Monday, December 5, 2016

Another Hyped Up Nonevent

The Italian referendum has come and gone, and another midget hurdle has been cleared, although this was supposed to be bad news, with a No vote winning.  But it was expected, and honestly, no one outside of Italy really cares.  With Brexit, the US election, and now the Italian referendum, the knee jerk selling is lasting less and less.  With Brexit, the knee jerk dumb money selling lasted 2 trading days.  With the election, it lasted 6 hours.  This one, the selling was hardly noticeable, and we went straight back up and above the Friday close with ease.

The crowd is catching on.  Or maybe the dumb money is running out of ammo, after selling in the hole after Brexit and the US election.  Most of these events are meaningless, at least when they are considered scary events.  They are meaningful only in that market participants act surprised that the market did what it did.  Like go up on Brexit.  Or on Trump winning.  Or now this.

The Italians are not leaving the EU unless they are forced out.  They are free riding off the credit market benefits of Mario's QE and the frictionless access to other EU markets.  There is no way they give that up so they can ignore Brussels, spend like mad, and devalue their currency.

After overnight sessions like today, you can see why volatility is so low.  Even these supposedly scary talked up vol events end up being more hype than reality.  Eventually the crowd catches on and ignores these events and moves on to the next "scary" thing.  You do that for long enough and a lot of complacency builds up for actual meaningful events in the future, things that will actually affect markets for more than a few hours or days.

This S&P market has been quite the bore, and it has lived up to what I expected.  A no-touch market. It is only worth touching when volatility is elevated.  Now is definitely not one of those times.

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