Mar

9

The recent high regime of volatility may be coming to an end. How could this happen, as fear is currently running high and investors have given up on fundamentals? There are a number of reasons that the market volatility may have peaked. Like a fever it has swiftly risen and the beginning of this year has brought continued high levels above 50 in the VIX. No one can be certain but companies have cut and cut their staff, profits and dividends. But the next batch of earnings expectations is so low that they will be difficult to surprise on the downside.


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  1. douglas roberts dimick on March 10, 2009 1:33 pm

     But For Fear Itself

    I suspect the surprise — hence why we hear those 5-10 year prognostications for reconstruction of market ecologies — is not how low but how long.

    How can repair begin when systemic damage continues? The other shoe, commercial property, has not dropped. The redemption hand is still being played out. How much and how long are relative concerns to asset and capital accumulations frozen and/or to be reallocated via the now commencing litigation and corporate unwinding/restructuring processes. It is also probably that regulatory regimes will migrate toward new paradigms.

    Granted, the US system will prove to be faster in recourse and codification compared to the EU with its more “traditional” property systems. Note that here in Asia there may be more of a magic show; transparency is not transparent but cosmetic, either state or bank (ego so ergo) centric in nature and construct.

    Your indicated VIX run up commenced in early 2007.

    http://finance.yahoo.com/q/bc?s=%5EVIX&t=my&l=on&z=m&q=l&c=

    With Clinton repealing Glass-Steagall in 1999, the chart indicates that we appear to be in literally uncharted territory. The last pre-Glass-Steagall event took 3 years just to gestate from conception – not suggesting here that we will now pattern the Great Depression.

    Instead of cycling by price action, perhaps markets will cycle via volatility.

    Such patterning would be indicative of a critically impaired ecology. Seventy (70) years of proximate causation generating metacircular reoccurrence (representing distribution and accumulation patterns of market valuations) has been or continues to be destroyed. Directional patterning of price action is thereby assimilated into nondirectional channeling until those market systems are reconstituted, reformed, or replaced.

    It took us ten years to deconstruct a permanent, nominal functioning system in the name of economic globalization. How does one quantify the time period necessary to recognize (not just realize) a replacement system?

    Ask that question in a political context. How many people will not live to see the day when nearly two-thirds of their wealth may be realized again and to some degree recognized?

    The answer to that question, in my mind, is why fear will continue to avail itself. Such is the state of market psychology.

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