With the VIX back to a 10-handle and eagerly eyeing single-digits once again, commentary on market complacency and the low VIX, which was blissfully gone for the past month when the VIX surged valiantly if briefly only to be smacked right back down, has returned. In a note from SocGen's Praveen Singh, the French bank analyst boldly goes where so many prognosticators have gone before, and looking at the evolving cross-asset volatility trends, warns that the market is "now entering dangerous volatility regimes."
Hardly stating the unknown, Singh writes that "expected volatility has been falling consistently. Over the last year, expected volatility has been falling on a consistent basis. When we look at equity and government bonds, the current level of volatility is well below long-term average volatility. Falling volatility normally means stable environment for risk assets."
Time - Numbers - Level - Volatility - %
So time for some (familiar) numbers: the current low level of volatility happens less than 2% of the time for equities. In the following chart, SocGen plots the distribution of equity volatility based on data since 1994. The bank's analysis suggests that average equity volatility has been above the current level 98% of the time. This means that volatility is more likely to go up than fall further from current levels... at least in theory, of course. In practice, what it means these days is that some central banks unload a few thousand VIX contracts to prevent any vol spike at just the right time.
Millionaire Warns Americans: “Get Out Of Cash Now”
System - Wall - Street - Journal - Investors
Something strange is going on in the financial system. And according to The Wall Street Journal, it’s causing some investors to move massive amounts of money out of the banking system.
Undeterred, SocGen presses on and warns that - central banks aside - in the past, equity volatility has bottomed at around current levels and...
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