01/06/2022 — Happy New Fear!

Up close, the coronavirus doesn’t look all that scary.

Nothing says “Happy New Year” like a new fear! Last year we fretted about the potential economic disaster that might have arisen from an extended bout of worldwide pandemic. The prolonged illness came to pass, but the economic malaise did not — at least according to the markets. Whatever long-term fallout that has taken place on main street failed to wash up on the shores of Wall Street, as the grey-suits rode the waves to all-time highs.

2022 brings with it the continued spectre of viral disarray, albeit in a fancy new ultra-contagious variant. In tow comes along a half-forgotten scourge rumoured to have existed in a time beyond memory, unearthed from the Carter Era…


Although the Fed speaks of this pestilence as if it were a mythical creature, those of us matchbook-historians have heard of its existence from parents, teachers, and perhaps even read about it in a book — another relic of the distant past. Whether stemming from unwise fiscal and monetary policy, supply chain kinks, cyclical economic eventualities, or a mix of all three, it has returned.

Inflation has the potential to roil markets in two distinct but equally effective ways: through general societal and financial anemia if left unchecked to shoot to the moon, and through its direct effect on the behavior of investors, financiers, and traders, who rely on interest rates in calculating their models and strategies. Although not a given, the Fed often will use the interest rate to quell inflation if it begins to appear unruly.

Combined with a new viral variant, this unmistakably leads to…


At least until January the 12th, the day when we get to see the year’s first CPI (Consumer Price Index). That day should be doubly important as we might be able to glimpse the pandemic’s staying power. The new variant can show its mettle as the holiday hangover and back-to-school blues promise to provide ample means for its spread.

In the meantime, there should be some lively trading, if only in spurts. A 20 volatility as measured by the VIX rarely seems a safe haven. Historical volatility of the S&P clocks in a few points lower, so it is likely that we will soon see that number rise or fall depending on how people read the tea leaves Wednesday morning. Aggressors might find a low 20’s volatility ripe for the selling, but more bearish types could easily sit on their hands waiting for the next shoe to drop. Prudence and patience is a must for either prognosis.

Already the market has taken a tumble off its highs, and then ping-ponged around different ranges searching for a more suitable level. As with option volatility, the CPI and positive test numbers will likely send investors running for cover, or frantically climbing back to recent highs. Think of it as Groundhog Day for finance.



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