The World Turned Upside Down Thoughts from the Frontline Investment Newsletter. Where Has the Volatility Gone A Bull Market in Complacency. San Francisco, Denver, Lugano, and Hong Kong. Strange things did happen here. No stranger would it be. If we met at midnight. News, reviews, previews, tips, and downloads for multiple platforms. In the hanging tree. Lyrics from the theme song of The Hunger Games. If buttercups buzzd after the bee,If boats were on land, churches on sea,If ponies rode men and if grass ate the cows,And cats should be chased into holes by the mouse,If the mamas sold their babies. To the gypsies for half a crown If summer were spring and the other way round,Then all the world would be upside down. Lyrics from a 1. English folk song entitled The World Turned Upside DownA bull market is like sex. It feels best just before it ends. Warren Buffett. Longtime readers know that I read a wide range of newsletters, articles, and websites every day. There are times when I see patterns in the information flow that are like puzzle pieces begging to be put together. I have been struck in the past few days by the amount of analysis and number of data sets that are all pointing to the same conclusion There is a bull market in complacency. Strange things are happening out there. One formerly successful billionaire hedge fund manager after another throws in the towel, sending the money in their funds back to the clients, confessing that they dont know how to handle these markets. I am reminded of the surrender of Cornwallis to Washington at Yorktown in 1. Texarkana, Texas and Arkansas newspaper. Includes news, sports, opinion, and local information. Greetings from the future Welcome to Postal Apocalypse, io9s admittedly sporadic mail column by me, editor Rob Bricken. This week Ive got a lot of. Educational shareware, choose from our Prediction, subject learning, or math software. Tradition has it that, as the British surrendered, their band played the old English folk tune The World Turned Upside Down. The inability of so many active funds to find that edge that formerly allowed them to produce alpha is quite remarkable. I have written about this phenomenon before, so I wont go into detail here but it is the massive move from active to passive funds that is the core of the problem. Passive investing simply allocates among a number of index funds that indiscriminately buy or sell the stocks that are in their indexes. That means if you buy an index fund for the Russell 2. And since were seeing literally hundreds of billions of dollars moving to passive investing and away from active managers every year, that is a lot of indiscriminate buying. Barrons estimates that passive investments could make up half of all US equity retail flows in 2. Part of the reason is a general move to lower fees, and part is simply that active management has failed to outperform. Heres the problem It is extremely difficult for an active manager to buy the best companies andor short the worst companies and show much outperformance relative to the passive index funds. No matter how much research you do, no matter how well you know those companies, your research is not giving you an edge over the massive movement to passive investing. And if you have no edge, you have no alpha. It is just that simple. Personally, I dont think this is the end of active investing, but the game is going to have to change. Where Has the Volatility GoneLets be honest, 1997s Spawn was a pretty terrible film on top of being an already terrible adaptation. Sure, John Leguizamo was kinda fun as Clown when he wasn. Reallife story of Arizona hotshots taking on wildfire blazes pays solid, oldfashioned tribute to men who lead dangerous lives Noah Baumbachs funny, literate. I was talking with Ed Easterling of Crestmont Research about the markets, and he asked me if I knew that there have been 3. VIX has closed below 1. And since the VIX has closed below 1. Ed and I talked, it is now 3. And 1. 5 of those have been in the last 3. Ed sent me an updated chart last night of the VIX Index through the close of the markets on Friday. Notice that the all time low of 9. October 5, 2. 01. All the previous sub 1. Four of them were in the winter of 1. Christmas, which is traditionally a light trading period, and the others were in the winter of 2. You cant really draw any conclusions about the next move of the markets, because the VIX could spike to 5. Essentially, we have trained investors to buy the dips, and that mentality removes a lot of volatility. Here is a chart of the VIX since the beginning of the year from Yahoo Finance I got a blitz email tutorial this week from my friend Doug Kass, of Seabreeze Capital, a writer for the Street. Real Money Pro. He generally puts out two to three short pieces a day with his observations on the markets, and he discusses what stocks he is trading. I was particularly struck with his observation about the massive and it truly is massive short position in the VIX and VIX futures. Look at this chart Now, as my friend and fellow Mauldin Economics writer Jared Dillian notes, prior to 2. VIX. Then an ETF was created, and options and futures became available. Prior to that time it was just professionals who could create the effect of the VIX with futures and options trade positioning on the S P. You almost had to be a pit trader to be able to do it. GameHubthe-walking-dead-season-13.jpg' alt='Let The Game Begin Full Movie Part 1' title='Let The Game Begin Full Movie Part 1' />Were asking for your help. For over 20 years, the Learn. Watch The Prestige Online Etonline here. Genetics website has provided engaging, multimedia educational materials at no cost. Learn. Genetics is one. Understand, the VIX is a totally artificial construct. It is a derivative of a derivative. In the beginning, around 1. VIX basically measured the implied volatility of eight S P 1. Lets go to Investopedia for a quick tutorial What is the VIX CBOE Volatility Index VIX is the ticker symbol for the Chicago Board Options Exchange CBOE Volatility Index, which shows the markets expectation of 3. It is constructed using the implied volatilities of a wide range of S P 5. This volatility is meant to be forward looking, is calculated from both calls and puts, and is a widely used measure of market risk, often referred to as the investor fear gauge. Breaking down the VIX CBOE Volatility Index. The CBOE designed the VIX to create various volatility products. Following the CBOEs lead, two other variations of volatility indexes have since been created the VXN, which tracks the NASDAQ 1. VXD, which tracks the Dow Jones Industrial Average DJIA. The VIX, however, was the first successful attempt at creating and implementing a volatility index. Introduced in 1. 99. S P 1. 00 at the money put and call options. Ten years later, in 2. S P 5. 00, which allows for a more accurate view of investors expectations on future market volatility. VIX values greater than 3. How the VIXs value is established. The VIX is a computed index, much like the S P 5. Instead, it uses the price of options on the S P 5. The CBOE combines the price of multiple options and derives an aggregate value of volatility, which the index tracks. While there is not a way to directly trade the VIX, the CBOE does offer VIX options, which have a value based on VIX futures and not the VIX itself. Additionally, there are 2. ETPs for the VIX, bringing the total number to 2. An example of the VIXMovements of the VIX are largely dependent on market reactions. For example, on June 1. VIX surged by more than 2. The spike in the VIX came about due to a global sell off of U. S. equities. This means global investors saw uncertainty in the market and decided to take gains or realize losses, which caused a higher aggregate equity supply and lower demand, increasing market volatility. So there you have it. The VIX is simply a way to measure the future expectations of investors regarding the volatility of market prices. And lately, investors have been rewarded for shorting the VIX. Watch Big Stone Gap Download Full. It is almost like the experiments you see where rats learn that if they punch a button that they get a grape. Investors have learned that if they short the VIX they make a profit. Except that now there are so many people on that side of the boat that when the boat starts to turn over, the rush to get the other side is going to rock that boat hard, possibly to the point of swamping it. Doug warns that a 2 or 3 move down in the markets could cause short covering in the VIX that could quickly spiral out of control. Not unlike the portfolio protection trade that brought about the 1. A Bull Market in Complacency. Peter Boockvar sent me a screen capture from his Bloomberg. The University of Michigans Surveys of Consumers have been tracking consumers and their expectations about the direction of the stock market over the next year. We are now at an all time high in the expectation that the stock market will go up.