“Few Are Prepped For A Stock-Market Shock”: As Debt Collapse Nears, Wall Street Has Blinders On
December 21st, 2016
“Pride goeth before destruction, and an haughty spirit before a fall.” – Proverbs 16:18
Fresh stock market highs are giving everyone the holiday season cheer that encourages spending and inspires optimism about the future under the incoming Trump administration.
The market could hit 20,000, and investors are ecstatic… but reality is still looming over the desperately vulnerable economy.
The Federal Reserve has announced that it is raising rates, and there is every indication that things could take a turn for the worse in the near future – particularly as it has been Fed stimulus over the past eight years that has been propping up the stock market.
Now, as the cost of money increases, interest payments are mounting and debts may become unmanageable for some.
But the so-called “fear gauge” on Wall Street, a volatility index, indicates that there is a disconnect with the disturbing systematic problems lying just below the surface, as nearly everyone inside finance is feeding off of short term numbers and a positive news buzz.
via Market Watch:
As stock-market indexes march to fresh records on the back of a monthlong rally in the wake of Donald Trump’s presidential election win, U.S. investors don’t appear to be daunted by the unrelenting climb to new heights.
At least that is what the low levels of the CBOE Volatility index, known as Wall Street’s fear gauge, is signaling. The metric which allows investors to make bets on implied levels of volatility on the S&P 500 is currently at 11.56, hovering near the lowest level of the year, set Aug 19. In other words, investors aren’t worried that bad things could upend the brisk march higher.
[Randy Frederick, managing director of Trading & Derivatives at Schwab Center for Financial Research] is paying attention to the high levels of complacency the VIX currently indicates. He said it is worrying that nobody is worried right now.
“Hedging against a downside in the market is cheap because nobody is hedging,” Frederick said. “It doesn’t mean it is wrong not to hedge, as there is no good reason to need major downside protection for the next week or two or until after the inauguration.”