The VIX is stirring, but is anyone really scared?

The CBOE Volatility index, or VIX, is seen as a fear gauge – rising when investors are nervous about stocks (the S&P 500 in particular), and falling when investors see nothing but blue skies ahead.

On Monday, the VIX sank to 11.56, or its lowest level since early 2007. On Tuesday afternoon, it spiked more than 10 per cent as major North American indexes showed their first dip in eight sessions. But even the rising VIX brings it to a mere 12.76, which is exceptionally low.

Consider that there have been three big spikes since 2007. The financial crisis in 2008 sent the index past 80, to a record high. The European debt crisis in 2010 took it close to 46. And the aftermath of the Japanese earthquake and nuclear crisis in 2011 sent it as high as 48.

By comparison to those hand-wringing days, the current level of the VIX remains deep in slumber territory.

In some ways, this is hardly surprising. The Dow Jones industrial average recently hit five consecutive record-high days, meaning that the blue-chip index had fully recovered from the ravages of the financial crisis (if you ignore inflation). And the broader S&P 500 has come within 1 per cent of a new record high.

Bull markets have been breaking out elsewhere, too. Japan’s Nikkei 225, an index most investors had given up on years ago, is up 48 per cent since June. The Euro Stoxx 50 blue-chip index has risen 31 per cent since June. And Greek stocks – beyond the notice of even most deep-value investors – have surged 98 per cent since June.

Economic threats are being shrugged off. U.S. budget sequestration? No problem. Italian political gridlock and downgrade by Fitch Ratings? No problem: The yield on the Italian 10-year government bond has risen all of 8 basis points over the past two trading days since the ratings downgrade. Bellicosity in North Korea? No bullets, no problem.

In other words, it is getting increasingly difficult to rattle investors these days. But the strange thing is that the world is hardly firing on all cylinders, and there remains tremendous uncertainty about the future.

Set aside the fact that Europe remains in recession and the U.S. economy grew a mere 0.1 per cent in the fourth quarter, and focus instead on monetary policy: Does anyone really know how the world’s biggest central banks intend to withdraw the extraordinary stimulus over the past several years – and, more importantly, what the impact of withdrawal will be? The 2008 meltdown clearly demonstrated that central banks and other economic leaders are, to put it politely, fallible.

If the VIX is any indication, investors are in a worry-about-it-later mood.