A question we first asked three months ago is getting a second wind this morning, when in a report by Deutsche Bank’s Alan Ruskin, the macro strategist points out that “the new 2017 Nobel laureate for Economics is not the only one at a loss to explain low stock market volatility, and thinks investors are in ‘freeze mode’ in the midst of global uncertainties.”
According to Ruskin, however, it’s all about to change.
But why? And what is “the most likely causes of a shift to ‘flight mode’ and a rise in volatility? Here’s one possibility: by the end of next year, the combined expansion of all the major Central Bank balance sheets will have collapsed from a 12 month growth rate of $2 trillion per annum to zero.”
But before we get to the inevitable next step, here’s Deutsche Bank on how we got to the current state of paralytic complacency, or whatever one wants to call it.
To be sure, the wire headlines were catchy: “Nobel prize winner Thaler admits to not understanding the low volatility in the stock market.” The behavioural economist went on to note that investors appeared to be in “freeze” rather than “flight mode”. There are, according to Ruskin, at least three broad explanations for the current low volatility world, and why investor “freeze” appears to be favoured over “flight”, including:
- On the behavioural economics side there is the suggestion that many equity investors have entered at good levels and are capable of withstanding fairly sizable negative shocks; and, investors can’t trade or at least time, hypothetical apocalyptic events like a N.Korea accident;
…click on the above link to read the rest of the article…