March 3, 2018 — I am honored that John Bogle has commented on my recent column, ”The February Stock Market Correction.” In it I repeated my claim that 2017 saw a “bubble” in the #VIX – i.e., a market perception of low risk in US stocks that was unjustified by fundamentals – and I added that the bubble had burst in February. Bogle of course is the genius who made low-cost index #mutualfunds widely available. His comment & my reply are at Barron’s: “Bogle on Bubbles.”.
September 30, 2017 — During most of this year, the VIX — the Volatility Index on The Chicago Board Options Exchange — has been at the lowest levels of the last ten years. It recently dipped below 9, even lower than March 2007, just before the sub-prime mortgage crisis. It looks as though, once again, investors do not sufficiently appreciate how risky the world is today.
Known colloquially as the “fear index,” the VIX measures financial markets’ sensitivity to uncertainty, in the form of the perceived probability of large changes in the stock market. It is inferred from the prices of option on the stock exchange (which pay off only when stock prices rise or fall a lot). The low VIX in 2017 signals that we are in another “risk on” environment, when investors move out of treasury bills and other safe haven assets and instead “reach for yield” by moving into riskier assets like stocks, corporate bonds, real estate, and carry-trade currencies.
December 31 is technically the end of the first decade of the 21st century. It is perhaps an appropriate time to review one’s predictions. It seems to me that I got some things right over the last decade. Indulge me while I review the predictions that came true, before turning to those that did not work out as well.
Stock market peak At the end of the 1990s, I felt that the dizzying ascent of equity prices could not continue into the new decade, that there was “…a bubble component in the stock market” (Nov. 20, 1999). This was four months before the bubble burst in 2000. So far so good.