Volatility is here to stay for quite some time: Acruence Capital Managing Partner

Acruence Capital's Managing Partner Rob Emrich joins The Final Round to discuss the primary drivers for volatility and how investors can navigate it in this market.

Video Transcript

SEANA SMITH: Welcome back to "The Final Round." We've got about 10 minutes left in the trading day, and stocks starting the week off in the green with big tech, of course, leading the way today. For more on the market's action, we want to bring in Rob Emrich. He is the founder and managing partner at Acruence Capital.

And Rob, great to have you on this show. Let me first ask you, just, what's driving today's action? Because when you take a look at what we're coming off of, last week, we have pretty solid gains. Today, we had the Dow up nearly 300 points. Yet, we don't have a deal coming out of Washington on stimulus. So what's driving this momentum to the upside?


ROB EMRICH: You know, on any given day, it's difficult to figure out what's going on. Is this new money being deployed from this, you know, cash on the sidelines? It seems to us to be a little bit of enthusiasm that there will be a stimulus deal done.

DAN ROBERTS: And Rob, Dan Roberts here. You know, while stimulus, or lack thereof, feels like the most pressing matter, let's get your take on the election. I know in your notes to us, you identified what you say is maybe a 5% chance of some kind of mini flash crash due to all the uncertainty.

And what's interesting about that is we've had a lot of guests roll through our live shows in the last few weeks, saying that with regards to the election, the uncertainty is now baked in, the idea that, actually, people expect the unexpected. They expect a contested election. They expect a week maybe or even more of not knowing who won. It sounds like maybe you don't agree with that take.

ROB EMRICH: No, not in this case. I think as far as a contested election, pretty much everyone agrees that Republicans are more likely to vote in person. Democrats are more likely to vote by the numbers in the mail. So what does that mean? It means on election night, we could have someone declared the winner. Then all of a sudden, ballots get rolled in and counted, and that could be reversed.

So that seems to be priced in a little bit. But, you know, there's a phrase that says you never see the bus that hits you. And with COVID, with possible vaccines, everybody is so interconnected. We don't know what's going to happen.

So I would not, in a period of hypersensitivity, where we have elevated volatility as measured by the VIX, is elevated all the way through May of next year. I would want some type of hedge in this environment.

JARED BLIKRE: Well, let me-- this is Jared Blikre. I just want to follow up. What kind of hedges are you talking about would be appropriate that you might recommend to clients or just make for your firm yourself at this point?

ROB EMRICH: So we run a voluntary strategy where we use options on the VIX. So we recognize not all investors are going to have access to options on the VIX itself.

Therefore, for individual investors, you could go to some of the exchange traded products that own the VIX or benefit from some type of volatility move or high move in the VIX. Something that basically benefits of chaos and disorder is what you're looking for in the portfolio. It's easier said than done. But there are also a lot of good volatility managers out there.

SEANA SMITH: Rob, it sounds like you think volatility is going to be here to stay for a little bit. How long do you expect it to persist beyond the election?

ROB EMRICH: You know, we study the VIX inside now. And this period reminds me-- and I was trading options at the time-- in October of 2000, we had elevated VIX where it was above 20 for 17 straight months. So we didn't come out of it till February. Of course, 9/11 is included in that. But that was a period of high volatility.

And we think, you know, given COVID, given the economic uncertainties that are taking place, geopolitical risk, I mean, everything that's taking place today tells us volatility is here to stay for quite some time.

SEANA SMITH: Rob, I want to ask you about COVID because when you take a look at the case count numbers that we've been getting over the last several weeks here in the US, I mean, the numbers are pretty concerning. Yet, the market doesn't appear to care too much. What do you attribute that to?

ROB EMRICH: We ask ourselves the same thing. We scratch our heads on some days. This market absolutely makes no sense. But they rarely do. As far as COVID goes, there's so much optimism.

And we saw, you know, our world leader, the president of the United States, get COVID, essentially walk out a couple of days later-- granted, he had the best medical care in the world. You know, maybe people aren't taking it as serious. Maybe people have expectations that could be unreasonable.

You know, the vaccine is not a done deal. And even if it is, depending on what poll you look at, it may be 39% to 41% of people want to take the vaccine to begin with. So it's not necessarily the panacea that we may think it is.