Why Is The Market Mispricing Uncertainty By 50%?
from Zero Hedge:
By now there can be no doubt that due to Bernanke et al’s endless intervention in any and all capital markets, the “market” is no longer a mechanism that discounts the future in any way. In fact, instead of predicting the future, all the market has become is a backward looking race in which collocated algos respond to historical data – flashing red headlines – and attempt to out run each other in who can buy or sell more free for all, knowing full well at least one other greater fool will be behind them to pick up the pieces.
Sadly, fundamentals as a driver to valuaton no longer exist. But such is life under central planning.
Yet there is one thing that the market responds to – it is politicians and the uncertainty that political risk brings with it. This certainly includes that most political of organizations, the Federal Reserve, whose stimulative intervention into capital markets two months before the presidential elections was without precedent. Yet even here, the market has managed to decouple from reality, and is trading at level far greater than what political uncertainty risk implies.
As the chart below from Citi’s Matt King shows, a correlation between BBB spreads and a broader proprietary uncertainty index, there is currently a roughly 50% political risk premium that is not being priced into stocks.
2012-12-07 14:40:08
Source: http://sgtreport.com/2012/12/why-is-the-market-mispricing-uncertainty-by-50/
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