It's such a promising concept, harnessing volatility as a hedge, but it may not be there when you need it.

Matt—first of all, let me say, I LOVE VIX.  It is such a telling pulse on the market, and it's got such a cool name.  Conceptually, it is genius, because it has GREAT correlation benefits in times of stress ... SPOT VIX that is. And THAT, again, is what many people don't get about futures markets and futures-based products based on many conversations I've had.

If you were to get into this hypothetical new VIX ETN when VIX was at 20 and overnight VIX shot up to 80, you would almost certainly NOT quadruple your money. In fact, you might have the same 20 bucks (if that was your investment) that you started with. Probably you're up, but nowhere near the move on volume. 

And that is a shame, because if you looked at VIX in the fall, it directly reflected distress in the markets.

If your intuition tells you that extreme volatility is not a good indicator of upward-moving markets, you're right. 

Things are STILL too volatile for my taste to convince me the market is headed anywhere but sideways or down. When 200 on the Dow—even if it's up—is still a ho-hum day, you've got problems.

So again, you have this great concept of VIX as a perfect hedge. (It was pretty much the only thing going up in October). But because of the smoothing-out effect of the futures markets, it's a really diluted tool for that purpose.

(Srikant Dash at S&P is calling it a straight trading tool. I guess they don't like to use that word "hedge" over there these days.)

All that said, I STILL think VIX is cool, and I STILL think that the concept of a VIX ETN is extremely interesting.  But Murray was all over the issues in his piece from a couple days ago.

Speaking of the Dow being up 200, how about the Obama administration ramming that $800 billion-plus (so easy to say nowadays ... it's like nothing) stimulus plan through the U.S. House of Representatives WITHOUT A SINGLE REPUBLICAN VOTE ... so much for the end of partisanship?

Big things, big money ... mostly I'm there both on what the late Bush administration did and what Obama is doing. But the scope and magnitude of all this intervention is just stunning.