Watching the kids bob along in their costumes awkwardly strolling from house to house in search of sugar nirvana amid a sea of other little hunters made me reflect on recent market volatility. October’s roller coaster ride in the market definitely offered up a dose of panic and fear for many who unfortunately check prices daily. Ironically, like little kids in costumes, it wasn’t really that scary. Here are some comments on some spooky themes that may not be as frightening as they sound.

The Sell-Off in the S&P 500

After cratering almost nine percent since the start of the month on an intraday basis, the S&P 500 finished UP on the month. You read that right. For the month of October which offered one of the worst sell-offs in two years, the market actually rebounded and ended up about 2.4 percent. This is scary for traders who likely got whipsawed viciously but nothing to lose sleep over for a long-term investor. In fact it may have offered a chance, albeit a brief one, to invest.

The Energy Collapse

The US has essentially become the marginal price setter in the global oil market. The shale boom in the US has led to a surge in supply of crude within North America. The combination of horizontal drilling and fracking is transforming production. Supply is simply booming and prices are falling. Back in 2005, the US was importing ten times as much oil (petroleum and petroleum products) as it was exporting; now that ratio is down to 1.9x and seems to be heading even lower.

West Texas Intermediate, which was $104/barrel in late June is now about $80/barrel. Some US oilfields, including the Eagle Ford Shale and Permian Basin in Texas, would remain attractive for drillers even at much lower oil prices.

The bulk of new US shale oil developments are economic at prices for benchmark American crude down to $70-$75 per barrel, according to Wood Mackenzie, a consultancy. So the energy renaissance in the US doesn’t look like it will be derailed anytime soon. This collapse in energy prices is not scary for most developed markets. In fact it acts as a tailwind for the economy in some aspects. Some economists suggest that every $1 change in seasonally adjusted gasoline prices adds about $100 billion to the US economy or several tenths to GDP growth.

A ten percent change in the oil price impacts global GDP by 0.2 percent, says Tom Helbling of the IMF. According to The Economist, price declines normally boost GDP by shifting resources from producers to consumers, who are more likely to spend their gains than wealthy sheikhdoms. It’s also a plus for utilities, transportation companies and manufacturers that have high energy input costs. (And a bane to the oil-dependent economies in the Middle East along with Russia, Iran and Venezuela.)

Fear Itself

Are people fearful? Definitely. CNN/Money’s “Fear and Greed” Index remains pinned firmly on lows.

When investors are this scared you should be very brave. Active managers have panicked as well. At one point in October the National Association of Active Investment Mangers Exposure Index, which measures the average exposure to US equity markets plunged to under 10 percent! This is the lowest weekly reading in about four years! Birinnyi Associates noted recently that 64 percent of stock market bloggers were bearish and only nine percent bullish. Scared investors aren’t scary. Brave investors are scary.

Ebola Outbreak

Many pundits and bears were foaming at the mouth over Ebola (sorry about the pun). Let’s not discount the risk here. Ebola is a serious problem in certain areas of the world and the risks of an epidemic outbreak are serious. The Dow Jones Industrial average plunged over 400 points intraday on Wednesday, October 22, after some scary Ebola news suggesting the virus was heading onto US soil. It is important to note that the risk of Ebola is very much a factor of the size of one’s economy and its ability to deal with it. David Kotok from Cumberland sums this up:

“The African countries hit hardest by Ebola this year are Sierra Leone, Guinea, and Liberia. Those three African countries are poor. Their combined output estimated in gross domestic product (GDP) numbers is small. They have the bulk of the Ebola cases, about 9,000 cases combined this year.

“Half of those infected have died (World Health Organisation). It seems to us that as long as Ebola remains transmissible in its current form (contact with the bodily fluids of an infected and symptomatic person), countries with larger GDP will have a smaller Ebola threat because they have the means to address it effectively.”

We would agree. It’s ironic that the media frenzy and scaremongering that has ensued over this virus compared to the reality that there are over 3,300 to 49,000 annual US deaths associated with influenza during non-pandemic years. Ebola is scary but not that scary.

The End of Quantitative Easing (QE)

I can’t wait till the day comes where we all stop talking about the Federal Reserve (Fed). In fact, in my opinion, it will be a glorious time when the average person doesn’t ever hear the words Federal Reserve in the financial press.

On October 29, The Federal Reserve officially ended QE. Many pundits and analysts have suggested this would be the catalyst for a massive sell-off. Without the Fed supporting the market, they argued, we were likely to see an unmitigated sell-off. Cue the crickets.

It is likely defensible to suggest that QE has helped support asset prices somewhat along this five-year rally in the US equity market. It is almost assuredly, in my opinion, indefensible to suggest it has helped the “real economy” much (outside of the refinancing window it provided).

Given that the real economy in the US may be turning for the better I think it may help asset prices in the future — picking up where the Fed has left off. The end of QE may be entirely psychological, as QE in the first instance functions as a tax in some aspects because it removes interest income from the economy.

The end of QE is not the end of the world. Don’t lose sleep over it.

Like most fears in life, many do not see the light of day. For the discerning long-term investors these tricks often offer investment treats.

Nathan Kowalski is the chief financial officer of Anchor Investment Management Ltd. The views expressed are his own. Anchor Investment Management Ltd is licensed to conduct investment business by the Bermuda Monetary Authority. He can be reached via e-mail at nkowalski@anchor.bm

Disclaimer: This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by the author to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Investment involves risks. Readers should consult their financial advisers prior to any investment decision. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.