The Dow’s volatility is dead… long live The Dow’s volatility.

 

2015 is now officially the least volatile (lowest trading range) in stock market history…

 

After 157 trading days, the Dow has traded in a 6.44% range – the tightest range EVER!

Source: @RyanDetrick

As Nassim Taleb recently wrote… This is the calm before the storm…

Western countries are increasingly displaying symptoms of looming instability as described by Nassim Taleb, the author of the The Black Swan, ever since the publication of an essay written with Gregory Treverton entitled “The Calm Before the Storm.”

In their essay, Taleb and Treverton highlight five characteristics that could help identify states that – while appearing stable on the surface – may actually be quite fragile.

“Fragility”, they write, “is aversion to disorder”.

The five characteristics they view as major factors in instability are:

  • – centralised decision making,
  • – lack of economic diversity
  • – high levels of debt and leverage
  • – absence of political variability
  • – lack of track record in surviving shocks

With regards to centralised decision making the article points to the autocratic Arab states which while appearing strong on the surface quickly succumbed to the “Arab Spring” uprisings before degenerating into chaos – albeit compounded by external influences.

“Although centralization reduces deviations from the norm, making things appear to run more smoothly, it magnifies the consequences of those deviations that do occur. It concentrates turmoil in fewer but more severe episodes, which are disproportionately more harmful than cumulative small variations.

 

In other words, centralization decreases local risks, such as provincial barons pocketing public funds, at the price of increasing systemic risks, such as disastrous national-level reforms.


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