I am not alone in my current state of concern over the current state of investor sentiment, either. A note appeared in my inbox this week from a firm called Old Park Capital that encapsulated my thoughts quite neatly. Entitled 'Will no one rid me of this market complacency?', it suggests that the current lowly volatility is because investors have become used to discounting difficult events - or, to put it another way, to assume that the effects have already been built into asset prices. "The equity markets are desensitised to bad news", it said, "this is not normal."
Indeed, while the events in Gaza or Iraq or the Ukraine may have caused markets to wobble, they have hardly stopped them in their tracks. I find it extraordinary that investors can brush such matters aside so easily - it is not so much climbing a wall of worry as digging one's head deeply into the sand. While volatility has, in fact, started to pick up, it remains at very low levels; according to Bloomberg, there have been no declines lasting more than three days on the S&P. Yet I do not remember a time when the geopolitical situation was so fragile.
Financial fragility still lurks, too. Europe teeters on a deflationary cliff, bad debt in China is soaring, and UK profit warnings are on the rise again, according to EY's latest survey, hitting a three-year high of 147 in the first half of 2014. Asset prices don't really seem to be discounting very much of this at all - the S&P is at valuations not seen since 2007, while one investment manager recently described high yield bond valuations as "eye-wateringly expensive". A shakeout would come as no surprise.
What should investors be doing then? Investment firm Sarasin offers some sage advice in its biennial Compendium of Investment, a weighty tome aimed at its trustee clients, but which I'd urge you all to download from its website. "Now would be a good moment to consider your strategic allocation from a position of relative strength", it said. I would also urge you to consider their attitudes to risk. Investors today are arguably being asked to take on ever higher levels of it just to maintain adequate returns, yet chasing these gains can lead to reckless investing - so stick to your tried-and-tested strategies. And do not forget the truism that you never get something for nothing.
