Dashboard designers take note! The “text-only” dashboard is alive and well. Just released by the well respected UK newspaper, Financial Times, The Investor Risk Dashboard is an all text dashboard with valuable data.
Take a look at the screen shot of the investor dashboard and then I’ll share the extensive explanation of the data given by ft.com:
The idea behind this dashboard is very simple. Hedge fund managers and economists spend all their time looking at sentiment, volatility and valuation-based models trying to figure out if markets are becoming complacent or expensive. So why can’t private investors?
If you know where to look, you can find measures such as Robert Shiller’s cyclically-adjusted price/earnings ratio for the S&P 500. But finding all the key risk measures in one place is almost impossible.
That’s where the dashboard comes in.
Nick Bullman, the Bath-based hedge fund manager who runs a subscription-based service called Check Risk, has helped me put together this spreadsheet of risk-based measures for key markets.
All the measures used in this spreadsheet are open sourced and available online and each spreadsheet also contains a quick primer that explains the measures used.
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Periphery Europe Sovereign Credit Default Swaps (CDS)
CDS are insurance contracts insuring the ability of the bond issuer to pay interest and principal on their debt. Portugal Ireland Italy Greece and Spain’s CDS are stressed. This is a good gauge on the biggest risk in Europe.
Sovereign UK CDS
This factor is measured for the same reasons as the above but is a direct reflection of the UK’s indebtedness and debt to GDP ratio. The higher Sovereign CDS go the more likely a default
Volatility, is viewed as a measure of market nervousness. However, it is generally a lagging indicator. We use volatility as a contra-indicator. The lower it goes the greater the risk of a surprise. The lower it is the more the market is underestimating market risks.
Employees of FTSE companies who are buying or selling their own company’s shares are called insiders. This factor gives a perspective on what owners of the business are doing. It excludes share option sales.
Consumer confidence surveys are critical at present as they represent a important part of any recovery in the UK economy.
FTSE Volume Ratio
This is a ratio between the FTSE index price and daily volume. It is important because a rising market on thin volumes is riskier than one with plenty of volume support. The inverse is also true
Real Risk Factors
London Interbank Spread:
The LIBOR spread is a measure of the efficiency and liquidity of the banking system. Sharp rises in the spread reflect tension in the interbank market and is an indicator of credit risk
US TED Spread
The TED Spread shows the spread between interbank loans and short term US 3 month Treasury bills. It has two uses, it shows us any “flight to safety” as it happens because rates on short T Bills go down toward 0 or below and it reflects risk between “riskless” US T Bills and banks, which is essential in the current credit crisis. A rising spread often presages a downturn in the stock market as liquidity is drained from the system.
Is a useful indicator for risk as it reflects investor risk aversion and a measure of expected inflationary pressures.
West Texas intermediate oil is a risk factor because the price of crude oil directly impacts world GDP. Prices above $130 per bbl for 2 to 3 months would greatly increase the risk of a double dip recession
FTSE Dividend Index Future
This futures contract is the sum of all dividends on FTSE Shares. It is important to monitor dividend expectations when real interest rates are negative and beginning to rise.
Baltic Dry Index
The Baltic dry index measures the freight rates of dry bulk carriers shipping iron ore, coal, grain and other commodities. Generally this flow of goods is West to East from South America to China for example and is a strong leading indicator of input demand.
Gold Silver Ratio
The gold silver ratio tends to narrow in times of economic hardship, and widen as an economy recovers. The thinking goes that silver has more uses as an industrial metal and reflects that demand; whilst gold is bought as a safe haven instrument.
FTSE Moving Averages
The difference in the price of the index and its moving averages may be useful particularly at extreme values as the likelihood of a reversion to the mean price increases.
Robert Shiller’s Cyclically Adjusted Price to Earnings (CAPE) Ratio:
A widely used measure amongst value orientated investors that takes the average of the last ten years earnings for the benchmark S&P 500 index in the USA and then compares this adjusted price to this long term measure of earnings capacity.