Wednesday, 11 December 2013

Too Good To Be True? The Chicago Fed National Financial Conditions Index Hits 20 Year Low

The Chicago Fed National Financial Conditions Index (NFCI) which measures risk, liquidity and leverage in money markets and debt and equity markets as well as in the traditional and “shadow” banking systems, today hit the lowest level for almost 20 years. As negative index values indicate financial conditions that are looser than average, this perhaps help explain the booming U.S. stock markets.

These "loose financial conditions" combined with artificially low interest rates, the Fed printing press churning out USD 85 billion a month in high powered money and the U.S. stock market boom (as evidenced by the Wilshire 4500 Total Market Index below), it's almost like this situation is too good to be true. And if it sounds too good to be true, it probably is. It is at times like this you should seek a safe harbour (if you can find one!), especially if you are not a highly skilled and experienced stock market trader.