Here's an update of a chart I posted about a month ago. See here for the post and a detailed description of the index. In short, the index measures the degree (in standard deviations) to which conditions in the equity, bond, and money markets are deviating from their long-term average. Things have improved dramatically from the low point at the end of October. I have long maintained that improvement in the financial market fundamentals was a necessary condition for an improvement in the physical economy. This is a good reason to remain optimistic that we have seen the worst of the crisis and also to believe that the economy is already on the mend. Very bullish.
Friday, May 29, 2009
Financial conditions are improving (2)
Here's an update of a chart I posted about a month ago. See here for the post and a detailed description of the index. In short, the index measures the degree (in standard deviations) to which conditions in the equity, bond, and money markets are deviating from their long-term average. Things have improved dramatically from the low point at the end of October. I have long maintained that improvement in the financial market fundamentals was a necessary condition for an improvement in the physical economy. This is a good reason to remain optimistic that we have seen the worst of the crisis and also to believe that the economy is already on the mend. Very bullish.
IIRC the index is very badly constructed, in that it has a massive forward looking bias (it's S.D. over the entire sample period).
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