For a 'quant' like myself that 'dabbles' in mining juniors, this week was very interesting. For the first time since, I believe, the flash crash, we had the VIX step above 30. From a technical point of view this is particularly interesting. A 5-year chart of the VIX will show you two things. Spikes in the index occur quickly and often in groups. Not dissimilar to earthquakes.

We see in Japan and New Zealand that medium sized quakes in the 5-6 range tend to occur with a higher frequency around more major events... the so called 'after shocks' but also occur with greater frequency before. For the markets, this behaviour can be chalked up to 'the heard mentality' but I see it as a characteristic of complex mathematical systems.

For very deep reasons markets and earthquakes can often display similar patterns that have the potential to warn us ahead of time.

While a small quake or jump in the VIX does not necessarily predict a major event it should suggest, at the very least, a reckoning of your current assumptions. In an earlier post I mentioned the idea that in a low yield world investors have to go further out on the risk curve to get the kind of return they could have gotten in higher interest rate environments. As these hypothetical investors see exogenous events unfold they evaluate their risk appetite, and for lack of a better term, realize they weren't so hungry.

This simple mechanism is, I believe, one major reason behind the sell-off in some of the mining juniors this week. If my theory about VIX spikes is correct, the chance of a second move above 30 is now more likely than it was before the first one occurred. I mention this for two reasons. If you are the skiddish type and are involved in the JM's this is a great time to watch things a little closer than you might have before (I always believe that taking a profit is better than watching it evaporate), but secondly, it suggests some serious opportunity for those who have some 'dry powder' and are vigilant.

I still think that commodities (and the JM's) are an interesting place to be. Why?

...Manganese, oil, silver, and Indium, to name a few, are finite and thus valuable.
...Governments react to crisis, financial or natural, by injecting liquidity and is generally bullish for the hard assets.
...As Japan is the currency spring from which all carry trades flow (or at least was) Japanese liquidity could end up finding its way into commodity markets.
...Japan imports almost all its commodities and it will need more to rebuild its economy.

Anyhow, the current stock stories I like are those I've linked this post to. Note... I'm not saying run out and buy them, I'm just saying their interesting stories.

I've taken profits in Pretivm and American Manganese, and only hold small positions in Vast and Rodinia. I don't currently own GWG or PEM but am watching.

A.

(Donations to the Red Cross effort in Japan can be made through their official website... 
http://www.redcross.org/portal/site/en/menuitem.d8aaecf214c576bf971e4cfe43181aa0/?vgnextoid=91fe1a53f1c37110VgnVCM1000003481a10aRCRD&vgnextfmt=default)

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Do your own DD from reliable third party sources. Don't trust my words as if they were Gospel... while I like to think I am an honest Cephalopod, I am not a fiduciary (relative to you the dear reader) and thus you should not act solely on my advice.