Archive for the ‘Investor Sentiment’ Category

Thinking through the VVIX

March 16, 2012 Comments off

The folks at have offered a great and pithy piece analyzing the latest in financial innovation:

 What Does VIX^2 Equal?By Fisher Investments Editorial Staff, 03/15/2012

Except the history of the VIX tells us it’s not a reliable buy (or sell) indicator. First, if you plot the VIX against volatile periods of the S&P 500, there can be a strong negative relationship—meaning low-VIX points did signal good times to buy and the reverse. However, the relationship is coincidental and relative. Meaning VIX peaks and troughs happen at different index levels, and you have no idea an inflection point happened until after the fact. Then, too, you’d have to know ahead of time you were entering a period of heightened volatility. Often, strong stock returns happen against a backdrop of a fairly low and stable VIX. So for all the times the VIX may work nicely (and you have a crystal ball and can know a peak or trough has formed), there are likely as many situations in which it doesn’t tell investors much that’s very useful.

Now, the VVIX will measure the market’s expectations of the market’s expectations of 30-day S&P 500 volatility. (And everyone knows you can’t triple stamp a double stamp!) So if you are watching the VVIX, what is it you’re trying to time the purchase of? The VIX itself? Keep in mind, the VIX doesn’t appreciate. It generally fluctuates around a mean (and the VVIX will, too). It’s not a buy-and-hold game. Volatility isn’t an asset class—it’s the description of the movement of an asset class. And the VVIX is, evidently, the square root of the description of the movement of an asset class.

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The Age of Robots and Unemployment

February 24, 2012 Leave a comment

One of the new, and more amusing, fears about the modern economy is that productivity gains in robotics and other technological marvels will make humans obsolete and the structural level of unemployment is headed higher. My fine friends at MarketMinder recently put out a nice piece on the subject:

A Web of Misperceptions

By Fisher Investments Editorial Staff, 02/01/2012


As unemployment numbers have remained (predictably, as we’ve said) elevated in the recession’s wake, some have sought scapegoats. Seemingly popular is some version of “it’s technology’s fault,” which goes something like: Because of improved technology in [fill-in-the-blank] field, fewer workers are necessary to produce the same output, thereby displacing workers and actually contributing to an unemployment dilemma.” The other common strain is to blame cheap, foreign labor that can perform similar tasks to US laborers for significantly lower wages.

Both views, though, express a similar basic fear of societal progress and ignore the widespread benefits such progress redounds on all Americans regardless of income or profession. After all, consider just a few short years ago, only the very wealthy could afford computers at all, let alone tablets, smart phones, etc. with Internet connections. Now, they’re ubiquitous. Over time, productivity is a powerful force pushing prices down.

In our view, there’s little to fear from American manufacturing (and other industries) becoming increasingly productive over time. Making technology more broadly available at cheaper prices benefits not only Americans but the world. Hardly seems something to bemoan—rather, something to cheer amid continuing efforts to fight the scourge of global poverty.

A Dose of Optimism

February 7, 2012 Leave a comment

Mark Mills and Julio Ottino’s Op-Ed in the WSJ on Monday, Jan 30, “The Coming Tech-led Boom,” is a must-read for anyone needing a good dose of optimism to combat persistent media hypochondri-nomics.

The Coming Tech-led Boom

A couple teaser paragraphs:

First, demographics. By 2020, America will be younger than both China and the euro zone, if the latter still exists. Youth brings more than a base of workers and taxpayers; it brings the ineluctable energy that propels everything. Amplified and leavened by the experience of their elders, youth and economic scale (the U.S. is still the world’s largest economy) are not to be underestimated, especially in the context of the other two great forces: our culture and educational system.

The American culture is particularly suited to times of tumult and challenge. Culture cannot be changed or copied overnight; it is a feature of a people that has, to use a physics term, high inertia. Ours is distinguished by incontrovertibly powerful features, namely open-mindedness, risk-taking, hard work, playfulness, and, critical for nascent new ideas, a healthy dose of anti-establishment thinking. Where else could an Apple or a Steve Jobs have emerged?

Happy Birthday, EVH

February 2, 2012 Leave a comment

Eddie Van Halen recently turned 57. This is not important for investors to know. But in a way, it sort of is.

Eddie was/is a heretic—he was never taught music, he never went to a formal school. Instead, he loved it so much he taught himself. There are stories of him sitting on the edge of his bed in high school, when everyone else was out, playing the guitar the whole night through, for many nights in a row. He never followed anyone else’s path (though he did learn a lot of Clapton songs), and as a result his take on the instrument is so singular and unique, you can tell it’s him in just a few notes, and no one can truly mimic him to this day.

This is what investing is all about. If you follow some program, or some other set way of thinking about the world—all you’re doing is mimicking, and that almost never works in investments because known and accepted programs get priced in. You can’t be Warren Buffett or Ken Fisher, only they can be. You have to forge your own way, your own style of thinking. You have to be unique.

From Wikipedia: The All Music Guide has described Eddie Van Halen as “Second to only Jimi Hendrix…undoubtedly one of the most influential, original, and talented rock guitarists of the 20th century.”[1] He is ranked 8th in Rolling Stone’s 2011 list of the Top 100 guitarists.[2]

I wanted to be Eddie when I was a kid. I still do. I’ve logged so many thousands of hours trying to play like him, and spent so much money on his gear…at some point around age 22 I realized I would never be a great guitarist because I was trying to be somebody else. I took that lesson into my career at Fisher Investments, and I spend all my focused thought trying to forge my own way, and learn from it when I’m wrong.

Eddie doesn’t do many interviews or speak very much, but I remember him once saying, “You only get twelve notes, it’s what you do with them that counts.” In investing, we all pretty much have the same information now, all the same newspapers and so on, for the most part. It’s what you do with the information that counts—it’s the unique insight. No computer or algorithm or statistic can do it for you.

I couldn’t be more excited for Eddie, now 57 and on the eve of the new Van Halen album and tour. The VH sound has always been both distinct and consistent, even when singers changed. And yet Ed tends to reinvent himself every time—there will be something new he pioneers in this album, some sound we’ve never heard before. If only we could all do that in investing: consistent innovation, driving the whole system forward along with us.

Happy Birthday, Eddie Van Halen!


Great Advice: Avoid Investment Newsletters

January 27, 2012 Leave a comment

Jason Zweig’s piece in last weekend’s WSJ is spot on, and important advice:

What business has an estimated one million clients, operates on the fringe of securities law and can say just about anything without immediate consequences? It is the investing-newsletter industry. And the public should approach newsletters with caution, even when they come with a celebrity endorsement.

Meet Suze Orman’s Newsletter Guru — Jason Zweig

Fisher Investments’ Latest Stock Market Outlook

November 11, 2011 Leave a comment

For a cogent synopsis on the current market environment, check out Fisher Investments’ newest Stock Market Outlook. Click here.

Why Worry? The Obama Tax Plan Is DOA Anyway

September 22, 2011 Leave a comment

Wow! Check these out:

This is just from yesterday morning’s press. There is clearly a lot of bluster about the newest Obama plan. But forget your ideology for a moment and think like a rational investor who cares less about who’s in office and more about asset prices. On that basis, there’s not much reason to fret about the Obama plan—it is probably a lifeless corpse on arrival. Maybe some small pieces will make it into the final deficit cutting commission’s plan come November, but otherwise the plan will likely get zero support in the chambers of Congress. The part that’s hard to figure is Obama’s current political gambit—it doesn’t seem this plan (even its mere proposal) is likely to win him many centrist voters in battleground swing states. Then again, the election is still more than a year away, and much can happen in between.


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