Monday, January 14, 2013

What's wrong with this picture?

The stock markets are at post-financial crisis highs and the VIX is at 6-year lows!

Is there something wrong with this picture?

VIX: The VIX is an indicator that measures volatility and fear in the financial markets. The greater the uncertainty in the economy, our society or the world, the higher the volatility index goes. (Source)

I am probably the wrong person to ask this question to because I am keenly aware of the existence of some huge potential bumps in the economic road along with a plethora of potential global crises that sit smack dab on the horizon.

Judging from the chart of the VIX however, I seem to be the only one who notices.

Is it because, as the experts will tell you, that there are trillions of dollares on the sideline just waiting to be put to work in the stock market?

Is it because the Ben Bernanke-led Federal Reserve has promised to keep interest rates near 0% in order to spur economic growth and bring down the unemployment rate (Note: An effort that has clearly not worked up until now)?

Is it because anyone interested in earning a return on their money is being forced to move out the risk curve by the aforementioned Fed policy?

Is it because computerized trading in conjunction with low volume pushes stocks up in a vacuum?

Is it because companies have been able to cut costs to the bone and have therefore been able to report earnings that beat the street?

Is it that the economy is actually improving?

Is it something else?

It could be any or all of these things but...

The U.S. is, among other things, looking at the full implementation of Obamacare, higher taxes, a non-existant fiscal cliff deal, an upcoming debt ceiling debate with a President and Democrat Party who see no issue with spending levels, high real unemployment, a student loan bubble, debilitating regulation environment for business and more.

Internationally the EU is by no means out of the economic woods, Japan is still in its long-term economic malaise, China is China, the potential for a Middle East meltdown is ever present, tensions with Russia are real, Iran and nukes, North Korea and nukes, Iraq, Afghanistan and the ongoing war on terror.

Can someone explain to me a VIX of around 13 please?

Chart source

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