It’s a tag line that I have seen countless times across the top of windshields. Maybe you have seen them, too. It is actually the brand name of a now bankrupt clothing company, presumably aimed at a cohort younger than my own. I suppose it captures an aspect of youthful thinking. It is the notion that as a young adult, most have no fear even for those things which they should. For the past number of months, the same could be said for the stock market and investors. The market’s volatility index (VIX for short) is commonly called the “fear index.” And, it has been at surprisingly low levels suggesting that there is no fear in the markets. With the repeated record-breaking highs of the major stock indices, this is to be expected. I recently read that it has been over 1,000 calendar days since the last official stock market correction. It is little wonder that investors have lost their fear. The markets always go up, right? But alas, how many times in just the past decade have we been reminded that what goes up will likely come back down. Or as the counter-trend windshield banners declared: “Fear This.”

            Since late 2011, stocks have steadily marched upward. And really, the climb began in 2009 when the housing bubble burst finally subsided. By most accounts, we have the Fed’s low interest rate and Quantitative Easing policies to thank for this. The thinking is that all of this printed money must go somewhere, including stocks. This “extra money” has the effect of placing constant buying pressure on stocks. Whenever some price weakness begins to develop, in rushes the buyers. As a result, the “normal” volatility in prices is dampened. In its place is a peaceful drift upward breaking record highs nearly  every week now. Without the periodic, gut-wrenching declines that normally accompany a bull market, fear subsides and complacency grows. This is the risk for which to be mindful.

The VIX can be a difficult concept to grasp. As we mentioned earlier, it is oft times called the fear index. This comes from the observation that as stock prices decline (due to selling caused by fear of further losses), the VIX increases rapidly in value. A more constructive means of understanding the VIX is that it is a measure of the uncertainty in the future price of stocks. When the VIX is at very low levels as it is currently, this implies that market participants have confidence in their estimation of future stock prices. It is also worthy of note that the VIX is at near record lows. In the two previous periods of similar lows (1994-96 and 2005-07) the VIX remained at these low levels for nearly two years! This particular instance is now about 1-1/2 years old.

            In sports, it has been said that “it ain’t over till it’s over.” And the same is true for this current bull market that we are enjoying. All signs continue to point toward smooth sailing with no fear. (Note: As I finish this on July 10th, we are experiencing a bumpy day!) Absent any clear warning signs, we will stay the course. Having been in this business since 1999, I am also acutely aware of what can go awry and how quickly it can develop. In essence, I have seen the “this” in “fear this” on more than  one occasion. It could be a surprise interest rate change. Or, it might be an unexpected regional conflict. Perhaps it may be a blow-up in the student or auto loan markets. It is this uncertainty in future events that creates the constant strain between “No Fear” and “Fear This” that keeps me ever watchful and never complacent.

A Sad Passing

Lisa and I lost our dear little companion, Kelsey, at the end of April. For 12 years, he was ever present in our lives. To some, a dog is just a dog. To us, he was far more. The three of us had forged a special bond, each of us feeling a connection to the others. We were Kelsey’s pack and he a beloved family member in return. He is sorely missed.

We laid Kelsey’s remains to rest by a secluded pond in a park on the north shore of Lake Superior. For all of Kelsey’s travels (and they were many!), this was the most beautiful place he had ever been as we would spend hours hiking the trails. After saying our last goodbyes and starting to hike back out, Lisa and I could feel the almost unbearable weight of Kelsey’s absence. For so many years, it was we three. Now, there is but two.

Lisa and I are deeply grateful to have had Kelsey in our lives, just as we are for the kindness so many have shown us since his passing. Loss is an inevitable part of life. Some will be more painful than others. With Kelsey, Lisa and I spent many good days. Even with nothing to do, we loved being together enjoying the shelter of each other’s company. It will be these memories that will sustain us until the pack is once again reunited and runs together in eternity.

Paul Kluskowski