Evidence That the Credit Crisis May Be Ebbing

If we are headed into a depression, why are stocks up?

By SHARE

Economist Mike Darda over at MKM Partners sees some light at the end of the tunnel:

The current credit crisis looks to be about as bad as anything we've seen in the last two decades—but not worse. Various measures of financial system risk were far higher during the downturns of the 1970s and 1980s. Market price indicators suggest the Fed is easy, not tight, which means the economy should be in better shape a year from now. Moreover, the Fed's more aggressive discount window policy seems to have created a financial market inflection point around March 18, which we believe will continue to mark the low point for stocks.... The S&P 500 is now 9% above the March low. The two-year Treasury note yield has risen to 2.24% from a low of 1.34% on March 17. These are positive signs that risk aversion is beginning to ebb. While credit strains will be a headwind for some time, we believe there is substantial upside in risk assets such as equities and corporate bonds and significant downside risk in Treasuries.