As Central Banker 'risk-asset' implied-puts are perceived as having higher and higher strike prices (i.e. allowed to fall to a lesser and lesser extent), this chart from Sean Corrigan, shows that markets are pricing risk with lower and lower concerns. Today's VIX opening near the recent five-year lows further reinforces the market's apparent complacency that there is nothing to fear but fear itself (even as Bernanke keeps his eagle-eye on data). But, just as everyone learned with CDOs and CMOs, risk doesn't just disappear. It is transformed or transferred or spread out and as is clear in the lower pane of the chart - risky-asset 'risk' has seemingly been transferred to safe-asset 'risk' as there is no drop in volatility among the 'safe-haven' assets of the world such as Gold and US Treasuries. It truly is the best of times and the worst of times as global risk takers embrace the anti-risk-reward trade with lower risk perceived as providing higher returns - we can only imagine how asset allocators and Modern Portfolio Theorists are coping with their spreadsheets as correlations regime-shift and risk and reward get flipped. Of course, we have seen this picture before and it doesn't end well as vols flaring nature always re-appears just when you don't expect it - but of course we will all be out before the next risk-flare erupts.
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Chart: Bloomberg