Friday, October 24, 2008

Futures Limit Down; Today Will Be Very Ugly

...and probably start a new round of "adverse reaction loops."

Don't be surprised to see the VIX over 100.

Global markets are in panic mode prior to the U.S. opening:



[source: CNN]

10 comments:

Darren said...

What do you mean by "adverse reaction loops"? Negative feedback?

Bill Luby said...

Yes. Negative feedback, vicious cycle, etc.

"Adverse reaction loop" is Fed speak, I think from Bernanke.

Anonymous said...

I believe compliments are in order for my batman breaking his wing and shooting higher! :-) Follow through and then massive reversal coming soon! wee.. then a few years of new lows and recession. oh oh.

Eric said...

"Personally, I think there is a good possibility that 81.17 holds up for many years"

Try 8 days.

Bill Luby said...

LOL.

Apparently Batman didn't make it in time to save the day...

mikkel said...

Not to be a stickler for terms, but you actually mean positive feedback loops.

Negative feedback loops are homeostatic in nature and try to minimize movement, while positive feedback loops feed on movement and increase it.

Of course the nature of most negative feedback loops means that once a system gets beyond a certain point they flip and become positive feedback for a while. The yen carry trade is a perfect example of this, which stabilized the global bull markets for a long time but now that they have broken it is contributing to extremely fast and compounded moves.

I think we can agree it's "Adverse"

I. Laroui said...

Technically it's a positive feedback loop even though that's negative for stocks. A negative feedback loop is a mean-reverting process which is definitely not what we're having these days in the market.

I. Laroui said...

Sorry, I should've read mikkel's post. Mine was redundant.

Anonymous said...

is it possible a Vix value over 100? i was sure that Vix value would vary only between 0 and 100, and only the old Vxo could exceed 100.
am i wrong?

Bill Luby said...

Technically the VIX has no upper boundary or fixed scale, so just like the VXO it is quite capable of going over 100.

On the down side, volatility can never go below zero by definition, but there is probably some practical floor (maybe in the 7-8 range) below which the VIX is unlikely to ever fall.

Cheers,

-Bill

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