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Trading firms and the eco system of providers who benefit from volatility finally having their day in the sun after years of slow decline. This sector has been shunned by many investors and is still being shunned as most investors by looking at the past, believe that volatility is a temporary state that will die down soon. By May when public companies start reporting Q1 results watch the trading space the earnings are going to blow people away.  At Tradertools as an example volume has doubled for many of our customers, and numbers are similar for many in our industry.

 

Markets still too complacent. Volatility is going to last longer than people expect with more aftershocks of sorts hitting us in bursts. These bursts will start out in equities and commodities and affect fixed income and FX similar to the 2008-2009 crisis.

 

Risks not fully appreciated by the markets:

 

1. Travel and tourism industry demand will be affected much longer than expected and there is no bailout that will save most of these companies from bankruptcy (which is exactly what investors are expecting). While the companies may survive shareholders and bondholders likely to take a big hit if not wiped out in the case of shareholders.

2. Energy industry likely to experience seismic financial hit that will last longer and will be deeper than most people are expecting, enormous amount of debt in this space that will likely be forced to take much bigger losses then is being imagined.

3. Despite all government efforts widespread bankruptcies amongst smaller businesses like restaurants, retail stores, etc. are inevitable and that will slow the recovery in employment that is expected by financial markets.

4. Pre crisis there were thousands of loss-making companies especially tech companies and most aren’t going to get follow on financing that they were counting on, most of these companies just won’t survive. While many are small, some are not as small as people thing like we work as an example. Together these are big spenders on tech and other services that will be missed by many economies.

5. Global demand drop will crush global trade, lead to massive widespread protectionism and economic nationalism.  Politics were strained globally in the best of times; they are going to get much worse especially if large numbers of unemployed persists beyond few months. Populists on the right and the left are going to be inevitably big beneficiaries of this crisis.

6. Points 1 and 2 coupled with widespread demand drop from many western countries likely to have dramatic long-term effects on many third world and coupled with fragile democracies and many dictatorships the likelihood of geo political turmoil is high.

 

Given my 10% accuracy track record on calling volatility in the last ten years 🙂 would love to have feedback by folks in the industry.

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