Another day in paradise: stocks hover around all-time highs. The Federal Reserve says inflation is transitory, so it won’t raise rates until we all get a lot older.

Investors buy junk bonds at a yield lower than the expected loss rate, and corporations rent out homes at rates that barely cover interest and depreciation.

After deducting inflation, interest rates on anything safe, including Treasury and high-grade corporate bonds, are negative. Thus a zero expected return seems generous for risky assets.

It’s all completely mad, and any number of yesteryear’s sages, from former Treasury Secretary Larry Summers to star Republican economist John Taylor, are warning that it can’t last.

Bubbles last until they feel like fundamentals, as Credit Suisse economist Neal Soss likes to say. For the time being, markets are becalmed. Or are they?

The price of hedging the S&P 500 in the options market is captured in the so-called “fear index,” or VIX, an average of the implied volatility of near-term options on the broad equity market.

That’s the blue line at the bottom of today’s chart, bouncing toward a historical bottom. By that measure all the risk thrown at the market by the Covid-19 epidemic, followed by the biggest fiscal and monetary stimulus in US history, has disappeared.

But there is also a “fear index” of the “fear index,” the volatility of the volatility, known as “VVIX.” That’s the implied volatility of options on VIX.

That may sound complicated, but the idea is simple. The stock market has bursts of volatility in response to shocks, and its sensitivity to those shocks is growing over time. The market is saying that even if things look calm now, the likelihood of a nasty spell has grown steadily over time (as in the trend line through the Volatility of Volatility line on the chart).

It’s expensive to hedge stocks with options. Something has got to give (probably the Federal Reserve, in the face of persistent inflation), but no one knows when it will give. Options cost money (if you buy put options on the S&P and they expire worthless, you’re out of pocket).

VIX tells us that investors don’t want to pay up to hedge, not when the Fed has promised to keep interest rates low forever, or almost, and has insisted that it won’t react to inflation.

But VVIX tells us that when investors do run for the hedges, they will do so with a vengeance.

The Fed can suppress risk, the same way you can suppress the escape of carbonated beverages from a shaken bottle by holding your thumb over the opening. The harder you press and the more you shake, the wetter you’ll be later.

That’s VVIX, and it tells us that everything isn’t well.