Sunday, November 4, 2007

Selloff in Financials Jolts VIX; VWSI at -3

The Fed gave the markets a 0.25% rate cut, but in the 2 ½ days that followed, investors did more selling than buying, pushing the VIX up 3.45 points (17.6%) to 23.01 by the end of the week and marking the highest close in the VIX in seven weeks.

Commercial banks and other financials helped to increase investor anxiety, with Citigroup (C) and Merrill Lynch (MER) causing most of the consternation. For a superb summary of the week that was and the week that might lie ahead, I highly recommend reading up on what Barry Ritholtz at The Big Picture has assembled (I think I’ll make these links a regular feature of my weekly VWSI update):

Turning to the VWSI, the increased volatility helped to push the dial to a VWSI of -3 by the end of the week. The last time the VWSI closed the week at -3 was back in the first week of 2007, when the ‘spike’ to 12.14 initially looked like an aberration, as the next seven weeks saw the VIX close in the 10s and low 11s. Of course, everything hit the fan on February 27th and it has been a different investing environment ever since. I have no reason to predict that the current -3 reading may come at a similar juncture, but it is always instructive to look back at recent history and try to imagine how the current market lens differs from the already outdated one.

(Note that in the above temperature gauge, the "bullish" and "bearish" labels apply to the VIX, not to the broader markets, which are usually negatively correlated with the VIX.)

Wine pairing: For a VWSI of -3, I suggest a versatile light red wine. No, not a Beaujolais (even though another Beaujolais nouveau release date is soon approaching) or the gamay grape behind the wine. No, not a pinot noir either. Instead, I recommend something old and something new: a barbera. This grape is widely planted in Italy and is used frequently as a blending grape, both in Italy and in the United States.

While Italy certainly produces the best know barberas, Barbera d’Asti and Barbera d’Alba, it is fruity, highly drinkable version of this wine from the Sierra Foothills that recently tickled my fancy: the 2005 Renwood Sierra Series Barbera. If you are looking for a different varietal to add to your list of everyday reds, seek this one out. For only $9 at my local wine store, it’s a bargain and a great change of pace.

If you are interested in an entertaining and informative look at Italian barbera, I encourage you to check out Gary Vaynerchuk at Wine Library TV, with The Barbera Episode.

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