The Scariest Month EVER – October 2020
The Scariest Month EVER!!
This October is going to be so scary. More than previous Octobers.
I love Halloween and the month of October. As a kid I loved everything about Halloween. I loved the costumes. I loved Trick or Treating. I loved being scared and screaming along with my friends. I loved carving pumpkins and toasting the pumpkin seeds. Yup, I was all in on Halloween.
THIS year I have a knot in my stomach that has nothing to do with too much candy or spooky haunted houses.
This October is a nail biter because we have an election 3 days after Halloween. Talk about taking all the fun out of Halloween.
What investors are trying to gauge is the impact on the financial markets once when a “winner” is declared.
In 2016 I watched minute by minute 26 “live” polls provided by The New York Times.
Twenty-six polls got it wrong. How could 26 “real time” polls all be wrong ? The predictive value of the polls was worthless. If I were running for office, and every poll said I would win, disappointment doesn’t begin to cover how I would feel about losing.
Hello, statistics? Anybody home?
Because 2020 has been a year unlike any we have had before, predictions about what is going to happen in the financial markets after the election are in and of themselves unpredictable. Unpredictable predictions.
In the short term, the exacerbating nature of this administration has given us predictably unpredictable predictions.
I do like the fact that one side is saying “Hey, those polls didn’t work out so well for us last time” exuding a healthy amount of skepticism.
What is interesting is that the markets, while not shrugging off completely the upcoming election, do not seem to be overreacting.
How do I come by this infinite wisdom? Enter the VIX. As in VIXen. Also known as the Fear Index.
What is the VIX?
“VIX is the ticker symbol and the popular name for the Chicago Board Options Exchange’s CBOE Volatility Index, a popular measure of the stock market’s expectation of volatility based on S&P 500 index options. It is calculated and disseminated on a real-time basis by the CBOE, and is often referred to as the “fear index or fear gauge”
“Investors, research analysts and portfolio managers look to VIX values as a way to measure market risk, fear and stress before they take investment decisions.
In absolute terms, VIX values greater than 30 are generally linked to a large volatility resulting from increased uncertainty, risk, and investors’ fear. VIX values below 20 generally correspond to stable, stress-free periods in the markets.”
Investopedia Description of the VIX
Let us put this into perspective:
The VIX is calculated throughout the trading day.
The VIX index is used as a measure of fear or stability in the stock market.
The way the VIX works is during times of financial stress and uncertainty when investors are selling, the VIX rises. The Fear Factor.
When investors feel more confident and are buying, the fear factor goes down.
In March, the VIX went to a high to a high of 85.47.
The only other time the VIX was this high was October 24, 2008 when the VIX hit its highest level ever of 89.53.
What would you guess is the VIX today?
Today the VIX is about 28. On December 30th, 2019, the VIX was 14.82.
What you need to know about the VIX is the direction. You do not need to know the exact number all the time. Higher means uncertainty about the markets. Lower means not a lot of fear.
I would say the VIX at 28 just before Halloween and an election, is not a Trick, it is a Treat.
And certainly, better than unpredictable polls.
Happy Halloween!
This website is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security, nor does it constitute an offer to provide investment advisory or other services by The Modest Economist LLC.
