Short sales are (maybe) back to the market tomorrow. Has doomsday arrived? A look at the market through ETFs.

First, conventional wisdom is that despite the meltdown (and yes, Matt I will stand up here and call it that with pride, because if THIS isn't a market meltdown, what would be?). I've seen markets plunge before and I've felt this same raw fear, but I think I've never quite felt this complete capital-freeze feeling that is in the air. I mean, where did all the money go?

First, on the short sales thing, I think I'll put my odds with Matt that the Financials short sales ban will not be allowed to expire, though conventional wisdom is that allowing it to do so would not cause a meltdown of markets as you now actually have to have a locate on a borrowed share to sell it short. That will slow up the shorting activity a bit and make buying of more shares necessary to the process.

And now onto MELTDOWN 2008 (roll the dramatic CNN music).

Just to satisfy my own curiosity, I thought I'd take a gauge of just how bad it is out there, by selectively looking at the YTD returns of a number of the biggest ETFs. I'll put in the fund names for those of you who aren't big enough ETF geeks to have all the tickers memorized. I've used Morningstar data, which for ETFs now shows market total return percentage (which is based on actual market trading price returns) and NAV total return percentage (which is based on the returns of the actual underlying holding). And let me confuse you some more: This is NOT about tracking error. That would be to the actual underlying INDEX. This is about premium or discount of the ETF shares to their actual underlying holdings.

By the way, we're radically expanding our own data and within the next month, will make the ETF and index fund database even better in terms of scope and utility.

www.indexuniverse.com/data

Anyway, the returns picture is NOT pretty:

Year-To-Date 2008 Total Returns

Source: Morningstar. Data as of 10/7/2008 market close

Some of those numbers are clearly off a bit and look a bit like 10/7 market numbers and 10/6 NAVs (VTI in particular stands out). But you get the point—the market is TANKING. Big-time.

Ending on DBC, I thought it would be interesting to look at the ETNs, because the iShares GSCI is the only ETF which is directly comparable to an ETN tracking the same index. And I've thrown in the biggest commodities fund, the iPath DJ-AIG just for fun. Interesting numbers.

So I guess that what this is saying is that iShares ETF NAV is beating the index NAV return (which is presumably represented by the iPath NAV %) by almost 100 basis points. And it sure needs it, as the market % is underperforming the NAV% by over 200 basis points. But look at that spread of returns across the commodities sector. From -6.21 to -17.34.  And these are supposedly comparable broad baskets of commodities.  I dare you to make try to make sense of the range of indexes and product structure in that space. A dissertation could be written on that subject alone.

This is just a blog—I welcome anyone's thoughts on this in the comments after the article or in an email to me if you'd like. This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Volatility Up, WAY Up

A couple of interesting things from yesterday's continuation of the Stock Market Horror Show. I'd noted on Tuesday that VIX had cracked 50 for the first time in its 18-year history on Monday. It bettered itself in another wild day yesterday. Here's a snapshot from Matt Moran of the CBOE:

• Today (10/7/2008) the CBOE Volatility Index (VIX) closed at 53.68, another record closing price.
• Today's volume for SPX options—1,225,700 contracts  (501,809 calls and 723,891 puts).
• Today's volume for SPX options—134,852 contracts    (69,881 calls and 64,971 puts). 

TOP 10 DAILY CLOSING PRICES FOR CBOE VOLATILITY INDEX (VIX)

1       7-Oct-2008      53.68
2       6-Oct-2008      52.05
3       29-Sep-2008     46.72
4       8-Oct-1998       45.74
5       10-Sep-1998     45.29
6       2-Oct-2008      45.26
7       3-Oct-2008      45.14
8       5-Aug-2002      45.08
9       23-Jul-2002      44.92
10     31-Aug-1998    44.28

ONE-YEAR % CHANGES (THROUGH OCT. 6)

207.8%          VIX             CBOE Volatility Index          
119.9%          OVX            CBOE Crude Oil Volatility Index        
111.2%          VXV            CBOE S&P 500 3-Month Volatility Index  
52.3%          VWX            CBOE Lehman 5-Month VIX Futures Index  
-10.4%          PUT            CBOE S&P 500 PutWrite Index    
-12.6%          BXD             CBOE DJIA BuyWrite Index       
-14.7%          VPN             CBOE Capped VIX Premium Strategy Index 
-16.1%          BXM             CBOE S&P 500 BuyWrite Index    
-30.7%          SPTR            S&P 500 Total Return           
-31.1%                             Russell 3000 Total Return Index

YEAR-TO-DATE % CHANGES (THROUGH OCT. 6)

131.3%          VIX             CBOE Volatility Index          
78.9%           OVX             CBOE Crude Oil Volatility Index        
67.9%           VXV             CBOE S&P 500 3-Month Volatility Index  
21.6%           VWX             CBOE Lehman 5-Month VIX Futures Index  
-12.1%          PUT             CBOE S&P 500 PutWrite Index    
-12.8%          BXD             CBOE DJIA BuyWrite Index       
-13.6%          VPN             CBOE Capped VIX Premium Strategy Index 
-17.1%          BXM             CBOE S&P 500 BuyWrite Index    
-26.8%          SPTR            S&P 500 Total Return           
-27.0%                              Russell 3000 Total Return Index

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