One thing everyone wants to know: with all the geopolitical uncertainty out there, why is the VIX so low?
Why are credit spreads so tight?
Why doesn’t anything besides FX (and maybe rates) seem to recognize that we stand on the precipice of complete societal meltdown in the US, France, Britain, and Germany?
All good questions. And indeed we could add quite a few other concerns to the list (remember Syria? yeah, people are still dying there).
I’ve shown the economic policy uncertainty indices here before, but I wanted to highlight a chart from SocGen that’s actually from last month, but is still as relevant today as it was then. At the time, the bank called it the “scariest chart in the world”:
I wasn’t going to run another economic policy uncertainty versus [fill in the blank] post, but to be honest, I didn’t realize how closely credit spreads usually tracked that index. That disconnect is pretty alarming. And remember, what you see in the chart are global credit spreads and global policy uncertainty, so this isn’t a local phenomenon.
I don’t know though, at the end of the day, I still think this is probably the most frightening chart on the planet: