After Davos geopolitical issues are in focus. Treasuries, Gold, and Equity markets show pockets of relatively high volatility. The riskparityweighted portfolio (Worldvolatility) does not show any signs of extreme volatility. This is mostly due to the different asset types diversifying each other giving a Worldvolatility of just 5,10%. The asset markets in total are quite calm waters although the narrative (especially geopolitical narrative) would suggest otherwise.

US inflation have reached early 80´s levels for two consecutive months now with energy prices taking the lead. This has lead to a new situation for central bank policies around the world. Monetary tightening is coming but the question is how much and when. BOE were first out with the Fed likely to act in March. The treasury markets are still calm waters but have started a little bit of a selloff. What contributes here is of course way smaller (or none at all) QE buying than in the last couple of years. Equity markets have had a rough start to 2022 but not enough to upset the Worldvolatility.

The Worldvolatility will likely approach the 4% level soon, in what will be the 9th time since 1974. The road there can be longer or shorter mostly depending on Central bank policies going forward. The 90s saw the markets crawling close to 4% for almost two years. Whether the process will be quick or slow I will keep you posted.

The Worldvolatility still resides in the lower range of the uptrend that started in 2014. A low reading at 5,27% occured in the beginning of July before the North Korea story broke out. The Worldvolatility stands today at 5,47%. The period since 2014 is starting to look a lot like the late 1990s. Back then the Worldvolatility went sharply from around 6% to 8% before Nasdaq broke in March of 2000. A sharp increase(say before Q4 2018) up to 8% from where we are now would look a lot like 1999 all over again. Right now it is too early to say if this will happen.

The risk parity weighted asset volatility (the Worldvolatility) stands at 5,59%. This is clearly within the normal range since the early 1970s. The 8th low at around 4% since 1974 occured in 2014 and from this low reading a clear uptrend can be seen until today. This can still be seen as mean reversion and the Worldvolatility have many levels to pass on the upside before it can be said to be high. In other words: -We live in a “normal” world at the moment resembling the late 1990s.