Its been a bit choppy at times in 2018...and today is one of those days. Is there more to it?

Here's a take on market structure and risk issues from Chris Cole of Artemis Capital Management, a volatility trading firm...

https://static1.squarespace.com/static/5581f17ee4b01f59c2b1513a/t/5ba146f40ebbe8c212e8b7c7/1537296120640/Artemis+Letter+to+Investors_What+is+Water_July2018_2.pdf

It's a lengthy read but great information. Recommended if you want to frighten yourself :)

Cole is basically saying that the market is caught in a self-feeding self-referential loop of Price = Liquidity = Value = Price = ....sort of post-modern performance art!

FWIW Where I believe Cole could be wrong is in an implicit assumption of the structure of the world and markets staying the same as they have in recent memory (say since turn of century). What do I mean? The pre-eminent status of US and dollar in a world dominated by Western financialised economics. I'm not a conspiracy theory wingnut...honest...but I believe we are living through the (at least temporary) demise of US dominance. Note, in the past it was normal to have periods where the US dollar could be weak and financial markets too. It is not a immutable rule that market stress is concomitant with strong USD.

Most importantly for markets that means the decline in the status of US dollar. Its a decade long event not overnight. Uncertain multi-polarity takes it place rather than say a swift shift to Renminbi. But a more immediate consequence of this uncertainty/shift would be the need for US to monetise to support its own need for debt issuance to support spending (in the choice between 'austerity' and central bank monetary operations the latter will win every time in the US). This provides liquidity to keep the market processes afloat rather than implode in volatility-liquidity cataclysm. Looking at the performance of real assets in countries like Venezuela as they undergo inflationary hyper monetisation is a clue. The US will not be the same and a failed state but the pattern re a rush to real assets for protection could happen. Then Cole's analysis is wrong in a big picture sense (though right re mechanics short run) as the run away momentum and valuation in US stocks turns out to be that unknowing and rather unfathomable wisdom of the crowd.

My view might be wrong...but unless you can conceive of a different reason why…

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