Dollars and Jens
Thursday, October 04, 2007
No, No, No
Risk has a higher price than it did in July (but a lower price than when the paper markets were seizing in mid-August):
Certainly financial confidence is nowhere near its July level. Looks like Fed chairman Bernanke has a ways to go to reassure big lenders and investors that the system is healthy.July is the benchmark of stability? The Fed hasn't done enough until it has re-filled the powder keg that blew up in August, is that it?
The volatility index is still lower than its long-term average, and I think I've seen that the risk premium on junk bonds is, too. The mood of the market went from "God Himself could not sink this ship" to "Eek! A mouse!" and is now somewhere around "I'm feeling lucky." Sanguine, but not ludicrously so. Big lenders and investors have indeed been reassured that the system is healthy, but they no longer think that "risk" is just a board game. This is a good thing.
(And, yes, I'm a couple of weeks behind on this, but it still applies.)
UPDATE: Here, for WSJ subscribers, is the piece about the risk premium on junk bonds.