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Volatility is coming. Are you prepared?

Volatility is coming. Are you prepared?



By Pierre Debru, Director of Research, WisdomTree.

Volatility is coming. Are you prepared?

Volatility is coming. Are you prepared?

Upon entering the fourth quarter of a literally unbelievable year, it feels like the world is waiting for the next “thing” to happen. Investors already had to contend with the fastest bear market in history, the fastest recovery, a tech boom…What now?

Listening to market participants and looking at the CBOE Volatility Index (VIX) market, in particular, it appears that more volatility could be next. With a new increase in COVID-19 infections and the US election on the horizon, this would not be very surprising.

Volatility is usually the poster child for unpredictability. Changes in VIX regime are notoriously hard to anticipate. However, for once, volatility may have sent us advance notice. So, to prepare for Q4, investors could look back at what worked historically and what did not.

From our own analysis, it is clear that some strategies are more suited to a period of increased volatility and risk:

  • among equities strategies, Quality stands out with a balanced performance profile, protecting portfolios when risk is rising and benefitting from the normalizing period after
  • diversifying assets like Gold and Long Duration government bonds typically provide a very nice buffer both before, during, and after the increase in volatility.

The market expects the months of October and November to be very volatile

2020 has proved to be a high volatility year, but looking forward, volatility traders are pricing, and have been pricing for a while, an even more volatile autumn. From a VIX at 25 currently (as of 14 September), traders are seeing levels upward of 30 a few weeks down the line. Whether this increased volatility is the result of a jump in coronavirus infections, uncertainties around a potential vaccine, a disputed US election, or signs of weaknesses in the current tech led rally, does not dramatically change the stark message to investors: “Prepare!”

Source: WisdomTree.

Source: WisdomTree.

Which assets resisted the best to the most recent volatility spike: Gold, Long Duration Government Bonds, and Quality

Assuming that volatility is coming, then what is the smart choice for a portfolio? How to protect and benefit from such a period? As always, history is an excellent teacher.

In this blog, we aim to study the behaviour of different assets around changes in volatility regimes i.e. before, during, and after the volatility spike itself. To do so, we consider three different periods:

  • the 2 months that precede a daily spike in VIX
  • the 2 months that follow a daily spike in VIX
  • the 4 months around a daily spike in VIX (2 months before and 2 months after)

As a first step, let’s look at what happened this year around the biggest volatility spike (+24.86 on 16 March 2020).

In Figure 2, we observe that the strongest performers before the spike were Government Bonds, Gold, and Min Volatility. After the spike, though the best performers were Gold, Growth, and then Momentum and Quality tied for third. These are two very different lists; one is more defensive and the other one is more cyclical in nature. So which asset did the best over the whole period?

In the multi-asset realm, Gold benefitted the most, of course, being in both top three and benefitting from its all-weather behaviour. Long duration government bonds followed just after. In the equity world, Momentum, Growth, and Quality did the best. Momentum and Growth got pushed by the Tech rally in Q2 and Q3 and Quality benefitted from its balanced profile, doing well before and after the spike.

Source: WisdomTree.

Source: WisdomTree.

All-weather assets, like Gold and Quality, are particularly suited to navigate the lead-up and the aftermath of a volatility spike

Trying to generalize our findings further, we look at the lead up and aftermath periods to all volatility spikes since 2002. A volatility spike is defined as an increase in VIX of 5 points or more.

In Figure 3, we can clearly see that:

  • Defensive assets tend to do very well in the period preceding the volatility spikes. The Top 4 performers in those lead-up periods historically have been Gold, EUR Government Bonds, Min Volatility Equities, and Quality Equities. Over those two months, Gold has outperformed Global Equities on average by 13.1%, government Bonds have outperformed by 9%. In the equities, Min Volatility has outperformed by 3.8% and Quality by 1.8%. Those results are very consistent with our observation in March 2020.
  • In the aftermath, i.e. in the period immediately following the volatility spike, the Top 4 is quite different. First comes Gold with 2.8% average performance over the period (vs +0.5% for Global Equities) then Quality just behind with +2.6%. Government bonds are third and Growth and Momentum are tied for fourth with a positive performance of 1.17% over the 2 months. Again, those results are quite similar to our observations in Q1 this year. It is worth noting though, that Growth and Momentum have “outperformed” their historical average this year thanks to the current Tech rally which may or may not continue in the last quarter of the year.
Source: WisdomTree.

Source: WisdomTree.

What these two analyses show is that historically the assets the best suited to deal with periods of heightened volatility are all-weather type assets i.e. assets with strong defensiveness in the downside and with the capabilities to capture a large part of the upside. In our analysis such assets have proven to be:

  • Quality Equities
  • Long Duration Government Bonds
  • Gold

Looking ahead, many investors are formulating their views and resulting asset allocation on potential election results. If a democratic administration plus a democratic congress took control, there could be more spending which could eventually lead to higher inflation. If Republicans were to maintain control, that could possibly mean lower tax rates for a longer time and less fiscal restraint. Massive time and research are spent on analyzing individual companies with these possibilities in mind. However, we do not find as many people framing their considerations of equities, fixed income, or gold purely from the standpoint of wanting to be reading for higher volatility.

Dialing up gold, long-duration government bond, and Quality exposure, as one example, could be a good step towards ‘volatility readiness’ in light of historical patterns and the upcoming uncertainty in the markets.

Global equities are proxied by the MSCI World Index. Min Vol is proxied by MSCI World Min Volatility Index. Quality is proxied by MSCI World Quality Index. High Dividend is proxied by MSCI World High Dividend Index. Value is proxied by MSCI World Enhanced Value Index. Momentum is proxied by MSCI World Momentum Index. EUR Gov is proxied by Bloomberg Barclays Euro Aggregate Treasury Index. EUR Gov 10+ is proxied by Bloomberg Barclays Euro Aggregate Treasury 10+ Index. Gold is proxied by LBMA Gold Price PM USD.

(The views expressed here are those of the author and do not necessarily reflect those of ETF Strategy.)

The post Volatility is coming. Are you prepared? first appeared on ETF Strategy.

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Experts “Quite Worried” About High Turnover Among Election Workers

Experts "Quite Worried" About High Turnover Among Election Workers

Nothing screams ‘secure elections’ like high turnover of local election…



Experts "Quite Worried" About High Turnover Among Election Workers

Nothing screams 'secure elections' like high turnover of local election officials and workers in key states.

According to The Hill, that's exactly what's going on, after a 'surge of local election officials' have left their posts in recent years. This could leave polling locations with understaffed and inexperienced teams (who might not know all the nuances behind scanning machines and which tables the extra ballot suitcases are stored under?).

UCLA election law expert Richard Hasen is "quite worried" about the turnover of election officials and workers nationwide, but says it's "not surprising" given how the 2020 election played out.

"Some of the language that’s been used against these officials has been really shocking," he told The Hill. "And why would you stay in a job that is high-stress to begin with, when you’re not going to be all that well-paid, and then to face this kind of abuse? People have to be really committed to democracy to want to stay in these jobs. And it’s asking a lot."

Does that mean people who weren't committed to democracy were counting the ballots in 2020?

A Brennan Center survey of local election officials taken in March and April, around the same time many White House candidates were jumping into the race, found that 1 in 5 are expected to be serving in their first presidential election in 2024. 

The rate of turnover found in the survey is equivalent to “one to two local election officials leaving office every day since the 2020 election.” 

Nearly a third said they’d personally been “abused, harassed, or threatened” because of their jobs, and nearly three-quarters said they felt threats have gone up in recent years. Nearly a quarter said they personally know at least one election official or worker who’s left the job due to threats, harassment or fear for their safety.  -The Hill

"Your dedication to public service … can only take you so far, when day after day you have people showing up in your office, or you have phone calls or emails accusing you of not doing everything you can to provide the best election experience, but also secure elections," said Lisa Bryant, chairwoman of the department of political science at California State University, Fresno, and an expert with MIT’s Election Lab. 

Perhaps not covering windows in cardboard, blocking election observers, faking burst pipes to delay voting for two hours, and a national judiciary that dismissed the vast majority of election fraud cases over 'lack of standing' (i.e. no personal harm was suffered, therefore no jury gets to see your evidence), would go a long way to instilling voter confidence.

We digress.

In 2021, the Biden DOJ formed an Election Threats Task Force, citing a "significant increase in the threat of violence" against the 'election community' during and after the 2020 election.

While research hasn't concluded that threats are driving workers out of the field, the turnover appears to be driven by various sources of burnout, such as interfacing with voters, responding to public records requests, fielding media inquiries and dealing with the public scrutiny.

"The job of an election official has gotten increasingly difficult over the last few years, and it has not been matched by how they’re being compensated or whether they have the resources to do all of the additional things on their plate," said Rachel Orey, senior associate director of the Bipartisan Policy Center’s Elections Project.

Maybe if America had a national voter ID, perhaps election workers might feel more comfortable in their jobs?

Tyler Durden Sun, 10/15/2023 - 20:25

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Shouting Your Pronouns In A Crowded Theater

Shouting Your Pronouns In A Crowded Theater

via RealClear Wire,

The following is a condensed version of "Shouting Your Pronouns in a Crowded…



Shouting Your Pronouns In A Crowded Theater

via RealClear Wire,

The following is a condensed version of "Shouting Your Pronouns in a Crowded Theater" by Dave Barfield, published at Law & Liberty.

Let’s try out a thought experiment. Imagine you’re in a crowded theater and someone yells, “Fire!” What happens? People flee the room in a panic. Rightly so. Now let me change the question slightly. When someone yells, “Fire!” what happens linguistically?

According to philosopher J. L. Austin’s speech-act theory in his influential book How to Do Things with Words, three things occur:  locution, Illocution, and perlocution.

In locution, there is information transfer: a fire is present.

In illocution, the yelling affected the yeller: perhaps he or she became a hero in his or her own mind.

In perlocution, something happened to the listeners: they fled in terror. The exclamation of “Fire!” changed the scene dramatically.

Now, let’s alter our thought experiment. Imagine you learned the person who yelled “Fire!” was mistaken. Would you flee in terror? Would it be right to help others flee? Of course not. There was no fire.

Why would someone yell “Fire!” when there was no fire? Perhaps the person was confused or nefariously wanted to cause a scene. In such a speech-act, multiple things occur, regardless of the accuracy of the information.

Now to the matter of pronouns. When you replace “Fire” with someone’s chosen pronouns, more than just information transfer takes place. The speaker is trying to change the hearer. Thus, the communication of one’s preferred pronouns does more than just transfer information. It is an attempt to change the listener’s beliefs, actions, feelings, etc.

The trans community has made a concerted effort at changing how non-trans people think about them by insisting that an unsung part of speech do much of the work for them. Pronouns are displayed on nametags, social media profiles, class rosters, and other platforms. Failures to comply with someone’s chosen pronouns has led to public confrontations and moral castigations. Thus, many in the non-trans community use chosen pronouns out of fear. That’s perlocution at work.

Pronoun Impotence

Others, however, refuse to comply. They believe they are being pressured into saying something untrue, because the trans community has offered no compelling logic for their claims regarding genders. They believe the trans community has only communicated their feelings. In our thought experiment, this would be someone yelling “Fire!” when someone feels like there’s a fire, even though that person might be unsure, unsettled, or even unethical. Generally speaking, this would not be a problem. A free society should not overly care about feelings. However, the trans community has pressed the issue into society-altering actions: bathroom usage, prison assignments, tax money for healthcare, etc.

Despite these efforts by the trans community, the pronoun endeavor will fail. Why? Two reasons. First, pronouns will never sufficiently perlocute one’s gender because they cannot illocute one’s gender. Even as part of a multi-pronged strategy of hormones, surgery, and the like, pronouns will fall short in affirming one’s personal choice. These only reveal personal choice—the heart of the issue. Personal choice, while a luxury, is impotent against the juggernaut of nature. Choosing to fly off a bridge does not mean gravity will comply, and choosing one’s pronouns does not mean society must comply.

Second, it won’t work for pragmatic reasons. The accepted pronoun formula (He/Him, She/Her) has already been coopted by comedians, satirists, and even the trans community itself. Billionaire Elon Musk recently joked that his pronouns were “Prosecute/Fauci,” and the trans community has placed signage in New York stating that if you don’t comply, your pronouns will be “Was/Were.” Thus, the sacred pronoun formula produces the modern profanity of laughter and fear.

New Solutions

Perlocution is built on tacit trust in a free society. I trust you to yell “Fire!” only when there is one. If you betray that trust, you maintain the freedom to yell, but I am under no obligation to believe you. This goes for pronouns, too. We trust each other to tell the objective truth, not what one’s personal imagination says.

All this means we need an absolute, which Nature and Nature’s God has given us: biological sex. This binary has functioned extraordinarily well for millennia, and human endeavors to undo it are simply causing greater harm. Ironically, many of the people who religiously follow nature in other areas (evolution, racial justice, climate change, etc.) suddenly find themselves at war with healthy human bodies.

Furthermore, this male/female binary allows for a broad spectrum of gender expression. Masculine does not necessarily mean machismo, nor does feminine necessarily mean effeminate. Any attempt to generate genders at imaginary whims is as arbitrary as the moral demands to use someone’s chosen pronouns.

And finding arbitrary solutions would require an upending of Nature that goes beyond gender. It would mean Nature is no longer reliable for anything at all. Such a course leads to nihilism, and its accompanying violence. And we/they are already there.

Dave Barfield is the Executive Director of a Protestant church in Carmel, Indiana.

Tyler Durden Sun, 10/15/2023 - 21:00

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Victor Davis Hanson’s Annotated Guide To American Middle East Madness

Victor Davis Hanson’s Annotated Guide To American Middle East Madness

Authored by Victor Davis Hanson via X (@VDHanson),

Take note that a…



Victor Davis Hanson's Annotated Guide To American Middle East Madness

Authored by Victor Davis Hanson via X (@VDHanson),

Take note that a trapped Hamas in extremis will go to desperate lengths to survive, from trying to prompt lone-wolf killings in Western cities to drawing in Arab nations to share in their jihad to enlisting Western elites and expatriate Muslims both to deny Hamas is a murderous organization and simultaneously to cheer on its macabre killing.

In this regard, the anti-Jewish nature of Iran and Hamas (read its 1988 Covenant of the Islamic Resistance Movement) should have been obvious, but Westerners suffered from a pathological desire to be deluded.

But to aid Israel in overcoming the current genocidal agendas of its enemies, we should remember first how we in the past have unfortunately contributed to this nightmare.

What follows are some brief annotated quotes of American Middle East insanity [with my annotations in brackets].

Consider our late point man in Iran, and supposed Obama-era expert on Hamas and ISIS, Robert Malley (2008):

It is "a mistake to only think of them [Hamas] in terms of their terrorist violence dimension.”

[Was it a mistake to envision the Third Reich also in terms only of its “terrorist violence,” given that it also promoted a green agenda?]

Malley also included Hamas in his groups of terrorist organizations that "are social and political movements, probably the most rooted movements in their respective societies.” …

[I agree that Hamas is certainly the “most rooted” of the movements in Gaza and perhaps the West Bank as well. And I concur that it is not a mere aberration in Palestinian society but reflects its collective “rooted” values.]

“There is so much misinformation about them …

[Please elaborate: does your “so much information” include things like our ignorance of the fact that Hamas likes to rape Jewish women and desecrate the dead bodies of Jews?]

“I speak to them and my colleagues speak to them [Hamas], and now we may disagree with them, but they have their own rationality … none of them are crazies,”

[Can you please provide transcripts of those occasions when you and your colleagues (also then in the Obama administration?) spoke to Hamas? That was also quite big of you, Mr. Malley, to note that you “may” disagree with Hamas. Was it over which of their killing methods is the most effective? I also agree that Hamas certainly has its own “rationality”. Its recent murder of 1200 Jews—the vast majority civilians—during a religious holiday, which followed a year-long carefully-planned blueprint for mass death and counted on the near-criminal naivete of Western diplomats, might rival the “rational” genocidal agendas of, say, the SS. As for “crazies”—do you mean that Hamas does not crazily fantasize about extermination, but carefully and rationally carries it out? If so, I concur.]

"It has a charity organization, a social branch; it’s not something you can defeat militarily either, and people need to understand that."

[Everything you have stated could have equally applied to the murderous Nazi party: it too was a “political movement” (which did not preclude its use of systematic murder). It too had its own “rationality” (kill Jews and destroy elected governments). It too had “a social branch” and “even charities” (all the better to disguise its murderous agendas). And, yes, one can defeat Hamas “militarily,” as the Allies did Nazi ideology. And yes, “people need to understand that” it is quite possible to ensure that Hamas murders no more.]

John Kerry at Davos in 2016:

“I think that some of it [the millions released to Iran by the Obama administration] will end up in the hands of the IRGC [Islamic Revolutionary Guard Corps—the terrorism specialists of the Iranian armed forces] or other entities, some of which are labeled terrorists.”

[As for “Are labeled terrorists?”—Mr. Kerry, does your use of “labeled” mean that Iranian terrorists are terrorists in name only?]

“You know, to some degree, I’m not going to sit here and tell you that every component of that can be prevented.”

[“To some degree” ? If American money cannot be prevented from being used by Iranians for terrorism, then does “some degree” mean only 50,000 missiles sent to Hezbollah and Hamas rather than 100,000? Or does “some degree’ perhaps mean,someday, 1200 Jews murdered—rather than, say, 120?]

“There is no way they [the Iranian theocracy] can succeed in what they want to do if they are very busy funding a lot of terrorism.”

[But, Mr. Kerry, what do you think Iran really “want[s] to do”? Isn’t Iran “busy” building nuclear bombs, not subways and hospitals? And their nuke program is complementary to, rather in place of, Tehran’s vast terrorism budget. Or do you mean that if Iran spends the money on terrorism, they won’t have enough funds to complete building their nuclear-tipped missiles?]

Antony Blinken in 2023:

“We have not yet seen evidence that Iran directed or was behind this particular attack, but there is certainly a long relationship.”

[At what upcoming date do you think you will need to amend this ridiculous declaration—in the same fashion you just deleted your recent tweet calling for a ceasefire the moment Israel was posed to strike back?]

State Department spokesman Ned Price (2023):

“Since April of 2021, we have demonstrated in very real and significant terms our commitment to the humanitarian needs of the Palestinian people. We’ve provided over $890 million for Palestinians, including over $680 in humanitarian assistance for refugees in the region through UNRWA … When Secretary Blinken was in Ramallah, he announced another $50 million in funding for UNRWA.”

[You certainly did show your commitment to the “needs” of the Palestinian people, which in the case of Gaza resulted in the most sophisticated, reinforced-concrete labyrinth of military tunnels in history, given the plethora of imported building materials purchased with fungible Western dollars to prepare for the mass murder that we just saw in Southern Israel.]

Ambassador Nicholas Burns:

“The Trump Administration’s decision to end U.S. assistance to Palestinian refugees is wrong on every level… heartless and unwise.”

[What was wrong on every level and certainly heartless and unwise was the Biden State Department’s nihilist decision in the very moments of taking power to resume hundreds of millions of fungible dollars to the Palestinians, much of which no doubt ended up in increased spending for  rockets and tunnels. Note that in 2021 the Biden Administration was warned of just that danger by its own state department—and was ignored by diplomats such as yourself: “We assess there is a high risk Hamas could potentially derive indirect, unintentional benefit from U.S. assistance to Gaza.”]

Tyler Durden Sun, 10/15/2023 - 19:50

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