Loading ...In engineering you have to dumpt the excess off GeeZee PeeZee. Time flies.===From a ZH discussion
About 10 years ago I was down at the American Enterprise Institute taking in a series od lectures on the “Great Financial” crisis. Nouriel Roubini (the then Dr. Doom – not to be confused with Marc Faber), Chris Whalen, etc would show up often. I can’t remember who said it, but it went like this, ‘the fed is shorting volitility.’
Why would the Fed short volatitly? My guess…in unstable time – think 2007 – volitility was perceived to be a bad thing. I didn’t agree. It is was it is. How would the Fed short volitility? By suppressing – against the upside – things like gold and interest rates. And suppressing against the downside things like stocks. We in the engineering field refer to these concepts as diodes. You know…they allow electricity to flow one way but not the other.
What happens when you allow something to flow one way but not the other for a long period of time? In engineering you have to dumpt the excess off – in real time. But in economics, I think we have mean reversion. You know….if you print money to buy worthless mortgage backed securities you keep house price volitility down, and house prices up. But what happens when those dollars become worthless? The problem shows up somewhere else. It is as if you squeezed one of those long balloons to make an animal at a child’s birthday party.
And then people scramble to get out before the music stops – think stocks and bonds. Or dollars. Where do you go when you finally figure out that dollars are worthless? I hear that Andy Warhols ae going fopr a pretty penny.
So ask yourself the question…..’Is volitility mean reverting?’
(Hint: My God is it mean reverting. This could be the biggest beachball held under water one is likely to see in a hundred years. Should you plat the options on the VIX? Maybe if you have as much money as Mark Zuckerface. I don’t like that free speach suppressing, communist prick. I see an opportunity to short the FANGs here. As if the whole world didn’t.)