Just When You Thought It Was Safe…..
Aug 18, 2011
Posted by Jody Eisenman | Filed under Uncategorized
Let’s recap the month thus far. The DJIA started at 12, 132. In 14 trading days this month, we have 6 days with the DJIA closing at least 400 points higher or lower than the previous close. We had another 250 point day. Today the market closed down 420 points, after being down over 500 inter-day. For the month thus far, we are down over 1100 points. The major reason for the volatility is the Eurozone problem. Quite simply, there are way too many problematic banks and countries for the ECB to handle. In addition, they really never had much of a contingency plan to begin with. As such, you have major institutions awash in debt, with no real solution in sight. These problems have spread to the US. US banks are down an average of over 15% for this month alone. Year to date, the S & P 500 is down over 8%.
Today’s action was exacerbated by the Philadelphia Fed number of the general economic index was a disaster for the bulls. The expected number was a gain of 4%; the number came in at a loss of 30.7%! Consumer confidence is falling off a cliff, and there doesn’t seem to be any catalyst to change this going forward. Meanwhile, US treasury yields continue to plunge, with the 10 year treasury dropping below 2% inter-day. Meanwhile, volatility continues to soar, with the VIX closing at 42.67. It was at 17.5 less than a month ago. In addition, the price gold continues to move higher, closing at over 1800/ounce.
What’s next? It’s tough to say, but it would seem to me that unless Europe actually collapses (which could happen), the market seems awfully oversold to me. The financials in particular have gotten clobbered. Unless you think another Lehman is coming, there is some point where these banks should be compelling values. The rest of the month should be interesting.
August 23rd, 2011 at 12:48 am
In relation to the current level of the volatility in comparison to it’s historically sustainable levels, wouldn’t now be the ideal time to consider a short position in the VIX with it trading above 40?
Also, as gold continues to be an “alternative” currency, or at the least a short term safe haven for many, would you agree that it is fairly certain we see it trading over 2,000 by December? You mention the lack of a short term positive catalyst for the markets, and the lack of resolution with the ECB, with all things considered, is there really anything gold speculators really have to fear in terms of an event or catalyst causing the price to drop any degree of significance?