I’m Answering Your Questions!
Congratulations… You made it through another week of the coronavirus crisis!
And the good news is that things are starting to look a little better!
Yes, of course this is still a very serious issue and I hope you and your family are healthy and safe.
But the more I read, the more hopeful I am that we’ll soon be able to begin the process of opening back up the economy.
It’s going to take some time. And we need to do this carefully so we can protect the people who are most vulnerable and at risk to this virus.
But as we start taking steps towards a more normal life, businesses will get back to work, our economy will recover, and people will be able to start spending more time with loved ones they have been separated from.
What are you most looking forward to when this crisis is over? Send me a note at EdgeFeedback@StPaulResearch.com.
Today, I wanted to take some time to respond to the questions and comments you guys sent in over the last week.
Volatility Will Return to Normal… Right?
We’ve seen some crazy swings in the market lately.
On a day-to-day level, it’s now common for the broad U.S. stock market to swing a few percentage points in a single session.
And stepping back and looking at how far markets pulled back from their winter high — and how far they’ve rallied from the March low — is simply breathtaking!
Today, Michael L. has a good question about a way to profit from this volatility (and what should eventually be a return to an environment without the crazy swings).
Hey Zach, What do you think of this strategy…
Is there any risk that SVXY will not rise as VIX drops to below $20 eventually?
When the VIX goes up, SVXY goes down. So when the VIX goes down, SVXY goes up.
The VIX always goes down after a big Spike. And we are having a Big Spike! Thus the SVXY always goes up as the VIX settles back to “normal” which is under $18 for the VIX (eventually). We can just hold SVXY until then.
To fill you guys in, the VIX is a measure of volatility — or how fast stocks are swinging higher and lower. After years of very low volatility, the VIX has moved sharply higher thanks to the crisis and big swings in the market.
On the other hand, SVXY (which is a fund that you can invest in), has traded sharply lower. That’s because it is designed to do the opposite of what the VIX does.
So Michael is asking if it makes sense to invest in SVXY as a way to profit if and when the VIX moves lower (and SVXY moves higher).
Michael, I think this is a decent short-term trading idea as long as you understand the risks of this strategy. If we get another pullback in the market and volatility spikes again, shares of SVXY could move sharply lower.
At the same time, it’s important to understand that the math with these types of “inverse ETFs” as they’re called is a bit wonky.
Over the long term, fluctuations back and forth in the VIX can lead to a steady erosion of value for SVXY. So even if the VIX is lower a year from now, you could still lose money because of the way these ETFs are constructed.
It’s a good way to make a short-term trade, but I wouldn’t hold the SVXY for a long period of time.
What Will the “New Normal” Look Like?
Here’s a nice email from Phillip B.
Thanks to Matt & you for today’s Zoom meeting. It’s interesting to get the thoughts you both have filtered into ideas on this crisis. One thing about this crisis, the new normal will be vastly different from what was normal before this mess started.
Phillip is referring to a call that my publisher Matt and I hosted this week to talk about ways to protect and grow your wealth through this coronavirus crisis.
It’s been very interesting to study the way the economy is responding to this crisis. There are some big unexpected consequences — both on the positive and negative side!
For example, higher unemployment is typically a bad thing for the economy and for the U.S. stock market.
But in today’s upside down world, higher unemployment can actually mean more spending dollars available for consumers. That’s thanks to the larger-than-normal unemployment and stimulus checks going out to American workers.
All of that is to say, yes Phillip you’re right. “Normal” will continue to look much different than what we’re used to!
Thanks for being on the call, and I appreciate your kind words!
For those of you who may not know what Phillip is talking about, the call was a benefit for our Lifetime Income Report subscribers.
If you’re part of our Lifetime Income Report service and you missed the call, there will be a recording and transcript posted on the website shortly.
I’m Farsighted, Not Nearsighted
It appears I made a mistake in our last weekend Daily Edge alert. Several of you picked up on it and corrected me.
Here’s an example from Kyle:
Zach, As an optometrist I feel the need to correct an error in the analogy you attribute to Vitaliy Katsenelson. A nearsighted person has good NEAR vision and can’t see well far away. A farsighted person has good DISTANCE vision and can’t see as well up close.
Day Traders are nearsighted.
Long term investors are farsighted.
Thanks for the corrections guys! (Let’s just say that I was checking to see if you were really paying attention – haha)
But yes, you’re right. The point I was making is that day traders are nearsighted while long-term investors can be farsighted.
The Wild Blue Yonder
On a personal note, Steve C. asked about one of my favorite past-times — flying!
Please tell us a bit about your piloting. I’m certain you have many pilot subscribers such as myself (though, at age 79, mostly via simulators ).
I miss being in the cockpit!
As some of you know, I was working on getting my pilots license and was almost done with my private certificate.
But thanks to coronavirus, I couldn’t schedule my final exam.
So I’m looking forward to completing the process and taking my family up flying as soon as I can. I’ll keep you posted!
A Birthday Worth Celebrating
Finally, quite a few of you sent some very kind emails wishing my grandpa a happy birthday. Here’s one from Steve…
Amen to the gift of Grandparents. My Grandmother lived into her 90’s, was sharp as a tack up until 6 months before she died and she left a legacy with me, my wife and our kids. I only hope I can do the same. Sounds like your Grandpa is a real blessing.
Two suggestions, talk to him and write what he tells you down and consider filming an interview with him. We did that with my wife’s parents and now that they are both gone, we watch it to not only see them, but to hear them as well. Even though they are gone, we always smile after watching the video!
I love the interview idea! We’ve got a lot of family videos from birthday celebrations and just from being together. But an interview would be a great way to have some purposeful conversations for us to always remember.
Thanks everyone for writing in, and please keep the questions and comments coming!
As a reminder, you can send me a note anytime at EdgeFeedback@StPaulResearch.com.
I read every email that comes in. And while regulations won’t let me respond personally, we can cover many of your questions here in our Daily Edge articles.
Here’s to growing and protecting your wealth!