"Psst. Hey, Bud. Want a sure thing? Anytime the VIX has an 11 handle, back up the truck and go long volatility because you will never lose money. Doesn't happen often but when it does ..." Nope, not deja vu all over again and not Groundhog Day either; I wrote that line inthe Sept. 16 note and sure enough, heading into last weekend, the VIX traded with an 11 handle — to be fair 12 is usually just as good an entry point — and BANG! the cash register was rung. Nonetheless, we almost made it through the last week of the quarter with scant volatility but the minefield that is the market was too laden with potential trigger points to escape unscathed.
Twelve Fed speakers, including Janet Yellen's semiannual testimony to the House Finance Committee; a batch of economic releases; the House's shot at John Stumpf of Wells Fargo and the potential knock on Wall Street, big banks and whatever grandstanding they think might help get them re-elected; and a stop-gap funding vote to keep the government running. And did I mention the great debate, the ultimate reality show that may have had the Kardashians either cringing (unlikely) or jealous (more likely) or unaware that it was scheduled to occur (most likely). But in the end it was what wasn't scheduled or anticipated that took the market up on Wednesday and then plummeting on Thursday; paradoxically the unexpected that, no surprise to us, always surprises markets: an OPEC agreement (the ultimate oxymoron) and concerns about Deutsche Bank's balance sheet. On Friday, the last trading day of the third quarter, more realistic views of DB's financial fitness drove their common equity and bonds higher and took markets with it, providing an opportunity to mark up portfolio positions closing out the month on a flattish note and the quarter with a very nice gain.