional 3D animation. Blender has become my primary tool of choice when it comes to video editing, since it is incredibly stable, flexible, fast, and has a rich set of features as well as a clever interface. Though it might be a tad complex and intimidating at first, the deeper you dive into this software, the more you’ll love it.
At a recent Blender conference, someone asked: “Are you a left clicker, or a right clicker?” From the start, more than twenty years ago, selecting clips on the timeline is done by a right mouse click. I’m fine with that. Sure, it takes some time getting used to it. But before you now it, this right clicking thing almost becomes like second nature (when working in Blender, that is). But according to some, this is odd and counter-intuitive, and something they (say they) can’t get used to. So the Blender developers made this behavior optional. Now you can decide whether to change it to a left-mouse click in the settings, or to leave it as it is, and to comply to Blender’s default setting.
Now, this question “Are you a left clicker, or a right clicker?” is not as innocent as it may sound. It is to find out where you stand, ‘which side you are on’. It’s like wherever you go, people tend to automatically separate themselves into tribes. This universal tendency to polarize, to compete, to disagree, is that part of human nature? If so, I don’t like that feature. If only this could be changed in the settings!