Confirmation bias alone isn't enough to explain this market. You also have to add in a healthy dose of irrational optimism with respect to the prospects for future earnings and several flavors of personality disorder. It is almost as if the market is lulled (if you can call 60-70% implied volatility in index options 'lulled') into some conviction that this is the ground state, only to find, at some date in future, that the market is nestled in a false vacuum. Throw enough energy into it the right way, and you're in for a nice bit of vacuum decay.
The market has absorbed so much marginal news as "cause" for celebration, relief and joy (today's housing stats for instance) in the face of darker and more imposing clouds no longer hidden over the horizon, that it just doesn't seem prepared to endure much in the way of a shock. A loud enough sneeze is enough to twitterpate this market beyond all hope of immediate repair.
That said, a slow climb by the indexes today followed by the now trademarked plunge before the close (sometimes with a last-second recovery, sometimes not so much) just tells you buying on the dips is like building on mud.
The VIX, a vastly overused and yet misunderstood metric, has been pegged to "record highs" (whatever that means for an index that hasn't been around for even two decades yet) for days now. And maybe it's just me, but backdating VIX calculations just rubs me the wrong way.
In these circumstances, it seems almost useless to comment that the S&P 500 closed down over 3%. That the Dow was down to 8176. It seems more interesting to point out that the S&P 500 traded in an 5.5% range. The Dow across a similar spread.
Sure, your mom will call you tonight and tell you that she's been watching CNBC to "keep abreast of the markets" in the face of the "chaos." Yes, you'll just have to cope while she tells you what the VIX is ("the 'Fear Factor.,'" she heard Cody talking about it, you know. She always watches Fox Business now. "Just in case.") That's the price you pay for taking her money to go to B-School. You've got to listen to her when it comes to Fox Business.
Take heart. In this market she knows as much as anyone. Including, Cody on Fox Business. Seriously.
Posted by guest , Oct 27, 2008 6:22PM
wait - if nobody knows anything - what's the point of this post?
Posted by guest , Oct 27, 2008 6:27PM
Too homesick for mom's cooking; didn't read.
Posted by guest , Oct 27, 2008 6:29PM
EP, I'd love to rub you the right way.
Sorry Bess, it's over.
Posted by guest , Oct 27, 2008 6:30PM
@3- she must be heartbroken.
Posted by guest , Oct 27, 2008 6:30PM
This post takes seven paragraphs to say absolutely nothing. Slathered with a smug pessimism though, nice work!
Posted by Tau , Oct 27, 2008 6:35PM
Worthy of Dennis Miller
Posted by guest , Oct 27, 2008 6:36PM
It was a dark and stormy night...
Just EP trying to overcompensate for not getting in to Stanford
Posted by guest , Oct 27, 2008 6:38PM
When your mom stops watching we will have a bottom.
Posted by Anal_yst , Oct 27, 2008 6:56PM
cody/happy hour = unmitigated disaster.
Not that CNBC has been fantastic by any stretch of the imagination - trying to address 2 vastly different audiences simultaneously doesn't help - but that fbn crap is mind-bogglingly horrid.
Was @ a wedding down in Ft. Lauderdale this weekend, and people with relatively zero connection/experience in Finance were blabbering on like they know wtf is going on. If that's any indication, we've got a long ways down to go...
Posted by guest , Oct 27, 2008 7:08PM
Nucleation - - love it
Posted by guest , Oct 27, 2008 7:08PM
Love Cody!!!
Posted by guest , Oct 27, 2008 7:22PM
Is it time to change your name to "Equity Death-of"?
Posted by guest , Oct 27, 2008 7:38PM
I think that the Fed or TTSY have been in the equity markets trying to prevent a "crash."
Wasn't there talk of the TTSY buying equity futures?
I bet they have been.
Posted by diablo , Oct 27, 2008 7:53PM
Haven't heard the name Cody around here for a while.
Not sure what this was about? EP's mom?
Posted by guest , Oct 27, 2008 8:05PM
Sigh, the vigorous discussions with mom about Wall St. More to come this Thanksgiving.
Posted by guest , Oct 27, 2008 8:06PM
@4 She's not. She has SPODE.
Posted by guest , Oct 27, 2008 8:30PM
It appears to be a thinly disguised knock at all things Fox news, particularly the business channel. Puzzled why CNBC wasn't considered for the same type of knock. Only conclusion one can draw is that fox news and their "fair and balanced" approach aren't palatable to you and you prefer the "in the tank for BO approach much better".
If it isn't this, then you have knocked all good parents who have sacrificed to pay for their progeny's business school and you are a total spoiled brat.
Posted by guest , Oct 27, 2008 8:38PM
is this dealbreaker or the economist? my eyes is going crazy over here...
Posted by VOL IS KING , Oct 27, 2008 8:44PM
Equity Private do have any idea how the VIX is calculated?
Implied volatility is a violation of black scholes and therefore self contradictory. The VIX is for tourists. Watch it at your own peril.
Fade the Skew, hedge the gamma.
- VOL IS KING
Posted by guest , Oct 27, 2008 8:47PM
You mean to tell me that Americans are hopelessly optimistic? And not rational? This is just more unpatriotic media negativism which is what caused the markets to collapse.
Posted by guest , Oct 27, 2008 8:59PM
we have one more support level remaining, it's over on a failed close.
http://www.weeklyta.blogspot.com
Posted by WindsorNot , Oct 27, 2008 9:20PM
@21 = Voodoo
Posted by guest , Oct 27, 2008 9:23PM
@4 and @16
Do we know for certain EP is a chick?
Posted by guest , Oct 27, 2008 10:14PM
Equity Private
Not Funny
Posted by guest , Oct 27, 2008 10:43PM
"October 27, 2008, 3:14 pm
Of Copyright & Family Feuds: “Hedge Fund Wives” Goes to Court
Posted by Dan Slater
The pending publication of a novel called “Hedge Fund Wives” has led to what appears to be the makings of rather nasty court battle between the Boncompagni sisters.
Tatiana Boncompagni Hoover is married to Max Hoover, heir to the vacuum fortune. She has written freelance articles for the The Wall Street Journal, worked as a staff reporter for the American Lawyer, and last year she published her first novel, “Gilding Lilly” (HarperCollins). Natasha Boncompagni, according to this copyright suit, filed today by Tatiana, lives in Wisconsin with her parents and grandmother. An online bio says Natasha is a Wall Street veteran whose career began in UBS’ investment bank.
According to her lawsuit, around the time Tatiana began writing “Hedge Fund Wives” last year her sister “offered research assistance and to share her own past experiences in the financial industry for a $500 fee.” Though Tatiana declined, Natasha “occasionally provided ideas relating” to the book."
http://blogs.wsj.com/law/2008/10/27/of-copyright-family-feuds-hedge-fund-wives-goes-to-court/
Posted by guest , Oct 27, 2008 10:45PM
"Cost of crash: $2,800,000,000,000"
http://www.guardian.co.uk/business/2008/oct/28/economics-credit-crunch-bank-england
via matt drudge
Posted by guest , Oct 27, 2008 10:57PM
LONG VIX SHORT EP
Posted by guest , Oct 27, 2008 11:32PM
EP you communist. I can't even read your shit anymore. Can we get an RSS feed without your posts in it?
Posted by guest , Oct 28, 2008 12:14AM
Who has blown up among banks and hedge funds in carry trades? There must be fire, because there is smoke: FX intervention! Details below:
http://www.marketwarnings.com/2008/10/forex-currency-yen-intervention-japan.html
Posted by guest , Oct 28, 2008 2:53AM
im so happy i became a broker now...watching all you analyst fucks ruin it and then get fired for it...ill keep producing my 2mm dollars for the year, managing ETFs and mutual funds. haha!
Posted by guest , Oct 28, 2008 7:01AM
EP, I used to love Going Private... you haven't updated that since forever. At least there I didnt have to put up with these crap-DB-tards (the commenters, not your colleagues).
Please go back
Posted by guest , Oct 28, 2008 7:21AM
@ 19
black scholes is BS
try to come to terms with that
also bite me
Posted by VOL IS KING , Oct 28, 2008 7:50AM
@32
uh, yes, that was the point of the statement.
Posted by VOL IS KING , Oct 28, 2008 7:51AM
@32
black-scholes is BS so therefore the VIX is BS and the skew is BS
Posted by guest , Oct 28, 2008 8:04AM
How do you argue that implied vol contradicts black-scholes? It's just a simplified input into the calc that's supposed to account for skew and anything else about the vol surface...
Posted by VOL IS KING , Oct 28, 2008 8:21AM
uh because options on the same underlying assume different standard deviation for said underlying when it can only have one standard deviation and black scholes says all the options must use that same standard deviation, NOT DIFFERENT ONES.
now black-scholes doesn't work, but if you adjust the standard deviation assumption of the model its meaningless anyway so why bother using it. And if you're not using it then the term "implied volatility" doesn't really make very much sense now does it?
Implied? implied by what, the model that you're not using?
Moronic.
NEXT.
Posted by guest , Oct 28, 2008 8:51AM
@31--Agreed. EP was often funny on GP. It was a good read.
EP, at least let us know what the Debt Bitch is up to these days.
Posted by mickeyrivers_17 , Oct 28, 2008 3:08PM
I have been reading DB on and off for a year and think it's great. I have stepped it up over the past couple months b/c Bess has been all over the rumors that are driving markets. But this Equity Private stuff is ridiculous. Try using about 1/3 of the space to say what you're trying to say. It's getting to the point where as soon as I see the byline, i'm scrolling down until i see the next column by Bess.