Easy Now

If the late ‘60s and early 70’s were a pre-conscious period for you, then you may have missed out on some of the best rock music ever made. One of my happiest days was when my son asked me about Jimi, Led Zep and the Beach Boys all at the same time. He obviously wasn’t there when it happened, but we’ve paid proper homage over the years with countless trips to the College of Musical Knowledge. Nothing better.

The band Hot Tuna was quintessential Bay Area psychedelic sound. Just a trio led by guitarist Jorma Kaukonen and bassist Jack Casady who had been founding members of Jefferson Airplane, Hot Tuna produced eight albums in the 70s. Easy Now was delivered on the fourth of those albums, The Phosphorescent Rat. I’m not saying there was any LSD involved, but there just had to be.

“Easy now” popped into my head this morning because US equity markets have started to move sideways after the short, swift rally off of the 7/29 low. We’ve referred to this as “rest and digest.” Here’s what Jorma was thinking about.

By this time tomorrow, who knows where I’ll be?

Highway lines keep marking time, riding by the sea

Ain’t no concept I can’t stop, moving on my way

The future’s bright, with eyes of light, leaving Monterey

Similar vibe coming from the volatility complex. Yesterday logged four bullish readings in a row for the VIX Mix. Ten of 17 components are bullish and only landed on the dark side.

Giving back one point from Monday’s close falls into the “noise” category with one component accounting for the tiny shift in the overall count.

Several people have pointed out that the relationship between VIX and SPX has been a bit off lately with both going the same direction more than usual. Another one in the noise category, though we will be watching. What’s clear is that VIX and the VIX futures are almost screamingly bullish. More than 1.5 points of premium between Aug futures and spot VIX with that front-month contract only a week away from expiration. Combine that with more than five points of contango from August out to March of next year. It doesn’t get much more sanguine.

The latest CPI read just came out and the futures are feeling OK about it. Gurus already telling us that there is no reason for the Fed to hike rates any time soon. We shall see. Another day of digestion. Easy now.

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