If you’ve been following along with me over the past few months, you know I like to occasionally write about the craft that goes into the creative process.
But I’ve never really taken the time to write about the creative process itself.
And since I found myself with some extra time on my hands this weekend (my wife and daughter are traveling) and a “dad pad” all to myself, I figured I’d give it a go.
I’ve been a subscriber to MasterClass for a couple of years now, and I’ve really enjoyed how they address the arts — they simply bring in talented people and have them talk about what they think is important.
But on Sunday, I sat down to watch a personal favorite — Annie Clark, known to most as St. Vincent — discuss creativity and songwriting.
A lot of what she had to say was straightforward and reasonable. For instance, “set aside time, because this is your job,” is fair enough advice for all of us.
But when she said, “sometimes, what this (the creative process) means is that after three hours of kind of noodling away, you take a shower that you don’t need to take. Because the second you step away from it, your brain goes, that’s the melody,” I about jumped off the couch.
Now, I hadn’t written about this topic before — mostly because I was always under the impression that these processes are arbitrary, and so everyone else’s was likely different from mine.
But clearly, I was wrong.
This description is eerily similar to how I have always tended to work — whether it’s writing a song or this article — and to hear it come out of someone else’s mouth frankly made me feel a little better about my own “process” of finding the spark necessary to create something.
And that was reinforced this morning when I happened to watch an excerpt of David Spade’s recent discussion with Jerry Seinfeld. While they mostly talk about what makes comedy/comedians good or bad, it was Seinfeld’s latest book title that stuck out to me.
The title of it is — and I’m laughing to myself just thinking about it — ”Is This Anything?”
To me, that captures the entire feeling of impostor syndrome that tends to accompany a lot of ideas. In the past, I’ve generally worked my way through that unease by refining and editing over and over again until I’m left with something that can stand on its own.
And as I was refining and editing today’s introduction, it became clearer and clearer that as investors, we essentially have to do the exact same thing.
To that end, I thought I’d share just a little bit of my daily process, and one chart in particular, that I think might be important for us over the next few months.
The first thing I typically look at when I sit down in the morning is the overnight action on the US Dollar, the S&P 500, the Nasdaq 100 and the Russell 2000. Here’s what that looked like this morning — Dollar down, SPY and Nasdaq up and the Russell flattish.
The dollar moving down meant that anything inversely correlated should be moving up. But commodities, which typically exhibit that behavior, were more of a mixed bag. Here’s the view for oil, gold and copper.
When the dollar is down and commodities aren’t the ones crushing it, I look at the other side of that trade — foreign markets. And sure enough, when I pull up the major Asian and Emerging Market ETF’s… voila.
All of them except for India ticking up… there you have it.
“Dollar down” days also usually mean that volatility is headed lower, and in the morning, that was definitely the case… below is the one-month view, for context.
At this point, I was thinking it was going to be another boring day for stocks and international equities to grind higher. But then just a couple hours ago, Senate Majority Leader Mitch McConnell blocked the effort by Democrats (and even a handful of Republicans) to pass $2,000 stimulus checks, and just look what happened to the VIX.
We traded a situation like this just two weeks ago, but the spike there had a catalyst in the form of the December 18th options expiry. Those contracts are generally settled on the following Monday, and the forced selling made the VIX swing up over 30 in the opening hour.
This is not the same situation, though it does warrant a slightly deeper look.
In general, any significant move up in the VIX has corresponded with a selloff in the stock market. But while today’s swing perhaps felt significant in the context of the past month, the action wasn’t anywhere near as violent as it has been in previous cycles.
But magnitudes can be deceiving sometimes, and in these situations I like to look at second derivatives, which in this case would be the volatility of volatility. As it turns out, we haven’t yet seen a significant increase in the volatility of the VIX (or in parlance, the VVIX) either. That’s good, because VVIX has been a fantastic indicator of imminent market downturns. In fact, today’s move is barely a blip.
Source: Bloomberg, Seawolf Research
That said, I do see one interesting similarity to today’s move on the chart – notably, that the pattern we’ve seen in these indices over the past month is almost identical to the one they made last year…which was followed three months later by the COVID-related market crash.
Source: Bloomberg, Seawolf Research
So to answer the Jerry Seinfeld question “Is this Anything?”… I’d have to say a resounding “no.”
I expect the Senate to eventually pass a larger stimulus package and COVID-19 will be on the decline by March this time around, so I don’t expect the same outcome for stock markets right now.
However, it would be consistent with the dismal economic data I’ve discussed ad nauseum here to project our current recession to intensify by the middle of next summer, and for markets to grind lower. In fact, if the pandemic had not hit earlier this year, my models were showing that as the most likely trajectory for 2020.
While there’s no action to take at the moment, this process has shown us that we need to keep a very close eye on VVIX. If it does start to creep up toward the 30 mark, we know something bad is about to happen.
And recognizing that is one creative process that could save thousands of dollars from escaping your portfolio.
All the best,