{"id":28351,"date":"2017-11-28T07:42:20","date_gmt":"2017-11-28T12:42:20","guid":{"rendered":"http:\/\/olduvai.ca\/?p=28351"},"modified":"2017-11-28T07:42:20","modified_gmt":"2017-11-28T12:42:20","slug":"are-markets-really-as-calm-as-they-seem","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=28351","title":{"rendered":"Are markets Really as Calm as They Seem?"},"content":{"rendered":"<header class=\"wrapper entry-header page-header\">\n<div class=\"title-with-sep single-title\">\n<h3 class=\"entry-title\"><a href=\"http:\/\/www.cobdencentre.org\/2017\/11\/are-markets-really-as-calm-as-they-seem\/\">ARE MARKETS REALLY AS CALM AS THEY SEEM?<\/a><span style=\"color: #333333; font-size: 16px;\">\u00a0<\/span><\/h3>\n<\/div>\n<\/header>\n<div class=\"wrapper\">\n<div class=\"grids\">\n<div class=\"grid-8 column-1\">\n<div class=\"single-box clearfix entry-content\">\n<p>Indicators for financial market \u201cstress\u201d have reached their lowest levels in decades. For instance, stock market volatility has never been this low since the early 1990s. Credit spreads have been shrinking, and prices for credit default swaps have fallen to pre-crisis levels. In fact, investors are no longer haunted by concerns about the stability of the financial system, potential credit defaults, and unfavourable surprises in the economy or financial assets markets. How come?<\/p>\n<div class=\"ds-1col file file-image file-image-png view-mode-wide_player clearfix\">\n<div class=\"img img-responsive\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/www.cobdencentre.org\/wp-content\/uploads\/2017\/11\/polleit1_6.png\" alt=\"polleit1_6.png\" width=\"693\" height=\"579\" \/><\/div>\n<\/div>\n<p>Monetary policy plays the significant role. By slashing interest rates and ramping up the quantity of money in the banking system, central banks around the world have kick-started the economies following the 2008\/2009 crash. But this is not the full story. The fact that investors expect central banks to stand at the ready to fend off a slowdown of the economy and price declines in stock and housing markets is by no means less important.<\/p>\n<p>The truth is that investors expect central banks to provide a \u201csafety net.\u201d This expectation encourages them to make risky investments again (which they would otherwise have declined). That said, central banks have caused a colossal \u2018moral hazard\u2019: Investors feel pretty much assured that the risk-reward profile of their investments has become more favorable\u00a0\u2014\u00a0that they can enjoy a considerable upside, while the downside is limited.<\/p>\n<p>As a result, investors drive asset prices upwards. As stock prices rise, firms\u2019 cost of capital falls, encouraging risky investments. Consumers, with their real estate assets appreciating, go into even more debt. Maturing debt is rolled over at low interest rates, and borrowers\u2019 spending capacity increases. In other words: The downward manipulation of interest rates and the decline in risk aversion translates into a cyclical strengthening of the economy.<\/p>\n<p>&#8230;click on the above link to read the rest of the article&#8230;<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>ARE MARKETS REALLY AS CALM AS THEY SEEM?\u00a0 Indicators for financial market \u201cstress\u201d have reached their lowest levels in decades. For instance, stock market volatility has never been this low since the early 1990s. Credit spreads have been shrinking, and prices for credit default swaps have fallen to pre-crisis levels. In fact, investors are no [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[7380,175,506,1138,13348,2773],"class_list":["post-28351","post","type-post","status-publish","format-standard","hentry","category-economics","tag-cobden-centre","tag-credit","tag-markets","tag-stock-market","tag-thorsten-polleit","tag-volatility"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/28351","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=28351"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/28351\/revisions"}],"predecessor-version":[{"id":28352,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/28351\/revisions\/28352"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=28351"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=28351"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=28351"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}