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Spread & Containment

When the Volatility Index Perplexes

“Jim, why is the VIX acting so weird?” That was a question I fielded during one of my talks at last week’s Las Vegas MoneyShow. It’s a great question,…

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“Jim, why is the VIX acting so weird?”

That was a question I fielded during one of my talks at last week’s Las Vegas MoneyShow. It’s a great question, and one that I’ve been writing about frequently over the past 12 months. In fact, the day I took that question also happened to be the day we did an update on the CBOE Volatility Index, or VIX, in my Eagle Eye Opener daily market briefing, which, if you haven’t subscribed to yet, what are you waiting for?

The reason this topic has come up recently is because certain dynamics of the typically inverse relationship between the market’s “fear gauge” and the S&P 500 have changed. In the early innings of the 2022 bear market, the “lower lows” in the S&P 500 were no longer coinciding with “higher highs” in the VIX.

Lower stock prices and a higher VIX is a relationship that is typical in bull markets, as hedging activity picks up meaningfully when stocks are driven lower by short-selling speculators (typically these are short-lived, headline-driven pullbacks, hence the use of options as a hedge and not liquidation by institutional money).

The most logical reason behind the change in market dynamics in early 2022 was that institutional investors, who typically employ more sophisticated hedging strategies that include options, started selling their long-time horizon equity holdings and simultaneously began to abandon their associated hedges as they were no longer needed.

As a refresher, the VIX is calculated with inputs from options prices on the S&P 500, so ceteris paribus, more bids in the options market would mean a higher VIX, while more supply, or offers in the options markets, would mean a lower VIX. The institutional selling of options hedges was most likely responsible for the sluggish price action in the widely followed, but often misunderstood, VIX in 2022.

Last week, the VIX fell to its lowest levels since the S&P 500 hit its standing all-time high in the early days of 2022 (just over 4,818). So, with the help of my partner in the Eagle Eye Opener, we took a dive back into history to further analyze how the VIX performed in market conditions similar to today. Here is what we found:

The single, most-dominant market dynamic right now is the deeply inverted yield curve, so, we looked back to periods in history when the yield curve was inverted, the economy was on the brink of, or actually in, a recession and stocks were either in, or falling into, a bear market. Since the VIX was first published in real time in 1993, we are only left with three examples to work with, but the findings are importantly consistent over all three.

In early 2000, the 10s-2s yield curve spread inverted, and later that year, stocks began to meaningfully rollover as the dot-com bubble began to burst. The VIX was volatile over this period but importantly hit 52-week lows in March 2002, just like we saw this VIX do last week. It wasn’t until the VIX became “overbought” on the weekly time frame, via an RSI reading over 70 in July 2002, that the S&P 500 began the bottoming process, putting in cycle lows later that year.

In early 2005, the 10s-2s again inverted, and it remained in backwardation through early 2007. In late 2006, the VIX hit a fresh 52-week low. In the following quarters, the VIX became “overbought” twice on the weekly time frame, the first time in summer 2007 when stocks were near the record highs, and the second in late 2008, just months before the market found a bottom from the turmoil in March 2009.

The 10s-2s briefly inverted in 2019 ahead of the short-lived, but historically deep, Covid-19 pandemic recession. In November 2019, the VIX closed at a new 52-week low. The VIX became overbought in January on its way to new highs, and again in March as the stock market was on the brink of putting in a bottom for the historic year that was 2020.

Today, we are looking at the yield curve hovering just above its deepest inversion since the early 1980s, while the VIX is sitting near 52-week lows, and obviously nowhere near overbought levels on the weekly time frame, a development that preceded all three of the major market bottoms in the “VIX era” of market history.

That suggests we remain in a “calm before the storm” holding period, and until we see the VIX reach overbought territory on the weekly chart (via the RSI indicator), among multiple other developments of course, it will be hard to believe the market is poised to casually cruise towards new record highs from here (i.e., the bottom of this bear market might not be in just yet).

If you’d like this kind of analysis delivered to your inbox every trading day before the market opens — and for about the cost of your morning cup of coffee — I invite you to check out my Eagle Eye Opener today!

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Let Me Slip Away on You

Carefree highway

Let me slip away on you

Carefree highway

You’ve seen better days

The morning after blues

From my head down to my shoes

Carefree highway

Let me slip away, slip away on you…

— Gordon Lightfoot, “Carefree Highway

On Monday night, the world lost a fantastic singer/songwriter, and a man with a penchant for lyrical storytelling that was elite status. Gordon Meredith Lightfoot Jr. was responsible for many big hits of the 1970s, and if you grew up in that era like I did, you are likely well aware of his work. I had the privilege of seeing Gordon Lightfoot play live, and also of meeting him after that show, about five years ago when he toured in Southern California.

Lightfoot was almost 80 years old then, and while his voice didn’t quite have the beautiful baritone timber of his youth, he still played and sang many of his biggest hits with the virtuoso emotion that he brought to every song. So, for all of the smiles and pensive moments he inspired in me and the countless fans in his six-decade career, I want to wish Gordon Lightfoot a beautiful trip into the carefree highway. And tonight, as I did last night, I will once again toast his genius as I “slip away on you.”

Wisdom about money, investing and life can be found anywhere. If you have a good quote that you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.

IMPORTANT ANNOUNCEMENT: We are having our Eagle Virtual Trading Event on Tuesday, May 16. If you haven’t signed up for this yet, there’s still time. Just click here now to sign up for free. Believe me, you won’t want to miss this online event — as we bring together all of Eagle’s investment experts at the same time to reveal the Second Half Outlook: 7 Ways to Beat the Market. Reserve your seat now by clicking here.

In the name of the best within us,

Jim Woods

The post When the Volatility Index Perplexes appeared first on Stock Investor.

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International

The next pandemic? It’s already here for Earth’s wildlife

Bird flu is decimating species already threatened by climate change and habitat loss.

I am a conservation biologist who studies emerging infectious diseases. When people ask me what I think the next pandemic will be I often say that we are in the midst of one – it’s just afflicting a great many species more than ours.

I am referring to the highly pathogenic strain of avian influenza H5N1 (HPAI H5N1), otherwise known as bird flu, which has killed millions of birds and unknown numbers of mammals, particularly during the past three years.

This is the strain that emerged in domestic geese in China in 1997 and quickly jumped to humans in south-east Asia with a mortality rate of around 40-50%. My research group encountered the virus when it killed a mammal, an endangered Owston’s palm civet, in a captive breeding programme in Cuc Phuong National Park Vietnam in 2005.

How these animals caught bird flu was never confirmed. Their diet is mainly earthworms, so they had not been infected by eating diseased poultry like many captive tigers in the region.

This discovery prompted us to collate all confirmed reports of fatal infection with bird flu to assess just how broad a threat to wildlife this virus might pose.

This is how a newly discovered virus in Chinese poultry came to threaten so much of the world’s biodiversity.

H5N1 originated on a Chinese poultry farm in 1997. ChameleonsEye/Shutterstock

The first signs

Until December 2005, most confirmed infections had been found in a few zoos and rescue centres in Thailand and Cambodia. Our analysis in 2006 showed that nearly half (48%) of all the different groups of birds (known to taxonomists as “orders”) contained a species in which a fatal infection of bird flu had been reported. These 13 orders comprised 84% of all bird species.

We reasoned 20 years ago that the strains of H5N1 circulating were probably highly pathogenic to all bird orders. We also showed that the list of confirmed infected species included those that were globally threatened and that important habitats, such as Vietnam’s Mekong delta, lay close to reported poultry outbreaks.

Mammals known to be susceptible to bird flu during the early 2000s included primates, rodents, pigs and rabbits. Large carnivores such as Bengal tigers and clouded leopards were reported to have been killed, as well as domestic cats.

Our 2006 paper showed the ease with which this virus crossed species barriers and suggested it might one day produce a pandemic-scale threat to global biodiversity.

Unfortunately, our warnings were correct.

A roving sickness

Two decades on, bird flu is killing species from the high Arctic to mainland Antarctica.

In the past couple of years, bird flu has spread rapidly across Europe and infiltrated North and South America, killing millions of poultry and a variety of bird and mammal species. A recent paper found that 26 countries have reported at least 48 mammal species that have died from the virus since 2020, when the latest increase in reported infections started.

Not even the ocean is safe. Since 2020, 13 species of aquatic mammal have succumbed, including American sea lions, porpoises and dolphins, often dying in their thousands in South America. A wide range of scavenging and predatory mammals that live on land are now also confirmed to be susceptible, including mountain lions, lynx, brown, black and polar bears.

The UK alone has lost over 75% of its great skuas and seen a 25% decline in northern gannets. Recent declines in sandwich terns (35%) and common terns (42%) were also largely driven by the virus.

Scientists haven’t managed to completely sequence the virus in all affected species. Research and continuous surveillance could tell us how adaptable it ultimately becomes, and whether it can jump to even more species. We know it can already infect humans – one or more genetic mutations may make it more infectious.

At the crossroads

Between January 1 2003 and December 21 2023, 882 cases of human infection with the H5N1 virus were reported from 23 countries, of which 461 (52%) were fatal.

Of these fatal cases, more than half were in Vietnam, China, Cambodia and Laos. Poultry-to-human infections were first recorded in Cambodia in December 2003. Intermittent cases were reported until 2014, followed by a gap until 2023, yielding 41 deaths from 64 cases. The subtype of H5N1 virus responsible has been detected in poultry in Cambodia since 2014. In the early 2000s, the H5N1 virus circulating had a high human mortality rate, so it is worrying that we are now starting to see people dying after contact with poultry again.

It’s not just H5 subtypes of bird flu that concern humans. The H10N1 virus was originally isolated from wild birds in South Korea, but has also been reported in samples from China and Mongolia.

Recent research found that these particular virus subtypes may be able to jump to humans after they were found to be pathogenic in laboratory mice and ferrets. The first person who was confirmed to be infected with H10N5 died in China on January 27 2024, but this patient was also suffering from seasonal flu (H3N2). They had been exposed to live poultry which also tested positive for H10N5.

Species already threatened with extinction are among those which have died due to bird flu in the past three years. The first deaths from the virus in mainland Antarctica have just been confirmed in skuas, highlighting a looming threat to penguin colonies whose eggs and chicks skuas prey on. Humboldt penguins have already been killed by the virus in Chile.

A colony of king penguins.
Remote penguin colonies are already threatened by climate change. AndreAnita/Shutterstock

How can we stem this tsunami of H5N1 and other avian influenzas? Completely overhaul poultry production on a global scale. Make farms self-sufficient in rearing eggs and chicks instead of exporting them internationally. The trend towards megafarms containing over a million birds must be stopped in its tracks.

To prevent the worst outcomes for this virus, we must revisit its primary source: the incubator of intensive poultry farms.

Diana Bell does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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Spread & Containment

A major cruise line is testing a monthly subscription service

The Cruise Scarlet Summer Season Pass was designed with remote workers in mind.

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While going on a cruise once meant disconnecting from the world when between ports because any WiFi available aboard was glitchy and expensive, advances in technology over the last decade have enabled millions to not only stay in touch with home but even work remotely.

With such remote workers and digital nomads in mind, Virgin Voyages has designed a monthly pass that gives those who want to work from the seas a WFH setup on its Scarlet Lady ship — while the latter acronym usually means "work from home," the cruise line is advertising as "work from the helm.”

Related: Royal Caribbean shares a warning with passengers

"Inspired by Richard Branson's belief and track record that brilliant work is best paired with a hearty dose of fun, we're welcoming Sailors on board Scarlet Lady for a full month to help them achieve that perfect work-life balance," Virgin Voyages said in announcing its new promotion. "Take a vacation away from your monotonous work-from-home set up (sorry, but…not sorry) and start taking calls from your private balcony overlooking the Mediterranean sea."

A man looks through his phone while sitting in a hot tub on a cruise ship.

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This is how much it'll cost you to work from a cruise ship for a month

While the single most important feature for successful work at sea — WiFi — is already available for free on Virgin cruises, the new Scarlet Summer Season Pass includes a faster connection, a $10 daily coffee credit, access to a private rooftop, and other member-only areas as well as wash and fold laundry service that Virgin advertises as a perk that will allow one to concentrate on work

More Travel:

The pass starts at $9,990 for a two-guest cabin and is available for four monthlong cruises departing in June, July, August, and September — each departs from ports such as Barcelona, Marseille, and Palma de Mallorca and spends four weeks touring around the Mediterranean.

Longer cruises are becoming more common, here's why

The new pass is essentially a version of an upgraded cruise package with additional perks but is specifically tailored to those who plan on working from the ship as an opportunity to market to them.

"Stay connected to your work with the fastest at-sea internet in the biz when you want and log-off to let the exquisite landscape of the Mediterranean inspire you when you need," reads the promotional material for the pass.

Amid the rise of remote work post-pandemic, cruise lines have been seeing growing interest in longer journeys in which many of the passengers not just vacation in the traditional sense but work from a mobile office.

In 2023, Turkish cruise line operator Miray even started selling cabins on a three-year tour around the world but the endeavor hit the rocks after one of the engineers declared the MV Gemini ship the company planned to use for the journey "unseaworthy" and the cruise ship line dealt with a PR scandal that ultimately sank the project before it could take off.

While three years at sea would have set a record as the longest cruise journey on the market, companies such as Royal Caribbean  (RCL) (both with its namesake brand and its Celebrity Cruises line) have been offering increasingly long cruises that serve as many people’s temporary homes and cross through multiple continents.

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International

As the pandemic turns four, here’s what we need to do for a healthier future

On the fourth anniversary of the pandemic, a public health researcher offers four principles for a healthier future.

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John Gomez/Shutterstock

Anniversaries are usually festive occasions, marked by celebration and joy. But there’ll be no popping of corks for this one.

March 11 2024 marks four years since the World Health Organization (WHO) declared COVID-19 a pandemic.

Although no longer officially a public health emergency of international concern, the pandemic is still with us, and the virus is still causing serious harm.

Here are three priorities – three Cs – for a healthier future.

Clear guidance

Over the past four years, one of the biggest challenges people faced when trying to follow COVID rules was understanding them.

From a behavioural science perspective, one of the major themes of the last four years has been whether guidance was clear enough or whether people were receiving too many different and confusing messages – something colleagues and I called “alert fatigue”.

With colleagues, I conducted an evidence review of communication during COVID and found that the lack of clarity, as well as a lack of trust in those setting rules, were key barriers to adherence to measures like social distancing.

In future, whether it’s another COVID wave, or another virus or public health emergency, clear communication by trustworthy messengers is going to be key.

Combat complacency

As Maria van Kerkove, COVID technical lead for WHO, puts it there is no acceptable level of death from COVID. COVID complacency is setting in as we have moved out of the emergency phase of the pandemic. But is still much work to be done.

First, we still need to understand this virus better. Four years is not a long time to understand the longer-term effects of COVID. For example, evidence on how the virus affects the brain and cognitive functioning is in its infancy.

The extent, severity and possible treatment of long COVID is another priority that must not be forgotten – not least because it is still causing a lot of long-term sickness and absence.

Culture change

During the pandemic’s first few years, there was a question over how many of our new habits, from elbow bumping (remember that?) to remote working, were here to stay.

Turns out old habits die hard – and in most cases that’s not a bad thing – after all handshaking and hugging can be good for our health.

But there is some pandemic behaviour we could have kept, under certain conditions. I’m pretty sure most people don’t wear masks when they have respiratory symptoms, even though some health authorities, such as the NHS, recommend it.

Masks could still be thought of like umbrellas: we keep one handy for when we need it, for example, when visiting vulnerable people, especially during times when there’s a spike in COVID.

If masks hadn’t been so politicised as a symbol of conformity and oppression so early in the pandemic, then we might arguably have seen people in more countries adopting the behaviour in parts of east Asia, where people continue to wear masks or face coverings when they are sick to avoid spreading it to others.

Although the pandemic led to the growth of remote or hybrid working, presenteeism – going to work when sick – is still a major issue.

Encouraging parents to send children to school when they are unwell is unlikely to help public health, or attendance for that matter. For instance, although one child might recover quickly from a given virus, other children who might catch it from them might be ill for days.

Similarly, a culture of presenteeism that pressures workers to come in when ill is likely to backfire later on, helping infectious disease spread in workplaces.

At the most fundamental level, we need to do more to create a culture of equality. Some groups, especially the most economically deprived, fared much worse than others during the pandemic. Health inequalities have widened as a result. With ongoing pandemic impacts, for example, long COVID rates, also disproportionately affecting those from disadvantaged groups, health inequalities are likely to persist without significant action to address them.

Vaccine inequity is still a problem globally. At a national level, in some wealthier countries like the UK, those from more deprived backgrounds are going to be less able to afford private vaccines.

We may be out of the emergency phase of COVID, but the pandemic is not yet over. As we reflect on the past four years, working to provide clearer public health communication, avoiding COVID complacency and reducing health inequalities are all things that can help prepare for any future waves or, indeed, pandemics.

Simon Nicholas Williams has received funding from Senedd Cymru, Public Health Wales and the Wales Covid Evidence Centre for research on COVID-19, and has consulted for the World Health Organization. However, this article reflects the views of the author only, in his academic capacity at Swansea University, and no funding or organizational bodies were involved in the writing or content of this article.

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