It’s probably inappropriate – and unwise – for me to note this, but I’ve been enjoying watching the equity and commodity markets for the past couple of days. In case you haven’t been following them too, here’s what the equity markets have been doing: up, up , up, DOWN, down, down.
That’s right, the market’s swinging around again by more than a percentage point, rather than meekly moving a few tenths of a percent each day. As a professional market watcher, it makes much better chart TV. Here’s the Dow Jones Industrial Average over the past few days:
For traders it makes for exciting and hair-raising days too, as everyone watches the Greek debt crisis and speculate on what it will mean for today’s market.
At the top I said it was possibly inappropriate for me to mention I enjoy these kinds of markets, and that’s because most people look at volatility as a bad thing, and the enjoyers of such the equivalent to the rubberneckers who gawk at car crashes. I guess most folks don’t really look at all volatility as a bad thing, just the volatility that sends prices lower. The other side of volatility – prices going up a bunch – well, that’s seen as natural.
But I like to see volatility not just because it makes for better charts and something to write about, but also because I always think that volatility gives options for buyers and sellers. Volatility can be unsettling for people uncomfortable with markets already, but for those who love the ebb and flow of investor mood, volatility is a sweet perfume. It shows that the people out there are really paying attention.
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And what’s going on right now is that no one quite knows what to make of the Greek debt crisis. Is the bailout going to work? Is the contagion going to spread to Portugal, Spain, Italy, Ireland, even the U.K.? The market doesn’t know. There’s no consensus. So prices shoot up, slump down, rip around a bit. VIX, the measure of equity option volatility, shot up by 27 percent yesterday.
The re-entry of volatility has brought back not just VIX, but also a hint of linkage, with reports from the commodity markets attributing commodity price swings in recent days to the various impacts of the Greek crisis, from the surge of the U.S. dollar and drop of the Euro, to a flight from commodities because of fears of a new recession, to a race into commodities in order to take advantage of suddenly better economic times ahead.
What does it mean for crop prices? Well, it doesn’t seem to have derailed a little rally in spring wheat in Minneapolis.
But the situation’s a little less clear with corn and soybeans, which are the crops that set the base for all the crops we grow up here. If you look into the corn and soybean markets to try to find a clear sense of direction, you’ll have trouble finding it:
But that’s part f the fun of volatility, isn’t it? You can spend all day arguing about what direction the market’s going and you won’t be any wronger than the person you’re arguing with. Volatility may muddy the waters, but it gets boring peering through the clear, crystalline waters of a trending market.
