The VIX, which measures volatility on the S&P 500 has broken below some key levels to the lowest since June 2007.
There are many was to look at the VIX but I tend to take it at face value — it correlates (opposite) to the S&P 500 and is pointing to a fresh cycle high.
That said, the past three drops to low levels like this have been followed by spikes in risk aversion. Looking around in the world, sure, it might be getting a bit better but are risks at this moment lower than they have been since June 2007? I don’t think so.
Of course, if you look at the past two posts I talk about a potential huge upside in AUD while warning about high risks here. How can that be?
To me, the period we are in right now is like a coil that’s winding tighter and tighter. As that happens, the coil doesn’t look any differently on the surface but tremendous energy is being built up on the inside. It’s not clear yet which way that will go but all signs are pointing to a powerful trend beginning in all markets in September.
More on the VIX from the FT (Investors baffled by subdued Vix level)
