At the end of his last note, Jefferies strategist David Zervos offers up a simple trading idea:
I continue to suspect that most asset markets are not set up for this type of uncertainty. As such I will continue to bang on a simple theme that seems to be playing out nicely. Own more vol. In a move to a more traditional monetary policy debate in the US, we will also see a move toward more traditional levels of market volatility. In addition, our ability to forecast what parts of the accommodation removal process will come from domestic sources (ie rates) vs international sources (ie currencies) is weak. That imprecision will also create plenty of room for enhanced volatility. Good luck trading.
For a long time, Zervos was an ardent bull, on the simple idea that the Fed was in full-on reflation mode, and there was just no way to lose going long and taking risk.
But as the exit ramp for the Fed approaches, you just can’t presume the same playbook will work. So whether it’s currency, interest rates, or equity, bet on higher volatility going forward.
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