A Christmas Card from the U.S. Stock Market
CARPE DIEM
Professor Mark J. Perry's Blog for Economics and Finance
Wednesday, December 09, 2009
About Me
- Name: Mark J. Perry
- Location: Washington, D.C., United States
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
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10 Comments:
My personal Volitility Index skyrocketed earlier this week when I read an article about White House Social Secretary Desiree Rogers. Ms. Rogers was planning a White House non-Christmas Christmas. A non-Christmas Christmas? Yes, this would be in the spirit of inclusion.
This bizarre occasion was changed to Christmas after much uproar. Ms. Rogersn is also the first member of this White House to claim Executive Privilage so she would not have to explain the celeb gate crashing situation to Congress.
Die, recession, die, die, die!
Despite the nayssyers, we are on the cusp of another 20-year boom in global GDP.
There is gobs of excess capital being generated, technologcal revolutions have become commonplace, and the enterprise spirit is taking a firm hold in non-Islamic Asia.
You mnight want to move the the Far East, or invest there. Europe is doing okay, and living standards and output do rise over the decades.
The USA is mired under social welfare spending, a gigantic parasitic military complex, and a pinko rural-farm economy, but even we will advance.
The market is seeing that.
Benny if you think the us has rural farm economy problem look at the common agricultural policy of the EU. (Otherwise known as the french farmers stimulus) The EU has mountains of butter and swimming pools full of cheap wine due to subsidies. To quote from Wikipedia
"The aim of the common agricultural policy (CAP) is to provide farmers with a reasonable standard of living, consumers with quality food at fair prices and to preserve rural heritage." Sounds familiar doesn't it. While its 48% of the Eu budget now it is supposed to decline to 32% by 2013.
So you can add the EU to the list of those who subsidize rural areas, since preserving heritage is one of their goals. Politicians are afraid of farmers with manure spreaders there also. (A farmer in one of the EU countries drove a full spreader into town and sprayed a government office with the contents)
Yep. Volatility has been dying as the currency got more and more debased. The SEC has built in lots of upside bias by preventing shorting (the explicit prohibition is gone, but the there's a pretty effective replacement). As long as the dollar doesn't strengthen and our very own Gideon Gono doesn't stop printing money, the VIX should remain low and asset inflation should continue....until it doesn't.
A good thing? You decide.
Lyle-
I am not familiar in details with EU farm and rural policies.
After a through review of federal policies, I can tell you that America's rural economy is throughly and deeply subsidized in every regard.
The danger of this is that the R-Party, which is supposed to be the party of fiscal conservativism and small government, is now utterly compromised by this gravy train.
We know the D-party likes welfare. I got news for you. The D-Party is slackers next to our rural welfare outlays and market interventions.
Vote for a Third Party.
worth noting:
vix is not volatility. vix is implied volatility of listed options.
implied volatility is certainly a function of volatility, but it's also expectation and supply/demand driven. it also responds extremely disproportionately to downside moves, but ignores upwards ones. this is because it is most aggressively driven by put options for hedging.
vix is always very low right before stock market crashes and very high at market bottoms.
trying to use vix as a predictor of future market or economic performance doesn't work.
all it is is a measure of how expensive options are.
To get some details on EU ag policicies look up common agricultural policy. The fact that both the US and the EU make these subsidies suggests a common theme, and of course its partly politics in both cases, french politics in the EU case against the british. I suspect that Japan has a similar set of policies, since it wants to keep itself rice independent. (Stories of projects during the last 20 years suggest this).
So in the advanced countries there is this common element, part of which may be a desire for food independence in each case.
In the US it starts with the makeup of the senate. Recall that until the one man one vote decision state legislatures had their districts set up to favor rural interests, such as a rule of no more than one state senator per county.
all it is is a measure of how expensive options are.
True. However, as you point out, the VIX is put-driven and when there's little uncertainty among investors, there's little demand for puts and the premiums fall. All it means is that people are complacent about risk.
I agree with you. The only conclusion we can draw from this is that people are more complacent about and options traders aren't making any money. Today's VIX implies nothing about the future.
That is a great chart. I can't imagine the stock markets going lower with the volatility soo low.
I'm almost shocked. The last time the VIX was this low, using the chart for reference, was before the financial market almost imploded and 8000 banks went down.
http://www.washingtonpost.com/wp-dyn/content/article/2009/12/04/AR2009120402016.html?sid=ST2009120402037
Read the link. Not my opinion, the absolute FACT from Kashkari himself. Still feel warm and fuzzy?
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