The Sunday Drive - 04/06/2025 Edition [#157]

Musings and Meanderings of a Financial Provocateur

A Sunday Drive Around the Internet

👋🏼 Hello friends! Let's pick ourselves up, dust ourselves off, and enjoy a leisurely Sunday Drive around the internet.

🎶 Vibin'

In the heyday of contract riders, some were particularly clever. Who can forget the infamous “no brown m&ms” in Van Halen contracts—put in just to make sure the venue management actually read it?

One of the most notable riders that I remember hearing about was in Billy Squier’s contract which stated that if his name was misspelled on the marquee (“Squire” instead of “Squier”), the price of his appearance at the concert was DOUBLE the contractual rate. On a few occasions, he actually collected on that. 😳

Not exactly a “tariff” but still…

In light of the dramatic events of the past week, I’m vibin’ to Billy Squier’s 1984 hit, In the Dark. ‘Cuz that pretty much sums up how a lot of us are feeling right now.

💭  Quote of the Week‌

“Recognize that many of your best practices were designed for a world that no longer exists. In the face of rapid change, past patterns don’t predict the future.“
— Adam Grant

📈  Charts of the Week

Normally, each week I choose a chart (or two) which I find interesting enough to write about. I typically explain what I think the chart represents and offer my views on the subject.

However this week, I will be taking a “picture is worth 1000 words” approach, with a number of Charts of the Week which should largely speak for themselves.

Because this past week was…well…a very unusual week.

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The gray line in the above Chart shows that in recent weeks, investor sentiment had become very poor, largely driven by uncertainty surrounding DOGE and tariff talk.

But…

Investors didn’t seem to be positioned in a way that was consistent with that poor sentiment, as indicated by the red line.

That gap was bound to close—history shows that it always has.

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Following President Trump’s Wednesday announcement of tariffs the Administration plans to impose on various countries, the S&P 500 fell 4% the next day. This was a statistically significant event—a 4 standard deviation event—one that is exceedingly rare.

This happened in the context of implied volatility that was much more muted than would be expected. The CBOE Volatility Index (“VIX”)—the so-called “fear gauge” rose to a level that, while elevated, wasn’t especially alarming.

In fact, the equity market has never fallen by 4% in a single day with the VIX under 30. What gives? Where was the volatility response we would expect to such a significant one-day return?

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Source: Bloomberg

What a difference a day makes. On Friday the 4th, the weakness accelerated with the S&P 500 falling another 6%. That’s a more than 10% decline in two days. Holy cow!

The above chart shows something interesting about this particular episode. Going into the two day slide, implied volatility was…normal. This is unique when compared to other two-day corrections, all of which have evidenced very elevated volatility at the outset.

But by the end of the day on Friday, the VIX had spiked to 45—historically a level that has suggested panic or capitulation on the part of investors.

Is the worst over? Given the fluidity of current events, who’s to say?

As presented in the Chart above, history would suggest that after market moves like the one we just witnessed, opportunities for good returns could very well present themselves.

🚙 Interesting Drive-By's

💡 Anthropic Economic Index: Aimed at understanding AI's effects on labor markets and the economy over time.

💯 From Lifespan to Wealthspan: How to Avoid Outliving Your Money

From Lifespan to Wealthspan: How to Avoid Outliving Your Money

💸 Stanley Druckemiller: “I lost $600m shorting internet stocks in ‘99… they all went bankrupt. Timing is everything.”

🤔 MAN Group: The Road Ahead - Deep Freak

🎯 The End of Children: Birthrates are crashing all over the world.

👋🏼 Parting Thought

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If you have any cool articles or ideas that might be interesting for future Sunday Drive-by's, please send them along or tweet 'em (X ‘em?) at me.

Please note that the content in The Sunday Drive is intended for informational purposes only, and is in no way intended to be financial, legal, tax, marital, or even cooking advice. Consult your own professionals as needed. The views expressed in The Sunday Drive are mine alone, and are not necessarily the views of Investment Research Partners.

‌I hope you have a relaxing weekend and a great week ahead. See you next Sunday...

Your faithful financial provocateur,

-Mike‌

If you enjoy the Sunday Drive, I'd be honored if you'd share it with others.‌‌

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