People are talking about volatility on Wall Street today. The stock markets fell more than 5 percent and had the highest volatility in more than a year. Volatility in the stock markets comes from people changing their minds more than usual, not because they are suddenly fickle, but because of the turmoil in the surrounding news and information that leads to frequent changes in direction.
Volatility in the stock market is never limited to the stock market, or to the financial system in general. It is not just that the United States got downgraded, there is a mysterious liquidity problem among the banks in Europe, and the price of gold has hit an all-time high. Everywhere you look around, it is a volatile world right now, with new radioactive foods being discovered on a daily basis in Japan, riots in London, the thickest ice in the Arctic flowing out into the Atlantic, and the army in Syria attacking one city after another — and that’s not even mentioning the turmoil that’s getting the most attention in the news. With so much uncertainty in the world, the relative stability we were seeing in the stock market prior to the last two weeks was a curiosity and something of an mirage.
