Economic Shocks=Volatility=Market Data
Posted by Jeff Wells on Tue, Dec 06, 2011
The financial markets have been notoriously volatile the last three years. This is a result of the convergence of a number of huge macro-economic, technological and political trends. Together these factors have created the perfect conditions for a Big Data Tsunami in the world of financial markets and it is bound to continue into 2012 and 13.
The world economy was released from huge economic and intellectual burdens in 1990-91. The Soviet Union fell, India and China embraced capitalism and various emerging markets such as Brazil began to bring their respective houses in order by adhering to financial discipline. This led to a long, prosperous phase of growth in the world economy.
As ever in periods of prosperity, many poor investments and decisions are made, but few are revealed as truly awful until the economy goes into recession. Since the classical downdraft in the economic cycle was dulled between 1987 and 2007 by various central bank interventions, the build-up of consequences was so much the greater when the dam finally broke in September 2008 with the bankruptcy of Lehman. It was a veritable financial earthquake.
As you can see from the chart of the VIX, the volatility of the market moved to stratospheric levels. The markets gradually calmed but the propensity for aftershocks remains and the world has adjusted to a new normal. But what is that normal? The new normal, at least for 2012 is high volatility:
- US economy held back by a permafrost of overvalued residential properties constraining growth and labor mobility
- The Euro on the verge of break-up
- China grappling with how to tame growth and inflation without upsetting their own 99%
- Middle East absorbing the promise and violence of a political springtime periodically unsettling world oil supplies
- Dealing with a nuclear Iran
Yes, this is the new normal, with no end in sight. Hence one can assume that the volatility will continue and this will produce much more data as prices continue to gyrate up and down.
Hopefully Santa will bring you a large market data budget for next year, but knowing how things are going, he probably won’t.