It’s been a rough two weeks for the markets, and pessimistic gauges are in the danger zone. Indexes have been down on several concerns, principally growth fears stemming from Europe and China, and now Ebola. This has been balanced against a number of positive developments:
1) Improving U.S. economy;
2) Low inflation;
3) Accomodative central banks;
4) Valuations mostly not expensive; and
5) Lack of investment alternatives.
Still, sentiment seems extremely negative.The CBOE Volatility Index is up over 80 percent in the last month; market internal indicators have deteriorated dramatically, with an expansion of new lows and much technical damage. CNNMoney’s Fear and Greed Index has indicated “extreme fear,” up from “neutral” just a month ago.
In addition, Federal Reserve vice chairman Stanley Fischer said the effort to raise rates in the U.S. may be hampered by the global outlook.
That’s a lot of negativity! Look for a calmer session today as market regroups.
1) Chrysler has returned! Well, sort of: Fiat Chrysler Automobiles (FCAU) begins trading on Monday at the Big Board. It’s been a long and tortuous road for Chrysler: it traded under its own name until 1998, when it was sold to Mercedes parent Daimler, then in 2007 sold to Cerberus Capital Management. Afterward, the company filed for bankruptcy in 2009, and Fiat’s first purchased its stake in 2011.
This is not an initial public offering (IPO), and it’s not really a secondary, either. It is technically an exchange offer. Fiat is swapping all its shares for Fiat Chrysler Automobiles. There will be a dual listing, in Milan and New York.
Both will trade ordinary shares, not as American Depositary Receipts (ADR). They are also re-incorporating under a Dutch domicile, from an Italian domicile.
2) Janus Capital is buying FS Holdings, the parent company of Velocity Shares LLC, which manages a group of exchange traded notes (ETNs) in the volatility and commodity space. Those include the VelocityShares Daily Inverse VIX Short Term ETN, which is essentially a short bet on the CBOE Volatility Index. The VIX has been up 85 percent recently, one of the biggest moves since 2011, so trading in these volatility ETNs has been heavy.
The problem is that most of these volatility ETNs are short-term tactical products that are used by professional traders and are not suited for long-term buy and hold investors. About 30 percent of VelocityShares offerings are in the commodity space, including natural gas, silver (USLV) and gold.
They also have a small suite of exchange-traded fund products.
What they get from Janus is a broad retail distribution network they don’t have. Looks like they are going to help them build out a suite of hedging products.
Janus has been busy recently; in addition to Bill Gross, in July they hired Noble laureate Myron Scholes as Chief Investment Strategist.