Indices to watch out for!!

Here are few graphs which confirms the view that all’s not well with the global economy and we are still a long way off to come out of the grips of bear markets.

The first graph is plot of VIX (volatility index) which is also known as “fear index” as it indicates how far markets (esp. S&P 500) are from stability. Higher values shows that investors are expecting higher volatility (which translates into less stability) in coming future.

VIX has historically traded around 15-20 levels. But, in wake of recent financial turmoil, it has touched new highs of 80. More about VIX here and here.

The other graph indicates confidence in the commercial lending system of the economy. The indicator known as TED Spread is the difference between 3 month T-Bills interest rate and LIBOR. Increasing values indicate increase in counterparty risk which means banks are feeling uneasy about lending to each other which leads to increase in cost of borrowings.

TED has crossed the level of 4% after remaining in the range of 10-50 bps historically.

The above two graphs illustrates the problems faced by financial economy in general, but the last graph show a trend which speaks volumes about slowdown in real economy and aggravates the fear of recession. Baltic Dry Index as it is called indicated the level of trade done globally through the sea-route. Unlike stock market, it is free of any speculative biases. As Wikipedia puts it

“Most directly, the index measures the demand for shipping capacity versus the supply of dry bulk carriers. However, since the demand for shipping varies with the amount of cargo that is being traded in the market (supply and demand) and the supply of ships is much less elastic than the demand for them, the index indirectly measures global supply and demand for the commodities shipped aboard dry bulk carriers, such as cement, coal and grain.”

BDI is trading at 1500 levels after touching all time highs to 11,793 in may 2008. For more information on BDI, see here and here.

Middle of Nowhere

We are living in interesting times. It is not long before stock markets were touching new peaks, everyone was in the race of predicting new sensex highs of 25,000, 30,000 by mid-2008. And then evil of Subprime Crisis raised its head. Earlier, everyone was talking about how decoupled our Indian markets are from those in the west and how India will stay unaffected by the problems of west. How wrong they have been proved? As I write this post, sensex and nifty both have lost the gains they have made during the 2007 bull run.

Current credit crisis has shown that how far we were from reality. Nobody has been left untouched. Markets around the globe reacted badly and posted major losses since the beginning of this year.

With major movers and shakers being history now and humbling of those left, and what experts have already started calling it "End of Wall Street", see here, here and here,

maybe we'll see rise of new financial world order.

They say, "House always win". As we see curtain drawing on wall street circus, we will be closely following the events and preparing ourselves for what may be the next and even bigger "House", apparently a rigged one.