Twitter icon Email alerts icon Latest News RSS icon Magazine icon Stay connected:

View the article online at

The greatest market risk of all…

by Dylan Lobo on Jun 17, 2014 at 10:44

The greatest market risk of all…

Before Mark Carney's rates comments last week, the FTSE had been on a smooth upward trajectory with a remarkable lack of volatility.

Carney's warning rates will rise 'sooner than expected', combined with the political tensions in Iraq, have stoked volatility in markets without quite causing a ‘Minsky moment’.

American economist Hyman Minsky won acclaim for his research into financial crises where periods of serenity are followed by collapses.

His theories were based on the philosophy that in boom time excess private sector flows move into increasingly speculative investments. When the resulting bubble bursts banks and lenders are forced to tighten credit availability - even to those solvent firms - causing the economy to contract.

The current placid attitude to risk among investors is giving some cause for concern.

‘The serene progress of equity markets so far this year, and indeed for much of the last two years, continues to worry those trying to call the short term - the absence of things to really worry about is, in itself, worrying,' Barclays head of equity strategy EMEA William Hobbs says,  

Meanwhile Bank of America Merrill Lynch (BofMA) points out that more than five years after the global financial crisis this remains a ‘lukewarm ‘ recovery.

‘The “fire” of zero interest rates & central bank liquidity continues to be doused by the “ice” of consumer and corporate deleveraging and the deflationary disruption of increased regulation and tech innovation. We are not living through an era of big economic growth upgrades,' the investment bank said.  

Yet asset prices keep rising, with the speed and magnitude of the US stock market recovery from the 2009 lows only ever surpassed by the recovery from the 1932 lows.

What is more surprising is the fall in government bond yields, with this decline proving extremely positive for financial markets.

Sign in / register to view full article on one page

1 comment so far. Why not have your say?

Keith Cobby

Jun 17, 2014 at 16:45

Surely Government bond yields are falling because central banks are buying vast quantities of them.

The main reason why the recovery is 'lukewarm' is because of the vast amounts of private and Government debt. Consumers cannot borrow any more and are very cautious.

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

Sponsored Video: Bringing it all back home

As the UK coalition government strives to rebalance the national economy, so called 'reshoring' looks set to play an increasingly important role in economic recovery.

Today's top headlines

Sponsored Video: Barings on investing in Frontier Markets

From Nigeria to Pakistan and from Kenya to Kuwait, frontier markets are catching investors' attention as never before.

On the road

Click here to find out more from the Audience Development team.

Sorry, this link is not
quite ready yet