CENTRAL BANK CONSENSUS: Fear is non-existent and bankers don't like it (Negative/Bull Market Indicator)
Although investor apathy towards trading riskier stocks has waned for over 3 years, it is only now that Central Bankers are starting to lament their concern that this trend is not unsustainable. Witness the latest comments by some global bank czars:
“The Bank of England’s Deputy Governor Charles Bean says the lack of volatility is "eerily reminiscent" of the run up to the financial crisis in 2007-2008. Investors are turning a blind eye to a large fact: that central banks are intent on extricating themselves from QE and emergency policies come what may, and this is going to be a painful experience.”
“Italy central bank Governor Ignazio Visco issued a similar warning on Friday: "Volatility on the financial markets in the advanced economies has subsided to well below the historic norm, reaching levels that in the past sometimes preceded rapid changes in the orientation of investors."
“Dallas Fed chief Richard Fisher has been warning for several weeks that the decline in the VIX index measuring volatility is an accident waiting to happen. One almost has the impression that he is itching to inflict some “two-risk way” into markets to shatter this complacency.”
More Smart Money People comments:
According to Simon Derrick at the Bank of New York Mellon, the dash for yield is all too like the last stage of the carry trade just before Russia and East Asia blew up in 1998, and again in the summer of 2007 when investors seemed to lose all fear. Both episodes ended with a bang, at first signaled by a surge in the Japanese yen.
Today's warnings feel very like those of the ECB’s Chief Jean-Claude Trichet at Davos in January 2007 when he told investors to brace for trouble. He said risk spreads had been compressed to dangerously low levels, though the boom was of course to run on for many more months.
Finally, Willem Buiter, a former UK rate-setter (now at Citigroup), was even more blunt. He believes that, “…current risks are ludicrously underpriced. At some point, someone is going to get an extremely nasty surprise…"
They all maybe right, just early. There is a huge disconnect between stock market and economic fundamentals. It’s just too hard to justify asset prices at their current level. While the Federal Reserve has embarked on a process to reduce money printing, interest rates continue to stay where they are and even when they do rise as most Soothsayers say in 2015, it will take a while for it work through the global economy. Meanwhile in Euro land, signals are coming that the European Central Bank will introduce its own money printing regime to keep rates low to fight off deflation concerns. As a result, it wouldn’t be surprising to see the market run-up in a last gasp before tumbling like a house of cards.