11/29/2008 05:12 am ET Updated May 25, 2011

Gauging The Crisis: Knee-Deep, Waist-Deep or Neck-Deep And Rising?

Amid the intense emotion that comes in desperate economic times, triggered by -- and perhaps triggering -- events like yesterday's surprising 900 point rally, economists are starting to look at different measures to try to gauge the depth of the crisis.

Banks, Homes, Consumers, Jobs and Stocks

The Wall Street Journal looks at several indicators in a story today, all of which economists use to attempt to predict the prevailing moods and future actions of driving economic factors. They report that the measures break about even, giving no clear prediction of when the financial crisis will end, offering murky insights such as this:

One sign of improving attitudes among consumers will be their willingness to buy big-ticket items such as cars, furniture, appliances and electronics -- categories that have been hit hard in recent months as loan standards tighten and consumers shy away from making major purchases.

"It's a natural thing to postpone spending when you're uncertain about the world," said Barclays Capital economist Ethan Harris. "What we want to see are signs that those sales are starting to stabilize and improve. That would tell you people are starting to come out of their bunker and buy things that are longer-term commitments again."


One yardstick favored by some traders but not particularly well-known to the public is the volatility index, referred to as the VIX.

The volatility index is an index whose price rises with expectations of volatility, or fluctuations in price, in the S&P 500 index. Higher values for the volatility index indicate that investors expect the value of the S&P 500 to fluctuate wildly - up, down, or both - in the next 30 days.

The index, commonly known by its ticker VIX, is also known as the "fear index" because a high VIX represents uncertainty about future prices. The index is calculated using the price of options on S&P 500 stocks. Because the value of an option is closely linked to the expected volatility of its underlying security, options prices can be a useful indicator of investors' expectations of volatility.

The VIX hit its historic high of 75.92 on October 10, 2008 on concerns about the 2008 Financial Crisis. Prior to this crisis, the VIX had peaked at 38 on August 8, 2002.

Weird Charts

Or how about charts from non-economists? Here's one interesting one from a "physicist interested in finance," titled "Dow Prices, Relative Previous Price." It shows a visually interesting pattern, but whether it's financially significant isn't clear.