Despite significant risk in the marketplace, the markets have given up on fighting the Fed's $600 billion liquidity injection, Dean Curnutt, president and chief executive of Macro Risk Advisors, told CNBC on Monday.
"It's really [Fed Chairman Ben] Bernanke trying to break the backs of these folks that still think there's a lot of risk," he said.
"We actually do think there's a lot of risk, but fighting the Fed for a certain period of time is quite difficult. Ultimately his goal is to goose up asset prices and create a risk appetite that hopefully feeds back into the real economy. With the foreclosure mess as substantial as it is, it's a tough one to crack."
The Chicago Board Option Exchange's Volatility Index (VIX), a short-term measure of implied volatility and widely considered the best gauge of fear in the market, is hovering near 6-month lows. Curnutt attributes these low levels to "resignation from the market."
"The market learned last year, fighting the Fed is very difficult," he said.
"The first round of quantitative easing saw the VIX go down from 60 to maybe 25 or so. The folks that were buying insurance on the market the whole way were left empty handed. If somebody else is providing a put option to you, i.e., the Bernanke put, why buy it yourself?"
(Read a second opinion: Low VIX a Warning for Market: Strategist)
A better indicator of market volatility may be currencies, he said, particularly those for which growth is already priced in. The Aussie-Dollar Cross, for instance, is inversely correlated to the VIX, and speaks to whether risk appetite is increasing or decreasing, he said.
This comes at a time when the Fed's stimulus has received criticism abroadas Pres. Obama attends the G20 Summit, and the monetary move may impact European nations' ability to pay off their debts.
"You've got this liquidity party engendered by the Fed but you've also got a sovereign risk problem that seems to be worsening each day," he said. "So it's something that could be derailed very quickly. If you look at Spain, Portugal and Greece, and what the euro is doing for those countries, it becomes very difficult. What Bernanke is doing for these other countries with monetary policy makes currencies a key asset to watch."
In other words, the Fed is a "large seller of volatility," Curnutt went on to say.
"You have to ask yourself, if the Fed is providing so much stimulus, with 2-year notes yielding 35 basis points, what happens when the Fed actually does have to reverse out of the stimulus?" he said. "What does that do to housing, [and volatility]?"