More than a few (hundred) commentators have taken a stab at explaining why volatility has remained glued to the flatline over the past several months and to be sure, I’ve flagged suppressed vol as a warning sign that markets are too complacent on more than a few occasions in these very pages.

For those who might have missed it last month, consider that January was the 3rd calmest month to start the year in history as measured by average VIX level and the 5th calmest opening 31-day salvo on record in terms of realized vol. Via Goldman:

S&P 500 realized volatility was 6.5 over the calendar month of January, the 5th lowest January level back to 1929.

The VIX closed out January at 12. The average VIX level in January was 11.6, the third lowest for a January in VIX history and the lowest for any calendar month since June 2014 when the VIX dropped to 10.5.

Of course this kind of explains itself. That is, if low realized vol (helped by collapsing stock correlation)…

…begets low implied vol, well then…

But there’s something else interesting going on beneath the surface. As WSJ notes in a pretty good piece out Monday, the correlation between the VIX and stocks is breaking down. To wit:

One of the basic rules of markets is being violated. Investors usually hate uncertainty, but since the U.S. election, days of rising uncertainty have often been accompanied by higher stock prices.

The idea that riskier markets are worth more makes little sense, but the explanation may tell us something about the split between the views of professional traders and retail investors. As cash floods in from private investors it has pushed up the market overall, but has also led professionals to worry a little more about the risks—both of a meltdown and, conceivably, a “melt-up,” when the market soars 10% or more in short order. The prospect of either big losses or big gains prompts buying of options, pushing up their cost, proxied by implied volatility.

The puzzle shows up most clearly in the link between the VIX gauge of implied volatility and the S&P 500, although something similar has been going on with European shares and the VStoxx, the European VIX equivalent.

Days when the VIX or VStoxx goes up have normally in the past been days when the stock market falls, as higher expected volatility shows more risk is anticipated, justifying lower prices.

That link has partially broken down, with stock prices often rising when implied volatility rises, particularly last month. The 30-day correlation between the VIX and the S&P 500, a formal measure of how much they move together, is the highest since 2006, even as the absolute level of the VIX is very low compared with history.