Prieur’s readings (March 8, 2010)

This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy.

• Steven Sears (Barron’s): Controverting complacency, March 8, 2010.
It is now quite fashionable for anyone active in the markets to remark that investors are too complacent. As evidence, the Chicago Board Options Exchange’s Market Volatility Index is trotted out like some trick pony that talks and predicts the future. Yes, it is true that implied volatility, which is the true animating force of the options market, is markedly lower than, say, toward the end of 2008 when the world’s financial markets were crumbling. But options volatility declines for many reasons, like a lack of volatility in the stock market, or because many investors already bought puts to hedge portfolios.

• Rainer Buergin and Philipp Encz (Bloomberg): Volcker says too soon to cut US monetary, fiscal stimulus, March 8, 2010.
White House adviser Paul Volcker said it’s too soon for U.S. policy makers to withdraw the stimulus measures and interest-rate cuts used to fight the worst slump since the Great Depression. “This is not the time to take aggressive tightening action, either fiscally or monetary-wise,” said Volcker in an interview in Berlin March 6, pointing to “high” unemployment. “So I think we have to, as best as we can, maintain the expectation that it will be taken care of in a timely way.”

• Daniel Indiviglio (The Atlantic): Is credit growing? March 5, 2010.
On Friday the Federal Reserve released consumer credit data for January. Credit grew at an annualized pace of 2.4% during the month. The nonrevolving portion grew at a more rapid pace – 5.0% annualized. Revolving credit, however, declined further, an annualized 2.3%. Yet, this data appears to indicate that overall credit conditions may be improving somewhat – or is it just a blip?

• Spyros Andreopoulos, Joachim Fels and Manoj Pradhan (Morgan Stanley): Debating debtflation, March 5, 2010.
The Greek crisis has brought sovereign debt to the forefront, capturing markets’ attention. We think another dimension of the sovereign issue, the inflation risks inherent in high levels of public debt for economies that can print their own currency, is being overlooked by the markets. High levels of public debt in many advanced economies raise the spectre of inflation, in our view: if high debt is deemed undesirable, but the political will for higher taxes and lower spending is lacking, then ’soft default’ through inflation becomes a possibility