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A reminder of how closely correlated the value of equities has been, and continues to be, to the level of the market's fear and uncertainty.
Tuesday, March 2, 2010
Fear subsides, prices rise (16)
A reminder of how closely correlated the value of equities has been, and continues to be, to the level of the market's fear and uncertainty.
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3 comments:
is it fear subsidies prices rise, or excess liquidity chases asset prices higher, as in the last two asset price bubbles?
Scott,
SAAR car sales down three months in a row and February 2010 tax Federal receipts lower than last years dismal intake.......
All of this while government is running a collective $2 trillion dollar deficit driving billions of dollars of tax receipts back to government......
It appears that we are simply borrowing from Paul to pay Peter so Peter can pay taxes back to Paul and Paul didn't really have the money in the first place.
septizoniom: We know fear is subsiding: both VIX and MOVE (bond vol) are down big time. Also, money velocity is rising, which means money demand is down, another sign of declining fear. There also appears to be excess liquidity: dollar is lower than at the peak of the financial crisis, gold is higher, and commodity prices are higher.
I'd say the rise in risk asset prices could be driven by both of these factors.
Whether risk asset prices are a bubble is another story however. I don't see signs of excessive valuations, rather I see lots of signs of caution out there. Credit spreads are still historically high. Investors are still extremely risk averse, as evidenced by zero yields on cash. Bank loans are declining, which means borrowers don't want more risk and bankers don't want to take on more risk.
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