Trusting the Fed: Will the White Knight Save the Day?

As we reported last week, investors are in an era of ‘irrational exuberance.’
The US stock market is at all-time highs. Meanwhile, market volatility is at lows not seen since the 1990s. In an odd juxtaposition of seemingly contradictory points of view, investors realize the market is overvalued, but at the same time, they believe it will continue to go up. According to a Bank of Ameria survey, 56% of money managers project a ‘Goldilocks’ economic backdrop of steady expansion with tempered inflation.
In an article published at the Mises Wire, economist Thorsten Polleit adds some further analysis and asks a critical question.
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 unfavorable surprises in the economy or financial assets markets.
‘How come?’
In simplest terms, most investors now believe the Federal Reserve will ride in like a white knight and save the day.
After all, the Fed saved the day before. Surely it will do it again. Peter Schiff put it this way during an interview on The Street.

This post was published at Schiffgold on NOVEMBER 22, 2017.

 

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