Here's a comparison that is surely vertigo inducing. On the one hand, the financial system is implicitly held to be so incredibly stable and healthy that volatility on the S&P 500 has been driven to 50-year lows.
Indeed, that lovely condition is apparently expected to persist indefinitely as signaled by implied volatility. During the last 6,000 trading days (since the early 1990s), the VIX Index closed below 10 on 26 occasions or just 0.4% of the time. No less than 16 out of those 26'below-10' closes occurred in the last three months!
Yet this insensible bullish calm is happening even as Wall Street is showing itself to be in the throes of unhinged leveraged speculation.
With respect to the unhinged part, consider an incisive post by Wolf Richter on the present carnage in the retail sector. His point was that virtually every one of the rash of companies filing bankruptcy in the sector during the recent past had been strip-mined by private equity operators:
Nearly every retail chain caught up in the brick & mortar meltdown is an LBO queen – acquired in a leveraged buyout by a private equity firm either during the LBO boom before the Financial Crisis or in the years of ultra-cheap money following it.
But Richter's real point is that the private equity operators in the retail space brought down a double-whammy of leverage on the companies they ransacked. That is, they first loaded up the companies with buyout debt, and then came back for second and third helpings.
Accordingly, since 2010, retail chains controlled by private equity firms issued $91 billion in junk bonds and leveraged loans.
Needless to say, in drastically falsifying debt prices in order to stimulate housing and other investments, the Fed had no clue about the collateral effects of its massive and persistent intrusion in the delicate clockwork of capital markets pricing.
So when Janet Yellen & Co profess to see no bubbles they prove their own clueless incompetence. Do they actually think that this would happen in a free market with honest money and market-clearing interest rates?
The question answers itself.
In fact, the asset stripping pattern is every bit as irrational and toxic as were the slicing and dicing of subprime mortgage pools in the run-up to the 2008 financial crisis.
Needless to say, so-called "investors" piled into the flood of dodgy paper because they were desperate for yield. In the dollar fixed income markets, $3.5 trillion of the Fed's U.S. Treasury and other securities purchases after September 2008 drove real interest rates so low that it virtually forced money managers to scramble out the risk curve in order to find minimally attractive yields.
So doing, they enabled strip-mining transactions that resulted in the eventual destruction of the debt issuers and vast windfall distributions to a few hundred corporate kingpins.