Six indicators are jointly signal that the bear has made its worst:
1. The TED spread - 100% accurate
This indicator is the yield differential between the front-month 90-days T-bill and Eurodollar contracts. Maintained its 100% accurate assessment of all financial crises since 1974.
What is it and why it works?
The TED spread (ie three months in dollar Libor less three-month Treasury bill) is a measure of perceived credit risk in the economy. This isbecause T-Bills are without risk as the LIBOR, while the credit risk of loans reflects the commercial banks. An increase in the TED spread is a sign that lenders believe the risk of default on interbank loans (also known as counterparty risk) is increasing. On the other hand, if the default risk of banks refused to be narrowing of the TED spread.
Since the peak of the TED spread of 4.65% on 10 October, the extent of 1.46% - a level last seen before Lehman facilitatedBankruptcy in September 2008.
The TED spread measures the risk in the global banking system. Eurodollars are the main instrument of inter-bank loans, unregulated and uninsured U.S. Dollar. Therefore reflects the proliferation of T-Bills bankers quantity "and risks, short-term loans to each other. Always points in advance of a financial crisis. It is always up when the crisis is over.
It has become more sensitive over the years, as the banking system is moreGlobalization and the network wizard. Serious problems with banks throughout the system may be sufficient to produce a flicker or worse. In 1984, daily Continental Illinois went down, the Fed-site manager named Paul Volcker 5 weeks clock to tell him that Ted had opened at 415 which is sufficient for all the efforts of the Fed rescue sent into action. He quickly checked with the eight largest banks and found the point of problems, the Continental Illinois. From 11, the U.S. Federal Reserve, which had saved fromto reimburse the FDIC (Federal Deposit Insurance Corporation) Fund of the Japanese wholesale banks Euro-dollar deposits, were not ready to roll. (This is the largest-scale illegal act is an official American history were the FDIC fund, if a limit of $ 100,000 to deposit, and was limited to domestic investors. Sometimes a Fed chairman is not.) The TED their peak of about 500 as Lehman collapsed and broke 200 last Friday. It is currently 197 We suspect that if it breaks 150 andremain there for at least a week, the financial crisis, part of the drama, though not trivial, is no longer the command center. That means it's time to buy shares, if ...
Update: Where is the Ted Spread Today
In December 26.2008 The Ted spread had fallen (a) of 1.48 - a trend that indicates that the stock market bottom and the transition to recovery.
On 21 January 2009 The TED spread was down to 1.02
2. The index of bank shares continue to outperformThe S & P
Since the massacre at midnight, the BKX has been outperforming the S & P on a relative basis over the request for six weeks. That means it's time to buy shares, if ...
3. The VIX (fear index) Retreats
The VIX is rightly identified as the CBOE Volatility Index.
The symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, the market expectation of 30 days shows the volatility. He is with the help of the implicitVolatility of a wide range of S & P 500 Index options. This volatility is addressed, the future and is calculated from both calls and puts. The VIX is a widely used measure of market risk and is often called the "investor fear gauge called
Although the VIX jumps when there is a serious problem for stocks, it is actually an index of volatility, not a measure of risk. It measures, for the benefit of the S & P futures, what is the price range of options on the S & P. Long as the S & PTrading in an area 30 days after the date on which the stock market still flickers, and the patient is not ready, you walk in the park with a stick. It must withdraw from its near-manic.
Where is today the VIX.
It was about 60, when was the original article on December 26 was published in 2008, the VIX at 43.38. the decline in recent weeks is an indicator that a turn in the market is that they should be.
On January 21, 2009 The index VIX 46.42
This means that it is time to beBegin to buy shares, if ...
4. The yen and the U.S. Dollar Decline
Exceeded in an Orwellian paradox of strength-weakness of the yen and other currencies, the dollar. Indicates the yen and the dollar are the currencies in which the debt is. Were dramatically increased because of reduction, as U.S. investors sell assets outside the United States and to repay their debts to the United States, the dollar sale. The yen, as the instrument of the carry trade, suffers the same increase as unworthy. OfEuro over U.S. dollars, pounds and other major currencies, they have been giving warning signals. They should return to normal, and then turn negative if the sale of the fire of hedge fund assets and the assets in bankruptcy has diminished.
If you have confirmed all four indicators, stocks will rise.
Addendum: January 2009
Two other indicators of due diligence:
5. Bank Lending Libor - OIS
The difference between Libor and overnight index swaps (OIS)The rate is another measure of stress the credit market.
When the LIBOR-OIS spread increased, showing that banks believe the other banks have their debts, have a greater risk of default on loans in order to apply a higher interest rate to offset this risk. The opposite applies to a reduction in the LIBOR-OIS spread.
Similar to the TED spread, the narrowing of the Libor-OIS spread in recent weeks is also a step in the right direction
LIBOR USD 3M price was up to 1.12January 21.2009
6. KBW Bank Sector Index
Typically, investors expect to lead the financial sector to the rest of the market. The KBW index is used to monitor the performance of banks. The current financial crisis in 2008 has seen a dramatic decline in this index, and then a steady rise in the stock market is still expected.
The index was created and will be marketed by the Philadelphia Stock Exchange. Also, is the index of bank, or BK, which describes its symbol. The BKX isan index of capitalization from 24 geographically diverse stocks representing national money center banks and leading regional institutions. BKX is one tenth of the value of Keefe, Bruyette & Woods Index (KBWI) is based. Founded in 1962, Keefe, Bruyette & Woods recognized as an authority in the banking sector. The index was started at the foundation of society and calculated retrospectively to 1947. The index is at least annually by Keefe, Bruyette & Woods ratedEnsure that the composition of very representative of the banking sector.
Where is the KBW index
On January 21, 2009 was the KBW index of 29.03. It rose 3.69 on the day when the market rose in reaction to the news that the basis of inside information on Bank of America and JPMorgan Chase were the purchase.
No comments:
Post a Comment