Monday, August 31, 2009
This chart is meant to add to my previous post. It shows the implied volatility in bond and stock options. Note that vol has dropped significantly from the highs of late last year, but it still remains at elevated levels from an historical perspective. I take this to mean that the market is still very nervous about the future, which is another way of saying that the market's outlook for the economy is far from clear. That's why you see lots of talk these days about a W-shaped (double-dip recession) recovery, or an L-shaped (no recovery) recovery. My point is that this market is not priced to optimism, and is still plagued by lots of doubts and fears. If the economy can mount even a modest recovery, as it appears to be doing, then it will pay to be optimistic.
Posted by Scott Grannis at 10:32 AM