With US equity markets within one percent of all-time record highs, and US equity risk back near cycle lows, one could be forgiven for 'believing' that all is well in the world.
A China trade deal is imminent, right? A Brexit deal is imminent, right? Turkey ceasefire, right?
Well, according to The Baker, Bloom and Davis daily news-based Economic Policy Uncertainty Index (based on newspaper archives from Access World New's NewsBank service), US economic policy uncertainty has never, ever been higher than it is currently...
Yes, you are reading that correctly, the current level of uncertainty is worse than during the collapse of the Soviet Union, the aftermath of 9/11, the great financial crisis around Lehman's bankruptcy, and the Brexit referendum vote.
For some context what this means in terms of market risk, on a smoothed basis, this level of uncertainty filtering through to business uncertainty and thus equity risk, would imply a VIX that is well over 50 points higher than its current complacent level...
Or, perhaps, just perhaps, this indicator of uncertainty - based on an analysis of the media - is more indicative of the press panic inducements than of actual 'real-life' uncertainty? Are we being programmed to panic ourselves into a depression?
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The index is constructed based on the number of articles that contain at least one term from each of 3 sets of categories.
- The first set is economic or economy.
- The second is uncertain or uncertainty.
- The third set is legislation or deficit or regulation or congress or federal reserve or white house.
The NewsBank Access World News database contains the archives of thousands of newspapers and other news sources from across the globe. While NewsBank has a wide range of news sources, from newspapers to magazines to newswire services, analysis is conducted using only US newspaper sources. These newspapers range from large national papers like USA Today to small local newspapers across the country.