Financial (in)stability mechanisms
Updated
I have posted many times regarding volatility, especially the VVIX&VIX relationship.
There are times when mechanisms need to activate to stabilize the economy, the psychology, the society. Recessions, wars, pandemics are periods that may justify such actions.
It is wise for an investor to understand pressures and their direction. The motto "Don't fight the FED" and "Don't go against the trend" should be applied everywhere.
A very rapid growth like in 2016 needed suppression, or else equities would have gone parabolic.
Increasing yields makes growth harder. So the thought process back then was to suppress growth. I have some theories on why they wanted growth suppression. My ideas are extreme as they are, so I will try to put them into the suppressing field.
After this parabolic growth that occured backstage, the recession nobody remembers ocurred.
Yields suppress growth.
Yields as a stability mechanism.
Yield increases however can cause the opposite problem, money scarcity and liquidity problems.
Yields cause recessions.
Yields as an instability mechanism.
_______________________________________________________
Now onto VIX.
This year's recession was a time when financial stability had to occur to calm the markets. Back in 1929 we didn't have such mechanisms. The main chart, VVIX, shows us that there is substantial volatility management backstage.
While I don't know the mechanisms for SPX and VIX stabilization, I have some theories. There are now massive hedge funds that can easily stabilize the equity/derivative market. VIX is a traded index, so hoarding contracts could in theory artificially change the VIX value. That is why I advised on volatility analysis by comparing VIX with volatility indicators.
Hedge Funds (amongst other mechanisms) suppress volatility.
Smart Money as a stability mechanism.
I have posted before about the VVIX/VIX chart and how it can help us analyze SPX growth stability.
So the question arises, how much and for how long have markets been manipulated? Surely in 1929 there was nothing one could do to stabilize the markets. That is why the recession was so deep and painful. We had no brakes.
Manipulation/stabilization works in a consistent manner, when VIX peaks we suppress it. Suppression works by making VIX more predictable and less spiky. So inherently VIX manipulation decreases VVIX. With these charts we can see the stabilization mechanism in action.
In the middle of the 2008 recession, in May-June we had this period when psychology briefly changed from pessimism to optimism.
It is the denial phase of psychology. More about that in the "VIX | The effect on SPX" idea linked below.
It is this vicious cycle during the VIX manipulation period that drags us further down inside the recession.
VIX suppression cycle pulls economy into a vicious cycle.
Stability mechanisms as instability mechanisms.
_______________________________________________________
Onto some speculation:
Perhaps we are in a long-term recession, since 2018. Again, look into "The Cake is a Lie" idea.
Back in 2018 we were in a recession while equities were rapidly increasing. Now we are growing with equities dropping. This is nuts!!!
Look at this VVIX/VIX chart comparison.
In this chart I have hidden the price of VVIX/VIX and left just the EMA Ribbon. That is what we live through now. I drew a retracement from this specific point in time so as to better pinpoint the possible targets for VVIX/VIX.
This chart suggests that we have never went through the crisis since 2018. I know this is crazy to say, but look at this chart below.
RSI divergence confirms that. Perhaps the RSI of SPX correlates better to the VVIX/VIX chart.
_______________________________________________________
Conclusion:
So where does this leaves us? The fact that we have passed through two periods of upside down phenomena (2018 and 2021), when equities were increasing in a recession, and vice versa. This troubles me, as to how much is hidden. How big of a problem are we in and we have just not realized it yet. Moral of the story again? Don't believe what you are told and what you are shown. Don't listen to me as well. Do your own research.
There may still be massive volatility ahead of us. VVIX is suppressed by more than 30%. If VVIX returns to normal levels ~120 and the VVIX/VIX targets are correct, this means that VIX will increase 3.5x from what it is now. As a number it makes sense because it takes us to the peak of the 2020 Black Swan. VIX has every possibility to go incredibly high.
QE and Stabilization Mechanisms themselves have caused this fog. In our attempt to stabilize the economy, we have clouded our vision.
The suppressing field will be shut off, on the day we have mastered ourselves. On the day we can prove, we no longer need it. And that day of transformation, I have it on good authority, is close at hand.
-Dr. Breen
There are times when mechanisms need to activate to stabilize the economy, the psychology, the society. Recessions, wars, pandemics are periods that may justify such actions.
It is wise for an investor to understand pressures and their direction. The motto "Don't fight the FED" and "Don't go against the trend" should be applied everywhere.
A very rapid growth like in 2016 needed suppression, or else equities would have gone parabolic.
Increasing yields makes growth harder. So the thought process back then was to suppress growth. I have some theories on why they wanted growth suppression. My ideas are extreme as they are, so I will try to put them into the suppressing field.
After this parabolic growth that occured backstage, the recession nobody remembers ocurred.
Yields suppress growth.
Yields as a stability mechanism.
Yield increases however can cause the opposite problem, money scarcity and liquidity problems.
Yields cause recessions.
Yields as an instability mechanism.
_______________________________________________________
Now onto VIX.
This year's recession was a time when financial stability had to occur to calm the markets. Back in 1929 we didn't have such mechanisms. The main chart, VVIX, shows us that there is substantial volatility management backstage.
While I don't know the mechanisms for SPX and VIX stabilization, I have some theories. There are now massive hedge funds that can easily stabilize the equity/derivative market. VIX is a traded index, so hoarding contracts could in theory artificially change the VIX value. That is why I advised on volatility analysis by comparing VIX with volatility indicators.
Hedge Funds (amongst other mechanisms) suppress volatility.
Smart Money as a stability mechanism.
I have posted before about the VVIX/VIX chart and how it can help us analyze SPX growth stability.
So the question arises, how much and for how long have markets been manipulated? Surely in 1929 there was nothing one could do to stabilize the markets. That is why the recession was so deep and painful. We had no brakes.
Manipulation/stabilization works in a consistent manner, when VIX peaks we suppress it. Suppression works by making VIX more predictable and less spiky. So inherently VIX manipulation decreases VVIX. With these charts we can see the stabilization mechanism in action.
In the middle of the 2008 recession, in May-June we had this period when psychology briefly changed from pessimism to optimism.
It is the denial phase of psychology. More about that in the "VIX | The effect on SPX" idea linked below.
It is this vicious cycle during the VIX manipulation period that drags us further down inside the recession.
VIX suppression cycle pulls economy into a vicious cycle.
Stability mechanisms as instability mechanisms.
_______________________________________________________
Onto some speculation:
Perhaps we are in a long-term recession, since 2018. Again, look into "The Cake is a Lie" idea.
Back in 2018 we were in a recession while equities were rapidly increasing. Now we are growing with equities dropping. This is nuts!!!
Look at this VVIX/VIX chart comparison.
In this chart I have hidden the price of VVIX/VIX and left just the EMA Ribbon. That is what we live through now. I drew a retracement from this specific point in time so as to better pinpoint the possible targets for VVIX/VIX.
This chart suggests that we have never went through the crisis since 2018. I know this is crazy to say, but look at this chart below.
RSI divergence confirms that. Perhaps the RSI of SPX correlates better to the VVIX/VIX chart.
_______________________________________________________
Conclusion:
So where does this leaves us? The fact that we have passed through two periods of upside down phenomena (2018 and 2021), when equities were increasing in a recession, and vice versa. This troubles me, as to how much is hidden. How big of a problem are we in and we have just not realized it yet. Moral of the story again? Don't believe what you are told and what you are shown. Don't listen to me as well. Do your own research.
There may still be massive volatility ahead of us. VVIX is suppressed by more than 30%. If VVIX returns to normal levels ~120 and the VVIX/VIX targets are correct, this means that VIX will increase 3.5x from what it is now. As a number it makes sense because it takes us to the peak of the 2020 Black Swan. VIX has every possibility to go incredibly high.
QE and Stabilization Mechanisms themselves have caused this fog. In our attempt to stabilize the economy, we have clouded our vision.
The suppressing field will be shut off, on the day we have mastered ourselves. On the day we can prove, we no longer need it. And that day of transformation, I have it on good authority, is close at hand.
-Dr. Breen
Note
Am I seeing things???Above: Monthly RSI of SPX
Below: Weekly VVIX/VIX chart. I have hidden the price and I am showing a 9d MA in it's place to make the chart clearer.
Can a mathematician please step up and explain the correlation? How and why does this happen?
Note
VVIX in a significant bottom.Volatility looks like it is highly correlated to Put/Call ratios.
Above: PCC, Below: VIX
Even though down below it says "insignificant correlation" I believe that ignoring the chaotic nature of Put/Call, there is something significant it seems.
I also tried comparing two different Put/Call indices (CPCS/PCC)
We are in a comparable position as in February 2009. Has the recession ended or are we just beginning?
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