Strategy Video: Entire Financial System Unprepared for Change in Risk Bearing
• A similar obliviousness has shown through in Chinese markets and is a long-standing issue for the SPX
• The financial system is positioned for quiet and tepid returns, a complacency that can end in pain
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The market isn't just showing a dangerous lack of concern for an adverse turn for Greece. A general sense of complacency seems to have distracted the global financial system. In China, a 13-plus percent plunge in the Shanghai Composite has generated little response from its closest volatility measure. On the opposite end of the spectrum, the world's most liquid market (the US) has shown the disinterest in safty has actually transformed into an even greater reach for yield and thereby exposure to risk. An extreme low in realized volatility for the S&P 500 is showing complacency, a heavy interest for short volatility position shows a rabid speculative appetite and record levels leverage along with years of high correlation across high-return assets indicates plenty of fuel should this fire start to burn. We do a worrying checkup on the financial system's preparedness in this weekend Strategy Video.
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.