Macro risk aversion on the rise

Macro risk aversion from Citibank is on the rise poking above the 30 day moving average for the first time with any strength since the middle of October. We are supposed to be seeing cut in risk aversion with the active monetary stimulus. The turn around in risk aversion really started with the lack of clear Treasury plan from Geithner. While he has done a good job outlining the problem, the lack of a solution is troubling.

Note that these risk aversion indices have a mix forecasting history. The risk aversion has been falling even with the flight to quality into the dollar. The yen fall-off has actually been at the same time as the index has started to move up. The stock market has also moved lower throughout this period.

Yet, the bad moves in equities is consistent with high risk aversion over the long-run. The index has been at an elevated state for months. Much higher than what we have seen for extended periods since 2000. The risk index has to be modeled on both level and direction and we now need both to go down to get an improvement in the price of risk assets.