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.

1 comment:

__ said...

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).