Recap 08-27-15: Looking Good

IMO, the most important thing that happened today was the move in oil prices. Oil prices lead the way lower starting in June (see my update on 7/27) which then impacted credit spreads and then equities. (see my update on 8/21) Thus, a stabilization at these levels should allow other asset classes to re-price toward fundamentals. The price action across the oil strip today was impressive, with the ~$4 rally off of a higher low similar the bounce at the end January. Remember, we don’t need to see oil to rally, just for it to stabilize.

The Mexican Peso looks very cheap here. I think it’s pretty reasonable to expect a 15% strengthening over the next year or two.

Oh, and by the way, the S&P is now up on the week. IMO, a lot of the extraordinarily fast move lower was driven by algo driven selling that reduces exposure to higher volatility. As both implied and realized volatility falls, these programs will increase exposure again. Remember the breath taking drop and rally last October? Well, I have a hunch those are going to get more common…

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