The Consumer
Rudolph-Riad Younes made an interesting comment in his Barron's interview about home equity borrowers in the US.
Wages + Home Equity Borrowing = Living Standard
In the context of discussing why there has not been much wage pressure in the US he said consumers have been taking out their equity to fund the gap thus averting wage pressure. That will change if/when "that sort of financing dries up for the consumer."
While this makes sense and seems intuitive I hadn't thought of it this bluntly. I am not trying to make a prediction from this but I think is worth passing along.
VIX ETF
In response to my off hand remark about a VIX ETF a comment was left asking how to invest in VIX given that there is no ETF. There is a futures market on the CBOE that I have not studied. There is an options market for VIX that is tradeable through any brokerage firm. The volume is decent and their is plenty of open interest in a lot of strikes. These can be difficult to trade however due to some strategic limits.
You know that VIX has generally been low for a long time, save for a few spikes. From 11.76, Friday's close, who is going to buy any puts? Selling puts seems sort of attractive but the only buyers (the use of the word only is hyperbolic) would be people putting on some sort of multi-legged combination. Generally there is more volume and open interest in calls than puts.
Using options risks worthless expiration. An ETF would avoid that issue, albeit more expensively. There are people that know a lot more about this than I do, maybe Adam Warner will find this post and weigh in?
Wikinvest Wire
2 comments:
found it! Unfortunately i can't keep awake right now. Will try to add something to it tomorrow.
I do not agree with the simplistic equation of Younes that places such unique importance on the home equity line of credit to "Living Standards". We have had home equity lines of credit available for over twenty years. For many of these years, the interest rate was significantly higher and the terms worse than today. Does Younes think that during the failed presidency of Jimmy Carter that 14% first mortgages were putting fewer individuals at risk than at present? Somehow, almost all of us survived and thrived. Taken to the absurd,Wages+InvestmentIncome+Unde-clared Income+Appreciation of assets+Tax relief+Internet price comparison savings+ x (all other savings and income enhancements)- costs= Living Standard. As with every other generation, most people choose wisely and live within their means.Others fall prey to wanting everything even if they can't afford the "wants". Maybe the article in Barron's addressed the situation in depth. If not, I'd give his equation a "D" in an elementary school math or logic test.I would be tempted to give him an "F" in a history pop quiz.
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