ABA Banking Journal - February 2013 - (Page 8)
BY SCOTT ANDERSON
Whistling past the graveyard
The mood around the U.S. economic
Stock volatility remarkably low
outlook is pretty melancholy. It
CBOE Volatility Index (VIX)
looks like 2013 will be another
year of below-trend GDP growth
of around 2%, with a chance that
a combination of sequestration
spending cuts, federal government
shutdown, and uncertainty about
the U.S. debt ceiling could further
diminish economic prospects. Yet,
by merely glancing at financial markets, you would think the economy
was finally shifting into a higher
gear of sustainable expansion.
For example, look at the equity
market. The S&P 500 index is flirtJan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan
ing with a five-and-one-half-year
high, and has risen nearly 5% over
Source: CBOE, FRED St. Louis Fed
the past month.
Perhaps more impressive is that stock-market volatility is almost unbelieveconomic conditions. If the ecoably low right now, given the economic and fiscal risks in the forecast. The
nomic picture doesn’t soon confirm
Volatility Index (VIX), a measure of S&P 500 volatility, has been trading
this recent uptick in financial peraround 12.5—the lowest since early 2007, and well before the “Great Recesformance, the hangover for the marsion” took hold. The average VIX reading since 2011 is 21.0.
kets could be palpable. Recent conThe U.S. equity market isn’t alone in this assessment. Equity markets in
tractionary readings from regional
Europe are up even more than the U.S. market over the past three months.
manufacturing surveys for January,
The hunt for yield and risk carries over into the fixed-income market as
and the large decline in the Univerwell. Ten-year sovereign-bond yields in Italy and Spain have shrunk about
sity of Michigan’s consumer senti250 basis points since last July. No sign of a Euro crisis here.
ment measure for January could be
Yet, the Eurozone is still in a recession—last I checked—and the IMF just
the canary in the coal mine. U.S.
cut its forecast for Eurozone growth in 2013 to –0.2% from a positive 0.2%
payrolls and the unemployment
growth forecast made last October. A combination of weaker growth in Gerrate will be important indicators to
many and a deeper downturn in Spain helped push the IMF’s forecast lower.
watch. If the unemployment rate
Investors and business owners need to disentangle the signal from the
holds at 7.8% or even moves higher,
noise. Is this recent bout of financial risk-taking grounded in a real change
that would be a bitter pill for the
in the economic and financial landscape? Or is it just a mirage of progress
equity markets to swallow. n
being driven by central bank largess? Quantitative easing, or large-scale asset
purchases, have become the go-to policy for major central banks around the
Scott Anderson is senior viceworld. The Bank of Japan, bowing to government pressure, is the latest to
president and chief economist for
embrace nearly limitless stimulus by setting a higher 2% inflation target.
Bank of the West, San Francisco,
A dose of caution is probably warranted here. Central banks have shown
Calif., and chairman of the
they are much more adept at improving financial conditions than they are
ABA Economic Advisory Committee.
ABA BANKING JOURNAL
Table of Contents for the Digital Edition of ABA Banking Journal - February 2013
ABA Banking Journal - February 2013
“I’m not just a banker anymore”
Pass the Aspirin
High-energy banker—a tale of four cities
What’s in it for the customer?
Wealth management goes holistic
ABA At Your Service
ABA Banking Journal - February 2013