Why low market volatility isn't such good news

It might seem counter-intuitive for a traditional stockbroking firm to argue in favour of increased volatility, but Jeremy Batstone of Charles Stanley thinks it would be good for everyone over the medium-term.

It may seem oddly counter-intuitive for a traditional stockbroking firm to argue in favour of increased volatility but that is what this writer thinks would be good for everybody over the medium-term. The result of ultra-low volatility has been to encourage investors' to consign risk to the dustbin of history. Risk assets are "in" government bonds are most definitely "out" and in the credit market investment grade and high yielding corporate bonds alike trade at near record low spreads to government bonds. In the equity market investment strategists worry about rising multiples. Share prices are rising but earnings expectations are slowing. Superannuated hedge fund managers can still charge exorbitant fees for generally only modest performance and splash their arriviste wealth on such decorative baubles as Gustav Klimt's "Adele Bloch-Bauer" ($135m is a lot to pay for a Christmas present!) or $917,000 for that little black dress worn by Audrey Hepburn in "Breakfast at Tiffany's". In a world of frantically inflated values what does "normal" mean any more?

Volatility trades were particularly profitable in 2006

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