Wednesday, October 14, 2009

Fear subsides, prices rise (13)



Another quick update to one of my favorite charts. Implied volatility has fallen to a new low for the year, and stocks are at another new high. The market is gradually losing its fear of the future, but I note that at 22.8, the VIX index is still almost double the level that prevails during times of relative tranquility. And credit spreads, a key measure of confidence, are still at levels that in the past have been consistent with recessionary conditions. So we might say that the market's improvement to date amounts to a recovery from conditions of extreme fear and uncertainty (and a market that was braced for a fearsome depression and global deflation), to a condition of moderate fear and uncertainty (and a market that is braced for a modest recession). There is still plenty of room for further improvement.

7 comments:

alstry said...

Scott,

It appears that government and health care are starting to cut workers in increasing numbers.....my guess is in part to evaporating revenues to the sectors....

Since government and health care are the two largest employers.....where do you see growth going forward to justify the rising prices?

Public Library said...

"There is even less interest in returning the current financial system back to its traditional proper function. That is, of being the provider of credit to the sectors that produce the goods and services needed for economic development and widely shared improvement in living standards.

Not, as it is today, a sector that produces credit for itself in order to finance speculation in its own debt.

If the system that produced the crisis is not changed, one does not have to be a great economist to forecast that we will repeat the crisis again.

In fact, as we meet, the great international banks and financial institutions are creating new types of exotic derivatives.

Instead of betting on the default rates of subprime mortgages, they are betting on death rates of people with life insurance policies."

Ahh the beauty of the markets. Your blog will be an interesting place to visit when we reconvene on another crisis. My bet is it will be far sooner than most believe.

The US$ is in deep trouble. The debt laden American landscape has not change a bit except that it is all piling up in Washington DC.

Perfect storms are lining up all over the place. I seriously doubt peace and tranquility will the out-lier bet of the next 5 or 10 years.

Scott Grannis said...

Public: so far you are the king of the pessimists that visit this blog. It will be fun to see what happens and who is right.

Scott Grannis said...

alstry: as you know, employment is a lagging indicator. So the loss of government jobs doesn't particularly concern me right now. I'm more impressed by strong profits, strong commodity prices, and a strong equity market. They are telling me that the inner workings of the economy are getting healthier, and that job growth will return, probably early next year.

alstry said...

Scott,

I agree government is bloated anyway....however, at what point should we be concerned if we start seeing large cuts in heatlh care.....isn't health care over 10%of the workforce?

MW said...

"alstry: as you know, employment is a lagging indicator."

Historically that is true, but employment has been leading (at least on the way down) in this downturn.

Public Library said...

The equity markets were a lagging indicator during this crisis.

In fact, I read a study that showed equity markets have no predictive powers in regards to oncoming recessions.