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Some See Silver Lining In Market Volatility

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By TED JACKOVICS

tjackovics@tampatrib.com

Published: December 28, 2008

TAMPA - In September, a continuing decline in the price of oil bolstered consumers' outlooks. In October, news of the potential for a collapse of worldwide financial markets brought despair.

In November, expectations that a new U.S. presidential administration would bring change bolstered the spirits of many. In December, economists officially declared that the recession had begun the year before.

The volatility in the geopolitical realm has contributed to volatility in the financial markets.

So what's an investor to do, with uncertainty the constant companion to distressed stock and real estate markets that have shredded investment and retirement plans alike?

"Volatility, volatility, volatility" has characterized the picture of the U.S. political and financial scenes in recent months.

Financial experts generally speak of volatility in the more narrow sense of stock market fluctuations, rather than a more inclusive picture of the ever-evolving political, business and social influences that can affect the markets.

And to them, there hasn't been a more volatile period in decades compared with what has transpired in recent months.

"You look at the screen and one day it's up and one day it's down," said Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg. "You haven't seen that kind of up one day and down the next in frequency since 1930."

But look fast.

In October and November, the Chicago Board Options Exchange's Volatility Index, known as VIX, posted figures resembling those of an emerging or frontier market, not the biggest, most developed market in the world, the Bespoke Investment Group said in an online report.

"Up until the start of 2008, a daily move of 4 percent in a 50-day period was noteworthy," the Bespoke report stated. "From 1945 through 2007, the S&P 500 had 49 one-day moves of 4 percent or more, which is an average of less than one per year. This year we've had 28!"

The next Bespoke report, however, noted that the volatility bubble had begun to unwind in December, with the VIX in decline more than 50 percent from its highs.

So, again, what's an investor to do?

"We told people a year ago to raise cash and come into this year with caution," Saut said.

So now it could be time after remaining cautious to commit to investments some of the cash reserves people have been holding, he said.

"Volatility breeds opportunity for the well-prepared investor," Saut concluded.

Tribune reporter Ted Jackovics can be reached at (813) 259-7817.

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