"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput

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Monday, March 12, 2012

Market Complacency is on the Rise

The following chart is of the CBOE's Volatility Index, or the VIX as it is generally referred to by traders and investors. It is used to gauge investor sentiment in general. Sharp spikes are evidence of RISING FEAR associated with global or domestic economic concerns while low readings indicate a relative state of complacency among investors. In the past these spikes higher have proved to have been good buying opportunities since they have heralded the onset of Central Bank LIQUIDITY MEASURES to combat deflationary headwinds.


While this indicator is generally not very good for picking tops (notice how long it remained mired below 15 during 2005 - 2007) it does serve to show how quickly Central Bank actions have eased investor worries. Notice the periods during which QEI and then QEII were underway and how that monetary easing sent the index lower. Investors were willing to ignore all the deep-seated structural issues ailing the Western economies (DEBT, DEBT and MORE DEBT, low employment, falling real estate prices, rising costs, etc.) as long as the Fed was keeping the money spigots open. NO WORRIES MATE - the FED HAS OUR BACK was the motto.

It will be interesting to see how this index responds as we move further into the year and as events unfold. It is generally true that there is a lull before the storm  - we'll see.
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4 comments:

  1. jake the snakeMarch 12, 2012 at 8:56 PM

    if only

    I were taller

    I had hair

    I wasn't soft in the middle

    I knew when the top was in

    I could die a happy man

    ReplyDelete
  2. TomMarch 13, 2012 at 6:00 AM

    The logic of it all.
    Will be long bond break 140 on the downside?
    Is this the long awaited top on DXY 89.15 with a high of 89.19?
    And poor old gold, close to 1680 again.
    Stocks picking up.
    Round and round we go - I think I need a long break.

    ReplyDelete
  3. MarkMarch 13, 2012 at 7:33 AM

    Unfortunately for the gold bulls, if stocks have a violent correction, then it is going to be the "same old, same old" knee jerk reaction by the Algos:

    1) Sell gold
    2) Sell gold stocks even harder
    3) Buy dollars
    4) Buy U.S. Treasuries

    ReplyDelete
  4. TomMarch 13, 2012 at 8:10 AM

    Haste makes waste.
    That should have been 80.15 on DXY which then has gone a little higher, then pulled back.
    And keeping in mind what you had said about Long Bonds Trader Dan, I think it was 140 that you were watching?
    Is the liquidity bubble about to burst? Meaning all that money sitting in bonds - is it going to flow out first into stocks and then the rest of the investment spectrum?
    This should be very good for gold as our "risk on friends" will soon find out.
    Or are we still "Waiting for Godot" - were the retail figures "massaged" or maybe Greece makes yet another curtain call?

    ReplyDelete

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