Time to Vote!
A few thoughts by PIMCO’s Bill Gross.
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EuroCurrency Volatility Index (EVZ) at Lowest Level Since March 2008, Diverges from VIX
Guest post by Vix and more.
Since its launch in August 2008, the CBOE EuroCurrency Volatility Index (ticker EVZ, sometimes known simply as the “euro VIX”), which is based on the FXE ETF, has toiled in relative obscurity compared to some of the more famous volatility indices.
Given all the fears about the European sovereign debt crisis over the past few years, I find the lack of interest in EVZ to be surprising. After all, in thinking about the euro zone one of the most basic questions has been whether or not the euro will survive. Further, outside of the U.S. at least, the future of the euro zone is still considered to be the biggest risk to the stock market.
With all this in mind, I was looking at EVZ data this evening and discovered that today marks five years since the beginning of the historical EVZ data provided by the CBOE (reconstructed data fills the gap from November 2007 to the August 2008 launch.)
The chart below shows the history of closes in EVZ (blue line), as well as comparative closing prices for the VIX (red line.) I have annotated the chart to highlight two pieces of information:
Politics, the Economy and the Market Across Time
Guest post by Doug Short.
With the presidential election just a few days away, I thought this might be a good time to recall the larger historical context of the US economy and markets with an eye on the party in power.
First up, here is a look at GDP by party in control of the White House and Congress. Since the inception of quarterly GDP in 1947, Real Quarterly GDP has averaged 4.0 percent during Democratic administrations and 2.6 percent during Republican administrations.
Recessions are highlighted in gray.
Hurricanes and Broken Windows
Guest post by Azizonomics.
It is relatively easy to debunk the Broken Window fallacy, the idea that hurricanes or more generallythe destruction of capital may be a tragic economic stimulus. Indeed, much has already been written on the opportunity cost of the new spending that may be unleashed by a natural disaster — in the last few days by Robert Murphy and Jim Quinn (and many others) and historically by Henry Hazlitt andFredric Bastiat. When a window is broken, and money is spent on a glazier, the labour, capital and resources is only moving the economy back to where it was, and it has an opportunity cost — whatever might have been purchased with the labour, capital and resources had the window not been broken.
A Krugmanite might respond to this with the idea that when an economy is in a depression state, where vast quantities of labour and capital are idle, then this opportunity cost is less relevant. But this is not so.
A natural disaster will undoubtedly result in new economic activity that would not have taken place otherwise. Undoubtedly, labour, capital and resources that may n0t have been employed otherwise will be employed because of an earthquake, or a flood or a fire. But believers in the Broken Window fallacy are looking at the economy through a distorted lens. What they define as “activity” (i.e. GDP) is only one side of the picture. Yes, a major hurricane like Sandy might require $100 billion or more spent to repair the damage. Yet to only look at spending is to only look at one side of the picture — the flow. An economy is both stock and flow. That $100 billion of spending is flow to replace damaged and destroyed capital stock (houses, factories, roads, etc).
US, Japan & Euroland Governments Incapable of Solving Problems
A few comment by Biderman.
The biggest problem the developed world is facing is that the governments and banking institutions that got us into the present mess are not capable of solving the problems they themselves created. Not even with new leadership.
Why? Not enough income growth and too much government spending. That is obvious looking at the combined income statements and balance sheets for the United States, Euroland and Japan. The bottom line is that the combined take home pay, whether taxed or not, of everyone in the United States, Europe and Japan is not sufficient to generate enough taxes to pay all current government expenditures. Let me repeat that, the developed worlds take home pay is not sufficient to generate enough taxes to pay for current government spending.
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