Who’s Fooling Whom? – By Michael Lewitt

“Recovery is sound only if it does come of itself. For any revival which is merely due to artificial stimulus leaves part of the work of depressions undone and adds, to an undigested element of maladjustment, new maladjustment of its own which has to be liquidated in turn, thus threatening business with another crisis ahead.” - Joseph Schumpeter

Equity markets are exhibiting a remarkable degree of complacency. The VIX has rarely traded below 15 since the financial crisis, although it traded at an average of 13.6 during the 2004-early 2007 period. What that tells us is that the VIX is currently at extremely low levels and that it can maintain those levels for a long period of time. The recent rally is a great example of the Wall Street adage that markets climb a wall of worry. In fact, the worse things get in terms of the economic data, the higher the market goes on hopes of central bank stimulus. At this rate, the Dow will peak just as the world is coming to an end! The level of the VIX may not worry the markets but it worries me. It tells me that markets are counting on a degree of central bank support that may not be forthcoming.