Another measure of fear (2)

We are now in uncharted territory. This is an updated version of a chart I showed before. Fear (as measured by the VIX index) divided by safety (as measured by the 10-year Treasury yield) is at an all-time high, exceeding by a wide margin the conditions that prevailed at the height of the market crash of '87.

It's not a shortage of money, it's a shortage of buyers. Vernon Smith explains it in today's WSJ. It's not easy to get out of situations like this. Somehow confidence has to be restored.

During a bubble buyers are everywhere. Then, suddenly, they disappear, waiting, watching, delaying, reluctant to buy assets that others might not.

Cash is not scarce. Cash is just justifiably hard to loosen, and this makes it king. There are only three kinds of buyers in a downside housing/mortgage or equities market: those who buy too soon; the few who roll an 11 at the bottom; and those who are too spooked to buy until well after the crisis is over, if ever.