Senator Everett Dirksen has often been quoted with saying: “A billion here, a billion there, pretty soon you’re talking real money.” These days, talking of ‘billions’ is old hat.

As we wait for congress to pass the 1.9 Trillion Dollar Stimulus Bill let’s pause a few seconds to ponder the magnitude of that number. Here’s an illustration in which, for increased clarity, we will substitute seconds for dollars: For one million seconds to pass, it takes about 12 days. For one billion seconds to pass, it takes 31.7 years. For one trillion seconds to pass, it takes 31,688 years.  For 1.9 trillion seconds to pass requires 60,207 years. Where I come from, these are big numbers.

Admittedly few people, if any, are saying that some sort of stimulus is not needed. There is however a lot of discussion of ‘how much?’ ‘For how long?’ And ‘What’s it for?”  And, by the way four trillion has already been approved but a lot of that has not yet been spent. The new bill has plenty of eye-raisers and maybe they can all be justified but I have doubts. For example, some portion of the Covid-19 Emergency Relief allocation goes through 2025. Is the Biden administration thinking we will still be suffering a Covid-19 Emergency in 2025? I hope not.

Yesterday over at CNBC, financial news anchor Sara Eisen interviewed Treasury Secretary Janet Yellen who spent the whole time being a cheerleader for the stimulus bill. She described it as a just part of President Biden’s ‘Build Back Better’ program. (As an aside, I would like to ask Biden if he paid UK Prime Minister Boris Johnson for use of his slogan.)  Yellen also said that she is not too concerned that these big expenditures will generate any meaningful inflation but added, ‘…if it does, we have other tools for that.” Gee, I wonder if those tools have anything to do with interest rates?

Although the whole interview went on for quite some time, most of the meat on that bone was in this: Yellen: “The costs of doing too little is much higher than the price of doing something big,” Yellen said. “I really think the benefits will far outweigh the costs in the long run.” Whenever any economist or other financial person refers to ‘the long run’ I am reminded of a wonderful quip from John Maynard Keynes. When asked about the economic effects of his ideas in the long run, he said, “In the long run we are all dead.”

Ron’s Market Minute – Where Goes the VIX?

You’ve heard me talk about the VIX. It’s one of the volatility indexes that I pay close attention to.

Many of the sentiment readings attempt to analyze ‘feelings’ and I tend to ignore those. It’s more important (to me) to know what’s actually happening to the money. So, we ignore how you ‘feel’ about your money and track what you’re doing with the money. It’s one thing to say, for example, that you ‘feel like buying a new house’ and quite another to get pre-approved for a mortgage. (Actions speak louder.)

So, the VIX is determined with a very complicated formula that is based on the pricing of options. When there’s a lot of fear and market volatility expands, option premiums shoot higher.  Because the VIX is a measure of the expected volatility, it also shoots higher. When the VIX is high and FALLING the markets climb a ‘wall of worry’. That’s ok.

But last week the VIX fell to 19.97 at the close. This is the first time since the pandemic began (and fear ran wild) that the VIX closed below 20!

When the VIX stays high or elevated it tells us that fear is out there and we need to remain alert.  As the VIX falls and the market becomes more complacent, volatility shuts down. The result is very bad for the bears, as a boring market usually becomes a very bullish market. 

So that’s where we are now. VIX has been falling, and market has been rather boring. I believe that, as usual, this will portend good things for the markets. As always, nothing is guaranteed by Ms Market, so we’ll see.

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
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Phoenix, AZ 85051
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