Having been told by she-that-knows that low volatility is not a signal of complacency, it appears Citi's Matt King disagrees. Unlike 2004-2007's "virtuous" cycle of low vol begetting low vol, 2013-2014's lower volatility is leading to a decidedly "vicious" circle that will likely not end well for the Fed and the world's central banks' "financial stability" mandates.
The Virtuous circle...
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The Vicious circle...
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Simply put - it is different this time - Low vol breeds low vol – but not always in the way you want
And bear in mind that markets are entirely disconnected from fundamentals...
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This will not end well... (remember what happens in an illiquid market when the HFTs decide to sell) [7]
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Source: Citi's Matt King
