The lack of volatility in markets is a worrying sign for many traders. Indeed, price action has been so quiet that last Thursday’s 1% fall in the S&P 500 was the first time in three months it had moved by such an amount and then it did it two days in a row.
It’s a situation that former US Treasury Secretary (and former New York Fed President during the dark days of the GFC) Tim Geithner has warned is unsustainable in an interview with The Australian published this morning.
“In lots of ways, markets’ pricing of risks is implausibly benign at the moment, but the risks are not comparable to what we faced before 2008,” Geithner said.
It’s a theme that economist Hyman Minsky wrote about and many traders worry about. Complacency has on many occasions sown the seeds for the next market ructions – it’s just the way it works.
Geithner also highlighted why the Fed has concentrated its efforts on policies which seem to have almost exclusively benefited Wall Street over Main Street.
“In severe crises that include financial panics, it is necessary to protect the average person from calamity, but that sometimes means acting in ways that appear unfair to the average person”, Geithner said.
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