Via Bloomberg
What a year 2020 has been. Brexit, COVID-19, US elections, a backdrop of US-China trade tensions, highly stretched equity valuations and cenytral banks running out of ways to support the economy. When you put these issues into one sentence it is no wonder that volatilty has been high. It is likely to get even higher.
Bloomberg's Garfield Reynolds did an interesting chart combining the 'relative fear levels'. This was how it was calculated. The Z scores for spreads between 3-month and 1-month vol for the yen and Treasuries. The Z score for 2-month VIX futures vs the VIX. When these were added together it gave the highest combined score on record going back to when VIX futures started in 2004! Take a look at the chart below:
So, with such uncertainty ahead it is easy to see why some investors will retreat to cash and try and ride out some of the near term drama. It is very hard to invest in equities at the moment when you consider all the risk factors ahead.
