Russia Sends Dow Down 200+; Is Ukraine a Black-Swan Event?

Tension in the Crimean region of Ukraine sent the Dow plunging, but the Fear Index remains relatively subdued. What's behind the disparity?

Mar 3, 2014 at 12:00PM

Russia's aggressive moves in the Crimean region of Ukraine sparked massive sell-offs around the world on Monday, with Russian stocks losing more than 10% of their value and European markets getting hit especially hard. Even the Dow Jones Industrials (DJINDICES:^DJI) were down more than 200 points as of 11:45 a.m. EST, and the S&P Volatility Index (VOLATILITYINDICES:^VIX) -- also known as the Fear Index -- was up about 16% as of midday. Yet even as investors in iPath S&P 500 VIX Short-Term Futures (NYSEMKT:VXX) and VelocityShares 2x VIX ST (NASDAQ:TVIX) celebrated with respective gains of 6% and 11%, the question many investors are asking is whether the potential for even further conflict in Ukraine is the long-awaited "black swan" event that many investors have looked for as potentially signaling a reversal in the 5-year-old bull market in stocks.

Despite all the uproar among global leaders and diplomats, investors thus far remain unconvinced that the conflict in the Crimea will become anything more than a minor regional event. Even though the Fear Index is up sharply today, its overall level remain far below past spikes in volatility. The volatility index would have to jump another 30%-35% just to match where it stood in early February, as investors seemed much more concerned about the cold weather's potential impact in causing a long-awaited correction in the stock market.

Meanwhile, for those seeking to profit from volatility, Russia's move could just prove to be another feint that doesn't produce a long-term change in the way investors assess market risk. Even with today's move, the iPath exchange-traded note remains more than 10% below its levels from a month ago, and it has lost more than 60% of its value since the beginning of 2013. The VelocityShares vehicle has produced even bigger losses over the long run, as investors have remained complacent for years even in the face of serious risks.

For now, there's little sign that investors see the Ukraine-Russia conflict as a potential black-swan event, and given the constant and ongoing geopolitical tension between Russia and its European neighbors, it's hard to say that such moves were completely unpredictable. Nevertheless, smart investors should keep their eyes open to further developments in the Crimea, as anything other than the widely held expectation that things will calm down in due course could indeed spark a more substantial sell-off.

Are you protecting your finances?
If you're worried about your future, you need to make sure you get the most from Social Security, as it plays a key role in your financial security. In our brand-new free report, "Make Social Security Work Harder For You," our retirement experts give their insight on making the key decisions that will help ensure a more comfortable retirement for you and your family. Click here to get your copy today.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information