Tagged: Black Swan

Whew, we’re back to good.

That seems the attitude about market gyrations in August. Prices recovered. Heck, we should’ve skipped the mess and stayed on the Cape.

Across our client base, we saw few rational-price changes between Aug 1 and Aug 12. Rational investors were not responsible aside from stop losses triggering reactions. Trading data do indicate sizeable shifts in assets by global risk managers.

We talked about that last week. Responses to currency fluctuations. Institutions transferring risk by moving money continuously via electronic markets from bonds, to equities, to derivatives, to currencies. With fear of a currency meltdown rising, risk managers engaged in random, computerized, global buying and selling to discourage everyone from running to the same side of the boat and capsizing it.

We’re convinced that techniques developed after 2008 were employed to blunt this “tail risk” crowd behavior. That’s the chance that everybody does the same thing at the same time, destroying global portfolios in a mad rush. Computers randomly bought and sold. The lack of a trend reduced the risk of a rout. (more…)