Volatility ReAwakens

Here’s an excerpt from today’s market commentary regarding prior one day high percentage sell offs:

Tuesday’s 400 plus point drop was a wake up call. Let’s
take a look at the most recent periods of major 3%+ sell offs, to see what the
markets did subsequently.

Note that single
variable comparisons
are rarely valid; we prefer to control for multiple
factors rather than looking for just one single element as being determinative
of what the markets are likely to do in the future. Note also that these three
periods were part of the secular Bull Market of 1982-2000, and also reflect the
final bubble expansion of the NASDAQ. However, we thought readers might find
these studies of 1997, 1998 and 2000 as somewhat instructive:

1997 Market (Thai Baht / Asian Contagion)1997_asian_contagion

1998 Market (LTCM)

2000 Market (Tech and Telecom Peak)

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Mankiw’s 10 principles of economics, translated for the uninitiated. Presented at the AAAS humor session, February 16, 2007. Transcript and additional details can be found here. Print version: Mankiw’s Principles #1. People face tradeoffs. #2. The cost of something is what you give up to get it. #3. Rational people think at the margin. #4….Read More

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