view transcript

Jacob Sonenshine: 00:00 If you had to make an argument for volatility returning in 2019, what, what would it be?

Jim Carney: 00:04 I think it's pretty likely the volatility will be pretty consistent throughout the market. There's a lot of divergent views of what's going to happen with interest rates. Whether we're going to go into recession, some of that is been resolved a little bit in January and February, but it's not likely to disappear and it'll go back and forth and that will cause some you'll chop in the market.

Jacob Sonenshine: 00:24 So would you say there'll be a kind of a phase two of those core risks of fed tightening or not a trade agreement or not a recession soon or not? Is there a phase two of those?

Jim Carney: 00:36 It's never ending.Quantitative easing has to end in Europe. We've got to unwind the balance sheet here. It's a question of what will happen, but we will go into recession someday. It's been a long time. It's been a great run for 10 years. But everyone's trying to predict when they will be because it's divergent opinions and we will have some volatility for the next couple of years.

Jacob Sonenshine: 00:58 In your base case, for 2019, what month, what season might we see some return of volatility and how severe will it be?

Jim Carney: 01:08 I don't know how severe or when, but if I had to guess, October. October is always the bad month, but with 87 from then on, October is always a bad month but you can't predict month to month what's going to happen. We don't know what will happen. The market was oversold in December. The market is overbought right now. It's been some run back up. Today (Monday) the market turned over a little bit and we don't know what will happen but I don't see anything crazy in the next month but we definitely will have some big, big moves this year.

Jacob Sonenshine: 01:44 So then I want to talk about the trade, tariff front for a second. Sunday night, Wall Street Journal broke that there's a closer to a trade agreement now between the U S and China. And now the Monday, the market came down after starting up in the morning. Is this a reflection to you that, hey, we don't have an agreement yet?

Jim Carney: 01:59 Well, it's like, it's probably similar to our Korean agreement. You know, what agreement. So, it depends on a lot of things. I think the key things are intellectual property. I think everything else can get solved, but that's a fundamental thing if they get to, if they can't resolve the intellectual property issue. I think it will be a loss because I think that's the key issue.

Jacob Sonenshine: 02:23 Okay. Would you say if you're an investor now that's, that's, you know, you trade on volatility, but if you're an investor now that's maybe long only, would you be selling at this point right now?

Jim Carney: 02:34 I would not be selling. Overall the economy's strong. It might soften a little bit. I don't think that, you know, we're going into recession soon and compared to interest rates, I don't think that the stock market is a bad place to be.

Watch out for that Volatility Index. 

The (VIX.X) -- Wall Street's 'fear index' -- is down 40.5% year-to-date. No, that doesn't mean stocks are down. They're up. And it's been a smooth ride upwards in for 2019 so far. 

But with trade uncertainty -- and even with the positive news out Sunday there's still uncertainty -- plus persistent questions about when the U.S. will hit a recession, there might be some volatility ahead. Also, the European Central Bank may tighten financial conditions soon, which could hurt equities. 

"We will have some volatility for the next couple of years," Jim Carney, Founder and CEO of Parplus Partners said. He added, "There are a lot of divergent views," which is one of the underpinnings of volatility, as the tug of war between bulls and bears whips the market violently in both directions. 

As for when that volatility may hit, Carney's rough estimate is for October. "If I had to guess, October. October is always the bad month," he said. 

He also mentioned the U.S. market is currently "overbought," which many on Wall Street have been saying of late. The average forward price-to-earnings ratio on the S&P 500 is above 16, and the long-term historical average is 15.4. With a rough macro economic backdrop, there might be little juice left in the market. 

Still, Carney says, "I would not be selling," at this point. "Overall, the economy is strong...Compared to interest rates, I don't think that the stock market is a bad place to be." 

Related. To Hedge, or Not to Hedge?