So, $VIX is defying seasonality and remaining low; What now? (Preview)

By Lawrence G. McMillan

As we’ve been commenting for a couple of months now, “everyone” is expecting a rise in $VIX.  In classic stock market contrarian fashion, $VIX has steadfastly remained at low levels – countering the majority opinion and frustrating volatility bulls.  That would include us, to some extent, although it is not surprising to me to see the market act in a way that causes the majority to be wrong.  That was our point in the article we wrote in last week’s newsletter.

So what do we do now?  There is still potential for a $VIX increase and a market breakdown, although some cynics point out that as we approach the election, there is going to be some “support” for the market by the party in power.  That’s a long-standing “tradition.”  One example I always recall is the 1980 election.  Jimmy Carter was President and interest rates were quite high.  But just before the election (which Carter eventually lost to Reagan), interest rates took a plunge.  It was completely out of the blue and not at all in line with what happened before or after, but there it was.  Suddenly, the August T-Bill auction came in at a sharply lower rate than had been prevalent and also sharply lower than what followed.  The chart above shows this quite clearly, as rates spiked down in the red circled area, and then spiked right back up again...