Saturday, October 11, 2008

US market 'fear index' high

Going into the earnings season next week, the "fear gauge," a measurement of investor jitters is at an all-time high.

The Chicago Board Options Exchange Volatility Index (VIX) measures investor fear by the cost of insurance options bought to protect against declines in the S&P 500.

On Friday, the VIX closed at 69.95, the highest point in its 18-year history. That represented a 9.434% increase over Thursday's close, which was also broke the previous record.

Value for VIX:IND

Chart the Performance of VIX:IND

The lack of a strong coordinated response at the G-7 meeting is also worrying investors. There was a lack of agreement among members although there is some growing consensus on a recapitalization of major banks.

One problem is that an uncoordinated response could cause damaging fluctuations in the market. For example, when Ireland unilaterally guaranteed bank deposits, people in Britain began withdrawing their savings in British banks and transferring them to Irish banks.

Many are worried that Britain's decision to guarantee inter-bank loans could have the same effect of siphoning off money from other nations without such protection in place.

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