Extreme Complacency Trumps Macro's Biggest 5-Week Plunge In Two Years

Of course, it doesn’t matter (for now) but today’s JOLTS data internals and Consumer Credit’s miss just piled on to the misery and pushed Bloomberg’s US Macro Surprise Index to its lowest in seven months. What is worse is the rate of collapse – the last five weeks have dropped faster than at any time since May 2011. The current level of US macro data suggests the S&P should be over 200 points lower – but as the charts below show relative volatility levels are more complacent now than in the pre-crisis vinegar strokes in 2008.


US Macro data is anything but positive (no matter what your are told)…


Which suggests the equity market is a little rich… (which seems to be confirmed by Lumber prices – remember the housing recovery?)


But that does not seem to matter – as realized volatilities are now elevated in practically NO asset classes compared to 2008’s exuberance where 84% of asset classes were at least showing some ‘risk’…pre-crash

and nowehere is the total lack of concern about downside risk any more evident than in the distribution of returns that the options market current implies for the S&P 500. The following chart shows an extreme perspective that downside risk is being priced out of options prices to the same extent as it was in the previosu bubble peak in 2006…

As opposed to VIX (which merely tracks the perspective of market participants about volatility – two-sided risk), the chart above is a pure measure of the ‘downside’ risk and shows that complacency is at its highs…


Source: Bloomberg and Citi


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