The Real 'Fear' Index Just Went To '11'

Tyler Durden's picture

A funny thing has happened below the surface of the markets since late last year. As first The Fed, then The BoJ, and The ECB respectively saw their credibility crushed into a mumbling excuse pool of elite utterances as global bond yields crashed along with global growth and inflation expectations, professional investors have been busily buying crash protection (carefully masking their buying by managing 'normal' risk measure like VIX through endless nefarious cash, ETF, and Futures manipulation). But now, a week after 'Black Swan' bets soared ahead of the central-plan-destroying Brexit vote, the real 'fear' index has spiked to unprecedentedly high levels.

With VIX flip-flopping to and fro at the whim of every fast money trader...


Deep out of the money, and 'Black Swan' bets have been building...

"It's a black swan type of put," said Steve Sosnick of Timber Hill LLC. "It's very possible there will be an extreme result, and people like to have insurance against a low-probability, high-outcome event."

Smashing the SKEW Index - the real 'Fear Index' to 11 on the Spinal Tap amplifier of historical financial crises...

As a reminder, Skew measures the perceived tail risk of the market via the pricing of out-of-the-money options. Generally, a rise in skew indicates that 'crash protection' is in demand among institutional investors (institutional/professional investors are the biggest traders in SPX options).

In other words, professionals have rotated from 'normal' risk protection to 'extreme' risk protection at the largest pace on record all the while fooling the mainstream investor who sees a declining VIX and continues to pick up pennies in front of the steamroller.

As we explained previously, an unusual move in the skew index (which historically oscillates approximately between a value of 100 and 130) is especially interesting  when it diverges strongly from the VIX, which measures at the money and close to the money front month SPX option premiums.

Basically what a 'low VIX/high skew' combination is saying is: 'the market overall is complacent, but big investors perceive far more tail risk than usually' (it is exactly the other way around when the VIX is high and SKEW is low).

In even simpler words, a surprising increase in realized volatility may not be too far away...

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Hohum's picture

Once again, crediility doesn't matter.  All investors ask is "will you stimulate" and "will you keep buying?"

BullyBearish's picture



"You        Must       Buy       All        Our       Bags       of         $HIT..."      

knukles's picture

So here we have the UK citizenry (We've yet to see what the people's leaders will do on their behalf.) telling the Eu to stuff it for the one and only final reason of liking Britain to be Britain, having realized that the whole Bilderberger thing about taking over  the very soul of Europe was a Conspiracy Fact.

Then Saturday and into Sunday we hear that the Frogs and Krauts are going to deliver all remaining EU members, an ultimatum, that they are "On the bus or off the bus" to quote Ken Kesey.  Stopping and thinking about it, the remonstrance in both cases is equally vacuous.  As is so fucking what.  Yet think about it for a moment.  They really think that they're that relevant. 

Then late yesterday and into this morning, we begin to hear reports that there will be but One Army in the EU and the it will be The EU Army.  That the EU can no longer trust the US for it's defense.  So NATO becomes irrelevant as well. 

Oh and Juncker will no longer allow English to be spoken in the halls of the EU.  Which makes the EU's relationships with N. Ireland, Ireland, Scotland, Wales and of course, don't forget all the Nordic Countries, who already utilize English for ...
Ya'll see where this is going.  Insular.  Very very insular ... which is not a consistent philosophical direction for a "Super Power"
Clearly a bunch interested in the well being of their serf class

Now, taking all those inconsequential individual trifling events separately it is very easy to disregard them as "ain't that interesting"
But in the aggregate, they portend a very very important turning point.

That the dominance of the US is formally writ large.
NATO.  The UK's special relationship (Thanks, O'Bombah), our descent into a tattered relationship with the entirety of the European Continent; Vicki Nulands recorded on the record "Fuck the EU" let alone farcical US interventions into overthrowing freely elected governments, like across MENA let alone right in Europe itself, The Ukraine.  
You see, it has officially been acknowledged what has been whispered in the far reaches, that the US is a very bad partner.  Is untrustworthy.  And rightly so.

Which also means that all of the US de-financialization will likewise continue unofficially as it has over the past, plus accelerate in those areas so far ignored as another "ain't that cute" like the AIIB, alternatives to SWIFT (already operational) etc.
Wouldn't take much.  Like pricing Russian natural gas in terms of Rubles and or Gold.  Just a trifle.  A nudge, nudge, poke, poke away

In fact, the Russians and Chinese, who have just about had it up past their butt-holes with DC's threats, recriminations, aggression and hostile policies, might just take an environment like this and further trim the bush of US financial dominance.  

This will be looked back upon as a red letter day/week or so.  Whatever.
Amazing, is it not? Obama wanted to transform America and he hasn't even finished his term, yet.
Transform it has been.

At least we've the 2 least dirty shirts right now.  Gold (and silver) and US dollars.  Yeah, they're still good because we're still the world's power and along with that goes the coinage.

Somehow methinks toady's the day the cracks finally showed up in "reality"
To wit:  An article or 3 or more about how all the traders in the City (same as anywhere else, duh) have for once in their lives, no fucking idea how to trade markets in this environment.
Jesus H Fucking Christ, that's what traders are paid to do, deal with uncertainty, not just be lifted skyward indefinitely upon free destructive opiated money.


Dr. Spin's picture

TPTB peddles FUD.  Fear, Uncertainty, and Doubt.  That is the yoke they put on us.  Educate as many people as you can, and we might just get though this long enough to create a malevolent AI that will finish the job the Elites started. 

Sheeit, now I'm all depressed.  Time for more pizza and beer before I break out the popcorn.

Show at 11...


SomethingSomethingDarkSide's picture

Hiring protocol is for developing AUM, ya silly goose!

pazmaker's picture

Leave Jesus out this, He has nothing to do with it.

TwoHoot's picture

Whether it is the EU, Brazil, Venezuela, the USA, China, Japan or some other country, state company or person, the question is the same: Who will take the losses on debt that cannot be repaid?

As Yogi Berra said, "When you come to a fork in the road, take it". That is exactly what we are going to do. It might be wise to just turn around and go back to where we came from but we can't - we burned all the bridges behind us.

We passed the point of no return when we amassed more debt than can be repaid (as individuals, localities, states, and nations). If it can't be repaid, it won't be repaid. Period. So which fork in the road we take is actually just deciding who will take the loss and how. Nobody wants it (the losses), so expect lots of conflict and turmoil with unpredictable outcome.

The Tea Party wants the lenders (banks and bond holders) to eat it. The government wants business owners (individuals and stockholders) to eat it. The FED wants the taxpayers to eat it. Europe wants the US to eat it. China refuses to even discuss eating it. India doesn't acknowledge it exists. Russia is going to steal whatever they can while eating cabbage instead of debt. OPEC thinks they can just raise the price of oil to cover whatever they have to eat. Unions are hell bent on destroying their own jobs and pension plans for some unfathomable reason, so they will eat till they puke it back up to be recycled. Japan eats it, likes it and thrives on it.

On any given day, one or more of these players will make the headlines and enjoy 15 minutes of fame. Pay attention and you will be a babbling, impotent idiot in a week. To stay sane and healthy, just accept that who has to take the loss is unpredictable but that the losses will be taken is certain.

Historically, who eats the debt hasn't been decided peacefully. The conflict has usually been delayed by reducing the purchasing power of money (inflation). The prospect of lots of money that won't buy anything is easier to sell than the idea of no money to buy anything. Of course, the net result is the same - namely declining standards of living and conflict.

Expect the most severe and immediate pain to decimate the lower economic classes where the only lower standard of living is desperation. They have been the most ardent supporters of progressive policy. When they realize they have been betrayed, "progressive" politicians and academic manipulators will feel the heat.

When that happens, "progressive" tends to turn sharply "repressive". At least that is the historic precedent. Whether it will be the case here and now is again unpredictable.

unpredictable - adj 1: impossible to foretell [ant: predictable] 2: unknown in advance; "an unpredictable (or indeterminable) future" 3: not occurring at expected times [syn: irregular]

Economiffed's picture

Usually, ZH posters have a clue. So let me assist your struggling brain cells comprehend the obvious. Numerical entries in a computer are not debt. They are ones and zeros. As easily as they were entered, they can be deleted. Our country tested us with a $750b bailout. We took the bait! Therefore, as long as we believe that Wall Streets gambling debt is real money and someone must pay, we will always be serfs!

It's a simple system, that due to intellectuals and the left right paradigm have made the common person blinded to the truth! "There is no spoon"

bilbert's picture

Spot on, Knucks - I had to interrupt my dinner so I could log on and up vote you on my cell phone.

What you said about one piece at a time things don't look so bad, but put all the pieces together and you have one hot mess.

The EU is toast and the "bastards of the universe" in Brussels are either too fucking stupid, complacent, or have come to believe they are omnipotent.

Obama seems to be too tone-deaf to understand or he's playing dumb, but Russia and China will not misplay this opportunity, nor will Donald Trump.

Yep - 2016/17 is going to be YUUUUUGE!

ss123's picture

Last night I noticed the SKEW was off the charts. Interesting.

BullyBearish's picture

Yesterday and today, the central bankers doing whatever they can to let the big holders know, "We've Still Got Your Back"  so every dip will be bought to allow the holders to unload on the rally as the CBs TRY to stairstep this mother down...

SuperRay's picture

50% PMs

50% PM miners

There. Now gonna go fishing and wait...

Took Red Pill's picture

What I don't understand is why platinum is up so much today. Currently, Gold is up $8 and Platinum $34! Anyone know why?

knukles's picture

All the other PMs are up big.  Gold's being leaned upon by somebody, somewhere.

Listen, this is do or die for TPTB.  Must prove they serve us faithfully and successfully through the worst of times.

Due North's picture

.... until their trillion dollar pile of fiat equates to a copper penny in purchasing power.....

Mr. Schmilkies's picture

With the "market" up 500 points over the last 2 days, yeah, I'm scared.  I'm really scared.  I'm scared of getting fucked in the ass with my shorts on.  

BandGap's picture

Not a good visual. Like masturbating with a cheese grater.

I'm out of the market, watching the show. Like a slow motion train carrying circus elephants towards the 1000 foot bridge that's out.


CrimsonAvenger's picture

Yep. I'm firing up the grill, waiting to grill me some elephantburgers.

Joe Cool's picture

What?  Do you work for BLM?

froze25's picture

Hey! All BLM "protesters" are only volunteers that are their to voice their opposition to, to, to... to anything that they are told to be pissed about that day. They are in no way paid to be their. If they were then the people that pay them would be responsible for the violent physical attacks on people and destruction of property they cause. They are their on their own free will and not paid. No matter what you have read.

N0TaREALmerican's picture
N0TaREALmerican (not verified) Jun 29, 2016 11:34 AM


Huh,  interesting article.

south40_dreams's picture

The ultimate Ponzi is getting long in the tooth

venturen's picture

Hillary said...if you lie long enough they have to believe you

buzzsaw99's picture

so the fed has no credibility that they will raise rates AND no credibility that they will do more bailouts & qe either? wow.

medium giraffe's picture

you can't generate that much debt and not expect it to go tits up.  the rest is just noise.

LawsofPhysics's picture

Yes!  Funny how the casino is always eager to extend you more credit...

peddling-fiction's picture

At least the casino knows how to collect the debt owed to them.

south40_dreams's picture

They'll loan you the money to make that payment. What's the problem?

LawsofPhysics's picture

Technical analysis in what has clearly become a casino.


Consuelo's picture

T&A inside a casino...?


Who would have thought...

Scuba Steve's picture

T&A on deck for this casino?

Old crusty clinton clam

dael's picture

Forecasting vol is a waste of time, patterns more useful.


TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Jun 29, 2016 11:41 AM

Fear of missing this rally

earleflorida's picture

is it me or is this a volumeless ramp...

Klein bottle : a suckers' rally?

1stepcloser's picture

Looking like the elites want to kill all the rebels (all of humanity) at one time...  

-Georgia Guide Stones

FreeShitter's picture

I want my safe space now, that scares me.

Turin Turambar's picture

VIX is a central bank lever used to elevate the market.  Why the heck would anybody make a short bet with that manipulated piece of trash?  

back to basics's picture

So how the fuck when the market crashes, in a black swan type of event, do those holding that kind of ETF protection expect to be paid?

There is only one insurance against such an event and it comes in a beautiful yellow colour, it's metal and it has been real money since man started walking the plains of the earth erect. 

N0TaREALmerican's picture
N0TaREALmerican (not verified) back to basics Jun 29, 2016 12:12 PM


There are market crashes and market collaspes.   The yellow stuff only matters in a collaspes.  The people playing IN the market don't expect the market to ever "go away" so there's no point in "betting" on an event like that.

back to basics's picture

You are cutting a fine line there. Good luck having ETFs pay in either case when counterparty risk freezes everything again.

N0TaREALmerican's picture
N0TaREALmerican (not verified) back to basics Jun 29, 2016 1:01 PM


I think "the line" you mention is the "line of belief".   Nearly all people IN the market "believe" it's a perpetually on-going entity,  like the US (and it's perpetually waving slow-motion flag bring goodness to the entire world).  

You don't bet that the flag will flop, and you don't bet against the market existing forever.  For most people, even CONSIDERING this possibility would be like question the existence of a guy in the sky.

NoWayJose's picture

We're screwed if the markets get SKEWED!

maxamus's picture

ZH, you have been selling panic and gloom and doom since DOW 7,000 almost a decade ago.  How's that been working for you?

N0TaREALmerican's picture
N0TaREALmerican (not verified) maxamus Jun 29, 2016 12:20 PM


We are of pure soul, knowing that we have not profited from false fiat !

And, may the Golden Sword of Libertarian Justice slay all those who did.

Consuelo's picture



You should seek attention for that priapism you seem to have for Libertarians.


That, or put forth a cogent alternative argument, preferably void of typical Right vs. Left talking points...

N0TaREALmerican's picture
N0TaREALmerican (not verified) Consuelo Jun 29, 2016 12:55 PM


I didn't say anything about left or right.  

I don't have anything for or against libertarians,  I used to be a libertarian.   It's just another manifestation of the morality OCD.    

0Theorem's picture

I would say - pretty accurately.

the.ghost.of.22wmr's picture
the.ghost.of.22wmr (not verified) Jun 29, 2016 12:25 PM

Silver to the moon!

Knob Creek's picture

If you're scared, get a dog........