Tuesday, August 02, 2011

4 Fin. Stress Indexes Stable - No Cause for Concern

The nearby charts show four Federal Reserve Bank measures of financial stress and economic conditions, from the top are: 1) Kansas City Financial Stress Index, b) National Financial Conditions Index (Chicago Fed), c) St. Louis Financial Stress Index, and d) Aruoba-Diebold-Scotti Business Conditions Index (Philadelphia Fed, measures overall business conditions).  Each of these four index measures of financial stress/economic conditions are at pre-recession, 2007 levels, and none are showing any indications of evelated risk or stress in U.S. financial markets or the economy with data through July 2011.  While there have certainly been signs of moderating economic growth lately, and some reasons for concern, the underlying conditions in the financial markets remain stable and this would weaken the case for a pending double-dip recession. 


At 8/02/2011 7:59 PM, Blogger Benjamin Cole said...

Well, I hope these stress indicators are right.

Still, some commentators posture as if they would prefer to have AIDS than endure moderate inflation. I don't get it. Was anybody ever killed by 4 percent inflation a year?

I keep thinking something sinister is afoot. Does the right-wing just want Obama out? And they will then accede to a more growth-oriented Fed?

Where does all this pompous pettifogging and zeal for the purported virtues of low inflation come from?

Right now Bernanke-san is leading us to Tokyo.

Go long bonds. Lower interest rates than ever are headed this way. Without QE, deflation will settle in--don't worry, only for a few decades. It will crush your stock and real estate portfolios.

Build your house in bonds--or in the East.

At 8/02/2011 8:02 PM, Anonymous Anonymous said...

"Was anybody ever killed by 4 percent inflation a year?"

If that's the way you feel, please mail me a check for 4 percent of your income annually.

It won't kill you.

At 8/02/2011 8:28 PM, Blogger Wayne Adams said...

This comment has been removed by the author.

At 8/02/2011 8:30 PM, Blogger Wayne Adams said...

I dunno about the conclusion there. So, financial institutions switched out bad mortgage-backed debt on balance sheets for sovereign-backed debt.

But, who thinks the "risk-free" assumptions behind sovereign debt are going to hold up for the next two years?

Also, there's an even greater moral hazard holding sovereign debt. It'll probably lead to even less risk discipline and over leveraging.

At 8/02/2011 11:42 PM, Anonymous Anonymous said...

Someone forgot to tell DJIA on Tuesday!!

At 8/03/2011 9:01 AM, Blogger Matt C said...

The same could have been said 3/4 of the way through 2006. There were still other warning signs that the fundamentals were pretty eff'd prior to these indexes saying things are bad. I hope I am wrong now.

At 8/03/2011 10:55 AM, Blogger bart said...

Wow... all of those financial stress indexes look like they're making a rounded bottom.

At 8/03/2011 11:26 AM, Blogger Benjamin Cole said...

American Delight-

That I will happily do, if in the bargain I prosper, as opposed to languishing.

At 8/03/2011 11:26 AM, Blogger Benjamin Cole said...

American Delight-

That I will happily do, if in the bargain I prosper, as opposed to languishing.

At 8/04/2011 12:19 PM, Blogger morganovich said...

these indexes are based predominantly on rates spreads.

if you get large external interference in those markets from governments (as you have had lately) and government driven flight to safety issues, they will lose whatever predictive power they had.

At 8/04/2011 1:52 PM, Blogger misterjosh said...

They all have a positive first derivative though...


Post a Comment

<< Home