Outside of reading voracious amounts of financial content, I tend to enjoy a good Tom Clancy novel, the Road & Track magazine, and a relatively new addition to the reading list, the Popular Science magazine. A few months back, the topic of the Popular Science magazine was ‘Mysteries of Time and Space.’ It was certainly wide ranging, covering everything from hand crafted wristwatches to the age of the Bristlecone Pine (5,067 years), all the way to strange theories about the ‘Multiverse (?)’
One of the more fascinating articles related to the tracking and measurement of time. Earthen Calendars, or large bone and stone structures built around 8,000 BC are estimated to be the first time tracking devices. They were built in a fashion to track the movement of the sun, moon, and stars. The ancient sundial or shadow clock was invented around 3,500 BC in Egypt. Fast-forward to 1949 when the atomic time tracking age was born. These clocks used microwaves to track atomic oscillations. Today, visible light is used to detect atomic vibrations quicker than microwaves, these clocks will only lose a second every 140 million years.
In every instance the keeping and tracking of time was based on the movement of an object. Whether that be the sun, stars, water, quarts, atoms or visible light, it was a measurement of movement. Thereby let me make the assumption that time equals movement. We generally think of movement, as a sign of life & energy, so is it too far-fetched to equate movement to life & energy? Therefore; time = movement = life & energy.
Now that we have established a baseline of thought, let me relate this to our financially derived world. How would you suggest we track the movement of the stock market? Points, percentages, days, standard deviation, momentum? What about the vibration? Better yet, what about volatility? Volatility tracks the vibration or movement of the market by looking at the implied option movement.
In 2008/2009, we had extreme levels of volatility/vibration in the market. Companies were essentially exploding and dying. Clearly too much movement going on and not a good scenario. VIX levels from Oct 2008 – March 2009 averaged a sizzling hot 53. The historic VIX average since 1990 is a comfortable 19.57. The VIX average for 2017 is a frozen 11.08.
Is this forward-looking market signaling signs of life in the future? Perhaps. We are entering the year with tax-reform that lowered the overall corporate tax rate to 21%; and interestingly enough applied a policy limiting the amount of deductible interest (discouraging debt in a sense). These fiscal policies come at the same time when the Fed has clearly signaled a tightening cycle. With interest rates likely to rise (at least in the short-end of the curve), corporations less incentivized from using debt, and tax rates coming down, vibration might be coming back into the market. No longer will companies be artificially aided by the low interest rate environment, hindered by high taxation, or be incentivized to financially engineer higher earnings with the increased use of debt.
Maybe in 2018 there will be winners and losers again! Perhaps buyers and sellers will clamor over revived growth projections in domestic value and small-cap companies. Possibly risk will re-enter the market and returns will be earned by manager skill, rather than just dumb-indexed driven, multiple-expansion luck.
While I do not know what 2018 will bring, I do think we need more signs of life. We must have true earnings growth, solid investment in expanding revenue growth, innovation that brings forth new industries, fiscal responsibility, quality research and development, and yes hopefully even a little bit of movement. For without volatility our economy is lifeless. Since the beginning, the keeping and tracking of time was driven by measuring movement. Movement is a sign of life; therefore, volatility at an acceptable range is a sign of market life. Here’s to 2018, and signs of life and volatility!
Registered Representative offering securities through Cetera Advisor Networks LLC, member FINRA/SIPC. Advisory services offered through Carroll Financial Associates, Inc., a Registered Investment Advisor. Carroll Financial and Cetera Advisors Network, LLC are not affiliated. Orders to buy or sell securities cannot be accepted via e-mail or voicemail. E-mail correspondence is routinely monitored for regulatory compliance purposes. Everything we’ve discussed is just our opinions, they should not be construed as a suggestion to buy or sell any specific investment. All Information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. You cannot invest directly in an index. Past performance does not guarantee future results.