Signs of Complacency

August 25 might be the most-complacent day of the year. Even at the best of times it's a day that comes at the end of the slowest month. This year it precedes a Jackson Hole conference that's the only thing anyone has circled on the calendar this week.

There's a strong focus on Yellen and that's justified because of the delicate Fed-dictated balance in the market. The first risk is that she sends a genuinely strong signal on interest rates. But it's a low risk. The Yellen Fed has been burned by bad signals repeatedly and offering vague hawkish hints with a focus on data is the overwhelmingly likely scenario.

The bigger risks must be elsewhere. What's incredible to us is that the VIX is at 13 and other measures of stock market volatility are at extremely low levels while FX implied options implied volatility is high.

There's money to be made in watching closely when the market is asleep and we're searching for signs of what might trigger fears. The answer may be that the complacency itself is a fear. Late in the day in the S&P 500 the index was down 15 points. Had it closed there (it closed down 11 points), it would have been the worst day since June 27 – the Monday after the Brexit vote.

In that timeframe the oil has swung more than 20%, Libor has blown out and the costs in the FX swaps market have hit theoretically impossible levels.

At this point, it would almost be healthy if Yellen stirred things up, just to make sure the world is paying attention. Worse would be if she said something somewhat important and the market continued to grind.

The signals might not be yet clear but whether it's commodities, China, money markets, bonds, central banks or governments; big moves are coming. Don't get sucked into the complacency.