mick silver
9th June 2014, 01:38 PM
This is a syndicated repost courtesy of Testosterone Pit (http://www.testosteronepit.com/home/). To view original, click here (http://www.testosteronepit.com/home/2014/6/9/last-time-this-happened-the-financial-crisis-broke-out.html).
There comes a time when risk just disappears, when nothing can go wrong, when there are no dark clouds on the horizon. Stocks rise to record after record. The crappiest junk bonds are priced as if they were safe investments. Inflation is excluded from the calculus. Even the mere possibility of default has been banished from considerations. And investors no longer demand to be compensated for any of it. They close their eyes and hold their nose and grab what they can.+
These are times of exuberance, of record low volatility and supreme complacency, when retirees invest their life savings in bond funds stuffed with junk to get a little extra yield; when the ratings agencies finally can get busy again doing what they do best: stamping triple-A ratings on sliced and diced junk; when formerly toxic instruments that helped take down the financial system are once again desirable “assets”; times when otherwise rational people turn into blind automatons.+
The Fed has a measure for it: the Financial Stress Index, issued by the St. Louis Fed. And according to the index, all this craziness, created by the Fed’s policies, is simply a sign of low “financial stress.” The data series goes back to 1993. The index is intended to be at zero, on average. Higher financial stress would show up with a positive number, lower financial stress with a negative number. And in the latest reporting week, ended May 30, the index fell to -1.281, the lowest in its history.+
The previous record low occurred in February 2007 at -1.268. A very unpropitious moment. The housing bubble was already imploding, but at the time, “the froth” was just coming off; it was “plateauing” before the next surge. Stocks were still going up on a relentless escalator. Merger Mondays were thrilling CNBC talking heads. Mega-LBOs were greeted with media hoopla even as leverage in the system skyrocketed. And malodorous fumes were already emanating from cracks that had appeared in the foundations of banks and other financial institutions.+
Bit by bit, these inconvenient issues were worming their way into the Financial Stress Index, and by August 2007, the index rose into positive territory, and even then it edged up only gradually, and it made it past the Bear Stearns collapse in early 2008 without much of a squiggle, but by August 2008, it was at +1.17 and by September 5, it was at +1.47, and then the Lehman moment happened, and suddenly, after having essentially ignored all the issues along the way, the index spiked every week until it peaked on October 17, at a phenomenal 6.27:+
http://wallstreetexaminer.com/wp-content/uploads/2014/06/st-480x287.png (http://wallstreetexaminer.com/2014/06/last-time-happened-financial-crisis-broke/)
READ THE REST of this post at Testosterone Pit (http://www.testosteronepit.com/home/2014/6/9/last-time-this-happened-the-financial-crisis-broke-out.html)
There comes a time when risk just disappears, when nothing can go wrong, when there are no dark clouds on the horizon. Stocks rise to record after record. The crappiest junk bonds are priced as if they were safe investments. Inflation is excluded from the calculus. Even the mere possibility of default has been banished from considerations. And investors no longer demand to be compensated for any of it. They close their eyes and hold their nose and grab what they can.+
These are times of exuberance, of record low volatility and supreme complacency, when retirees invest their life savings in bond funds stuffed with junk to get a little extra yield; when the ratings agencies finally can get busy again doing what they do best: stamping triple-A ratings on sliced and diced junk; when formerly toxic instruments that helped take down the financial system are once again desirable “assets”; times when otherwise rational people turn into blind automatons.+
The Fed has a measure for it: the Financial Stress Index, issued by the St. Louis Fed. And according to the index, all this craziness, created by the Fed’s policies, is simply a sign of low “financial stress.” The data series goes back to 1993. The index is intended to be at zero, on average. Higher financial stress would show up with a positive number, lower financial stress with a negative number. And in the latest reporting week, ended May 30, the index fell to -1.281, the lowest in its history.+
The previous record low occurred in February 2007 at -1.268. A very unpropitious moment. The housing bubble was already imploding, but at the time, “the froth” was just coming off; it was “plateauing” before the next surge. Stocks were still going up on a relentless escalator. Merger Mondays were thrilling CNBC talking heads. Mega-LBOs were greeted with media hoopla even as leverage in the system skyrocketed. And malodorous fumes were already emanating from cracks that had appeared in the foundations of banks and other financial institutions.+
Bit by bit, these inconvenient issues were worming their way into the Financial Stress Index, and by August 2007, the index rose into positive territory, and even then it edged up only gradually, and it made it past the Bear Stearns collapse in early 2008 without much of a squiggle, but by August 2008, it was at +1.17 and by September 5, it was at +1.47, and then the Lehman moment happened, and suddenly, after having essentially ignored all the issues along the way, the index spiked every week until it peaked on October 17, at a phenomenal 6.27:+
http://wallstreetexaminer.com/wp-content/uploads/2014/06/st-480x287.png (http://wallstreetexaminer.com/2014/06/last-time-happened-financial-crisis-broke/)
READ THE REST of this post at Testosterone Pit (http://www.testosteronepit.com/home/2014/6/9/last-time-this-happened-the-financial-crisis-broke-out.html)