Over the weekend, a long-time market observer whom I greatly respect posed an interesting question on Twitter about the VIX, an index that tracks investors’ expectations of stock-market volatility and is hence most commonly seen as a sort of “fear gauge.” He wondered, given the index’s extremely low readings, whether it should be renamed the “complacency” or “hubris” index.
He has a salient point, one that speaks to the prospects for financial markets and the policy implications.
On Friday, the VIX fell 8 percent to close below 11, down from a peak of more than 80 during the financial crisis and very close to its all-time low of 9.3, reached in December 1993. The apparent sharp disappearance of worry comes at a time when stock-market indexes, such as the S&P 500 and Dow Jones Industrial Average, have been reaching new record highs.
The most immediate explanation for the VIX decline was Friday’s employment report, which pointed to solid job creation in the context of limited wage inflation. The report offered yet another data point supporting the view that the Federal Reserve will keep repressing volatility as it attempts to stimulate the economy through the channel of financial markets.
To read the full article By Mohamed A. El-Erian please CLICK HERE
