Tuesday, November 25, 2008

Fear is easing, but prices are lagging

Measures of fear such as the VIX and swap spreads are falling, and that is very good news since it reflects reduced systemic risk and improving fundamentals in general. Equity prices have bounced from their recent lows, but appear to be lagging the improvement in these key indicators however. Perhaps it's just because this is a holiday week, or perhaps the market is still trying to digest the news from the Obama camp. I detect very little enthusiasm (and rightly so) for Obama's big plans for fiscal stimulus, but his nominees are not crazy people who are likely to do stupid things. More information is needed.

John Tamny has a good article which explains how all the command-and-control in Obama's plans have dampened investor enthusiasm, and he also offers sensible suggestions for improvement. Obama needs to reflect some more on what sort of fiscal plan makes the most sense and triangulate accordingly. With all the smart people lining up behind him, you would think they could figure this out. I hope so.


The Therapist Is In said...

Get with it, Get on it, and Get over it.

Bob said...

There appears to be a conflict between the improving fundementals you point out and the uncertainty of the Obama administration and what they intend to do. That coupled with this weekends holiday and the upcoming Christmas season and the time until O gets sworn in could lead to a cap on any rally.

Scott Grannis said...

Bob: yes, the market is still extremely nervous. That almost guarantees that an eventual rally out of these depths of despair will be excruciatingly difficult, since the market will be climbing a gigantic wall of worry the whole way.