Be Very Afraid When Fear Disappears From Markets

Feb. 1 (Bloomberg) -- These days, many indicators suggestwe are in an extremely low-risk market environment. The ChicagoBoard Options Exchange Volatility Index, or VIX, sometimes knownas the fear index, has reached a five-year low. Europeansovereign-bond yields, long a source of anxiety, have easedsince their uncomfortable march higher in 2011, and the euro hasrisen 13 percent from its 2010 low.

Options on currencies also suggest little fear in thatmarket. In the U.S., the Standard & Poor’s 500 Index rose 13percent last year and the average forecast among Wall Streetanalysts is for a 9.4 percent gain this year, supported bygrowing profits and investor willingness to pay more for eachdollar of earnings. In Europe, bank balance sheets are stillfragile, but the rally in share prices inspired by EuropeanCentral Bank President Mario Draghi’s “whatever it takes”pledge last summer left financial companies in far better shapeto weather turmoil.