According to the Treasury Department, the global demand for US financial assets strengthened in March to a record level, as investors from China to the UK purchased, amongst others, the largest amount of US Treasury bonds since November 2009. Overall, foreign investors were buying equities, notes and bonds in amount of $140.5 billion in March, after a net buying of $47.1 billion in February. It is a clear signal that foreign institutions and investors are returning to the US as the ultimate safe haven. Not surprisingly, China remained the biggest foreign holder of US Treasuries after its holdings rose by $17.7 billion to $895 billion in March. Japan, the second-largest holder, increased its holdings by $16.4 billion to $785 billion in March. Holdings in the UK gained $45.5 billion to $279 billion. Continue reading ‘The Return To Risk Aversion’
Tag Archive for 'VIX'
On January 11 2010, though CBOE Volatility Index [VIX] dipped shortly under 17.00 mark it did close at 17.55 – the lowest level since May 2008. Right after Lehman Brothers bankruptcy and the demise of AIG, the VIX hit its historic high of 89.53 on October 24, 2008 on concerns about the banking system stability. Prior to this crisis, the VIX had peaked at 38 on August 8, 2002. By definition, the volatility index measures expectations of volatility, or fluctuations in price, of the S&P500 index. Higher values for the volatility index indicate that investors expect the value of the S&P500 to fluctuate wildly – up, down, or both – in the next 30 days. The index is also known as the “fear index” because a high VIX represents uncertainty about future prices. Warren Buffett once said “Sir Isaac Newton gave us three laws of motion, but his talents did not extend to investing. He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men”. If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.” Continue reading ‘Fear Factor’
The stock market has rallied tremendously from the twelve-year lows that were seen in March 9 2009. The Dow Jones index traded as low as 6,547 and it has rallied more than 3,200 points in just six months. Similarly, S&P 500 index traded under 670 points in early March and recently topped the 1,060 mark. An incredible rally to be sure – one of the biggest six-month rallies that we are likely ever to see. The million-dollar question now becomes: is this a powerful “bear market rally”, or the beginning of a secular bull market? Many investors agree that the worst news is now behind us, and that this is the beginning of a bull market. However, many hedge fund managers are betting against the rally, expecting that the US economy will have some trouble moving forward. Continue reading ‘The Bear Market Rally’
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