Black Tuesday
You know, when I posted this morning, I didn't expect global markets to fall by 4-7%.
So was today the crash - or are the real fireworks still to come? Was today
Black Monday, or will tomorrow be Black Tuesday, etc?
I think the worst is yet to come. On the simplest level, historic crashes are more on the order of 10-20%.
But let's think a bit harder about it, with a bit more perspective.
You know, I'm not a big markets guy. I almost never follow the vagaries of the various financial markets - because I think they're more noise than signal.
In fact, not so long ago, for my MBA internship, I was a trader (of CDO's and credit derivatives, irony of ironies). And I found it to be the most mind-numbing job evar - just fractal patterns of white noise and feedback flowing from trading screen to trading screen, zeroed out of any economic meaning.
But what's happening in the markets these days is different. It's very, very important.
Every day brings fresh signal - not noise. And the signal is a
bad signal.
The not-so-secret secret on the Street is that what's going down in the markets is qualitatively different than before. Very different.
Last time the markets imploded, it was because a single (big) hedge fund blew up (LTCM, you know the story). The time before that, it was because a trading strategy (portfolio insurance) blew up.
But this time, it's because the viability of the very institutions at the heart of the financial system is in question.
See the difference?
It's a huge one. Purely quantitatively, the difference is orders of magnitude. This crisis is already on the order of hundreds of billions; the last crises were on the order of tens. But qualitatively - last time, the value chain itself wasn't coming apart: this time, it most certainly is.
So tomorrow is gonna be a critical day.
Is it going to be an extinction event? I'm not sure.
But the point is: every day that players forego new DNA, the probability of an extinction event continues to grow (something like exponentially).
So even if Black Tuesday doesn't happen tomorrow, the pressure for a black day will continue to mount every day -
slowly but surely poisoning the global economy.
The reckoning - the readjustment of expectations downwards as the extent of the losses become less hazy, and growth implodes - isn't, after all, something that can be put off forever.
