Many investors have legitimate doubts about what's behind the volatility in various markets, especially currencies.

In the U.S., the main event remains just when the Federal Reserve will finally start raising its federal-funds rate.

There is no doubt that moment will seriously impact (let’s hope not disrupt) markets, currencies and economies all over the globe.

Please keep in mind, we aren’t there yet. But it could be sooner than you think.

In the meantime, many keep wondering what is causing this unusual volatility in currencies for the past six months.

A non-negligible catalyst has certainly been the totally unexpected $50 collapse in the oil price since mid-2014.

Besides that, in my opinion, the most important catalyst of all has been the new monetary situations resulting from easing monetary policies of practically all important central banks in the world. By the way, central banks worldwide have performed 35 rate cuts so far this year.

The actions of three Western European central banks are the most noteworthy. Thee ECB, which is of course by far the most important of all, created the most crucial impact when it announced and started in September its "irrevocable" path to its self-designed full-blown quantitative easing (QE) when it lowered the interest rate on its deposit facility to negative 0.20 percent.

The Swiss National Bank (SNB) discontinued its minimum exchange rate (peg) of 1.20 Swiss francs per euro and extended its negative interest rate on sight deposits for what it considers “large” amounts to negative 0.75 percent.
 
Finally, there was Denmark, where its Nationalbank cut the interest rate on its certificates of deposit deeper to negative 0.75 percent.

We could say all these actions were in some way interconnected. They have created, thanks to the ECB's QE in particular, unprecedented funding possibilities (carry trades) for risk-taking investors.

I don’t think it’s an overstatement to say these concerted actions of many central banks in the world have left a significant group of investors very little other choice than accepting substantially greater risks than they would have preferred under more “normal, healthier” circumstances.

Keep in mind these kind of situations increase substantially disorderly runs for the exits once a totally unexpected and disrupting event occurs.

In summary, all that “money for nothing” that’s out there continuous persuading and forcing way too many investors into seriously vulnerable markets that are: firstly, short of volatility and secondly, long on risk.

This could be compared to a Russian roulette game situation that could, and probably will, come to a sudden end when some kind of a disrupting/unexpected event takes place.

Usually when the unexpected happens, which doesn’t mean by far "totally" unexpected, markets tend to overshoot in the opposite direction of what general consensus seems to expect at that moment.

As a long-term investor, I would take my precautions so that Russian roulette bullet won't be for me.

These days, overvaluation appears to be the new normal in a world where weak trade growth persists notwithstanding all these monetary easing programs that are going on.

Better watching out to when valuations finally start going back to normal.