The ViewBears struggle to be taken seriously as markets remain resilient to risks

Another week, another reason for investors to hate what has been dubbed “the most hated bull market in history” a little bit more.

Last Friday Moody’s, the credit rating agency, highlighted the perils of Britain’s decision to leave the European Union by unexpectedly downgrading the UK’s rating, citing a deteriorating outlook for Britain’s public finances and economy. On the same day, North Korea threatened to detonate a hydrogen bomb in the Pacific in response to US president Donald Trump’s threat to “totally destroy” the hermit kingdom if forced to defend his country or its allies.

Two days earlier, the Federal Reserve brushed aside concerns about subdued inflation and announced that it would begin paring back its US$4.5 trillion balance sheet by US$10 billion a month, starting next month, and, more controversially, stick to its plan to raise interest rates four more times by the end of 2018. The more hawkish tone from the Fed in the face of persistently low inflation increases the risk of a “policy mistake” by the Fed which, together with the North Korean crisis, are now the two biggest “tail risks” in markets, according to a fund manager survey by Bank of America Merrill Lynch.

Yet while market bears are feeling more confident in predicting a sharp and sustained correction in asset prices, they are finding it difficult to be taken seriously because of the enduring resilience of markets and their inability to predict when the correction will occur and what the precise trigger will be.

While most investment strategists agree that valuations in bond and equity markets have become stretched, even the more bearish ones admit that they underestimated the momentum behind the rally and, crucially, the insensitivity of international investors to the plethora of political, geopolitical, economic and financial risks hanging over markets.

The bears are on shaky ground for two important reasons.