On Wednesday, Nicholas Colas, chief market strategist at ConvergEx, maintained if these were “normal times,” the VIX would be double its current level, reported MarketWatch.?
This comes after Colas doesn’t define “normal times.”
The VIX closed at 13.96 on Tuesday, which is a standard deviation lower than its long-term 20 average, according to Colas.?
This is interesting given the recent global activities including Monday’s Boston bombings, restructuring in Cyprus, the recent crash in the gold market and disappointing U.S. economic data–just to name a few.?
For investors, Colas thinks they need to make a choice. If you think the VIX will go back to its long-term mean, then?you should ?load up on any instrument which will profit from a rise in expected volatility over the next few months. If you are smart enough to know what that means, you are smart enough to find some fulcrum assets that leverage that insight.?
On the other hand, there’s QE to think about.
Investors should “start thinking about what might depress the CBOE VIX Index for longer than historical norms. To my mind, this is a pretty easy explanation. The one thing that is different now from the 1990s and 2000s is the Federal Reserve QE bond buying program. Flooding the system with liquidity has a very clear impact on volatility; lots of cash looking for a home both inflates asset prices and deflates worries that these prices will decline precipitously or quickly.”
Colas currently sides with a restrained VIX and wrote, “essentially, the Federal Reserve has given capital markets a huge glass of warm milk or an Ambien, if you prefer.”
On Wednesday, the VIX is moving closer to 20! At midday, the VIX is at 17.39, up 24.57%.?
Later in the trading day, the Fed will release its Beige Book. What will it say about QE?