Trader’s Narrative

Want to see something that will knock your socks off?

US Financial Stress Index
The BCA US Financial Stress Index (left) is a proprietary and nutritious blend of these econometric and statistical ingredients:

• performance of bank stocks relative to the general stock market
• the yield curve
• credit spreads
• real stock prices
• consumer confidence
• market leverage
• private debt
• new bond issuance
• new equity issuance

BCA Research is the world re-known financial markets analysis firm out of Montreal. According to this indicator, the only previous crisis in recent history to outdo our present subprime debacle is the Savings and Loan boondoggle that was the epitome of the 80’s excess.

Which would explain why BCA Research is not giving up on their bullish bias:

The long running bull market in equities is not dead yet. The Fed is not the only game in town. The U.S.economy is not falling apart, the dollar has cheapened substantially and bond yields have melted. Most important, equities offer good value and the areas most exposed to the subprime crisis are already attractively priced.

If you’re still wondering how the Sub-Prime mess came about, there is no simpler explanation than this.

Here’s a more serious one (don’t forget to check the “How it went wrong” checkmark).