market report: volatility surges… even as stocks float

So, it is obvious that recent months have been unusual in many ways within the US as well as much of the world. Lately, in the last 6 trading days, the volatility in the US stock market has surged up over 20% (with last Thursday being the biggest surge). That happens occasionally and indeed is exactly the kind of development that I have been expecting and positioned for.

However, in the last 4 days, volatility has risen steadily even while the prices of US stock indexes rose. That is NOT typical.

I may add to this report later with more data, but for now I will just show some quick data. First here is what happened in the last 6 days (with the orange highlight showing last Thursday relative to other recent days).

Here are the last few months to show that UVXY normally FALLS when stock prices rise. (You can also see the massive surge in from June 5 to June 11.)

Many of my investing clients are already positioned in UVXY heavily as well as a much smaller share of SCO. As a reminder, here is what they did in under a month early this year:

When I wrote in January about the extreme risk in US stocks, one of the data streams that I used to make that assessment is the one shown below:

The extremes in recent months are indeed “even more historic / unprecedented.” Note the lower levels on the bottom right (plus the larger green arrows indicating the more extreme conditions).

Here, I lined up the recent history of soaring prices in UVXY (including the 1000% gain early this year) with the green arrows I just showed you above. “The stage is set.”

While the gain in UVXY in July was rather modest, the potential of another large surge in the immediate future is quite high. Plus, because of the last few months have set records for the optimistic extremes of buying, that means that there is a lot of “pressure” that could “blow out.” Indeed, with the gains of well over 20% in the last 6 days in UVXY even WHILE stocks prices are rising further, that may be a sign of the initial “cracks in the dam.”

Keep in mind that technically there is only one thing that “moves prices of something up:” buying of that thing. Likewise, the only thing that “moves prices down” is selling.

So, what could explain soaring volatility even why an index is rising (given that volatility normally rises on selling)? If investors are dumping most mid-sized stocks in order to pour voraciously in to a select few “darlings” like AMZN or TSLA, then a stock index can go up even as the majority of the stocks in that index are falling in price (AKA being dumped by sellers faster than new buyers are replacing those sellers).

With TSLA, keep in mind that the company lost $4.5 billion across the last 4 calendar years BUT investors are buying it aggressively AS IF IT HAS BEEN MAKING A SOLID PROFIT. TSLA is quite a contrast to a company like AMZN or AAPL that it company with strong finances.

But, for those who think “now is a great time to buy and hold TSLA” (relative to 2019 or 2013 etc), they might be very disappointed. As telecommuting “takes over” so much of the developed world (US, Europe, etc), what will happen to the demand for electric vehicles that give us access to HOV lanes? As millions flee from New York and Silicon Valley for places that are 1/3 or 1/4 as expensive, they MIGHT continue to pour some of the excess investments in to “darlings” like AMZN or TSLA. But they might not.

I do not wish to over-emphasize the value of AMZN, but they have an established niche that has done well in recent years and even better in recent months. The company itself is reasonably stable. Their stock price is not, but the company itself probably is.

TSLA itself is not as stable. Maybe they will do great in terms of revenues and profits for year after year. But the 2000% rise in the value of TSLA stock since mid-2019 is NOT matched by a similar improvement in the finances of the company itself.

That is a 10-year chart. Some people think “I don’t want to miss the next surge.” I wonder “based on what data would someone be confident that TSLA is a better buy right now than any other particular company?”

I might not have said much lately about the book:price ratio. If I said that I would sell you a dollar bill for 80 cents or for 60 cents, would you be interested?

The chart above shows that stocks of Wells Fargo were recently worth about 60% of the cash value / actual net worth of Wells Fargo. That means it is a reasonably appealing long-term buy (if considering that stat alone).

Bank of America stocks were a bit more expensive at about 80% of the the cash value / net worth of the company. However, those are still excellent prices.

The typical ratio right now for the entire S&P 500 is that stock prices cost 341% of the actual cash value of the companies. That is not a great ratio.

But amazon’s stock price is over 2000% of the actual value of the company. And Tesla motor’s stock price is currently reported at over 4000% of the actual value of the company.

Here is a link to current data for TSLA:

Here is the link where I created the chart above:

So, months ago I also frequently referenced a few other markets besides US stocks. A few quick charts of those are below.

Crude oil prices are exactly where they were 2.5 months ago, except there was a sharp move down in recent hours:

The US bond market has overall done very little in recent months (although there have been a few short-term variations in that time). The open market interest rates that lenders are offering to the US government is just barely higher than in mid-April, meaning that bond prices are just barely lower.

The EUR:USD forex rate has been rather flat for the last month (mostly staying within a range of about 2%):

Among precious metals, for a few months recently, buyers of silver and gold have been far more aggressive than buyers of platinum or palladium.

Aggressive buying has driven silver prices up more than 100% and gold prices by more than 1/3. However, selling across the last 4-5 weeks has outpaced buying, resulting in falling prices. Platinum investors have been aligned with gold and silver investors for most of the last few months, but with much less enthusiasm / optimism / hysteria.

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