The markets have become a carnival, as volatility hits an all-time high. Here’s a summary of the damage.

As the panic sets in, a carnival-like atmosphere emerged on Wall Street, as former Lehman CEO Richard S. Fuld Jr. showed no sorrow and accepted no blame for the Lehman Brothers collapse. He did take “full responsibility” while effectively taking no responsibility. And it emerged on CNBC that shortly after the collapse, someone at Fuld’s gym punched him in the face.

Meanwhile, VIX, the CBOE volatility index, broke 50, the highest level it has reached in its 18-year history.

As the market dropped off a cliff down into the netherworld of the low 9000s, and then soared back up over 10,000 again, you got the sick feeling that we’re again on a roller coaster of volatility that is mainly trending downward, to levels not seen since George W. Bush’s first term. It’s like watching a train wreck in slow motion … it’s really hard to take your eyes off of it.

And it’s clear that no one is trusting anyone on credit, and THAT is a very serious issue that is still mucking up the gears. And in the midst of it all, as I mentioned yesterday, the dollar is soaring. The (fairly well-supported, it seems) theory is that international investors are flooding the market with dollar purchase orders to pay back loans originally made in (formerly safe, low-interest) dollars. In doing so, the flows are pushing the U.S. dollar and Japanese yen up and just about everything else down, in the unwinding of what is effectively an enormous carry trade. Interesting stuff, and intimately tied to the credit crisis. To see the WSJ take on that, click here (paid subscription required).

Meanwhile, 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 lot 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. Here goes …

Year-To-Date 2008 Returns

• VTM -10.44 (Vanguard Total Market)
• SPY -11.60 (SPDRs S&P 500)
• QQQQ -11.68 (NASDAQ 100 Trust)
• DIA -13.42 (Dow Jones Industrial Average DIAMONDS Trust)
• IWM -8.90 (iShares Russell 2000)
• EFA -10.86 (iShares MSCI EAFE Europe/Asia)
• EEM -8.67 (MSCI Emerging Markets)
• GLD 10.84 (SSgA Gold Shares Trust)
• XLF -28.74 (Select Sector SPDRS Financials)
• XLE 12.10 (Select Sector SPDRs Energy)
• AGG 1.14 (iShares Lehman Aggregate total bond fund)
• DBC 42.02 (Deutsche Bank Commodities Index ETF)

I thought that couldn’t possibly be right on the Deutsche Bank Commodities fund, so I did a comparative lookout of the energy-heavy GSG – iShares GSCI fund:

• GSG 0.96

Doing a double take, I went to proof it on the PowerShares site, which oddly doesn’t seem to show YTD, but it DOES show the DB Commodity index return at a one-year level of 80.51 (à la China in 2007/2008), and that compares to GSCI at 76.01 and DJ-AIG of 41.56. Again, one year; not year-to-date. Digging into closing prices, to proof it, I show a closing price of 29.24 yesterday and a January 2 open of 32.06, so obviously Yahoo finance has its year-to-date return on that one wrong unless Kevin Rich has been paying out some FAT dividends. So take the above with a bit of a grain of salt—though down 10% sounds mostly right. And I know gold is up. So they otherwise feel right to me.

And you get the sense that we’re not out of this yet. I honestly wouldn’t be surprised to see 7,500; and the way things are gummed up around money flow right now, it feels to me like we may not be out of this for another 5 years. I hope I’m wrong. But I’ve never seen anything like this before where the money is just not moving. Treasuries are down to zero interest, overnight loans in dollars are going out at crazy rates of over 5%, etc. It does not look good.

And just for fun, let’s not forget there is an election on. And you can bet on the Obama index or the McCain index if you so choose. I always put my faith where the money in the markets is, not what the polls say … though right now they both seem to be more or less agreeing.

Intrade, where you can buy election futures, has Obama with 353 delegates, McCain with 185.

The equivalent polling map from www.realclearpolitics.com shows Obama has a great current electoral map that aggregates all the various polls. Remember that Bush won with 271 electoral votes in 2000 (270 needed to win). This shows Obama/Biden near that threshold even without any of the toss-ups (which Intrade includes).

Just interesting. So you can hedge your tax exposure, the dollar or whatever, by taking out futures on one or the other. Technology today. Now hopefully the market holds so that all we’re doing in a few years is trading potatoes for knitted sweaters and things like that. I’m looking for that bunker in Idaho still.

Last 5 posts by Jim Wiandt

• FINRA Warns On Leveraged ETFs - June 19th, 2009
• What is Wrong With Matt Hougan? - June 16th, 2009
• ProShares, Direxion Are NOT ETFs - June 16th, 2009
• Shock And Awe - June 12th, 2009
• ETFs Are A Scam? - June 10th, 2009