Volatility is on the Rise

Volatility is on the rise, a characteristic of late-stage bull markets. Stock markets have had one hell of a run but despite today's bounce, I think the top is in. If that is the case, it could be a long way down. Volatility as measured by the Vix Index, bottomed at 8.92% on 4th January 2018 and has been moving higher in recent months. The transition from greed to fear will likely catch many by surprise.


A number of short-volatility ETF's have already imploded. XIV made an all time high on 11th January 2018 at 146.44 but by 6th February it hit 5.50, down -96%. Billions were lost on these short volatility ETF's and this is just the tip of the iceberg. According to Chris Cole of Artemis Capital, the global short volatility trade represents an estimated $2+ trillion in financial engineering strategies and share buybacks that simultaneously exert influence over, and are influenced by, stock market volatility. I covered this in more detail in my March 2018 Investor Letter, which I encourage you to read.

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