Market Musings 110425: Market Timing With VIX

12th Apr by Edmund Shing

21 comments 1501 reads

Market Musings 110425:
Market Timing with VIX

Video: Macroeconomic and geopolitical outlook
(click underlined text to see video)

The financial markets have recently undergone a significant shift in their outlook for the United States and the rest of the world following the election of Donald Trump in November. This article delves into the underlying reasons for this change, the potential impacts on the global economy, and the strategies that Europe and other economies might adopt in response to these challenges.

Report: US tariffs – a first de-escalation
(click underlined text to read report)

US President de-escalates tariffs: On 9 April, Donald Trump ordered that the higher ‘reciprocal’ tariffs would be paused for 90 days, and a 10% minimum blanket tariff would be applied instead. There is an exception for China that now has an even higher 125% tariff, while Canada and Mexico still face 25% tariffs on goods that are not covered by the existing USMCA. The 25% tariffs on autos, steel, and aluminium are also left in place.

It is key that US Treasury Secretary Scott Bessent is now intimately involved with tariff negotiations – it has been stated that Bessent will lead trade negotiations with Japan. This has served to reassure financial markets, implying that some of the most experienced members of the Trump administration are now closely involved in driving trade policy.

Another View on Market Timing Amidst Volatile Markets

First, I should apologise for not writing anything last weekend. Frankly, with the day job it was exhausting to constantly respond to questions about the economic outlook and conclusions for financial market investments. So I decided to take last weekend off…

In this week’s article, I want to look at a very useful market timing indicator at times when financial markets are very volatile, as has been the case since April 2 (President Trump’s so-called “Liberation Day”). For a discussion of the current state of affairs regarding US import tariffs, please read the report linked above.

Everyone is struggling to absorb the short- and long-term implications of the radical shift in US policy since January, when President Trump began his second mandate.

I believe that there are tectonic shifts in a number of longstanding trends in progress, many of which were already starting to shift even prior to January. But…

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Silver Moon

12th Apr

Thanks Edmund, I find your "Don't Panic!" reassuring. Other than this, I did watch the Bessent interview this morning which I thought somewhat slanted towards the end.

https://www.youtube.com/watch?v=zLnX1SQfgJI

Silver

Paul Walton

VIX went over 80 in March 2020. Good time to buy

The Phoenix

What's your thoughts on US bond markets Edmund were we close to another 2008/9 at the end of Tuesday ? there's lots of talk around we are standing on the edge of another credit crunch but this time in the US treasury market.

Regards

Andy

LeicesterPete

I see Trump has blinked again, now phones, semi conductors and other electronics are now exempt

https://www.bbc.co.uk/news/articles/c20xn626y81o

Edmund Shing

13th Apr

Hello Andy

I think there are a number of short-term solutions available to ease this issue. The Fed could step in to add liquidity to the US Treasury bond market or could eventually start buying bonds again. Deregulation of the US banks sector could make Treasuries a risk-free asset which banks can then buy without capital charge on their balance sheet, allowing them to buy more Treasuries to earn profit.

Further, the Fed could cut rates and then the US Treasury could issue more short-term bonds to refinance their debt for now at lower rates.

So there are solutions in the short term, but obviously the elephant in the room remains the huge budget deficit - the US government needs to spend less money…

Edmund

Pat W

Thanks for a fascinating read, perfect for these turbulent times.

In your linked articles you stated that you had an end of year target for gold - $3200 / ounce . I think that this price was reached on Friday, are you still positive on gold? Also, you stated that you are positive on sovereign bonds should we be considering moving away from US bonds into Swiss, German and European bonds?

Thanks again

Patrick

Mark Penney

What happens if the Chinese elect to sell down their $850 b of US Treasuries?

This is the issue Edmund even with the proposed Doge cuts , Trump then wanted to you any savings towards tax cuts rather than paying deficit down, we have the same issue in the UK the problem is people have got so used to entitlements if we try and cut them we would end up like France with people burning London down.

Hi Mark, I have been looking into this and I think the problem they would have is if they repatriated all the $850 billion back home it would then strengthen the yuan making exports uncompetitive.

It really has been a total needless unmitigated the last few weeks and he's now undermined trust in the US bond market which opens up another can of worms.

Harry Hindsight

The Gold/Silver ratio is above 100. I’ll be watching silver very close.

porl99

Thanks for the interesting write up and apologies for a basic question, but where can you find the VIX rating for the UK? It's not a measure I'd heard of before this article - I can't see it on TradingView. Thanks

Don't think there is one. Just watch BBC for 10 minutes and suggest leave the knife in the drawer.

Stocko highlighted BT as a Stock Rank mover from 89 - 92. Good to Better.

MC of 16bn, EV of 36bn plus a pension fund overhang.

Gearing 167% (pension at 224%).

So why "in play" - sector MA. At least flagged up as something to look into so thanks Stocko.

But anyways would not touch with a bargepole.

Edit has returned thanks. We have two ears. one mouth and two hands (but I'm right handed so doesn't count. Measure twice cut once.

14th Apr

There isn't one. VIX measures the volatility of SP500 options. Essentially it's negatively correlated to the movement of the SP500

John LA

Will there be any buyers?

Yes sorry should have been clearer in the article. I simply used the US Vix index as a timing indicator but then looked at the subsequent performance of the FTSE 100 and STOXX Europe indices following a vix level above 50.

Hi Andy
definitely stress in the US Treasury bond market given that the US Treasury needs to refinance USD 9 trillion of bonds this year, a massive amount. At the same time, foreign investors hold over 30% of all outstanding US Treasuries but are not going to be big buyers given Trumps actions on tariffs and a weakening US dollar.

I think we are not anywhere near 2008 levels of stress, and the Fed in any case would be far faster to react with emergency liquidity for the US bond market if really needed, as they did during the COVID pandemic in 2020:

But certainly true that higher bond yields are bad news for the US economy through its slowing effect on real estate and construction, key economic sectors of activity and employment.

Hence why Trump has started to blink as bond yields surged higher - the bond market is the real enforcer!

edmund

Maddox

15th Apr

Much of the US Budget is exactly as you say 'entitlements' and non-discretionary spend. Tax rises not unfunded cuts is thus the only unpalatable option. Deficit funding = 13% of current spending but could escalate dramatically if confidence in the US crumbles.

ShoeShineBoy

19th Apr

Always enjoy your articles Edmund, thanks for posting.

The following link is what I use for the Vix (I think I got the link from one of the Cockney Rebel substack articles). Based on the S&P500 but still useful for a UK based investor as global markets tend to follow the US lead. Note the toggle between 'Overview' and 'Timeline'.

https://tinyurl.com/3h7kh5kh

The US can't keep borrowing $1trn per year. I always thought the overspend was in defence but look at net interest at 14%!

https://tinyurl.com/ynyuf386

Market Musings 110425: Market Timing with VIX