Excellent Article on Emerging Markets From ETFzone.com

Emerging Markets: What Role Should they Play? As you know from reading this blog I am a big believer in having a lot of exposure to foreign stocks that includes an allocation to emerging markets. I found this article on ETFzone.com, a site that has published some of my...

Deconstructing VIX

Click on the picture for a bigger chart. This is a chart of the Volatility Index going back to its inception. Much has been made about the low level of the VIX for the last couple of years. VIX measures volatility of options on the S+P 500 index. This is often used as a contrary indicator. A low VIX is said to mean complacency exits in the market and so the market may drop when VIX is low. Conversely the market may rise when VIX is at a high level. Barron’s has fixated on how low the VIX is. Actually it is not that low. If you look at the chart you see that it has spent half of its life below 20, like it is now. The time spent above 20 occurred when technology, a relatively volatile group, had a record weighting in the index. Keep in mind that the S+P 500 is capitalization weighted. During the bubble days tech grew to become 30% of the index. Juniper Networks, Yahoo!, JDSU, Broadcom, the old AOL and a couple others I am forgetting had market caps greater than $200 billion. So all that giant volatility was embedded into the price of SPX options back then and the VIX traded between 20 and 40. Now that these stocks are a fraction of their former value and the tech weighting in the S+P is in the teens it only makes sense that VIX has been below 20 for quite a while. Tech alone might account for a lower VIX but the other thing holding down the VIX is low interest rates....

Random Market Musings

Well we are almost done with the election season, thank goodness. I will stick with what I said last week, my gut says Bush wins the popular vote and Kerry will win the electoral college. Of course it doesn’t really matter. Bush will bring more of the same, you can decide whether that is good or bad, and Kerry will bring a Clintonian gridlock to Washington and get nothing accomplished. At least not for the first two years anyway. I believe I just coined a term, Clintonian. Since 1972 there has only been one presidential election year where the market changed its trend in the first week of November, 1976. My point is that we may not see a post election rally with any teeth. Beside the historical evidence, it seems like too many people expect a rally. It has never been logical to me why the day after the election is a better day to buy stocks than the day of the election, and history would seem to agree. Great if it does rally; my clients will get to participate. CNBC, on Friday, questioned whether we have seen the peak in oil and oil stocks and if a correction for both is coming. That could be the case. I have been overweight energy for a while now because I think there is huge growth in demand in China and India that will last for several years. So here I talking about long term demand. Some portion of the run up to $55 has been due to short term supply issues like hurricanes and labor unrest. The analyst community...

Snow on the Ground and Roger on CNBC Asia

Walker, where I live, had its second snow storm of the season this week. We live on a mountain at 7000 feet with lots of pine trees and it is very picturesque. I am scheduled to appear on CNBC Asia Sunday night about 13 minutes into the first hour of Market Watch. On to market related things, well sort of. Yesterday afternoon I had to attend a luncheon (the details of why I had to attend would take to long to type) hosted by another money manager. Joe, as I will call him, talked at us about what he sees for the next few years and what he is doing to position around his expectations. He also had opinions about China, our savings rate, and some other things that I don’t remember. This went on for 90 minutes. The reason I am posting this is because of the philosophical differences between the way Joe manages money and the way I do. Joe thinks he is very smart and believes he can out smart the market. His bottom up stock pick themes are not simple. My approach is to listen to what the market is saying, to take what the market is giving and get out of the way when the path of least resistance is down. For example the market is saying there are problems with large American pharma stocks, I first wrote about this in May for Motley Fool. Chances are we can figure out why the group is having problems but even if we can’t we can look at the price action over the last two years...