When trying to get a handle on investor sentiment, the benchmark of choice for many market-watchers is the CBOE S&P 500 Volatility Index, or VIX. However, this popular “fear gauge” only offers a snapshot of implied volatility, or relative pricing levels, for equity index options, which might not necessarily tell us all we need to know about the mood on The Street.
In “The Biggest Myth About the Fed,” David Beckworth, an assistant professor of economics at Western Kentucky University, suggests that the pessimists are wrong to be concerned about what Mr. Bernanke and Co. are up to. The notion that current benign market conditions are a reason for optimism sums up just how out of touch with reality most academic economists (and other alleged experts, including journalists-cum-forecasters who parrot this nonsense) are.
By this sort of logic:
- Mid-2005 was the right time to be optimistic on housing
- January-2007 was the right time to be optimistic on the banking sector
- The spring of 2007 was the right time to be optimistic on credit markets
- The fall of 2007 was the right time to be optimistic on global equity markets
- Mid-2008 was the right time to be optimistic on commodities
- This past September was the right time to be optimistic on technology stocks
Of course, we know how those all worked out (hint: not well).
While everyone and their pet rabbit 'Dave' in the media seems to 'believe', there’s plenty of debate about—and money riding on—the question of whether we are in the midst of a sustainable recovery in the housing market. Nobody knows for sure, of course, but there are plenty of reasons to be pessimistic. While it is easy to focus on the traditional indicators of supply and demand and start believing that the long-awaited recovery in the property market has arrived at last, the fact is that much has changed in the wake of the events of the past decade, a development that is likely to weigh on prices for many years to come.