Saturday, October 17, 2009

Revisiting the VIX

Bloomberg reports: "VIX Posts Worst Losing Streak in Four Years as Dow Tops 10,000"

We posted a long time ago about the VIX as an inverse "moral hazard" meter, implying that is has effectively been correlated with the dollar. Think about it. A falling dollar is the manifestation "moral hazard," "plunge protection," the "Greenspan Put," TARP, or however else you refer to the availability of monetary support of asset values.

So, the VIX is measuring risk as though this were the old days, when the dollar was king. But is it still? And if not, is the VIX still accurately reflecting risk? Is the US National debt a problem, a great big problem, and mightn't that mitigate the true value of monetary support for markets? So perhaps the curious might want start watching CDS spreads on US Treasuries a bit more closely. And I'll bet there's a trade there, between the VIX and Treasury CDS spreads.


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