For today’s moment of volatility zen, we go to BofA’s Nikolay Angeloff who drew the short straw to be the (un)lucky pundit whose comments on record complacency, low volatility, etc publicized.

Angeloff starts with pointing out what we noted over the weekend , namely that we have now recorded 335 days without a 5% or more pullback, the fourth longest period on record since 1928.

In another market distortion, whether due to ETFs or central banks, equity vol has fallen so far in October, historically the most volatile month of the year, and if it continues at this pace, it will be the least volatile October in history…

… and third least volatile month ever.

Looking at the above two charts, it is no surprise that at this 30yr anniversary of the ’87 crash, the BofA analyst concludes that “the market seems to currently imply there is no way a shock can happen. However, in part due to today’s low realized volatility creating a steep implied term-structure, along with higher fragility driving steeper skew across tenors, the entry point for “S&P fragility hedges” in the form of put ratio calendars has never been more attractive.”

We’ll have more to say on his (costless) hedge recommendation tomorrow, but first here is some more on what the ongoing market distortions mean in practical terms:

Well, as long as it is “only” 11.5%, one can probably count the number of central banker suicides on “only” one hand as these central-planning mandarins watch the fruit of their centrally-planned labor go up in smoke.

Angeloff’s conclusion:

“generally, the longer time passes without an abrupt market correction, the higher the likelihood of it happening. Markets pricing very little potential for a shock seems at odds with still elevated geopolitical and policy risk globally. Additionally, some have increasingly refocused on quant fund positioning risks, and as we have argued previously CTA and risk parity flows (and the fear of them) can add fuel to (but not cause) a potential sell-off. Notably we see their equity allocations likely at a high (for CTAs this is due to the coincidental occurrence of a strong trend in performance and record-low vol). Thus, an equity sell-off or an uptick in volatility could cause these portfolios to de-lever their equity allocations and so could exacerbate an equity market correction (Charts 14 & 15). However, we still do not believe they would be the sole drivers of an ’87 style crash.