Commentary on the VIX: S&P 500 volatility has hit lows last seen in 1993

Why is the VIX so very low? To understand this, one must understand exactly what the VIX represents. The VIX index is basically a measure of "S&P 500 stock index option prices" that is run by the Chicago Board Options Exchange. The VIX is not a tradable product and any exposure that investors desire to the VIX must be obtained in the futures market. The VIX index reading has, in the past, been a useful predictor for potential volatility in US equity markets and is susceptible to large swings to the upside if the S&P 500 experiences a significant decline and vice versa. Historic readings in the index has been useful for anticipating potential tops and bottoms in the equity market.

The world of the VIX is similar to Forex in many ways. Both are dominated by massive whales (institutional investors making huge bets as part of hedging strategies) and subject to very large swings from Black Swan events and the whims of the market.

The S&P 500 has been experiencing near-historic lows in volatility these past several months, with the index rarely moving outside of a daily +/- 1% window, which has caused the VIX to decline (as investors become complacent?) accordingly, hitting 8.84 on Wednesday. This is a very, very low reading to be sure, since the VIX typically stays around 12 during an average year.

With the emergence of ETNs that attempt to track the VIX, and leveraged ETNs that take leveraged  bullish and bearish positions on VIX futures, VIX trading has become a popular pastime among some retail investors. Additionally, as the number of investment instruments with exposure to VIX futures expands, some analysts are questioning whether or not the VIX has lost some of its usefulness as a market indicator.

Commentary on the VIX and recent fund moves can be read at Barrons: https://www.barrons.com/articles/how-to-profit-with-vix-at-1993-levels-1501181025

Republicans decide against the border adjustment tax

US retailers are breathing a sight of relief! In January, Republican lawmakers proposed a Border Adjustment Tax (BAT) that would basically levy potentially heavy fines on any goods that weren't made in America. This type of tax could also be thought of as a destination-based tax, since imported goods would be taxed, while US exporters would face no tax. President Trump, although holding a favorable view of made-in-America products and companies, had in recent months communicated a decidedly cooler view on the tax because of the complexities involved.

Retail leaders, meanwhile, were horrified at the potential of a near-doubling of current taxes and spoke up frequently and strongly against BAT at industry forums and before Congress. They had support from the energy industry as well, as oil refiners were another party that lobbied against the measure upon realization that the cross-border energy trade (oil imports) could also be considerably affected by BAT.

The elimination of BAT creates strong tailwinds for retailers as they enter into the holiday season and eliminates the small amount of uncertainty that had been overhanging refiners. Apparel retailers are potentially are the biggest winners here.

Relative overview of BAT can be seen here: http://www.latimes.com/business/la-fi-tax-reform-border-20170727-story.html