A regime is a period in which the relationships between assets are relatively stable. Within a regime, the same input tends to produce the same kind of response. When the regime changes, relationships that held reliably for months stop working, which is when most models built on the previous period fail.
Risk-on and risk-off are the two most commonly cited regimes, and they are a simplification. VILIQ classifies across eight: expansion, risk-on, acceleration, overheated, slowdown, risk-off, capitulation and recovery. The finer division matters because "overheated" and "risk-on" imply very different things about what happens next, and collapsing them loses that.
| Dimension | Reads high when |
|---|---|
| Liquidity | Reserves and broad money are expanding |
| Growth | Survey and breadth measures are improving |
| Inflation | Price growth is elevated against its own history |
| Rates | Policy and real yields are high |
| Credit stress | High-yield spreads are wide |
| Volatility | Implied volatility is elevated |
| Breadth | Participation is broad rather than narrow |
The runner-up matters as much as the winner. A classification of risk-on at 40 with expansion at 38 is a genuinely ambiguous reading, and presenting only the winner would misrepresent it. A reading of 70 against 8 is a clear call. VILIQ always shows the second place for this reason.
Common belief
"We are in a risk-on regime, so I should buy risk assets."
What is actually true
A regime describes conditions that have been measured, not a recommendation. It is backward and present-looking. Regimes also change, sometimes quickly, and the classification tells you nothing about how long the current one will persist. It is context for your own decision, not the decision.
For six months, falling real yields have supported both gold and equities, and the relationship is stable enough to rely on. Then credit spreads begin widening while volatility rises. Equities start falling despite yields still falling — the previous relationship has stopped working. The regime is changing, and the model built on the previous six months is now the least reliable thing you own.