Long Beach Mortgage Report: Will the 2009 economy collapse or begin to mend?
By Kirk Mulhearn
(Prudential California Realty/Gem Mortgage)
Long Beach, CA. Will 2009 bring economic collapse or will markets begin to mend? Two reliable predictors give hope. First, the spread between LIBOR and Treasury yields, which measures global risk. The spread ended the year tighter than when it began, and far tighter than the extreme levels of late summer. Second, volatility embedded in stock option prices is a good predictor, and is referred to as the "fear index." While still elevated, it ended the year reflecting much less fear than the worst seen in 2008. Both indicators lead us to believe that the economy has backed away from the brink. While the economy may not collapse completely, we have some tough work ahead of us. Recessions brought on by financial crises (rather than typical business cycles) are severe, reports John Mauldin. ...