essays pieces of the puzzle
Wednesday, April 24th, 2013
regional stress

13 0424 regional stress

There’s one-upmanship everywhere, including at the regional banks of the Federal Reserve.  A recent Reuters article by Matthew Goldstein examined the “new and improved” financial stress index from the Cleveland Fed.

The chart shows that index plus ones from the St. Louis and Kansas City districts.  As noted, the Cleveland index is daily, while the others are weekly and monthly.  It also includes additional inputs, including the securitization markets, the machinery for which is once again being lubed up and “cranked up” by the Street.

Notice how close the bottom two are in profile and even in terms of their scales.  The Cleveland index is much different and it doesn’t give a sense that the financial crisis was all that extraordinary, in contrast to the others (and how it felt at the time).

I’m sure the quants have run all the numbers already, but looking at the financial crisis in particular, these all look like coincident measures of stress rather than leading indicators.

Don’t they know we’d like a little advanced warning?  (Chart:  Bloomberg terminal.)

I’m off to the Atlanta Federal Reserve District, to give a presentation on “Investment Beliefs and Actions.”  If your firm, organization, or association is interested in exploring that topic, let me know.  (Or if you’re in Birmingham and want to get together, I have some free time.)