Stressing Out in St. Louis?

Stressing Out in St. Louis?

Are you stressed?

That’s what the St. Louis Fed is trying to measure. Not your personal stress level, but they have an indicator of financial stress across the country. It measures things like the difference between corporate bonds and treasury bonds, or stock market volatility, or the variability of interest rates. Eleven factors are combined into an aggregate index and is reported weekly.

The stress indicator works pretty well. It shows when banks are having a hard time borrowing short-term money, or when a credit crunch might be ensuing. It ticked up back in 1998 during the Asian Contagion and then went down; it sloped higher during the bursting of the internet bubble, and popped up again after 9/11, then went back down; and it rocketed up during the mortgage crisis, as bank after bank failed. It had a mini-boomlet in the spring of 2010 and summer of 2011 with the ongoing Euro-crisis.

But it’s come down pretty convincingly since then. It’s not at the low levels that might signify complacency in the markets, but it is pretty low. It means that banks, corporations, and governments can pretty much depend on the capital markets for their borrowing needs. And when institutions are able to borrow, a recession is unlikely.

So whether you feel stressed or not, the market is indicating that the level of financial stress is currently pretty low. It’s not whistling “Zippidy Doo-Dah” right now, but it isn’t showing any storm clouds on the horizon, either.

Douglas R. Tengdin, CFA
Chief Investment Officer

Follow me on Twitter @tengdin

By | 2017-07-17T12:34:45+00:00 October 4th, 2012|Economics, Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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