Mongkol Onnuan
Here is a very short post to highlight the excellent state of today's financial situation. At least one important conclusion can be drawn from this: there is no shortage of liquidity and financial markets therefore have the freedom to do so do what they do best: namely, redistribute risk from those who don't want it to those who value the risk. This is a very important function of free markets as it reduces the overall fear level of the market, thereby minimizing the risk of disruptive influences and panic.
Diagram #1
Chart #1 shows Bloomberg's Financial Conditions Index. The components of this index are listed below in the fine print and represent a comprehensive range of risk indicators. By this measure, today's markets have almost never been healthier.
Diagram #2
Chart #2 shows corporate credit spreads and the difference between them the returns on corporate bonds of different quality and the returns on government bonds of comparable duration. Spreads have rarely been tighter than they are today, giving the market a strong vote of confidence in the future health of corporate earnings and, in turn, the likely health of the economy.
I just want to add that the VIX index (aka Fear Index) is as low as possible. Thanks to these measures, we live in “unstressed” times.
Original post
Editor's note: The summary bullet points for this article were selected by Seeking Alpha editors.
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