Let’s hear it for Volatility! The VIX (Volatility Index considered a market fear gauge) has been on an upward surge for the past month. Yesterday’s S&P 500 rally pushed it back to 30, but that is still a very elevated level. Is the current level of fear instilled in the market warranted? Should we be afraid? I guess the market is thinking this way: What if Greece was Bear Stearns, and Lehman and its sibling troubles are still ahead? The unemployment numbers this Friday will either assuage market fears or send the VIX soaring. A major reason the it is maintaining the current elevated level is the strain seen in credit markets. Even after yesterday’s rally, LIBOR-OIS and TED spreads, and 2-year yields in Germany were little changed. Would you go long or short the VIX? Sorry bulls, I’m currently a bear!
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I have no say on whether i’d long or short. But I wouldn’t be surprised if the unemployment numbers turn out better than expected(a little fixing lol) and then we should probably see a correction on the EUR/USD.
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Keynesian Reply:
June 3rd, 2010 at 3:55 pm
I guess I can see everything go right except the Euro. It looks like it will be going down for a while and at stay these suppressed levels. Maybe a dead-cat bounce occurs, but nothing more. Come to think of it, a weak Euro helps Germany (Europe’s engine) a lot. With a deflationary environment and a slowing China, I see a weak Euro benefitial for the region.
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I really do believe unemployment levels are going to turn out better than the market anticipates…
Yet overall, i still think things are going to turn out for the worse in the coming months
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Keynesian Reply:
June 3rd, 2010 at 3:57 pm
Exactly. I can see a scenario where we go up in the short-term because of the low sentiment. However, I beleive come year end we will be at lower levels than we currently are at.
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My stategic recommendation for the Management is to cut equity allocation by half (currently ~ 36%).
I have bad feelings for equities (especially developed markets) for the next 2-3 years, neither do I have a strong stomach for these volatilities.
I agree with others on the negative outlook on the Euro. Basically, Greece and the like are bankrupt economies on life support. The Euro membership will definitely look different over the next few years!
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