Calm Before the Storm

In April 2005, “A Minsky Review” explored the risks and implications of low volatility in the markets. That analysis predicted an increase in market volatility by the end of 2006. One year later, as of April 2006, volatility had plunged further, into the lowest five percent of all periods since 1950. With numerous new and updated charts and graphs, this article explains that “the tectonic plates of the markets are intensely balanced in an edgy state of latent eruption.” Beyond presenting an assessment of current conditions (2006), this analysis, based upon the lessons of history, discusses the timing and implications of a reversal to rising volatility.