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.

The Worldvolatility have taken a sharp step down with equityvolatility hitting historical lows. The volatility of the treasuries are approaching really low levels but still have some way to go to historical lows sat at July 14th 1978. Back then the extreme calm of the treasuries were followed by extreme monetary events in the following years with the Worldvolatility spiking at 17,53% in October 15th 1982. In the close-up below (bottom graph) we can see that if the Worldvolatility is moving any lower now it is likely to approach the historical lows around 4% for the 9th time since 1974.

Asset volatility is still increasing very slowly but surely and has been in uptrend since 2014. Trump winning the US election did not change the direction of volatility and the latest increase is mostly because of a treasury sell-off. Asset managers are still experiencing “the wind increasing slightly as time passes”.