Over at King World News, Richard Russell muses that something evil is brewing in the market. Everyone is really complacent, implied volatility is at historic lows, yet hidden risks lurk all around the world:
My only conclusion is that something evil and bearish is bubbling in the guts of this market — and it’s giving the market a severe case of indigestion. Of course, I could say that with a yield below 3%, the Dow is classically overvalued, and any rally would just render the Dow more overvalued.
Even good old Bill Gross, the bond king, knows that something is up and it doesn’t look good for pension funds and the millions of pensioners that they will fail to support. Both stocks and bonds are priced for perfection and their yields are no where near the mythical 8% that pension funds need to stay solvent:
Bill Gross, founder of giant PIMCO, states that ‘the cult of equities’ is over, meaning that stocks are not priced for decent profits over the coming years. Worse, Gross warns that stocks and bonds will not create enough profits to fund the needs of thousands of pension funds over coming years.
So with the S&P above 1400 and VIX below 14, everything is hunk dory, right? I mean what could go wrong? Russell says:
I was thinking, the market has been dull and listless and hardly moving. Maybe the market is telling us that nothing of importance is going to occur. There are countless terrible events that could occur at any time. Israel could bomb Iran. The US could go over the fiscal cliff. Unemployment could suddenly become worse. The market could crash.
Nah! Bad news is good news, because the Bernank will come to the rescue with QE and we will all live happily ever after.