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 On sale at Bloomingdale's last week: Vix bathing suits.



 Masters of the universe whose wives returned from the posh Lexington Avenue department store with one of the bikinis may have chuckled. On Wall Street, VIX is shorthand for the CBOE Volatility Index, or "fear gauge," derived from stock option prices. As New York's financial elite headed off to the Hamptons for the opening of the summer season Friday afternoon, the VIX hit a 14-month low of 11.45.

 That raises the question of whether financial markets are overly complacent going into the summer. With geopolitical tension over Ukraine, the South China Sea and Iran, as well as Beijing grappling with a deflating property bubble, there is no shortage of potential trouble spots.

 A low VIX doesn't necessarily presage a reversal, but over the past two decades, 34 of the 50 lowest readings came in either 2006 or 2007. Financial markets were about to head from roaring boom to epic bust. The terrifying period from September 2008 to March 2009, conversely, had the 63 highest VIX levels.

 Junk-bond investors also are remarkably sanguine nowadays. Analyst Martin Fridson recently cited statistical analysis to characterize that market as "extremely overvalued." It has been so for a record seven months. And they have been at least "overvalued," by his reckoning, for 23 consecutive months. That is a few months shy of their longest stretch, which ended the month Lehman Brothers collapsed.

 But another part of the fixed-income market may be sending a different message. Despite tapering of bond purchases by the Federal Reserve, 10-year Treasury yields have dropped by half a percentage point since the end of 2013.

 Because inflation expectations are virtually unchanged since December, buyers are now locking in minuscule real returns. That could reflect anticipatory demand for a traditional haven during economic and political crises.
Returning to a holiday-shortened week, financial movers and shakers may expect many more calm weekends at their beach houses. The most successful of them have remained fully invested in risky assets lately. They would do well to remember the words of Warren Buffett, perhaps the greatest investor of all time.
"Only when the tide goes out do you discover who's been swimming naked."