Thursday, July 12, 2007

[Latest Global Dollar Liquidity Measure: +15.5% annual growth rate; latest Endogenous Liquidity Index: -5.5%]

The Endogenous Liquidity Index was essentially flat yesterday, but its components were not. CDS spreads again went sharply up, but volatility measures sold-off quite dramatically. There's a lesson here, at least for me. The "Great Moderation" of the business cycle —for which volatility indicators act as a proxy— matters at least as much as credit spreads. More on that soon.


F. said...

Credit spreads only directly involve bonds, not stocks. Stocks can certainly attract funds away from bonds and vice-versa. VIX is a much closer measure of stock activity (obviously) so no surprise that VIX correlates higher.

Agustin said...

F, thanks for the comment. You're absolutely right. I do watch credit spreads, however, as leading indicators of corporate profitabilty. Spreads began to surge in ... March 2000. Cheers, Agustin.