Speed Wobbles Kill (Why Boring is Good on Wall Street)

If any of you have ever experienced a speed wobble, you’ll know that it is a time of sheer panic and massive (over) corrections. Speed wobbles happen when stability is lost.

“Speed wobble is the term used to describe a quick oscillation of the handlebars while riding at high speeds. Any vehicle with a single steering pivot is capable of experiencing speed wobble.”

What does this have to do with Wall Street? Well, this is exactly what is going on with US monetary policy. The single steering pivot is the Fed. The quick oscillation is the recent volatility of the markets. The stolen energy (see following graph) is the intervention in the markets. The high speeds are the algos and the massive volumes generated when they read the headlines. Normally, volumes have been very low of late, but with very high rates of acceleration, wobbles, not bubbles are created (well, bubbles too, but the wobbles are what burst the bubbles.)

The simple fact that stability indicates growth and volatility spells panic is what investors rely upon in order to place their bets. That which has been seen in the markets would tend to indicate that with ‘wobbliness’ increasing, the crash may be imminent.

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A good explanation of the effect this has on markets can be found here.