Peak Complacency And Peak Leverage
Despite all the chatter about negative sentiment, and its all priced in, we couldn't help but notice three little signals of concern with regard the real state of people's perceptions of risk. The implied volatility of the S&P 500 is at or near its lowest in the last two years; the difference between the implied volatility of the S&P 500 (forward-looking) and the realized volatility (backward-looking) is its lowest in almost nine months - and at or near the peak complacency levels of last summer; and lastly the size of debt balances in margin accounts at broker-dealers indicates that leverage is at or near its 2008 and 2011 peak levels. Seems like this will not end well, but then again - Ben's got your back and it's all priced in.
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