A day after the Federal Reserve warned that "low level of expected volatility implied by some financial market prices might also signal an increase in risk appetite" and this complacency; the Bundesbank has decided to try and jawbone back investors' exuberance across Europe. As Die Welt reports, while stocks and bonds are near record highs across Europe - thanks to the ECB's Mario Draghi's promises, Bundesbank board member Andreas Dombret warned "we see risks - despite the fact that markets are calm," and perhaps incredibly suggested investors "flatten all risks now to avoid the herd behavior."
The Bundesbank is the spoilsport. While stocks and bonds of the euro-zone haussieren and politics everywhere knocks on the shoulder just before the European elections, how great the euro crisis has been mastered, the highest German monetary authorities appear suddenly as a stern warning voice. They warn of speculative excesses in the markets, drag the new risks to financial stability by itself.
"We see risks - despite the fact that the markets are calm," Bundesbank board member Andreas Dombret said the financial agency Bloomberg. In many European countries, the real estate prices are very high. An exuberance is also reflected in the ratings of corporate bonds, he said. "The small fluctuations in the markets entice the market players to weigh in safety."
"We must not again flatten all risks now. Transported the herd behavior", Dombret said, referring to the market developments. The word of the 54-year-old certainly has weight. So Dombret care at the Bundesbank been responsible for financial stability.
And the Bundesbank board is not the only high-ranking central bankers, who warns against a false sense of security for investors. On Tuesday already U.S. central bankers Richard Fisher had raised the alarm. "I am disturbed by the fact that there is no volatility in the markets. This is not a healthy development." Fisher's concern is not unfounded. The last time that the financial markets moved in as quiet lanes, was in 2007, shortly before the outbreak of the financial crisis.
monetary authorities seem to be trying to counteract with verbal interventions. Financial stability plays an increasingly important role in the monetary policy. Thus, the financial crisis has shown in 2008 that bursting speculative bubbles entire economies can tear into the abyss.
Remember though - don't fight the Fed (unless they say to sell)