With the presidential election behind us the equity markets have seen new highs and gold have fallen back a little. The treasury rates are still at low levels but have been edging up as of late.

The Worldvolatility have been drifting up during 2020 and that is mainly due to a lower diversification effect in the capital markets than the historical norm. The Worldvolatility portfolio (Treasuries, Gold, Equity) is more volatile than what the individual assets would tell you. (asset volatilities: 10 year- Treasury bond: 6,5%, Gold: 16,5%, NASDAQ Composite: 25,2%)

It took a pandemic to move the Worldvolatility to the highest since 2008. At 7,84% all assetclasses are quite volatile and the implied correlation is rising. Equities and Goldmarkets are wild but treasuries are still reasonably calm thanks to heavy fed intervention.

An interesting peculiarity that the worldvolatility has is that it can rise fast but normally will not decrease as fast. At these levels (7,84%) it is more likely to remain high for at least a couple of months than to decrease.

The level a the moment is still way below the early 1980s and 2008-2009 both with a Worldvolatility above 10% as can be seen below. The level at the moment is not at a systemic risk level, but a further increase of the Worldvolatility in the coming months could pose a systemic risk to the USD based financial system.

The Worldvolatility have turned up fast over the summer from almost 4% up to 5% now in October. Gold have started to climb and have reached new highs in some currencies but not in dollar terms yet. The treasury rates have been once again at lows (1,5%) and turned up a little lately. Overall all three assets that make up the Worldvolatility basket (equity, treasuries, gold) are still historically calm. The way that brexit unfolds might move some assets or regions. Time will tell if it really will have an effect systemwide and if that happens the Worldvolatility will move up.

After some big moves in the equity markets to end the year the Worldvolatility is still at the low level of 4,47% in USD terms. The gold and treasury markets have remained calm in the face of equity turmoil. The level of the long interest rates will be important in the coming year. If the interest rates increase at a steady pace the volatility in the whole financial system can still remain at this low level of 4,47%. A quick sell off in the treasury market would be another story of course.

After all-time highs in the big equity markets and news about the longest bull market in history, the Worldvolatility have declined. The major thesis is still that the Worldvolatility will touch 4% before any major financial storm. The treasury market is very calm at this point, having a volatility of only 1/6th of its all time high sat at Dec 18th 1981.

Some readers might wonder why 4% is often mentioned here at Worldvolatility. That is because the Worldvolatility have turned up very close to 4% eight times since 1974. This have only happened in good times often before market tops.

That is an empirical fact in the post Bretton-Woods era.

On a more philosophical level the 4% might represent the minimum dynamism needed in a market economy, anything lower would be possible in a planned economy maybe, but not in a market driven capitalistic society.

The Worldvolatility stayed firmly under 5% through the spring of 2018. There have been slightly higher equity volatility than last year but gold and treasuries have been calm. The major thesis here at Worldvolatility is still that the Worldvolatility will touch 4% again before the next major financial storm.

After a wild February in the equity markets the Worldvolatility have risen to 4,89% in USD terms. The move felt dramatic and some reverse VIX ETF:s have been wiped out. In situations like this the Worldvolatility can sort out wheter the move is significant for the financial system as a whole. The short answer is that it has not been a dramatic move when looking at gold, treasuries and equity like Worldvolatility does. The increase in the level of the Worldvolatility is there but the dramatic move in the equity markets have been cushioned by far smaller moves in treasuries and gold.

4,89% is a low level historically as we can see below.