Today's Dog Racing Results

James Suroweiki has a blog. Yesterday, he watched the Dow drop another trillion points or so and listened as analysts explained it as drops in earnings and recession fears and thought, nu ha?

The point isn’t that the market is at one level and it should be at another. (I think the market is undervalued, which is why, unfortunately, I’ve been fully invested in it for a while now, but I’m not making an argument about valuation.) The point is that when literally every day the market swings wildly from one level to another—so much so that a seven per cent drop in the Nikkei is barely worth a mention any more—it seems likely that something other than pure information aggregation is driving it.

In particular, what I increasingly wonder about is whether volatility feeds on itself, both in an institutional sense—as quantitative, automatic trading strategies incorporate massive volatility into their algorithms—and in a psychological sense. It’s not just that these massive swings make it harder to keep your eye on the long run. It’s also that going back to a market in which a typical stock moves half a per cent or less a day may be hard for traders who have gotten used to a market in which fortunes can be literally made or lost in the space of a couple of hours.

"Driving that train, high on cocaine..."