‘Sooner or later everyone sits down to a banquet of consequences’ – Robert Louis Stevenson
Exit stage denial & enter stage anger.
We are exiting the denial stage and entering the stage of anger as detailed in Elizabeth Kuubler Ross’s Paradigm of Loss Model in relation to the Covid 19 Pandemic and ensuing economic crisis. We expect the anger stage to become dominant as the reality of the loss of jobs and the inevitable economic consequences become apparent. The media have begun focusing on the failure of governments to adequately prepare for and ultimately respond to the pandemic in a more timely and cohesive manner.
The Impartial lens has has been warning of a ‘Banquet of Consequences’ type of scenario since 2013. We have continuously highlighted ‘the intended and unintended consequences of global monetary and fiscal policies.’ The pandemic is merely the pin that will burst the bubble. Far from sitting on the sidelines and hollering impending doom, we have taken advantage of the distortions and misallocations created by the central banks by being positioned on the correct side of the trade.
“If a problem has no solution, it may not be a problem, but a fact — not to be solved, but to be coped with over time.” Shimon Peres
‘Never in the history of the IMF have we witnessed the world economy come to a standstill. It is way worse than the global financial crisis’ said Kristilina Georgieva, the managing director of the IMF. In reality, the recovery which followed the 2008/09 global financial crisis was artificial because ‘central banks prescribed copious amounts of steroids/stimulus to treat the symptom of the cause and to try keeping the patient/economic growth alive a little longer. The steroid/stimulus/QE resulted is only having temporary and limited impact, as each round of easing by the Fed and central bankers have propped up stocks only until a crisis in Europe, U.S., etc. undermined incipient recovery again.’ Enter the next crisis in 2020 a la the coronavirus. https://theimpartiallens.com/2015/03/the-further-back-you-look-the-further-forward-you-can-see
How to gain market exposure to fear and anger
We witnessed a severe broad market decline in March. This was followed by a recent and significant market rally. The VIX index has had a historically strong inverse relationship with the S&P 500 Index. We believe that by hedging our long positions with exposure to a long volatility position, we may neutralize the impact of falling stock prices.
VIX futures and options have unique characteristics and therefore behave differently than other financial instruments. Investors can utilize the VIX to express a bullish, bearish or neutral outlook for broad market implied volatility. The VIX is a real-time market index that represents the market expectations of 30-day forward looking volatility. It is referred to as the ‘Fear index/gauge’. When the index is rising in price, it means fear is rising and when the price is low, it reflects the complacency that exists in the market.
We went ‘Long’ the VIX on 29 April with an entry price of $30.81. This position (we are also long gold, silver and bitcoin) highlights our concerns at increasing volatility in financial markets. We also suggest that investors need to ditch any hopeful ideas of central banks being able to provide solutions to solve the oncoming crisis.