re: "Volatility Is Lowest Since the Great Depression"

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Where can investors buy new equities? The number of new shares available is just insufficient to absorb all of the cash available for investment just from institutional investors. Why would institutional investors, specifically mutual funds with limited investment options, sell shares they own now if they can't replace them with alternative investments that will yield higher returns? Selling to lock in gains may get you locked out except at a higher price. I think that is one of the reasons volatility is so low. Mutual funds owned by retirement plans hold an increasing percentage of the equities market, and they are pretty much stuck holding what they already have.

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I agree with your points but can also take then a couple steps further. Not only is there a supply/demand mismatch with equities but across all asset classes. Mortgages and treasuries are owned by the Fed and decreasing in market issuance compared to levels we've previously seen. Plus you have bank capital that is flowing out after the TLGP expiration at the end of the year.

With the mutual fund/pension point I think this is the crux of a bigger issue going forward. Defined benefit plans, while slowing down, will still be here for a very long time. Defined contribution plans are going to grow at pretty healthy levels for a long time. Cash on balance sheets is finding its way out into the marketplace to find yield. Everyone is lookin for returns and you can't find them anywhere. We need some sort of miracle on the growth end to avoid having to either inflate or cut benefits. Eventually the first pony up will be the state pension plans, and it's going to be hilarious watching Washington try and figure out how to deal with these pension issues because god knows they don't exactly have the best track record with anything investment related in the modern era. Actually I take that back, it won't be hilarious. It'll be just as painful as it is watching right now.