2 Dec 2021

So exciting volatility is back and it is not just one way traffic. The US major indexes sold off overnight with more than 1% moves and the Nasdaq down more than 2%. I noticed gold up and silver down, interesting divergence.

As you can see in the chart below, both bonds and equities are fully valued using classic valuation metrics. When things are overvalued and you hit an air pocket interesting things happen, mostly unpredictable. Volatility probably is the most predictable of the time series.

As you can see below Europe is starting to look pretty volatile and put options are being bought in healthy doses.

If you look at the current inflation in Europe one can be forgiven for thinking that it will be a big problem going forward. You can also see the extent of the damage that inflation is wrecking on German bond holders, yes you are seeing very negative record level real yields for bonds.

Having said all of the above I see oil and energy prices coming down which should help alleviate inflation concerns. I am foreseeing continued weakness in the oil price, this double top has potential to hold for some time. I am watchful of a potential head and shoulders formation which could start a new bullish trend to set in from lower levels. This is going to be fun to trade.

Finally you take what you want from this bad print. Yes negative year on year online sales from Black Friday. This is quite telling. Every Friday has felt like Black Friday this year and consumers have possibly started the weekend early.

Goldman

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