Express Calm

The good news is, US equities managed a rousing session Wednesday, helping to allay fears that the top-heavy summer rally is poised for something more ominous than the “healthy” pullback witnessed over the preceding days.

Tech, which tumbled into a correction intraday last week and sealed the deal Tuesday, led Wednesday’s gains, jumping some 3%.

In an encouraging sign given the rather precarious dynamics that preceded the correction, the Nasdaq “VIX” fell a third day. Wednesday thus marked just the fourth time in 19 years that the gauge sank below 40 when the Nasdaq 100 fell 5% or more during the previous week. That’s according to Bloomberg’s Ye Xie, who notes that “the NDX rallied on all previous occasions over the next 20 days, returning 4.3% on average”.

While it’s not surprising that VXN fell on a day when big-tech surged, you’re reminded that in the lead-up to the mini-meltdown this month, the Nasdaq 100 (and also the S&P) exhibited “spot up, vol up” behavior, indicative of hedging and also of upside speculation (i.e., options froth).

That makes it notable that VXN came off in the prior two sessions (i.e., Friday and Tuesday) even as tech extended declines.

It looks as though the 50-day moving average may be called upon to do its patriotic duty.

Speaking of patriotic duty, Donald Trump was derelict in his, according to Bob Woodward, whose upcoming book “Rage” sounds like it’s going to be yet another unflattering portrayal of the most controversial president in modern US history (and that’s actually a euphemistic characterization of the current administration).

“You just breathe the air and that’s how [the coronavirus] is passed”, a nonchalant Trump told Woodward, during a cringeworthy call in early February. “And so that’s a very tricky one. That’s a very delicate one. It’s also more deadly than even your strenuous flu”.

That doesn’t line up very well with the president’s public remarks delivered that month, when The White House was still keen on perpetuating the idea that the virus would eventually go away on its own.

Unfortunately (and I mean that for everyone involved, including and especially the deceased and their surviving loved ones), there are audio recordings of these conversations, which CNN played for the public on Wednesday.

“I wanted to always play it down, I still like playing it down, because I don’t want to create a panic”, Trump later told Woodward, in March. Again, Trump’s tone was almost casual. “Now it’s turning out it’s not just old people, Bob”, the president continued. “Just today, and yesterday, some startling facts came out. It’s not just older…” “Yeah, exactly”, Woodward responded, cutting him off.

One wonders how this is going to affect Americans’ perception of Trump’s handling of the virus. This is another issue on which the partisan divide is so vast as to render poll results mostly meaningless (figures below).

With whatever apologies are in order to my conservative readership and/or to Trump supporters, there is no way that Republican voters approve ~90% of the president’s handling of COVID-19. There’s nothing to “approve” of. America’s pandemic “performance” is the worst among developed nations. Period. It isn’t a debate. As such, the right pane (above) just reflects how calcified (read: all-in) Republicans are at a time when the party has morphed into a personality cult. It’s no longer acceptable to be a Republican and disagree with Trump on anything — even when the facts are clear. Given that, there’s very little variation in his overall approval rating among Republicans and his approval rating on specific issues.

Among people who most assuredly do not approve of Trump’s remarks are Nancy Pelosi and Joe Biden. “When he was calling it a hoax, his delay, distortion, and denial about the threat is responsible for many of the deaths”, Pelosi told MSNBC.

Biden sounded legitimately incredulous. “He failed to do his job — on purpose!”, the former vice president exclaimed, in Michigan.

Kayleigh McEnany did her best Jean-Claude Juncker impression, effectively insisting that when things get serious, you have to lie. “At a time when you’re facing insurmountable challenges, it’s important to express calm”, she said.

To recapitulate, the good news Wednesday was that at least markets “expressed calm”, and that’s “not nothin'”, as they say.

“Midweek, mid-range, middling. It’s not the first time we’ve made that observation and we fear it won’t be the last”, BMO’s Ian Lyngen, Ben Jeffery, and Jon Hill wrote, adding that a break in the burgeoning rout “has clear implications for realized equity volatility and therefore financial conditions”.

Read more: That Is Soooo 2020

On Tuesday, I talked a bit about the read-through for the Fed should markets continue to sink ahead of the September FOMC meeting. And I’ve been over the ramifications of a sudden spike in realized volatility for the vol control universe. 1-month very nearly caught 3-month amid the selloff.

“It bodes reasonably well for the FOMC to make it through next week’s meeting without being compelled into further policy action”, Lyngen went on to say, noting that “with the sharp correction in risk assets experienced during the first half, it’s difficult not to be at least wary of wobbles in the primary stock indices as the Presidential election rapidly approaches”.

Meanwhile, Andrew Cuomo said indoor dining in New York City can resume at 25% capacity on September 30 under a laundry list of strict conditions. That’s good news for a city that’s been through hell. Any hint of “normalcy” is no doubt a welcome reprieve for locals, although I’ll confess to have sworn off the city a half-decade ago. The pandemic hasn’t done anything to change my thinking on that. “Because the compliance has gotten better, we can now take the next step”, Cuomo remarked.

The commentary around the election continues to exhibit existential overtones. “The peaceful transfer of power after elections is a crucial test for any democracy, especially for a heavily polarized society”, Rabobank’s Philip Marey said Wednesday, before warning that “no matter who wins, the turbulence in US politics and society is not likely to pass — in fact, what we are seeing now may be only the beginning”.