Volatility

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"Any fool can know. The point is to understand." 
~ Albert Einstein

Just a quick note as many of you have been concerned about the markets this week. What you are seeing is an unwinding of short volatility trades. In English this means that people have taken on too much market risk (because that risk seemed lower than it was) and when markets started going down (the true risk became more apparent) they needed to reduce risk. It looks to me like it is nearing the end but that will not be confirmed for a couple more days. My advice is to not panic. Almost always, reactionary trades are bad trades.

Nothing I have seen yet indicates concern that we are going into a recession. Basically this is the result of too many people having a similar exposure to the markets and all deciding to exit at once it is not an indication that the markets think we are moving into a recession. If you want to track the key indicator that is driving the market right now it is the VIX which is an index that measures S&P 500 index options volatility. If you Google it you will get a chart. Historically it will be between 10 and 20 when things are good but can shoot up to 50 or higher when things go poorly.

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