If Crude Oil, S&P 500, and Gold are in a rally, why is the Market Volatility back to normal? Are we approaching a Bottom in the Stock Market?
The conventional theories of volatility are changing dramatically as those 'old fashioned' theories are being challenged by those new and different theories. What is behind this change?
The new models are based on hidden correlations that are becoming increasingly apparent as the world slowly transitions from oil to other fuels. Some of these models can be extremely accurate. This kind of 'Correlation with Clarity' is not something we've seen before.
The new theories are less about what people want to believe and more about what they don't want to believe. The old models have been very successful at portraying a current scenario that most people want to continue to believe, while the new models offer the possibility of an entirely different future. We are in a transition from a slow and steady growth towards an even faster and more volatile growth.
In the past, people were starting to believe in the Theory of Commodity Markets - that people would buy commodities because of what they do for work and not just because they want them. When the middle class began to fall further behind, many economists and investors became convinced that governments would be forced to do whatever it took to make everything work. To avoid being swept off their feet, governments raised taxes, cut services, and generally worked the markets harder in order to create a bigger crash.
A lot of people thought this was necessary, but they also had a long-standing understanding that when economic conditions became such that people had to raise taxes, cut spending, and make things even harder to get even worse, this means that money will flow from the government into the stock market. By pushing prices higher, the government was going to protect their citizens from ever having to confront their own economic policies.
As the markets recover, we see that our governments are turning away from their previous plan to keep prices down and attempt to move prices higher. People are having a hard time understanding what the changes are, and they don't know if we are in a transition from a slow-growth economy to a fast-growth economy.
The fact that we are entering into what looks like a Financial Crisis makes me think that the historical pattern of cycles is about to change. In a period of economic recovery, we will no longer be able to hide the trends and predict how long it will take to reach new peaks, or if a major collapse will occur at all.
The new Wall Street logic is that cycles are about to change, so that will mean that instead of trying to keep the markets moving in a predictable direction, we'll be required to actually predict where they're going. For instance, we might see a return to industrial strength like we did in the nineteen eighties, but we might also see another crash that wipes out our stock market.
These are the kinds of things that people like me like to analyze because we look at the stock markets and see how they tend to shift over time. Not only does the bull market seem to be growing stronger, but I think that it may be getting weaker too.
As long as there is money flowing into these markets, people will keep using them, and we'll keep seeing the markets bounce back and forth. But, it won't be because we've been taught that we need to believe that the same thing will happen over again.