Violent stock market crash imminent
The state of the world's financial markets suggests that a break is about to happen at any point! We're doomed!
The Bank of International Settlements said that suspiciously low levels of volatility in the markets seen this year, suggest a lack of liquidity that could trip up investors who assume they can dispense of assets when a sell-off begins.
These remarks follow as the FTSE 100 index suffered another day of losses, dropping 2.8% and mirroring falls across Europe. Guy Debelle of BIS said global investors were buying assets on the misguided presumption of liquidity that does not exist and that in a possible sell-off, volatility and price movements "will be exacerbated by the reduced capacity and inventory of market makers".
Despite the world issues flying around causing markets to wobble, the BIS observed that volatility in fixed income, equity and foreign exchange markets has fallen to historically low levels.
Debelle, who is also an executive at Australia’s Reserve Bank, said: "While there is more forward guidance from central banks in place than in the past, investors do not have to believe it. I find it somewhat surprising that the market (in aggregate at least) is willing to accept the central banks at their word and not think so much for themselves".
Referencing the US bond crash of 1994, Debelle warned that exits in the present bonds market could be even more violent in future with "a fair chance that volatility will feed on itself".
It's all somewhat worrying isn't it?
In his speech, Debelle also referred to tightened regulation in the sector introduced in the wake of the financial crisis, adding: "Regulatory changes have, as intended, increased the cost of market-making, and hence shifted some liquidity risk to end investors. There have also been some strategic decisions taken by institutions and internal constraints have been imposed which have reduced capacity".