The most recent Fed flow of Funds report was just released – http://www.federalreserve.gov/releases/z1/Current/ We use this report to calculate the Q Ratio which is a measure of estimating fair value of the stock market.  A figure of 1.0 is considered fair value.  For a reference point, during the dot com bubble, the market was extremely overvalued.  The q-ratio peaked at 1.8 in March of 2000.  In times of extreme bear markets (1929,1974, 1982), the q-ratio reached and bottomed at .30 Based on the latest value of net worth  (section B.102, line 32 ) and market value of equities (section B. (more…)

Retail and institutional investors have been stunned at recent stock market volatility. The general thinking is that everything is related to the global financial crisis, starting, for the most part, in August 2007, when the Volatility Index, or VIX, started to climb. We believe, however, that there are more fundamental reasons behind the explosion in trading volume and the speed at which stock prices and indexes are changing. It has to do with the way electronic trading, the new for-profit exchanges and ECNs, the NYSE Hybrid and the SEC’s Regulation NMS have all come together in unexpected ways, starting, coincidently, (more…)