In spite of a couple of negative days on European and US markets the ASX200 just doesn't want to take a breather, even after rising over 25% from the lows of last June. While most fund managers, and even some brokers are concerned the market might be getting ahead of itself, there seem to be plenty of investors who are determined not to miss out - even though they would go near equities just six months ago.
AFM's Research Manager, Sean Webster has taken a look at the curious behavior of the VIX, the so called Fear Index, and it reverse correlation to the market: Taking a lead from an article published by Adam Hamilton in the US, the logic seems curious - that if the market has had a strong rally, investors lose their caution and become complacent. However the reality is often that the market is overbought, and therefore has a higher probability of a correction.
The cost of insurance however, as measured by the VIX, falls simply because there's less demand for protection. The reverse applies when the market has fallen sharply, and therefore stocks may offer better value: All of a sudden the cost of protection (the VIX) skyrockets as investors try to buy insurance after the event.
Sean's article and associated charts can be seen here. It's a moot point of course whether the VIX leads the market, or the market leads the VIX. What it does show however is that potential risk is always around the corner and investors ignore risk at their peril.
Meanwhile there's plenty of media coverage about incidents (some actual, some alleged) of insider trading, both in Australia and overseas. Last Saturday's AFR contained an interview with Belinda Gibson from ASIC and covered the attempt by an offshore fund manager trying to gain early access to a local broker's research and information. Aspects of trading in Heinz in the US ahead of Warren Buffett's recent proposed purchase are being investigated, and a major US hedge fund is also in the SEC's sights.
However as we argue in this article, institutional investors, including hedge funds get access to information not generally available to ordinary investors, whether by their added research capacity, by investor briefings directly from the company itself, or through broker presentations. There may be no insider trading involved, but there is certainly no level playing field either.
This week's now for something completely different contains not one but two completely different clips. We hope you share our appreciation of The Two Ronnies, who still make me laugh even though the material is now well dated. Our second clip is far from amusing but well worth watching: Last Monday's "Australian Story" on the EasyBeats' lead singer Stevie Wright on ABC TV was a chilling reminder of the dangers of drugs. It's a long clip, so if you're short of time watch it from about 4 minutes onwards. The program is re-broadcast on the ABC at 12:30pm Saturday afternoon. Record it and play it to your children.
Otherwise enjoy the week-end.
Regards,
Chris.
