What I Learned This Week

Has the “Everything Bubble” begun to deflate everything? What “Red October” tells us about key threats still lurking in equity and bond markets.

For nearly two years in these pages, we have sought to understand the systemic weaknesses that could backfire as QE turns to QT, from the retreat of bank-provided liquidity to the extreme divergence between corporate debt levels and defaults to the meteoric ascendance of low-volatility-pegged algorithmic and passive strategies. During the October swoon, we saw each of these weaknesses trigger or deepen market downturns. Now, the key question is, did October reset market dynamics or was it just a warning shot portending more severe pain to come? Writing for The Financial Times this week, Robin Wigglesworth offered a “provisional postmortem” on Red October: The initial trigger seems fairly…

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