Depression Watch (Dec. 12 2008)

Dow Close (Fri) 8,629.68 64.59 (+) vol. 331.25M
Last Friday's close 8,637.09 260.85 (+)
Fri-to-Fri Change = 7.41 (-)
previous FFC = 191.91 (-)
VIX (Tues) 58.91 0.42 (+)
VIX (Wed) 55.73 3.18 (-)
VIX (Thurs) 55.78 0.05 (+)
VIX (Fri) 54.28 1.50 (-)
VIX (wk-avg) 56.175
Oil (Fri) $46.28
Oil (Last Fri) $40.81
Oil (FFC) $5.47 (+)

While, Main Street is concerned with the jobs that it's losing - and not with Wall Street - understanding Wall Street is key understanding why jobs are being lost. However, the real reason for the disconnect between Wall Street and Main Street is never seriously addressed. Yet, if people want to have a job, or keep theirs, then Main Street must come to an understanding of how Wall Street works.

First comes the understanding of Wall Street. Wall Street is the bank, and the bank makes doing business possible: the business that creates your job. We can, and have shown [g1], that as the market goes up, the number of jobs goes up and, conversely, as the market goes down, the number of jobs goes down. The next question that has to be asked is - can the direction of the market be predicted?

[g1] shows us what a long term recession, like the 70's looks like, and it showed the 81-82 recession. However, beyond that, economic conditions were not as obvious, and at the time, neither were any of the recessions. This now takes us further into technical analysis of the market. The technical analysis is basically - math and graphs. On the more extreme end is probability theory and a mathematical model of the market. This comes with the introduction to the VIX [g2].

Historical charts sets the environment (context) for which analysis needs to be done. This means that because the VIX starts after the beginning of the DOW, the VIX chart sits within the context of the DOW. Here's were things get tricky, not all technical analysis is the same. There are two fundamental divides; 1) physics and 2) mathematical. Under physics, models cannot be purely mathematical, but must be an approximation of reality. However, this does not hold for mathematical models. The statistics that the public sees in the media is of the mathematical model, and not the physics model. The problem here, effects in the model, may not be real - but generated by the mathematics. This is how the VIX and options traders could miss the Oct 2008 market collapse.

Treasury 12/12/2008

1 Month Bill 0.01% -0.01
3 Month Bill 0.01% 0.00
6 Month Bill 0.21% 0.05
2 Year Note 0.76% 0.01
5 Year Note 1.52% 0.02
10 Year Note 2.57% -0.02
30 Year Note 3.05% -0.02

Graphs

[1]



[2]

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