VIX Nearing 52-Week Lows
A: I need to get away from real estate for a moment. Taking a look at the VIX nearing 52-week lows makes me wonder about complacency and how cheap it is right now to buy some volatility? Maybe some puts? Anyway, when the VIX usually gets to this point its a contrarian signal to the markets that complacency might be settling in just a bit too much. The last time the VIX got this low was January 19th, when China's tough talk on curbing bank lending led to a 5-7% adjustment in markets. A hiccup in the grand scheme of things really. But with volatility this low again, I just wonder if a rattle might lie in the near future?
Here is a quick look at the VIX S&P 500 down 7.37% today.
The VIX "tracks prices that investors are willing to pay for options on the S&P 500-stock index, often to protect themselves against declines in stocks". As the VIX falls to 52-week lows it is a sign that complacency, or unawareness of dangers still out there, might be settling in. Many traders use the VIX as a contrarian short term signal and buy downside protection while volatility is cheap. It's been pretty spot on so far so lets see what the next week or so brings and if the markets are getting a bit 'ahead of themselves'.
Comments (8)
I dunno Noah. Friday was pretty broad and strong. We may be entering the next phase of the new currency regime if GS is right about China revaluing sooner than later. Given comments yesterday from the central bank, China is telegraphing a willingness to unpeg, slowly and methodically, but once telegraphed, the markets will begin to position around that. So while the jobs number was an impetus yesterday, China's currency issue is the other part of the equation here. You want to be in materials, exporters, energy. Any recovery in the US is contingent upon a debasement of the USD.
Posted by Fred | March 6, 2010 1:43 PM
yes it was...and the vix reflects that. if there is one thing I learned, is that even the experts dont know when the unexpected might 'come out of nowhere'.
what do you think the longer term effects will be if china revalues fx?
Posted by Noah | March 6, 2010 2:25 PM
I think the longer term impact is really hard to measure since I am not convinced that China can actually make the shift to a domestic consumer-based economy without their being some political consequence. Whether that means several smaller Chinas or worse, it is anybody's guess. What I do believe is that for the next year or two, perhaps longer, the impact of a revaluation will be felt on the input side of prices, namely materials and energy. In China, it will feel like they are getting more bang for the Yuan but here I can only see inflation. The trade-off of course will be a higher growth rate for US exporters and US companies who operate in China - but lower overall domestic US consumption. The wild card is what happens to the shorter end of curve, like the 3 years and such as this $2.3T rolls over the next two years. I imagine that the tap dance between Bernanke and China is to balance the revaluation without disrupting treasuries too much? The theme, though, is emerging economies though because that's where the growth engine is centered. I remain bearish on the US consumer and think that frugality will be our new mantra for the next several years. The folks who are really going to feel it of course are those who are under exposed to inflation sensitive assets. Next week is actually going to be a pretty interesting one. If we have follow through on the metals and such, my guess is they break out of the channel they've been stuck in since November.
On the NY real estate front, one thing I've been wondering is if buyers who didn't pull the trigger didn't capitulate over the winter months and push rental inventory down? I am seeing rent rates clicking up a bit. We finally decided to rent and before we had moved into the new place the landlord was asking 4% more for the unit below ours than what we contracted at.
Posted by Fred | March 6, 2010 3:54 PM
a little gloating tivo finally paid off....
As far as the vix go i think for some issues out there it is the perfect time to buy some slightly longer term options and sell some winners (after the 1 year mark) or buy some cheap insurance.
Posted by anonbuyer | March 7, 2010 1:58 PM
Much like 2007 no one believes in this rally. The Economy was weak and entering recession in '07. The stock market kept going up despite very weak and ever weakening data...world growth will carry us. OIL kept going up..80, 90 100, 120,140...Happy days..this is all due to global growth NOT out of control prop desks..Oil and Markets came crashing don in July '07...$147 plunged the world economies into a depression, combined w financial fraud....
Lets do it again... oil will continue higher to above 100, plunge the economy into another depression...WAIT this time it's different...YES, interest rates are already @ ZERO...no Fed rate cuts, already @ zero or stimulus b/c gov. still has not spent 2/3 of stimulus... don't worry GS will still make record profits...
Posted by ali | March 8, 2010 11:10 PM
Much like 2007 no one believes in this rally. The Economy was weak and entering recession in '07. The stock market kept going up despite very weak and ever weakening data...world growth will carry us. OIL kept going up..80, 90 100, 120,140...Happy days..this is all due to global growth NOT out of control prop desks..Oil and Markets came crashing down in July '07...$147 oil plunged the world economies into a depression, combined w financial fraud....
Lets do it again... oil will continue higher to above 100, plunge the world economies into another depression...WAIT this time it's different...YES, interest rates are already @ ZERO...no Fed rate cuts, or stimulus b/c gov. still has not spent 2/3 of stimulus... don't worry GS will still make record profits...
Posted by ali | March 8, 2010 11:13 PM
Much like 2007 no one believes in this rally. The Economy was weak and entering recession in '07. The stock market kept going up despite very weak and ever weakening data...world growth will carry us. OIL kept going up..80, 90 100, 120,140...Happy days..this is all due to global growth NOT out of control prop desks..Oil and Markets came crashing down in July '07...$147 oil plunged the world economies into a depression, combined w financial fraud....
Lets do it again... oil will continue higher to above 100, plunge the world economies into another depression...WAIT this time it's different...YES, interest rates are already @ ZERO...no Fed rate cuts, or stimulus b/c gov. still has not spent 2/3 of stimulus... don't worry GS will still make record profits...
Posted by ali | March 8, 2010 11:14 PM
Great real estate blog. I do appreciate this. Thanks
Posted by Tequesta Brickell Key | April 9, 2010 4:02 AM