Bloomberg Financial Conditions Index Returns to Positive Territory

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Includes: DIA, QQQ, SPY
by: Mark J. Perry

When it comes to the financial crisis of 2007-2009, the month of October 2008 was "Ground Zero," by several measures:

1) The Chicago Board Options Exchange Volatility Index ((VIX)), a popular measure of the implied volatility of S&P 500 index options, soared to a record high of 80.06 on October 27, 2008 from less than 20 just 2 months earlier (the VIX is now below 20).

2) The TED Spread, a popular gauge of credit risk (measured by the difference between the 3-month LIBOR rate and the 3-month risk-free Treasury bill rate), soared to an all-time record high of 456.485 basis points on October 13, 2008 (it's now less than 18 basis points).

3. The Bloomberg U.S. Financial Conditions Index dropped to an unprecedented, historical low of -11.5 on October 10, 2008, falling by nine full points in just 30 days (see chart above).

All three of these financial market indicators have returned to their pre-crisis levels, and the U.S. Bloomberg U.S. Financial Conditions reached an important benchmark level Tuesday - it closed above zero for the first time since August 8, 2007, more than 28 months ago. Add this important event today for the Bloomberg Index to the growing list of economic and financial indicators suggesting that the recession is over, the economic recovery is real, and the financial markets have now returned to their pre-crisis levels.

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