End of Easy Money Leads to Higher Volatility

James HughbanksOptions, VolatilityLeave a Comment

This article from Reuters talks about how the end of easy money will bring more jolts to the markets.

Recent market ‘jolt’ will be first of many as easy money era ends

“Recent sharp selloffs across global financial markets are probably the first of many, as investors adjust to a world of tighter monetary conditions and the threat of economic downturn, the Bank of International Settlements said on Sunday.”

What’s interesting is that this comes as no surprise to ODDS customers, as we published research on this very topic over 13 years ago.

The image below is a copy of an article Larry McMillan wrote about my research back in 2005, two years before the bull market peaked.

And note the projection in the article. Back when the housing market was on a roll, my system’s forecast was that volatility would start to rise in 2007 and continue to rise throughout 2008.

And especially pay attention to the last sentence where Larry writes, “As an aside, if volatility increases that dramatically, the market is likely to be declining.

That proved to be spot on!

FYI, in this latest round of rate hikes, this method forecasted that volatility would start to rise beginning in late 2017, after the Fed began a series of rate hikes in December 2015. And once again, it proved to be spot on.

For what it’s worth, we are on the sidelines in our super-simple Three Easy Factors service.