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

Tyler Durden's picture


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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Tue, 05/07/2013 - 19:49 | 3539224 Racer
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The ChairSatan has their banks err backs with Bbbbb ben bbbullettts

Tue, 05/07/2013 - 21:09 | 3539443 Manthong
Manthong's picture

Macro Schmachro. it’s not like you are talking real economic data.

.. unless incense and peppermints are counted.

Tue, 05/07/2013 - 19:52 | 3539237 delacroix
delacroix's picture

I don't see silver on that volatility chart.

Tue, 05/07/2013 - 19:54 | 3539239 Dr. Engali
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I just caught my kids a magic unicorn that shits skittles and pisses out rootbeer. Life is wonderful in our fairy tale magic kingdom.

Wed, 05/08/2013 - 00:01 | 3539958 Mr. Saxby
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We'll see how fucking wonderful it is when the FDA, FBI, and HS kick down your door for the high crime of infringing on Mars Candy's and Coca-Cola's sacred revenue streams.

Tue, 05/07/2013 - 19:56 | 3539243 Yen Cross
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    Don't get me going on complacency Tyler. If Intrade (defunct) had a chart on Complacency, we'd all be much happier!

Tue, 05/07/2013 - 19:57 | 3539247 Sam Clemons
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Tue, 05/07/2013 - 20:01 | 3539258 ApollyonDestroy
ApollyonDestroy's picture

Wow thanks for the insight! not

Tue, 05/07/2013 - 21:42 | 3539531 Sam Clemons
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My subtle is unsubtle.  My insight is not intended to be profound.

Tue, 05/07/2013 - 19:57 | 3539250 fonzannoon
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As nutso as this market is, I can't find a 2008 catalyst anywhere. Unless there is a spike in some CDS somewhere going on that I am missing. I have been hanging my hat on it being the insurers that blow up this time thanks to Zirp, and that still seems to make sense. The stocks of Met and Pru etc. however just keep going higher and higher. Somehow, magically these insurers are doing fantastic in this environment.

Other than that I almost can't see a scenario out there that is a danger to the financial system.

Tue, 05/07/2013 - 20:05 | 3539261 Dr. Engali
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Fonz you know I've felt the same way about the insurance companies, and I still do. I found it interesting that Pru got kicked out of the Raymond James platform due to pricing. The longer that zirp goes on the harder it is for them to hedge. I still believe the way they are scrambling in pricing, reducing benefits, and raising cash that they are an accident waiting to happen.

Edit.... Amazon along with a few other companies can't seem to make any money but their stocks seems to have no ceiling either.

Tue, 05/07/2013 - 20:11 | 3539292 fonzannoon
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I find this interesting today Doc. It is some structured annuity offered by a French insurer.

Basically as I understand it, they allow you to throw your money into the S&P 500 index. They cap your upside at 7% and your downside at 10% over a one year span.

They eat the first 10% loss and keep any gain over 7%.

To your knowledge, are these insurers moving on to the structured investment world now?

Tue, 05/07/2013 - 20:26 | 3539333 Dr. Engali
Dr. Engali's picture

I have seen these products popping up. I am familiar with the one you are talking about. We see a annuity wholesaler about once a week. Almost all of them are either trying to tell us why a more expensive contract with a lesser benefit is better, or they are trying to push a structured product. We just eat our free lunch and nod with earnest interest.

Tue, 05/07/2013 - 20:28 | 3539349 fonzannoon
fonzannoon's picture

lol we have a lot in common.

Tue, 05/07/2013 - 20:03 | 3539262 kornholio
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so we are for sure headed to DOW 36000, now move along...

Tue, 05/07/2013 - 22:48 | 3539749 andrewp111
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I don't doubt that you could be right. We could hit DOW 36000 within a year....or not. Every Central Bank on earth is pumping like mad. Hell, it could even go higher. What about DOW 100,000. Why not?  When money printing sovereigns are pumping, there is no predetermined upper limit. But when this sucker crashes, it will go down so fast that only the fastest HFT machines will get out at all.  The market will hit each circuit breaker in milliseconds after the open of trading. The real trick is to call the right moment to get out just before the herd heads for the exits all at once.

Tue, 05/07/2013 - 20:05 | 3539270 ApollyonDestroy
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You are aware that the '08 collapse of Lehman Brothers was an organized multi-national bear-raid "dumping" of its shares, driving it into collapse and bankruptcy within days of the bear-raids initiation which so magically began Sept 11, '08! How about a million and one potential "dangers" that most CAN see?

Tue, 05/07/2013 - 20:07 | 3539279 ApollyonDestroy
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One does not SEE the finincialWMDs until the curtain draws but it/they was/were there all along..

Tue, 05/07/2013 - 20:16 | 3539301 fonzannoon
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I remember 2008 crystal clear. There were rumors of each of the major banks and insurers flying around and everyone was just waiting for the domino's to fall even as the market marched higher.

The last rumor I hear was from Jim Willie or Jim Sinclair or whoever and it was Margin Stanley 2 years ago and it went nowhere.

Tue, 05/07/2013 - 22:33 | 3539735 andrewp111
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Cramer accurately described the bear raids about 2 weeks before Lehman was taken down.  Of course, he was bullish before that. But at least he got it right about 1-2 weeks in advance (depending on which calls of his you count).

Tue, 05/07/2013 - 22:29 | 3539725 andrewp111
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Obama is the grand master who is 6-10 moves ahead of everyone else. He will have his henchmen pull the plug on the weakest big (EU ???)  banks in late summer 2014. He needs the panic to maximize around election time so the voters can be scared shitless and  stampeeded into voting for the biggest socialists running for office. This is the only way he can take the House back. He needs to scare to voters so much that they see starvation, destitution, and homelessness right around the corner, and thus are willing to vote for any totalitarian socialist who promises to keep them alive, housed, and fed.

Wed, 05/08/2013 - 11:04 | 3541134 Plausible Denia...
Plausible Deniability's picture

Don't get caught fighting the last war. That scnenario will not play out again. It never does. From what I can see, the threat will be waves of currency crisis that will be nearly impossible to combat because of rising inflation/currency debasement. The toxic assets have been transferred to sovereign balance sheets. Inflation will begin to show in the periphery and begin to spread. Governments will be unable to raise rates in order to combat it as it will compound their own budget problems and interfere with the "re-leveraging rally". Obviously that will cause a further slowdown in growth which, given current events, will be met with more easing further depressing currencies and Stagflation will take hold. Anyway, thats what I've come up with as I have been scratching my head for a while now looking for a possible catalyst. However, I honestly believe this contrived shit show will continue to rock higher for a while. Central banks will stuff the forest with kindling til the fire starts. At first the flames will be celebrated as a return to growth and that will be the beginning of the end. Then, currency crisis will begin to rekindle talks of more euro-esque currency unions and the door prize for joining will be a reduction or complete forgiveness of sovereign debt.

Tue, 05/07/2013 - 20:10 | 3539287 ebworthen
ebworthen's picture

Hey, it's Seasame Street all over again.

"Which of these things is not like the other."

Sure doesn't look like 1983, and 2013 looks exactly like 2008.

Maria?  Bob Pastrami?  Steve LIESman?  Dr. Potato? (Krugman)???

Tue, 05/07/2013 - 20:18 | 3539306 fonzannoon
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Ebworthen, other than Schiff screaming his head off as usual and the market going stupidly parabolic, what else is reminiscient of 2008? Even DB issued 90 million shares last week and the stock freakin rallied.

Tue, 05/07/2013 - 20:36 | 3539367 beavertails
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Since they are blowing the ultimate teflon bubble, it will never ever ever never burst ... in Ben's Tenure at the Fed.  I can see him at Princeton now laughing at his hold the shit bag successor that stopped blowing the bubble or ries to burst it and blaming the schmuck for changing his policy that would have worked QE4ever ...

Popcorn with Tennis Porn Anyone?

Tue, 05/07/2013 - 22:22 | 3539686 andrewp111
andrewp111's picture

Benny is leaving 7 months from now. Where will the DOW be in January? 20000? 30000? 40000? Hold your positions at least until Benny is gone. If Yellen is his successor, she will print MOAR than Benny, and drive the market up faster. Then all the QE stops working,  it crashes, and the Fed can do nothing. This is all in Obama's grand plan of course. He wants the market to crash in late summer / early fall of 2014 so he can panic the voters into voting for the biggest socialists on the ballot so he can take back the House.

Tue, 05/07/2013 - 20:36 | 3539368 rubearish10
rubearish10's picture

There's nothing we could do about this, just nothing. 2008 will never repeat as it did, therefore, looking over shoulders or trying to predict what causation for the next debacle is mindless, reckless and in some cases an extremely costly propsoition. Give me a crying towel, please!

Tue, 05/07/2013 - 20:37 | 3539375 gatorengineer
gatorengineer's picture

Feeling better about my shorts now that the sentiment here at ZH has gone bullish......  One side of the boat way too overcrowded.  

One Algo with ill intent and down she comes 100:1 leverage is a bitch in a margin call.

Tue, 05/07/2013 - 21:04 | 3539418 Yen Cross
Yen Cross's picture

  Time to trade bitchez.



              13:30               16:01               19:00               19:00               20:00   KRW    

          API Weekly Crude Stock     0.68M     1.83M     5.18M      
13:30       USD             API Weekly Gasoline Stock     -0.19M     0.37M     -2.71M      
16:01       GBP             BRC Retail Sales Monitor (YoY)     -2.2%     1.8%     1.9%      
19:00       CNY             Chinese Exports (YoY) ?          10.30%     10.00%      
19:00       CNY             Chinese Trade Balance ?          15.05B     -0.88B      
20:00       KRW        ?

Tue, 05/07/2013 - 21:01 | 3539420 Tsar Pointless
Tsar Pointless's picture

I've said it a hundred times before, and I'll say it again now.

Half of the world's population could be homeless and starving, and the only things that would matter would be the prices of the Dow and the S&P.

This is what fascism smells like.

Tue, 05/07/2013 - 21:42 | 3539529 WTF_247
WTF_247's picture

That works until the population has had enough - once that happens its over.

Tue, 05/07/2013 - 21:19 | 3539467 Tombstone
Tombstone's picture

Bennitopia...it can only get better from here.

Tue, 05/07/2013 - 21:58 | 3539599 firstdivision
firstdivision's picture

Wow, so what you're saying is that the S&P will gain another 500 points, just like it did from 2011 to now.

Tue, 05/07/2013 - 22:04 | 3539624 exartizo
exartizo's picture

Its simply an effort to push investors out of precious metals and everything else into the stock market.

No one is fooled.

Tue, 05/07/2013 - 23:39 | 3539903 SheepDog-One
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U.S. markets- 'GO AWAY! 'BATIN!!' Go Away... - YouTube

Wed, 05/08/2013 - 00:02 | 3539962 Pandorable
Pandorable's picture

What appears to be "complacency" is really an overbought market with volume drying up, and the big (banker) boy bots have no one to unload on at these levels, so it keeps drifting up. 

Wed, 05/08/2013 - 01:08 | 3540060 chump666
chump666's picture

Awesome post ZH

Wed, 05/08/2013 - 05:00 | 3540239 Charlie
Charlie's picture

Maybe this is a stupid question but given "the total lack of concern about downside risk", how is it that otm puts are (a lot) more expensive than otm calls on a lot of stocks?

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