After years of Fed-enabled denial, inflation is finally forcing investors to confront the realities of a hyper-leveraged financial system. VIX and equity markets are so far treating this as a chronic issue that will be addressed slowly and smoothly over time, but markets rarely move in smooth lines. As we saw with the last “rate scare” in late 2018 and early 2019, the situation can change quickly

Overall, January has many parallels with October 2018, the last Treasury-led correction for equities that produced similar results in stocks and the VIX. In retrospect, that experience was just the warning shot before clearer alarm bells in VIX and substantial hedging gains during the plunge in December that year. With the Fed widely expected to begin hiking rates in March, the stage may be set for more turbulence in 2022.

2021’s results highlight a unique aspect of TCM’s tactical risk management approach: the stronger the S&P becomes, the lower TCM’s hedging expense tends to be. In contrast, static risk management approaches (eg, continuous exposure to put options) tend to create relatively constant expense from year to year, growing ever larger the longer a bull market persists.

As we approach the end of another tumultuous year, it is time to assess your income tax situation before 12/31/2021 so that you might minimize your total tax bill.

After stumbling in November, markets face two final hurdles before year end, first on Dec 15 at the final Fed meeting of the year and second when government funds are projected to dry up by Dec 21 absent further action from Congress to extend the US debt ceiling. While debate over this ever-rising “ceiling” has become an annual political sham that invariably ends with more debt, it nonetheless carries a risk of extreme outcomes that must be factored by markets.