The DJ Industrials average closed today some 400 points up. Do market believe that the worse is over?
many commentators argue that there is at times a dichotomy between the bond and the stock markets. The bond market "predicted" the current crisis by demanding historically high risk premiums on LIBOR and on junk borrowings. It is my view that the bond market is more "rational" because fewer small investors play this market. I would wait to see if the other shoe (commercial real estate, Credit card ABS) drops before passing judgement.
At any rate, my suggested reading for today is Steven Levitt's blog in the New Your Times titled "Diamond and Kashyap on the Recent Financial Upheavals"
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