Saturday, September 10, 2016

Where has all the volatility gone?

The VIX index, (invented by Vanderbilt's Bob Whaley) measures the implied volatility of the market, from options prices.  It is at an a very low level.  So either volatility has disappeared, or investors are ignoring volatility in search of higher return:

From the WSJ:

“I still smell smoke,” he said. “The level of complacency implied by the low VIX does not correspond with all that we’re hearing about how disappointing earnings season is going to be,” he added.

From the FT:

“It’s still a high volatility-of-volatility world, and volatility can turn around quickly,” said Rocky Fishman, a strategist at Deutsche Bank.

From Market Watch :

According to contrarian investing 101, low volatility means high complacency, and high complacency is usually seen near major market tops.

1 comment:

  1. Froeb,
    The media continues to portrait the market as healthy and expanding, many questions remain unanswered about the current state of mortgages. Is the volatility really gone until we hit the next bubble, perhaps, student loans?

    While the economy appears to have somewhat recovered since our last recession and the Feds has been providing historical interest rates to banks many questions regarding the very low mortgage rates across the financial segment remain unanswered. Why are rates so low even when economists across American think we are heading in the right direction?

    While this new trend may be ideal for new home buyers or perhaps those that are considering refinancing, the supply of new homes has been reduced significantly as the rates continue to trend downward. While supply has been in the decline, home purchase and prices have risen much of this year but a slowdown surfaced in August as a result of reduction in national inventories.

    Could the market have fear of the things that are happening in Europe? Could the fears in the European sector impact the prognosis of the American market when it comes to lending, perhaps, the stress test perform by regulator across the European financial entities does not yield the expected level of strength forecast by the regulators. Similarly, investors across the European financial markets appear to be more conservative about domestic investment, instead, they have opted to explore safe investments across other markets that portrait a lower volatility.

    What are your thoughts regarding the current trends regarding mortgages rates, is it time to buy or refinance?