We track volatility across asset classes and throughout this year, especially the second half, have been amazed and the consistent volatility compression across assets. Here is our Average VIX where we take a simple average of several different volatility indices. Right now we are sitting at levels last seen in mid-2007 and we are struck with the complacency in the marketplace.(Click on chart to enlarge)
Are the potential risks really so small that no one finds it worthwhile to buy protection? A short list of potential risks would be
the sovereign debt issues, fiscal cliff, Europe, Japan, China, Italy, Middle East, etc.,we can almost literally go on forever. Our current list of risks is as high as it has ever been and yet volatility is getting lower and lower from already low levels. While the Bernanke put has some power we question whether it is really the holy grail of safety nets. Just something to think about as we watch European stocks breaking out and US equities moving higher while at the same time Treasuries continue to catch a bid.