Archive for September, 2015
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Morning News: September 4, 2015
Eddy Elfenbein, September 4th, 2015 at 7:06 amWhat Draghi Said on QE, Market Volatility, Greece
Putin Pitches for Foreign Investment in Russia’s Far East
The Fed’s Election-Defining Decision
The Jobs Report and the August Curse: Jobs Day Guide
Why the U.S. Gets the Most Out of Cheap Oil
Hedge Funds Faced a Test in August, and Faltered
Chinese Company to Buy Avolon in $7.6 Billion Deal
VW’s Unassuming CFO Emerges From Boardroom Wars as Chairman
General Mills to Sell Green Giant, Le Sueur for $765 Million
Man Asks Kickstarter for $20,000, Gets Over $9 Million
Japanese Banks Among Bidders for GE’s Local Finance Unit
How a Boeing Sales Flop Became the World’s Hottest Secondhand Jetliner
Philip Falcone, Former Head of Vast Fund, Tries a 3rd Act
Cullen Roche: Three Things I Think I Think – Crashing Up & Down Edition
Roger Nusbaum: Defensive Expectations
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A Little Context for NFP
Eddy Elfenbein, September 3rd, 2015 at 3:29 pmThe big August jobs report comes out tomorrow. This is a good example of where it pays to take a step back and look at the big picture.
The trend in non-farm payrolls has been perfectly clear for five years. Non-finance people would be amused to learn how much that red line is debated.
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Morning News: September 3, 2015
Eddy Elfenbein, September 3rd, 2015 at 7:16 amECB to Cut Inflation Forecast But Keep Powder Dry
Xi Says China No Threat, Announces Military Cuts at Parade
Gross Says Fed Move May Be ‘Too Little Too Late’ Amid Turmoil
U.S. Treasury’s Lew Says China Will Be Held Accountable on Currency
U.S. Private Payrolls Rise Steadily; Productivity Revised Up
U.S. Productivity Increased at Fastest Pace Since 2013
U.S. Bank Earnings Up 7.3% in Second Quarter, FDIC Says
Those Inflation Targets Keep Getting Harder to Hit
Novartis to Begin Selling Copy of Amgen’s Neupogen in U.S.
Security Startup Tanium Said to Reach $3.5 Billion Valuation
With U.S. Factory and Boston Transit Deal, Inroad for Chinese Rail Firm
Spielberg’s DreamWorks Studio Expected to End Distribution Pact With Disney
Japan Display CEO Hints at Strong Apple Orders Ahead of New iPhone Launch
Jeff Carter: Are Market Black Swans Like Startup Unicorns?
Joshua Brown: When 499 of the S&P 500 Fall in a Day
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Morning News: September 2, 2015
Eddy Elfenbein, September 2nd, 2015 at 7:14 amU.S. Auto Sales Pace Accelerates
Australian Dollar Hits Six-Year Low on China
Putin’s Got a New Problem With China
Solar Win in Coal’s Back Yard Shows Cheap Way to Beat Blackouts
Welcome to Quantitative Tightening as $12 Trillion Reserves Fall
Boston Fed Chief Says Interest-Rate Hike Will Be Gradual
Citi Sells Hungary Consumer Banking Business to Erste Group
McDonald’s Planning to Start Selling All-Day Breakfast on Oct. 6
Lego First-Half Sales Growth Beats Rivals as Asia Drives Sales
Volkswagen Extends CEO Martin Winterkorn’s Contract
Klarna Powers Mobile Payments For Overstock.com in U.S. Push
Amgen to Help Develop Novartis’s Pipeline of Alzheimer’s Drugs
Dollar Tree Swings to a Loss After Deal for Family Dollar
Howard Lindzon: The ‘Gig’ Bear Market of 2015… and the Bull Market in Volatility of Volatility
Cullen Roche: The 1998 Playbook
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August was Good for Ford
Eddy Elfenbein, September 1st, 2015 at 2:59 pmFord‘s (F) sales in the U.S. rose 5.4% last month. The stock is down today but not as much as everything else.
Ford said its sales were driven by demand for new cars, sport-utility vehicles and trucks. Ford SUV sales were the strongest in 12 years in August, while the F-series truck brand logged its best sales month of the year with a 4.7% increase. In all, Ford sold 234,237 vehicles in August, well above the 225,834 that automotive information website Edmunds.com had forecast.
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Bad Markets Cause Volatility, Not Vice Versa
Eddy Elfenbein, September 1st, 2015 at 12:22 pmToday, I wanted to talk about the stock market’s volatility which has received a lot of attention recently. Many investors misunderstand the character of volatility. The key fact to understand is that volatility is not a factor separate and apart from the market’s recent direction. Markets do not go down due to volatility. Rather, bad markets are the primary cause of volatility.
As I’ve explained before, movements in the stock market are generally not symmetrical. Bull markets tend to be long and slow while bear markets are short and quick. Even in secular bear markets, most of the pain is confined within a short period of time.
The single-best days of the market almost always come after the single-worst days. These spikes aren’t really bullish moves so much as they’re counter rallies in rough markets. In fact, when the market is at a new high, the daily movements are far more subdued than they are normally.
You’ll often see the VIX quoted which is the Volatility Index. For newer investors, let me explain what the VIX is. In the formula to calculate options prices, one of the variables is volatility. As a result, we can take the current options price and work backward to find the implied price of volatility. And just like everything else, volatility can be bought and sold.
Warning: Math Ahead
The VIX shows the one-month standard deviation for the S&P 500, but the number is annualized (don’t ask me why). To get that number to a monthly figure, just divide the VIX by 3.464. That’s the square root of 12. Fans of math will remember that the standard deviation rises by N^0.5.
The VIX closed yesterday at 28.43. That means traders see the S&P 500’s one standard deviation over the next month as being 8.2%.
For some context, the stock market has historically gained about 1/30 of 1% each trading day. The daily standard deviation is about 1%. That means that about 97% of each daily move is, on average, complete noise.
After one month, assuming 21 trading days, the market averages a gain of 0.7% with a plus/minus of about 5.5%. After a year, the market averages 8.4% with a standard deviation of 16%. Even after four years, the market’s average gain and standard deviation are equal at about 33%. In other words, it’s perfectly reasonable for the stock market to be in the red even after four years.
Of course, these numbers are merely explanatory. The market doesn’t move according to the bell curve, which furthers my point about volatility.
I took the last 25 years’ worth of data on the S&P 500 and VIX. I then compared the VIX to the S&P 500’s position versus its 52-week high. The relationship is very strong. The further below the 52-week high, the higher the VIX.
Here’s what my chart below means. When the market is at its 52-week high, the average VIX is 15.16. When it’s 0% to 1% below its 52-week high, the VIX averages 14.92. The bigger the fall, the higher the VIX.
Eddy Elfenbein is a Washington, DC-based speaker, portfolio manager and editor of the blog Crossing Wall Street. His