We have spoken before about the Bloomberg Financial Conditions Index. In essence it seeks to measure the trend of “risk seeking” in world financial markets:
“It combines yield spreads and indices from the Money Markets, Equity Markets, and Bond Markets into a normalized index. The values of this index are z-scores, which represent the number of standard deviations that current financial conditions lie above or below the average of the 1992-June 2008 period.”
For those of you who don’t have a Bloomberg Terminal all we can get is a small graph from the Bloomberg website. However, even with only a limited history depicted (just 12 months) one can gain an appreciation of the current “trend”:
From the graph above there does not seem to be any change in upward momentum. Until there is a clear break-down in this index we will continue to ride the “risk” or “yield” seeking theme in the market. That is, long emerging mkt equities(EEM), developed market material sectors (OIH & XLB) commodities(DBC), high yield currencies G10 currencies (DBV) and emerging market currencies (CEW) , and short Yen Aussie cross, US Treasuries(TLT), and the USD Index (UUP).
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