Phil's Stock World

Bloomberg is reporting VIX Drops to Lowest Level Since Lehman’s Collapse as Fear Ebbs.

The benchmark index for U.S. stock options fell below its closing level from the day before Lehman Brothers Holdings Inc.’s September collapse as stocks rallied and investors paid less to hedge against equity losses.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, lost 1.1 percent to 25.65 at 11:54 a.m. in New York. The index measures the cost of using options as insurance against declines in the Standard & Poor’s 500 Index, which added 0.9 percent.

“Fear of the doomsday scenario has definitely subsided,” Jeremy Wien, a VIX options trader at Societe Generale SA in New York, said before the index slipped below its Sept. 12 close of 25.66.

Before today, the VIX averaged 20.18 in its history stretching back to the start of 1990. The index peaked at 80.86 in November and dipped below 30 in May for the first time in eight months. It reached an intraday record of 89.53 on Oct. 24.

The volatility benchmark, known as Wall Street’s “fear gauge” because it almost always increases as stocks fall, reflects expectations for price swings for the next 30 days and is calculated from S&P 500 options that are one or two months from expiration.

Federal Reserve Chairman Ben S. Bernanke has made unprecedented use of the central bank’s powers as the lender of last resort. He kept banks liquid by accepting bonds they can’t trade as collateral for Treasuries and bailed out the nation’s biggest insurer, American International Group Inc.

The S&P 500’s swings were the biggest in the benchmark’s 80-year history last year as it plunged 38 percent, the most since 1937. There were 18 moves of more than 5 percent after Sept. 29. That was more than half of the 35 swings of that size that have occurred from 1955 through 2008, according Howard Silverblatt, the senior index analyst at S&P in New York.

Giving Bernanke or the Fed any credit for this is preposterous. The Fed helped create this mess. For a complete trashing of Bernanke please see Bernanke is a Total Failure Unsuited for Role as Fed Chairman.

Moreover, we have still not

In keeping up with relevant current topics, the San Francisco Fed has issued a new paper analyzing how proposed new changes to health insurance planning may impact the broad economy by comparing to the example of the Prepaid Health Care Act (PHCA) adopted by Hawaii in the 1970′s. Presumably, the administration has done its empirical homework as it pushes for various expensive adjustments to insurance plans, however it bears to read this piece for the conclusions, which essentially notes that not only are business likely to suffer higher incremental costs, the marginal employment of full time workers will likely suffer as more and more shift to find loopholes in proposed legislation, putting further stress on the already broken (un)employment landscape.

(Spoiler alert – stop reading here unless you want the conclusion).

Since we are well aware that our average reader has acute, recurring ADD, and it has been about 4 minutes since the last Adderall/triple espresso break, we present the SF Fed’s conclusion below for the attentionally challenged:

Implications

We find that Hawaii’s ESI mandate has substantially increased health insurance coverage in the state. Our evidence also suggests that employers’ primary response to the mandate was increased reliance on the exempt class of workers who are employed for fewer than 20 hours per week. We did not find reliable statistical evidence for corresponding reductions in wages or overall employment probabilities. This may indicate that the shift to low-hour employment was the mandate’s primary labor market effect, although it may simply be that any adverse effects on wages and employment are too small to detect using our data and methodology. In addition to such labor market distortions, the results of our research imply that an employer mandate is not an effective means for achieving universal coverage. Although overall insurance coverage rates are unusually high in Hawaii, a substantial number of people remain uninsured, suggesting a need for alternative approaches if universal coverage is the ultimate goal.

In other words: much ado about not only nothing, but an increased “normal” full unemployment rate. But, hey, the President needs to keep the public distracted from the real problem, which is the nearly $3 trillion spent and $10

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