Thursday, June 11, 2009

US Financial Conditions Are Best Since June 2008

The Bloomberg U.S. Financial Conditions Index "combines yield spreads and indices from the Money Markets, Equity Markets, and Bond Markets into a normalized index. The values of this index are z-scores, which represent the number of standard deviations that current financial conditions lie above or below the average of the 1992 - June 2008 period."

MP: The chart above displays the Bloomberg U.S. Financial Conditions Index daily from May 1, 2008 through today (June 11, 2009), and shows that the index is now at the same level as June of last year. Based on this measure, financial conditions in the U.S. were at their worst in October 2008, and have been improving steadily for the last 8 months. The last time the index was at this level was June 19, 2008.

17 Comments:

At 6/11/2009 5:12 PM, Anonymous Anonymous said...

I certainly hope that the optimism is warranted. Of course, it always pays to consider what might go wrong:

The Next 10 Shoes To Drop

 
At 6/11/2009 5:47 PM, Blogger Hot Sam said...

Nice link Anonymous.

2, 3, and 6 are more likelihoods than possibilities. CRE and Alt-As are charging in to hit banks when they are down. The threat is manageable if we are proactive. 6 is already underway, especially in California, and getting worse by the day. Just today the California comptroller released tax revenue data - it was not good.

1 is the Y2K of the current decade. Thousands more people have died from the garden-variety flu than swine flu. My friends at the CDC are "concerned" because any pandemic is their bailiwick, but they are trying to calm excessive hype from the media and a certain Vice President.

4 is a problem only if we allow it. Socialism causes worldwide food shortages. But here, just like during the Great Depression, we're dumping milk and slaughtering cattle while people go hungry. It's a crime. If we're going to run a deficit, I'd rather buy milk and beef and give it to the unemployed or ship it to poor countries than support the UAW.

7 is unlikely. The FDIC has already handled the biggest bank failures in an exemplary manner. They have an unlimited line of credit from the Treasury and are replenishing the Deposit Insurance Fund with moderately increased assessments on banks.

8: inflation is likely but by runaway do they mean hyperinflation? I don't think so. High inflation - a possibility.

10: I am far less beguiled by this Asian tiger than most people are. I think most of the data coming out of China is complete crap. The country just laid off 20 million migrant workers. What does that tell you? Every day that the dollar declines in value their portfolio fall into the crapper and makes it harder to maintain their currency. At some point, the bamboo has got to break.

As for 5 and 9, I'm more worried about another 9/11 than war between those parties.

 
At 6/11/2009 6:05 PM, Anonymous Anonymous said...

"My friends at the CDC "

Pffffffftttt!!

 
At 6/11/2009 6:47 PM, Blogger Benjamin Cole said...

I am not sure some inflation will be bad. Say 5 percent a year for 10 years. Invalidate half of our debt. Invalidates half my debt too, and that ain't all bad.
Sure, most of the time inflation is bad.
But consider the enormous debts we have run up, and the utter lack of political will to pay it down.
The best we can hope for is steady inflation, and a federal deficit that narrows somewhat.
Barring a return to the 1950s-era Republican Party (they stuck with a 90 percent top income tax rate), or a Clinton Presidency-R-Party Congress (moderate spending, moderate taxes), we will be borrowing money for years to come.
And G-d preserve us from debts incurred to huge trade deficits. Happily, unique o Earth, we can pay back our trade debts with cheap dollars.
G-d looks after drunks, fools and the United States.

 
At 6/11/2009 9:47 PM, Anonymous gettingrational said...

Prof. Perry saw what few others did in the financial clues and he gave us evidence that we were skeptical of. It is not glorious but it is improving.

Personal opinion: it will be slow and uneven (duh) but gradually better.

 
At 6/11/2009 10:34 PM, Blogger Hot Sam said...

Yeah, "my friends at the CDC" - two of whom went to grad school with me, one of which was also an undergrad with me.

Did you think I was speaking figuratively?

 
At 6/11/2009 11:40 PM, Anonymous Anonymous said...

Economists and investors hate it when something hits unexpectedly out of left field. Thankfully, all of "The Next 10 Shoes To Drop" have been "baked into the cake" for quite some time.

Now, if we all woke up tomorrow and found alien zombies had taken over the world, THAT would be something!

 
At 6/11/2009 11:52 PM, Anonymous Anonymous said...

This is part of a report from Reuters tonight...hold the 10th shoe for now...

China Industry Output Beats Forecasts, Sales Up

Reuters | 12 Jun 2009 | 12:33 AM ET

China's factory output growth rebounded in May alongside stronger expansion in credit and consumer spending, bolstering evidence that the world's third-largest economy is on the path to recovery.

The figures, which round out a batch of monthly data that has mostly surprised on the upside, suggest that the government's huge stimulus spending and tax breaks to encourage purchases of everything from cars to home appliances are helping to offset continued weakness in exports.

The acceleration in industrial production growth, to 8.9 percent compared with 7.3 percent in April, beat economists' forecasts of a 7.5 percent rise but was in line with a figure reported by two Chinese newspapers earlier this week.

Retail sales grew by 15.2 percent in the year to May, also beating forecasts and up from 14.8 percent expansion in April.

Together with the rebound in new domestic-currency lending in May, to 664.5 billion yuan ($97.3 billion) compared with 592 billion yuan in April, the data paint a picture of an economy pulling up from a bottom.

"The worst is over for the Chinese economy," said Hao Daming, senior analyst with Galaxy Securities in Beijing.

"The pace of destocking in the past three months has been very rapid. Now China has almost reached the end of the destocking process."

Asian shares moved towards new highs for the year on Friday, buoyed in part by the stronger-than-expected data, which helped add to hopes that the worst is over for the global economy.

 
At 6/12/2009 6:21 AM, Blogger juandos said...

Benjamin says: "I am not sure some inflation will be bad"...

Hmmm, I'm not arguing with you but did catch this bit in the Opinion Journal by Arthur Laffer?

Get Ready for Inflation and Higher Interest Rates

 
At 6/12/2009 6:22 AM, Anonymous Anonymous said...

It seems that the ADR Business Conditions Index* will have to get close to zero before green shoots signal an NBER recession trough.

* Its underlying economic indicators (weekly initial jobless claims; monthly payroll employment, industrial production, personal income less transfer payments, manufacturing and trade sales; and quarterly real GDP) blend high- and low-frequency information and stock and flow data

 
At 6/12/2009 6:31 AM, Anonymous Anonymous said...

juandos, Altig pins Laffer for the 3-count.

 
At 6/12/2009 10:11 AM, Blogger Hot Sam said...

When did the first big shoe to drop get "baked into the cake?"

If you think CRE concentrations and projected default rates are already provisioned and priced, you haven't the faintest idea what you're talking about.

No, no CRE or Alt-A shoe cakes on the table.

 
At 6/12/2009 10:34 AM, Anonymous Anonymous said...

Yeah, inflation would be just wonderful. That way debt ridden parasites can confiscate the savings of honest people without having to look them in the eye.

 
At 6/12/2009 10:41 AM, Blogger Alan said...

Anon@ 6:31, you and Altig are correct. McTeer's been making the same point recently (to little avail):

McTeer on the Fed's Balance Sheet and excess bank reserves

 
At 6/12/2009 11:46 AM, Anonymous Benjamin said...

No. !
First, thanks for addressing my post without personal invective.
I agree laregly with Laffer. The titantic unfunded liabilities are breathtaking.
I hope we pare back some programs (oh, boy,cutting Social Security payments ought to be fun). Personally, I would like to see a medical system with binding arbitration for all disputes (no more lawyers, ever), euthanasia for people who are terminally ill and aged, and just two or three private-sector single payors (or a tri-payor system) with uniform forms. Maybe then we could keep Medicare in line.
But, it ain't going to happen.
I would also like to see HUD, Dep't of Agriculture wiped out, and the military cut in half.
Ain't going to happen.
Printing money may be our only real-world option.

 
At 6/12/2009 5:28 PM, Blogger Hot Sam said...

I agree with Benjamin on cutting HUD and DOA. HUD is part of the cause of the housing crisis and the DOA mostly administers agricultural price supports which are illegal under FTAs. Their food stamp program can be shifted to DHHS. Crop research and land management can be absorbed by Interior.

Military cut in half?

Our nation of 300 million people has a combined Active and Reserve military force of only 2.8 million (less than 1%). Half of those personnel are in the Reserve Components.

About half of the US Army Reserve consists of training support units. The rest is Combat Service Support units. National Guard Combat units take 3-6 months of training to be combat ready.

We're barely manned enough to conduct what amounts to two large contingency operations much less mobilize for a full-scale war. We can leverage technology now far better than we could in 1991, but wars are still won by Infantrymen standing on a piece of terrain saying, "My rifle and I own this!"

The strongest maxim of military preparedness is that a nation always ends up in a war when it allows itself to be unprepared for one. The one and only exception to that rule was the Persian Gulf War which lasted only 100 hours.

Military cuts are an invitation for war.

 
At 6/12/2009 6:12 PM, Blogger juandos said...

"juandos, Altig pins Laffer for the 3-count"...

Not with the commentary you linked me to...

"I would also like to see HUD, Dep't of Agriculture wiped out, and the military cut in half"...

There is nothing in the Constitution that supports ANY of the socialist safety net/nanny state programs (from Social Security to school lunch programs to medical interference) by the federal government but does mandate an armed forces...

 

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