Death of Volatility

Light posting this weekend, but I came across two fascinating VIX graphs that demanded discussion.

The VIX, for those of you who may not be aware, is a function of option trading that deduces the "implied volatility" in the markets. 

The first graph is from BCA Research, and it shows the VIX over the past 15 years:

Vix_

Courtesy of BCA Research

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I read this as the VIX — eventually — becoming an attractive buy; I envision this scenario: the VIX spikes up to 13-14, before it runs into technical resistance; then as the market makes one last move upwards, it slides under 10. To me, the ideal entry point would be towards 8-9.

Those interested in seeing how the VIX trades should look at either the options (VRO) or futures (VBI).

Floyd Norris wonders if its due to "an excess of capital that feels it has nowhere to go but stocks. Individual stocks can still soar or collapse based on good news or bad, but money taken from one stock seems to flow to another, cushioning the daily movement of market indexes."

In today’s NYT, he writes:

"Back around the turn of the century, it seemed as if nearly every other day was an exciting one in the stock market, and not just in the United States.

At the peak of volatility in the United States, from 2000 to 2002, the Standard & Poor’s 500 showed a daily gain or loss of at least 1 percent for two days a week or more. And it was far from the most volatile market. In Germany in 2002, the average week had three big days.

But volatility began to dip in 2003, fell sharply in 2004 and absolutely tumbled in 2005. In the United States, there were 52 days in 2002 when the index showed a move of 2 percent or more – an average of one a week. That fell to 15, little better than one a month, in 2003. And there has not been one such day in the last two years.

The accompanying charts show that in Britain, Germany, France, Japan, Hong Kong and the United States, the amount of stock market volatility in 2005 was at the lowest level since at least 1996."

The chart included covers many of the major indices in the world:

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click for larger graphic

Nyt_vix_20051231_charts

Courtesy of NYT

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Sources:
The Year Of Living Complacently
BCA Research, 09:54:00, December 20, 2005
http://www.bcaresearch.com/public/story.asp?pre=PRE-20051220.GIF

Don’t Hold Your Breath for an Exciting Day in the Stock Market
FLOYD NORRIS, Off the Charts
NYT, December 31, 2005
http://www.nytimes.com/2005/12/31/business/31charts.html

Major World Index VIX graphic
http://www.nytimes.com/imagepages/2005/12/31/business/20051231_CHARTS_GRAPHIC.html

Category: Markets, Psychology, Technical Analysis, Trading

For 2006: Feedback, Please!

Category: Weblogs

Window Dressing

Category: Investing, Trading

P/E vs S&P 500 (50 Years)

As promised, today brings us to the 4th in our series of charts: P/E vs S&P500 click for larger chart courtesy of Mike Panzner, Rabo Securities > I’ll get into the significance of what this means to the markets later, but for now, note where the P/E is over the median, and its impact on…Read More

Category: Earnings, Markets, Psychology, Technical Analysis

Annual CD Sales Slide Resumes; Down 8% for ’05

We’ve broadly discussed the recording industry this year. How’d they do in terms of numbers?

Wsj_music_20051215
After a slight blip up in 2004, CD sales resumed their prior slide. Sales were off 7% (CD albums only) or 8% (CDs and singles). The decrease is comparable to the decline in Movie theater attendance, which fell about 7%.

Reported Album sales (January through the week ending
December 25) were 602.2 million in 2005; weaker than last year’s 650.8 million. Digital singles sales more than doubled to 332 million — a 148% increase.

Some blamed the Album CD sales slump on the cherry-picking of singles by a fickle public. But the broader analysis reveals that CDs are a format in decline. While 95% of music sales are still in the CD format, there are plenty of signs this is changing. In addition to the different fortunes of the two formats — CDs are slumping while digitial downloads skyrocket — the industry itself is changing. A new breed of music label is distributing their product strictly in digital format, thereby bypassing CDs entirely. See Cordless Recordings as an example of this.

This year’s biggest sellers, according to Nielsen SoundScan, were Mariah Carey’s Emancipation of Mimi at 4.866 million; In second place was 50 Cent’s The Massacre, which sold 4.834 million. "American Idol" winner Kelly Clarkson’s Breakaway finished 3rd, selling 3.4 million copies. The top sales position has not been occupied by a female solo artist since Alanis Morissette’s Jagged Little Pill in 1996. In 2005, female solo artists captured the gold and the bronze.

Although the major labels lament the internet, P2P, and file sharing, it turns out that the Net has been a boon for Indie Labels. Much of the industry’s complaints are actually about disintermediation — the web forces them out of the relationship between the artists and their fans. The indies understand this, and have been using the net to promote their unknown artists.   

While sales here, in the UK sales continue to do better than in the U.S. — despite Great Britain’s widespread adoption of broadband. Credit likely goes to the wider playlists in UK radio, and a payola-free radio industry. Britain does not have the same concentrated private ownership of Radio Stations which have become so prevalent in the U.S. since the 1996 Telecommunications Reform Act, which enabled firms like Clearchannel and Infinity to scoop up 1,000s of stations.

Its no coincidence that music sales problems can be traced to what occurred following that legislation’s enactment.

While legal Music downloads more than doubled this year, so too has the recording industry’s misconduct. After settling Price fixing charges in 2002, it appears that the recording industry brain trust is at it again: An industrywide probe into how much record companies charge for digital music was started by NYAG Eliot Spitzer; subpoenas have gone out to several labels.

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One last astonishing piece of music trivia: Mariah Carey’s CD spawned her 17th #1
single, "Don’t Forget About Us." This places her in second place on the
all time #1 hit list — behind the Beatles’ total 20 #1 hits. If Carey
manages to pass the Fab Four, I will interpret this as incontrovertible proof that life is meaningless or God is dead . . . I haven’t decided which.

Finally, you can see my Anti-"Best of 2005" here.

UPDATE January 3, 2006 6:09am

It turns out that the British are the ‘world’s biggest music buyers.’  According to figures released by the British Phonographic Industry (BPI) early 2005, the UK music industry recorded an overall 3% increase in volume sales, mostly due to its robust albums market.

The British buy the most compact discs in the world – an average of 3.2 per year, compared to 2.8 in the US and 2.1 in France.

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Sources:
Silent Night for Music Sales
Holiday Buyers Spurn Tunes As Industry Picture Worsens; ‘Cesspool of Really Bad Bands’
ETHAN SMITH
THE WALL STREET JOURNAL, December 16, 2005; Page B1
http://online.wsj.com/article/SB113469750280524159.html

UK ‘world’s biggest music buyer’
BBC, Tuesday, 22 March, 2005, 12:25 GMT
http://news.bbc.co.uk/1/hi/entertainment/music/4371673.stm

The extensive list of sources used in this posting can be found below

Read More

Category: Music

A Different Kind of Music List: The Anti-”Best of 2005″

Category: Music

1966-1982 Trading Range

Here’s the 1966-1982 trading range: > click for larger chart chart courtesy of Rydex Funds > If we are in fact in a long, post-Bull trading range — see our 100-year Dow chart — than this is year ~5 of what could be a 10-15 year secular Bear market. As the 1966-82 trading range above…Read More

Category: Markets

2 Studies on the Flattening Yield Curve

Category: Federal Reserve, Fixed Income/Interest Rates, Inflation, Technical Analysis

Alaska is Melting . . .

It seems that the melting polar ice is becoming more of a concern to Alaskans than those of us in the lower 48. click for larger graphic courtesy of  Anchorage Daily News > Thank goodness there’s no Global Warming — imagine how much more of Alaska would be melting if there was! > See also:…Read More

Category: Science, Technical Analysis, UnScience

100 Year Dow Jones Industrials Chart

Have a look at this 100 year (actually, 105-Year) chart. I colored each “Market” appropriately — Green for Bull, and Red for Bear — to more clearly show what happens. Bull markets get ahead of themselves. At their ends, they tend towards excesses that take a very long while to recover from. When a long…Read More

Category: Markets, Psychology, Technical Analysis