Volatility in the Markets: Is It an Earthquake, or Merely a Shock?
Volatility has returned to markets after a long hiatus. It seems "everyone's" weighing in on this now. Something suddenly flipped the switch on months and months of somnolent price action when the stock market experienced its 10% drop, accompanied by a strident rise in yields on 10-Year Treasury Note and 30-Year Bonds. These two partners in crime dragged gold and commodities into their vortex, ostensibly nixing an emerging upward trend.
So what started all this?
The explanations - no surprise - cover the map. The Fed's cutting back on quantitative easing, a bull market in stocks that "needed" correcting, the dollar's precipitous fall this past year or so - each can take some credit. We're even seeing the revival of inflation being offered as the "real" reason for all the action. And there's certainly some evidence that we might be on the cusp of an inflationary trend.
While we know that volatility has made a dramatic comeback, we're still left wondering whether we're heading for a stock bear market, a bond bear market, an oil boom - or bust, a new commodity bull market - or return to the doldrums of recent years. And let's not forget the hovering cloud of China's credit crisis - a crisis that keeps threatening to materialize even as the Communist Party leadership desperately tries to keep it under wraps. The recent Beijing government takeover of Anbang Insurance Group was seen by some as a kind of crack in the dam that threatens to unleash a credit crisis of massive proportions, set to wash over the world's financial system. Then again, the stock market, in the face of that takeover, rallied this past week, despite some shivers to the downside. Are stock giving an "all clear" signal - at least for the time being?
At the end of the day, we may as well all admit our puzzlement at what's really behind all this. And what better way to capture that feeling than this famous song by the master composer Cole Porter, interpreted by the master performer Frank Sinatra as we welcome the weekend. The very first line sums it all up: Is it an earthquake, or merely a shock?
So what started all this?
The explanations - no surprise - cover the map. The Fed's cutting back on quantitative easing, a bull market in stocks that "needed" correcting, the dollar's precipitous fall this past year or so - each can take some credit. We're even seeing the revival of inflation being offered as the "real" reason for all the action. And there's certainly some evidence that we might be on the cusp of an inflationary trend.
While we know that volatility has made a dramatic comeback, we're still left wondering whether we're heading for a stock bear market, a bond bear market, an oil boom - or bust, a new commodity bull market - or return to the doldrums of recent years. And let's not forget the hovering cloud of China's credit crisis - a crisis that keeps threatening to materialize even as the Communist Party leadership desperately tries to keep it under wraps. The recent Beijing government takeover of Anbang Insurance Group was seen by some as a kind of crack in the dam that threatens to unleash a credit crisis of massive proportions, set to wash over the world's financial system. Then again, the stock market, in the face of that takeover, rallied this past week, despite some shivers to the downside. Are stock giving an "all clear" signal - at least for the time being?
At the end of the day, we may as well all admit our puzzlement at what's really behind all this. And what better way to capture that feeling than this famous song by the master composer Cole Porter, interpreted by the master performer Frank Sinatra as we welcome the weekend. The very first line sums it all up: Is it an earthquake, or merely a shock?
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