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Strategies & Market Trends : The New Economy and its Winners

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To: damniseedemons who wrote (13005)	7/24/2002 9:44:37 AM
From: Wizard	Read Replies (2) of 57684

Hi Sal, A high VIX does mean that the financial markets are under severe stress and not working efficiently. It was written about over 5 years ago in a research piece that was distributed by Morgan Stanley's derivatives group. VIX spikes often coincide with huge credit spreads relative to treasuries, another sign of extreme stress on the system, which is true today. The fed has typically eased in these circumstances. Similar to trying to buy insurance on tall buildings after 9/11, there is simply no efficient market for such when a panic is on... It is this kind of time when the Fed must time its entry well and restore working order by telling financial institutions it will support them through 0% interest rates if need be... Of course, this is only short-term relief and we would have to hope that the economy can grow again but at this point, the system is simply under panicky stress. The SPX has traded down more than 2% for four consecutive sessions, which has only happened twice (1930's and 70's) since the inception of the index.

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