The Bloomberg United States Financial Conditions Index

The Bloomberg United States Financial Conditions Index (BFCIUS) reflects conditions in the money market, bond markets, and equity markets. Figure 6.14 shows the dramatic upheaval that the financial crises engendered.

The index values are standard deviations from a normal condition.

On February 22, 2007, the BFCIUS hit a high score at a level of 1.198 Z.

7/3/2007 1/15/2008 9/2/2008 1/28/2009

Figure 6.14 BFCIUS Bloomberg United States Financial Conditions Index

Source: Bloomberg

Z is a statistical term representing the number of standard deviations past the mean. This meant that financial conditions were about 70 percent above the mean or normal score. (One standard deviation represents 67 percent deviation.) We can see that financial conditions began deteriorating. On September 1, the BFCIUS Index was -2.303. Then the bottom fell out and on October 10, 2008, the BFCIUS Index hit a low of -11.551! This represents a probabililty of "1 in 10 octillion where 1 octillion can be represented as 1 followed by 27 zeros." (Source: http://www.trilogyadvisors.com/worldreport/200910.Lehman.pdf.) Thereafter the line chart shows a slow upward move and a return to pre-crisis conditions.

Price break chart analysis shows some interesting aspects of the movement toward recovery. First, conditions of recovery are wavelike. The initial upward move in the index after October's 10 lows involved seven consecutive highs. Then a pullback of four consecutive lows occurred, taking the index back to -9.21 on November 20, 2008. However, after this point a break reversal up included twenty consecutive new highs, reaching a level of -4.801 on January 13, 2009. At that time recovery stalled, and created a support area at -3.59.

Does price break chart analysis confirm the recovery in financial conditions? Let's take a look.

The price break chart in Figure 6.14 points to a small incremental sequence of higher scores on business conditions. The angle of the

7/3/2007 1/15/2008 9/2/2008 1/28/2009

Figure 6.14 BFCIUS Bloomberg United States Financial Conditions Index

Source: Bloomberg

Figure 6.15 Senior Loan Officers Opinion on Bank Lending Practices Survey (SLDETIGT Index)

Source: Bloomberg

Figure 6.15 Senior Loan Officers Opinion on Bank Lending Practices Survey (SLDETIGT Index)

Source: Bloomberg increase is about 45 degrees, which confirms an overall confidence in improved conditions. Of additional interest is the fact that reversals down were quite limited in distance.

0 0

Post a comment