I read a great quote recently - the seeds of risk grow best in the sweet rain of euphoria.
We saw the best Dec perf for SPX since 1991.
We also saw the best Sept perf for SPX since 1939.
This was a huge result.
SPX has remained above its 50 day MA for 4 straight months.
This is the longest streak in 7 months.
Wow!!!
The statistical vol of SPX dropped 112% since Sept 2010 to its lowest level since early 2007.
VIX dropped 38%
Strange stuff is happening here.
Equity vol has crashed but US Tsy yield vol is rising.
Mkt registered some of its largest draw-downs in the history of SPX realized vol dating back to 1950.
Spread between VIX and 21 day realized vol is at its widest level in history.
Differential between SPX realized vol and 10 Yr US Tsy yield vol is at its lowest in history.
7 of the largest draw-ups in 10 Yr US Tsy yields since 1962 occurred in Q4 2010.
2010 was the #1 ranked year for vol draw-downs.
Look at the ratio between the vol of vol of VIX and the vol of vol on historical vol.
This ratio measures how fast the actual vol is changing compared to the shifting cost of market insurance.
This ratio is at its lowest and that says that investors in vol refuse to believe this low vol environment is sustainable.
Increased interest rate vol can be the black swan that we are looking for.
It is now time to buy vol.
Lets go long the VIX.
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