Here Comes The VIX, Here Comes The VIX

Gillian Tett in the FT:

"A couple of years ago – or before banks started to go bust – economists sometimes liked to talk about a phenomenon they christened The Great Moderation.

This was the idea that the 21st-century financial system and global economy had become so stable and sophisticated that dramatic swings in activity had seemingly disappeared. Volatility, in other words, was supposed to be an issue of the past.

These days a new phrase is needed to describe these Not-So-Moderate-After-All times (the Great Panic, perhaps?). On Friday, the Chicago Board Options Exchange Volatility Index, the Vix, rocketed 32.1 per cent to 89.53, as equity markets suffered another dramatic sell-off. The gyrations of the yen, euro, sterling and dollar have also been wild, pushing levels of currency volatility to heights barely seen in decades."

So let's:

1) Retire the phrase " The Great Moderation", and welcome in "The Great Volatility".
2) Add the Vix to our derivative plays.
3) Find risk-taking investors.
4) Retire the VAR ( Value at risk ) model for hedge funds. Too optimistic on the way up, too pessimistic on the way down. They appear here to be akin to laws.
5) Hope the policy-maker's prayers for hedge funds health works.

Anyway, read her whole post, since a couple of the suggestions are mine.

However, here we meet again our irrational and overly timid investor:

"On one level the absence of scavengers might seem “irrational”, given that plenty of cash-rich institutions still exist. On another level it makes perfect sense, given how shell-shocked many institutions now seem – and the sheer difficulty of predicting what other disorientated investors might do next."

He's turning up quite a bit.