"Low Volatility Everywhere" - BIS Sounds Alarm Alert On Pervasive Complacency Masking Systemic Shocks

Tyler Durden's picture

Here comes another BIS report, and another stark warning by the central banks' central bank, the Bank of International Settlements, best known for selling gold at key inflection points, that not only are asset prices are at "elevated" levels but that market volatility remains "exceptionally subdued" thanks to ultra-loose central bank policies around the world. In other words: pervasive complacency boosting the asset bubble to unseen levels and masking the threat of systemic shocks.

First, a flashback: this is what the BIS warned back in June 2014.

"... it is hard to avoid the sense of a puzzling disconnect between the markets’ buoyancy and underlying economic developments globally....  Despite the euphoria in financial markets, investment remains weak. Instead of adding to productive capacity, large firms prefer to buy back shares or engage in mergers and acquisitions.


As history reminds us, there is little appetite for taking the long-term view. Few are ready to curb financial booms that make everyone feel illusively richer.  Or to hold back on quick fixes for output slowdowns, even if such measures threaten to add fuel to unsustainable financial booms. Or to address balance sheet problems head-on during a bust when seemingly easier policies are on offer. The temptation to go for shortcuts is simply too strong, even if these shortcuts lead nowhere in the end.

This follows a just as solemn warning back in June 2013, when it warned that the monetary Kool-aid party is coming to an end:

Can central banks now really do “whatever it takes”? As each day goes by, it seems less and less likely... Six years have passed since the eruption of the global financial crisis, yet robust, self-sustaining, well balanced growth still eludes the global economy. If there were an easy path to that goal, we would have found it by now.


Monetary stimulus alone cannot provide the answer because the roots of the problem are not monetary. Hence, central banks must manage a return to their stabilisation role, allowing others to do the hard but essential work of adjustment. 


Many large corporations are using cheap bond funding to lengthen the duration of their liabilities instead of investing in new production capacity. 


Continued low interest rates and unconventional policies have made it easy for the private sector to postpone deleveraging, easy for the government to finance deficits, and easy for the authorities to delay needed reforms in the real economy and in the financial system.


Overindebtedness is one of the major barriers on the path to growth after a financial crisis. Borrowing more year after year is not the cure...in some places it may be difficult to avoid an overall reduction in accommodation because some policies have clearly hit their limits.

Which brings us to today, and the just released latest quarterly reviews, whose topic is summarized by the title of the chart below:

In today's release, instead of discussing leverage, or asset levels, this time the BIS' take on the global asset bubble, the same one decried by Deutsche Bank last week, is by way of collapsing volatility: i.e., the #1 specialty of the VIX-selling team at Libery 33, where Kevin Henry is such an instrumental part. Some exceprts:

After the spell of volatility in early August, the search for yield – a dominant  theme in financial markets since mid-2012 – returned in full force. Volatility fell back to exceptional lows across virtually all asset classes, and risk premia remained  compressed. By fostering risk-taking and the search for yield, accommodative monetary policies thus continued to support elevated asset price valuations and  exceptionally subdued volatility.

Here, in addition to pointing out the obvious, the BIS highlights something that everyone else has been scratching their heads over: how with a world on the edge of war the global markets are just shy of all time highs:

Increased geopolitical stress had surprisingly little effect on energy markets. In  the spot market, oil prices actually fell by around 11% between end-June and early  September (Graph 1, right-hand panel). Market expectations for oil demand were revised down, largely on disappointing growth in the euro area and Japan. Incoming data from China were mixed, with that country’s manufacturing PMI registering an 18-month high in July, but falling back in August. All in all, demand factors seemingly offset concerns over potential short-run supply disruptions.

So how does the BS explain this paradox? Simple: hopes for even more easing, this time from the ECB:

The spell of market volatility proved to be short-lived and financial markets resumed their rally soon afterwards. By early September, global equity markets had recouped their losses and credit risk spreads once again consolidated at close to historical lows. While geopolitical worries kept weighing on financial market developments, these were ultimately superseded by the anticipation of further monetary policy accommodation in the euro area, providing support for asset prices.

In other words, central banks are now perceived to be more powerful even that the threat of regional or not so regional war.

Yet the core BIS' warning this time is one about complacency, as Reuters notes: "There were several references in the report to the "extraordinarily" and "exceptionally" low levels of volatility, suggesting the BIS feels markets may be getting too complacent and therefore vulnerable - and therefore ill-equipped to a shock."

To summarize: the bank that supervises all central banks has first warned about new and disturbing all time highs in leverage, then a global asset bubble driven largely by companies investing in stock buybacks instead of growth, and now about widespread unsustainable complacency. Surely this reiteration of everything that Zero Hedge has been warning about for years should be sufficient to send the e-mini comfortable above 2000 as soon as futures are open for trading.

Finally, here are the key BIS charts:


Finally, a quick annotation by us on one of today's key BIS charts showing when and where things changed:

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knukles's picture

He went that away.

Motorhead's picture

Hey, whatever happened to the idea that a negative interest rate was good for gold?

unwashedmass's picture


right now, we are in the midst of a major & massive Central Bank suppression of gold and silver. Buy every bit of metal you can get your hands on......

Winston Churchill's picture

Never go full retard though.

Even with all the money printing , a defationary collapse is still a 50% probability IMO.

Cash may still be king for a while before hyperinflation arrives.

Xibalba's picture

It's not the Feds job to pop bubbles. We blow them.  - Janet

max2205's picture

Warning equals a rally coming soon to you....thanks

Keyser's picture

Yep, considering the only players in the equities market today are hft, hedge funds, investment banks and central bankers... This fucker is never going down as long as these entities exist... 

bwh1214's picture

Well I guess its been decided, the BIS is going to be one of the “good institutions” that saw the next crisis coming and is going to save us.  I wonder what roll the powers that be have in store for the BIS in the next monetary system.  It must be a pretty big one if they are allowing them to be the first large institution to tell the truth.

jaxville's picture

"Monetary stimulus alone cannot provide the answer because the roots of the problem are not monetary."


  What a crock of bullshit.  Central banks have been bending over backwards to remove all incentive to save.  Their respective credit based currency systems have left the world mired in debt.  There is no way forward without a dramatic change in the monetary system.

  Whether it be a massive currency devaluation or an outright repudiation of debt, a jubilee of sorts; nothing in the conventional credit based monetary order will return the global economy to prosperity.

   The changes that are needed will be resisted.  Those who enjoy power and wealth because they can create currency out of nothing then lend it into being with an interest obligation and claim on property are not likely to go quietly into the night.

Panem et Circus's picture

Agreed completely. I have this ongoing debate over it internally that never has conclusively settled.

ZerOhead's picture

The response to a deflationary collapse must be sure and swift or they risk losing the entire overleveraged financial system.

If Yellen and Congressional leaders understand this then they must already be planning entry points (new programs or war) for massive injections of new money directly into the domestic economy in addition to supporting the financial system.

If not then a complete economic collapse will occur. Both scenarios will severely devalue or even kill the dollar.

knukles's picture

I dunno.  I've given up on "logical" "rational" explanations and simply concluded that since the whole fucking thing is so screwed up, it will end badly and the PMs will be my anchor to sanity.  And my next PB&J.
I mean.... how crazy is it?
The CB's blow bubbles because they want the real economy to respond to monetary stimulus when we're in a Liquidity Trap so it won't respond and then along comes the BIS warning of bubbles.
Almost as if the world's Corpus Callosum has been severed so the left hand really doesn't know what the right hand is doing.

He went that away, doc!


BTW.  How is it the BIS can know what a bubble is but not its constituent CB's?  Huh huh huh

TheSecondLaw's picture

I share your sentiments.  Every now and then humanity goes collectively insane, and this is one of those moments.  Thirty years from now people will look back at this time and shake their heads...just as we do now at the collective insanity of 1939-1945.  One thing is certain - people now in their 20s and 30s will tell their kids and grandchildren of how they lived thrugh the Second Great Depression, just like our grandparents spoke of the first one.

Rhal's picture

All the fundamentals have been good for gold, but that market is no longer responding to fundamentals.

It could be a long ride to price discovery.

debtor of last resort's picture

"It could be a long ride to price discovery."

And a sudden stop.

Millivanilli's picture

Jon Corzine here.  GOd it is good to be a gangsta.


Free as a fuckin bird.

GMadScientist's picture

Hang yourself and save us the trouble.

Keyser's picture

Funny how timing works, Corzine walks free and Bernie Madoff gets life in the pen... And Bernie was a member of the tribe too...

jaxville's picture

  Madoff lost his clients money the old fashioned way,  through stupidity and greed.  No doubt he stashed some of it as well in Israel. 

   By taking a fall for a ponzi scheme,  the taxpayers bailed out his clients who were also largely Jewish.

TheGardener's picture

When central Banks feel the need of telling `I told you so `
just sit down and wait for next elevation of markets.

trader1's picture

high volatility in bardarbunga


The collapse of Bárðarbunga volcano has already started. The caldera collapse in Bárðarbunga volcano started on 16-August-2014 and has been going on since then. Here is what I am expecting from the caldera collapse once it reaches its peak.

  • There are going to be earthquakes in the range of 5,5 and up to 6,7. Maybe larger if the crust can handle it.
  • Glacier flood are going to go south-west and north (Húsavík area) and possibly in other directions. I am expecting damage to hydrothermal plants in the pathway of the floods. How much damage there is going to be depends on the magnitude of the flood and the path it takes.
  • I am expecting long periods of no power in parts of Iceland once the flood has passed. I am also expecting lack of communications in large areas of Iceland. This is why Rúv has been telling people to get long-wave radios for the past few days. Usage of mobile network is also going to be unreliable in large parts of Iceland once the collapse starts full force in Bárðarbunga volcano. Due to damage that glacier floods are going to create.
  • I am expecting an ash cloud that might go up to 20 km or higher up in the atmosphere. It is however impossible to know for sure what happens until this starts.
  • It is difficult to know fore sure how much drop is going to take place, but it can be up to many hundreds of meters.
  • I fear that north slope of Bárðarbunga might collapse forward once this starts. Earthquakes in the area give clues about weakness forming there.

Bárðarbunga volcano is 2009 meters high above the ocean. This means there is a lot of material that is going to blow outwards once the collapse starts full force. This is might be one of largest eruptions in Iceland since it got populated more than one thousands years ago. I am hoping that the picture that I am drawing up is not as bad the reality once this starts. I am also hoping that no loss of life is going to happen. I am hoping for the best in this case, but the clues that I am getting are no good at all.

Dead Man Walking's picture

Everything is fine. No problems here, nothing to see. Move along, people.

Motorhead's picture

Which way did he go, which way did he go?

ItsDanger's picture

Search for yield since mid 2012?  This statement epitomizes the problem.  If you think that it has only been an issue since 2 yrs ago, you're sadly misinformed.

Notsobadwlad's picture

I guess if they want more volatility then they need to program more volatility in the computer pricing code ... to better emulate an actual market.

Yen Cross's picture


    When I saw usd/jpy decouple from the equity markets early last week, I knew the markets were detaching from reality.(not that they haven't been)

    I took a short usd/jpy position before the Friday close. I figure it's worth risking 100 pips for the reward back down to the 23.6 % Fibi  of 101.05- 107.40. It's a roughly { 2.5 for 1} risk reward.  The 104.75 area.

philosophers bone's picture

You have to let the system "right itself" for its own good, and the for sake of freedom.

Kind of like when you teach your kid how to ride a bike.  At some point, you have to let go and deal with the scraped knees and tears.  It's so clearly better off for all involved.  If you don't let go until the kid is grown, at some point, you can't hold on anymore and when he / she falls, there will be significantly more damage.

Put another way, it's just better to do it on your own and live with the results rather than being "protected" "forever".

Keyser's picture

You may be right, but it isn't going to happen... We have too many cooks in the kitchen, all thinking they know best... We are doomed... Well, our economic system anyway... Long plowshares and seeds... 

Inthemix96's picture

Aye, no two ways about it.

We, are, fucked.

And getting fuckerder.


FlyinHigh's picture

Everything's for nothing, and the shits for free.

Keyser's picture

Screw MTV, I want my chicks for free!!!!!


Dead Man Walking's picture

I think the markets will go sideways to down over the next few weeks until Q3 performance reports come out showing everything is still "fine", then we go back to new highs because the large corps are all benefitting from low interest rates and stock buybacks.

That doesn't mean the economy is good, I think it is fundamantally sick and it's only a matter of time until the big corps can no longer improve operational efficiency and coninue stock buybacks.

There are two America's now, the employed, where evrything is fine,  and the rest of america.

Take a look at your local Target and Walmart. Is it any secret that the reason they have 30% of their floor space devoted to food is to capture the food stamp EBT dollars ? Even dollar stores now carry food for the same reason.  Keep in mind that the EBT cards get funded on the 2nd and 3rd of each month.  If you want to shop in a quiet,  deserted store, go to walmart on the 27th/28th of the month when nobody has money.  Want to see crowds of poor families stocking up on crappy food? then go to walmart on the 2nd and 3rd.

Want to see something really depressing ?  Go to the food stores that are open 24hrs and see the families come in around midnight.  Why ? Because they are hungry & without food, and the EBT card gets funded by Chase right after midnight. They can shop and then checkout right after midnight.  These are mostly single Moms.  They seem to on the phone at that time. Why ? They're calling the 800 number to check their balance so they know when they are funded and can now checkout.

q99x2's picture

The temptation to go for shortcuts is simply too strong, even if these shortcuts lead nowhere in the end

They are like pedophiles that can't stop until they are locked up.

unwashedmass's picture

ah it is harder to rape the peasants and steal ALL of their assets if the peasants won't play. 

Bluntly Put's picture

Monetary stimulus alone cannot provide the answer because the roots of the problem are not monetary. Hence, central banks must manage a return to their stabilisation role, allowing others to do the hard but essential work of adjustment.

Haha, monetary stimulus is the problem, excessive credit is the problem, central banks are institionalized problems.

q99x2's picture

January 2012 bitchez

Pretorian's picture

BIS is created by major shareholders of FED and Bank of England.

Jugdish's picture

Anyone know a good sperm bank?

ekm1's picture

What Pentagon wants, Pentagon gets.

Bank lobby is about to be decimated and BIS is basically admitting defeat.


It will come to a point that Pentagon would clear any Fed member before applying.


What Pentagon wants, Pentagon gets.

Bank lobby will be history soon

Winston Churchill's picture

The only way foward now  for the money powers is to engineer a massive US

military defeat.The US military and MIC stand in the way of the SDR the bankers want.

No SDR acceptance whilst the US military and MIC dominates the world.

Obozo's folly in the MENA is the set up for that defeat, probably massive naval losses.

Think it thru' EKM, the military has to be totally discredited in the publics eyes.

ekm1's picture

Not before many bank oligarchs are assassinated

g'kar's picture

ekm1, your "war within a war" viewpoint is a good read. Please continue. I stopped posting here, except to urge you to continue. I prefer to read posts without the up/down bias arrows so I don't log in anymore.




surf0766's picture

IN Kramerica everything can only go up !