Friday, October 31, 2008

Fear subsides, prices rise

Fear is slowly subsiding as reflected by a declining VIX index. Stock prices are rising, and probably have much further to go on the upside. The market has digested all the bad news, and the financial market is slowly healing its wounds of the past month. This is all very healthy, and this is no time to be pessimistic.


housam said...

Scott,First off I would like to thank you for your unique insights.If It wasnt for reading your blog,I probably would have sold most of my equities and decided to never return again(I am glad I did'nt).One question that has fascinated me with your analysis which I found to be quite interesting is your inverted 2 year swap along with equities and whether or not that same correlation was observed in the 1987 crash which leaned to more of a flat line afterwards rather than a retracement?your opinion is appreciated.


Scott Grannis said...

My data on swaps don't go back to '87, but maybe I can find it somewhere. In any event I'm pretty sure swap spreads were not anywhere near as elevated then as they have been this year. This crisis is all about a banking panic--fear of massive financial defaults and paralyzed interbank markets. All credit spreads have zoomed out to unheard of levels as a result. So a significant decline in spreads is absolutely necessary in order to see light at the end of this tunnel. That wasn't the case in '87. Back then we had concerns about the dollar and program trading, and it all happened in a very short period of time.