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There is an eerie quiet in the market.

 

 

There is an eerie quiet in the market.  Domestic politics in the US continues to flail on healthcare much less being able to start tax reform and faces a possible government shutdown and a debt ceiling.  Meanwhile the Federal Reserve is poised to shrink their balance sheet while inflation is subdued.  For good measure we heap on a (potential) nuclear stand-off with North Korea where the nations’ leaders trade words that would normally make the market shudder.  Instead, it is ghostly quiet out there.  Yes, the volatility index on the S&P 500 (known as the VIX) “spiked” up to 16 in the last day or two, but that is just back to long-term average.  We remarked in prior comments about how odd it is for the VIX to be so low, even below a reading of 10 which has not occurred since the index’s creation.  Meanwhile, the market is range-bound in an exceptionally tight band and trading volumes remain in a summer-time lull.  Is it just that the two leaders trading “fire and fury” comments are characteristically brazen in their words and thus the equity market has become numb to such language?  Or perhaps that it is recognized that you can’t just price in the effect of nuclear war so why not wait and watch?  All of that said, the one place where the action is picking up is in trading of options on the VIX itself.  On Thursday, there was a total of 2.6mm contracts traded (puts and calls) with the VIX as the underlyer.  That is the most on record.  At least someone is betting the quiet will come to an end.

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