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Volatility update

Fear—emanating primarily from Europe—continues to be the big driver in most markets around the world. Today that fear eased a bit as talk out of the Eurozone pointed to more serious steps being taken to deal with the sovereign debt crisis. The Vix declined, and equity prices rose in lockstep.

Here's a closeup look at the Vix Index over the past six months, and since early 2008. The good news is that we haven't scaled new heights of fear since the latest round of the crisis erupted in early August. The bad news is that the Vix remains quite high, fear is still intense, and to date there has been no definitive resolution to the crisis.

Good friend Ashby Foote today noted that this crisis is not at all like a "Black Swan" event that catches the world totally by surprise. That reminded me once again of my post comparing Europe's sovereign debt crisis to Los Angeles' "Carmageddon". When looming losses stare the world in the face for 18 months, people take notice and act. The world has had plenty of time to brace for a Greek default, beginning early last year. When it finally happens, I would be surprised if markets deteriorate further; they might even rally, happy to have eliminated the uncertainty at last. Angelenos went into Carmageddon weekend convinced that they faced a nightmarish gridlock; instead, there was hardly any traffic to speak of.

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