21 October 2014

Market Volatility is Here to Stay

The unintended consequences of years of Central Bank money printing is starting to manifest itself in the financial markets. The month of October has brought big moves in currencies, bonds, stocks and commodities.

Most financial prognosticators have been unable to accurately predict the price movement in financial assets. This is likely due to the unprecedented amount of money that has been injected into the system, which has made it very difficult to find the true value of asset prices in most markets.

In an article on ZeroHedge, according to the Economic Policy Journal, the VIX (volatility Index) has risen to its highest level since the European Debt Crisis. This is an indication that the fear trade may be back in the markets. 

Market Uncertainty is Increasing

In an article on Bloomberg, the yield on the German 10-year treasury bond hit  .715 on Oct. 16th which was the lowest since Bloomberg started collecting data in 1989. This means that investors are willing to buy a 10 year bond with under a 1% annual return?

The selloff in US stocks last week caused a flurry of activity in the government bond market as investors pushed the 10-year US bond below 2%. This was the first time the 10-year yield traded below 2% since June of 2013.

According to Bloomberg, treasury trading volume reached the highest on record as about 924.3 Billion in US Government debt changed hands according to ICAP Plc, the world’s largest inter-dealer broker. 

More Central Bank Stimulus is Likely

In another recent Bloomberg article, James Bullard, President of the St. Louis Federal Reserve said that the Federal Reserve should consider delaying the end of its bond purchasing program to stop the decline in inflation expectations.

Some analyst are now coming out an predicting that more Central Bank stimulus programs will begin sometime next year. Gold will come back into favor again when the average investor realizes that there is no way out for the Central Banks.

Author: celticgold.eu

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