Today’s volatility in currencies, commodities and rates has finally caused investors in US equities to take note with spot VIX having its largest gain in a month, up nearly 20%. While the VIX move seems a bit panicky, it is off a low base after closing Friday into a long weekend at its lowest level of 2015.
On Friday in the MorningWord, I highlighted the amazingly low levels of realized volatility in the SPX, and argued against routinely owning put premium to protect your portfolio:
If this bull market has shown us anything… owners of risk assets looking to frequently buy protection in the form of put premium have seen their returns routinely eroded as declines have been short and sweet. Could this pattern be coming to an end as we get closer to the FOMC raising interest rates? It feels that way as rate have risen of late and almost every other major risk asset in the world has seem some fairly real volatility, commodities, currencies and of course bonds, while the largest equity market on the planet grinds higher with a sort of complacency that has flecks of reckless abandon.
And the complacency is not just here in the U.S., obviously. On more than one occasion we have remarked on the weakness in shares of casino operators like Wynn Resorts (WYNN) which gets 70% of their sales from Macau. Shares of WYNN are down 30% in 2015, and down 58% from their all time highs made in March of 2014. The stock gets sold on every rally, and this is hardly reflective of anything going on here in the U.S.:
So if Macau is 65 kilometers from Hong Kong, and Macau’s fate has been intimately tied to that of the booms and busts of the other island, and mainland China, then on what planet does this chart make sense??
From a fairly generic point of view they looked pretty well correlated up until the parabolic move by WYNN in late 2013 until early 2014, but the stock’s round-trip of the move is troubling. Especially when you consider the recent breakout to multi-year highs by Hong Kong stock’s as a result of recent easing.
I know, I know. There are some fairly specific factors causing the collapse in Macau gaming revenues (corruption crack down, smoking bans, the Hong Kong /Shanghai Connect), but I am hard-pressed to think Macau’s pain isn’t some sort of pre-cursor to some sort of economic hiccup in China in the months to come.