Everything is fine, just like 2007

25 Jan 2013 by Jim Fickett.

John Authers has a nice piece in the FT today, on whether currently popular rosy outlooks are justified.

Republicans in the House have abandoned, for now, their threat to force the US into default …

In Europe, life is calmer. Friday’s news that banks were starting to repay the emergency funding they received a year ago from the European Central Bank further settled the belief that the eurozone crisis is over. …

China’s data suggest it has executed the much hoped-for “soft landing”. …

As for volatility, as measured by the CBOE Vix index, it is at its lowest since April 2007, just before the debt crisis.

In other words, almost everyone thinks everything is just fine, just like in 2007. That alone should give you pause.

I am not predicting the next crisis. Although the bond market is clearly in a bubble, I do not yet see any signs of the sharp instrument that will prick that bubble. But one thing we should all have learned from 2007 is that when trust in the Fed is high, and markets are complacent, it is time to keep a sharp eye out for trouble on the horizon.