The way stock indices have taken manic dives and leaps is described as volatility—and the matter is left at that. But the more interesting question is why the markets have been so volatile.
One possible explanation: nobody is quite sure how deep is the rot in the global credit markets. Economist Nouriel Roubini draws the distinction between risk and uncertainty, one that was first proposed by Frank Knight in 1921. Risk can be measured but uncertainty cannot. What we are seeing right now is perhaps basic uncertainty, which not even the most sophisticated number-cruncher employed by an investment bank can calculate.
Another commentator has used the analogy of a minefield—which investors are stumbling through, with no idea which hedge fund or market or fancy financial product will explode in their faces. Most investors have dust in their eyes and little idea of what lies ahead.
So, be sceptical, is what the “experts” say right now.