No Financial Stress

As we head into 2018, the St. Loius Fed reports there is no financial stress.

The STLFSI measures the degree of financial stress in the markets and is constructed from 18 weekly data series: seven interest rate series, six yield spreads and five other indicators. Each of these variables captures some aspect of financial stress. Accordingly, as the level of financial stress in the economy changes, the data series are likely to move together.

The average value of the index, which begins in late 1993, is designed to be zero. Thus, zero is viewed as representing normal financial market conditions. Values below zero suggest below-average financial market stress, while values above zero suggest above-average financial market stress.

Financial Stress 1994-Present

Financial stress has been negative since June 18, 2010. I expect 2018 will not be so complacent.

MIke "Mish" Shedlock

Comments
No. 1-8
Pater_Tenebrarum
Pater_Tenebrarum

It may not be helpful as a timing tool, but clearly this index is a giant contrary indicator... I suspect the more time it spends in negative territory indicating "below average" financial stress, the bigger the eventual economic bust will become.

Taunton
Taunton

So the 90's were apparently full of financial stress, and these modern times which can be properly called a global depression, there's no financial stress?

The fed has it backward. Low interest rates are indicative that money has been TIGHT, and high interest rates that money has been EASY. Don't believe me? Long term interest rates last hit their bottom in the 30's and hit their highs in the 70's. I don't know of a single person who would classify the 30's as times of "easy money" or the 70's as times of "tight money".

This whole thing is laughable.

Roger_Ramjet
Roger_Ramjet

I am seeing more stories regarding economic warfare meant to counter the “revisionist” policies of China, Russia, Iran and other countries. Global debt has exploded higher with $9 trillion of global sovereign debt with a negative yield. Rates are beginning to rise as central banks begin to taper QE. The U.S. budget deficit will explode higher in the coming years. And chances for real war (maybe multiple wars) is increasing by the day.
The Fed, once again, seems to be focused on a "stress" measure that is completely irrelevant to events happening around them.

clovisdad
clovisdad

The index is valuable as camouflage. That these folks are "in charge" of the price of capital should make us all terrified. The reality is that this part of the deep state is funding the carry trade for its friends while keeping Treasury from having to pay higher debt service on its gargantuan debt. The real consequence of all this "policy" is that private savings are being transmuted into cheap financing for investment banks and the bloated federal government, rather than the commencement of new businesses and the avoidance of poverty. One more massive tax on the serfs.

Sechel
Sechel

by the time the fed recognizes financial distress its too late. asset prices are too high, the time to address these imbalances are when there's no crisis. top on the list should be making sure gov't insured mortgages have a minimum 20% down without the use of a 2nd mortgage and an increase in margin requirements for equities should be seriously considered.