Broken Indicators Mean It's Growing Harder to Spot Troubles in the Market
- Once tried-and-true signals of risk no longer function
- New money-market rules are latest changes to distort gauges
Grave markers stand in the Waterloo City Cemetery in Waterloo, Illinois, U.S., on Monday, Sept. 30, 2013.
Photographer: Daniel AckerIt’s not hard to see the potential flash points on the horizon -- the U.S. presidential election; Deutsche Bank AG’s mounting legal charges; the day central banks stop buying bonds. Yet when it comes to gauging risks in the world’s financial markets, these days investors are flying more or less blind.
That’s because the once-dependable indicators traders relied on for decades to send out warnings are no longer up to the task. The so-called yield curve isn’t the recession predictor it once was. Swap spreads are so distorted they can’t be trusted. Even the vaunted VIX -- sometimes referred to as the “fear gauge,” is leading its followers astray, strategists say.