When will the economy be improved? It's sort of like baseball!
First, credit markets must improve more and yield spreads need to tighten. Currently corporate bond yields compared to treasury yields are the highest since 1932. With rates this high, it's more difficult for companies to make a profit. Another measure is high-yield bond spreads. Currently high-yield bonds trade at 17% above treasuries. Even in the Great Depression, the spreads were not that large.
Second, equity markets need to improve. Stock markets have had much higher than average volatility in the recent past. A bullish indicator is when volatility (VIX) is 20-30. It has been above 30 consistently since September 2008. Last week it was 33.1. In addition, price earnings ratios normally dip into single digits (the current P/E is about 13 to 16 right now) before a bull market takes off. Keep in mind, P/E can decrease because earnings increase or because prices drop.
Third the economy begins to improve. So unemployment decreases instead of increases and the economy grows instead of shrinks.
Feel free to add comments.
First, credit markets must improve more and yield spreads need to tighten. Currently corporate bond yields compared to treasury yields are the highest since 1932. With rates this high, it's more difficult for companies to make a profit. Another measure is high-yield bond spreads. Currently high-yield bonds trade at 17% above treasuries. Even in the Great Depression, the spreads were not that large.
Second, equity markets need to improve. Stock markets have had much higher than average volatility in the recent past. A bullish indicator is when volatility (VIX) is 20-30. It has been above 30 consistently since September 2008. Last week it was 33.1. In addition, price earnings ratios normally dip into single digits (the current P/E is about 13 to 16 right now) before a bull market takes off. Keep in mind, P/E can decrease because earnings increase or because prices drop.
Third the economy begins to improve. So unemployment decreases instead of increases and the economy grows instead of shrinks.
Feel free to add comments.
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