The Federal Reserve Bank of St. Louis recently began publishing a new weekly index that seeks to track the general level of financial stress. As periods of financial stress come and go a whole host of fundamental economic indicators immediately adjust to meet the near and long term expectations of market participants Interest rates, yields spreads, popular market volatility indices all move in real time giving observers unequivocal evidence of changes general sentiment.

The St. Louise Fed has devised a method of crunching eighteen of these sensitive indices down into one convenient index it calls the St. Louis Fed Financial Stress Index (STLFSI).

Global sector ETF performance update for the close of February is below and has also been updated as a free portfolio to track on my blog. Note that two of the ETFs are below the 200 day moving average which in my preferred strategy would exclude them for consideration of any long position. The top three at the end of February are iShares' MXI (Materials), EXI (industrials) and IXG (financials). I have previously discussed some possible strategies using this data here as well as some more active trading strategies.

There is quite a lot of back and forth on just how important Greece is to the global financial situation. You have some commenting that if we are so concerned about Greece, why aren't we freaking out about California, an economy with a larger deficit and a larger GDP (California's economy is about the size of France). I can't argue that California is definitely an issue, but at this moment, it certainly is not the focal point we should be looking at. While Greece by itself might very well be a containable problem, it represents a much larger problem. This chart might just help clear this up.


Source: Bloomberg

I did a back of the envelope calculation using the numbers from this graph, but I see about $1.3 trillion of PIGS sovereign debt in German, French, Swiss and British banks. That is certainly a large exposure. The issue is not just a Greek default, but if you've seen CDS spreads over the last 2 months, they have blown out considerably. Remember all of those crappy fixed income assets that the World's largest financial institutions were holding in late '08 which almost crashed the system? Well many of these governments implicitly or explicitly took over those assets.