Headline:
Low Level VIX Indicates Anxiety Rather Than Optimism
Amid Predictions Revenue Could Tank 50%, Asset Managers Still Unprepared For Mifid II
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It has been widely reported that the suppression of the VIX indicates EXTREME INVESTOR COMPLACENCY & OPTIMISM.
However The Recently Sustained Low Level VIX Ironically Indicates SIGNIFICANT INVESTOR ANGST.
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The Angst = Tied To The Idea That Central Banks Will Never Release Their Grip On Global Capital Markets…And That Is Both Unprecedented + Scary To Most Professional Investment Actors As Traditional Monetary Stimulus Levers Are Failing.
Rather Than Relying On Their Own Analysis/Intuition, Portfolio Managers Are Collectively Adhering To Central Bank Wishes…That Is…Asset Prices + Financial Markets May ONLY Move Upward.
So, in order to Effectively Compete Against Passive Indices…Equities Are Mindlessly Acquired…Blindly Following the Central Bank Directive…Although Nervously Aware/Fearful These Asset Price Price Distortions Must Eventually Cease.
Meanwhile…The VIX Sags At Historically Low Levels as Equity Draw-Downs [viewed as Alpha Generating Opportunities] are Increasingly Shallow+ Brief …fueled by endless Quantitative Easing + 672 Global Interest Rate Cuts Since 2008.
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It is a classic Master [Central Bankers]/Slave [Financial Actors] Relationship.
The Masters [Central Banks] Universally Endorse Relentlessly Higher Asset Prices…Solely Because They’ve “Bet The Global Economic Ranch” on this particular wealth transmission mechanism…that it will somehow stimulate Global GDP…knowing well that any meaningful Asset Price Backtracking Will Clearly Exposes the Significant Liabilities of Master’s Policies.
The Slaves naturally follow…behaving as The Master indicates.
Still…The Slaves constantly seek, and receive, assurance from The Master [weekly Fed-Speak]…overwhelming any logical and intuitive push-back. Of course the Compliant Slaves are rewarded with Historically High Risk-Adjusted Returns…Associated With “Long-only” Investment Strategies.
Slave Loyalty = Also Reinforced By The Passage of Time as, after 8+ Years of Broad Application, the Liquidity Super-Nova Seems Infinite.
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However eventually the Master/Slave relationship will decouple as Central Bank Tactics Meet Increasing, Data Based, Intellectual Resistance and Less Institutional Tolerance.
The Parabolic Money Printing/Asset Purchases Continually Reach Higher Levels [40% of Global GDP in the first four months of 2017]…might even shake Slave resolve…and have them questioning the Infinite assumption cited above.
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In the past week, it appears, we may have even seen The Trigger for a Global Central Bank Policy Pivot.
In Europe Both Carney + Draghi Indicated A Willingness To Reverse Current Course [that is backing away from more Quantitative Easing.QE ]. And…In Canada/U.S…More Verbal Preparation For Quantitative Tightening [QT] Transpired.
These may be Policy “Trial Balloons” Or Not…but it seems, by piercing this especially sensitive subject matter that Central Bankers Continue To Mistakenly Believe That Previewing Policy Change Limits It Negative Consequences.
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In contrast Global Capital Markets now possess that Precious Nugget of Data Sought for 8+ years. That is…A Numerical QE Limit ex: Japan…albeit well beyond levels originally envisioned.
With The Near Term “Hook Set” on QE/QT…The Slaves will not be pleased…wondering whether Master has betrayed them…as European Bond Yields lurched higher and Equity Prices Softened.
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So…Are The Masters Voluntarily “Falling On Their Monetary Sickles?”
Of Course Not.
They’ll do all they can to preserve their Market Inflating Legacies [including an abrupt policy reversal when they realize QE/QT = Not Market Friendly]…but, by then, The Resistance To Further Central Bank Actions Will Probably Have Stiffened.
Because when Markets Begin Going Down + People Start Losing Money…Real Questions About QE Will Finally Be Asked.
The Finger Pointing & Blame Game Then Follows. The Obvious/Legitimate Target = Global Central Banks.
They’ll Get Ruthlessly Hammered By The Politicians While Their Massively Flawed Policies will slowly be exposed to the Currently Ignorant Masses.
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Worse Yet…Without Stimulus Economic Growth Will Likely Slow…And Global Debt Will Compound More Quickly.
Consider that even If Global Debt Levels Were Currently Frozen Then Global GDP Must Average Over 6% Annual Growth Just To Cover Debt Maintenance Costs = An Obviously Ominous Growth Threshold That WILL NOT Be Successfully Negotiated.
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It Makes You Wonder…
How Sustainable Is An Economic Dogma/System Reliant on Shaking A Money Tree [for 8+ Years] + NIRP/ZIRP + Negative Sovereign Investment Yields [to shield governments from Economic Stress]…when the Global Monetary S-H-_-T “Hits The Fan?”
…As Master Is Losing Control Of Slave.
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Article by Global Slant
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