Chris Cole of Artemis Capital Management submits the following very interesting observations on a unified risk theory, which posits a unified connection between QE, cross-asset correlations, and the historically steep vol surface. As Chris suggests: "higher cross-asset correlations and vol curves are the unintended consequence of aggressive monetary expansion in developed economies. If this recovery was healthy correlations would be dropping and the volatility surface flattening, not the opposite!! Both are omens that profound systemic risk is building underneath the surface of this market." Must read material for our new "QE normal."
Unified Risk Theory - Correlation, Vol, M3 (pdf)