Stock Take

OIL FALL DOWN: The recent rout in commodities was the worst since the height of the global financial crisis in 2008 and left many commentators searching for fundamental triggers. Why did oil prices, for example, fall from over $120 to under $110 in one day alone, even as equities remained relatively calm?

In truth, this was no black swan event. Commodity markets are volatile – John Kemp of Reuters points out oil prices have moved by 9.5 per cent on 33 occasions since 1990. Prices had soared in previous months, with even oil bulls Goldman Sachs warning that a “substantial correction” was overdue. A technical break and a hike in margin requirements sent the fast money brigade to the exits.

The biggest moves often occur on slow news days. Extended technicals, overly bullish sentiment and leveraged momentum traders make for a dangerous cocktail. “Bubbles are often pricked not by fundamentals . . . but by smaller narratives – anecdotes even – that crystallise fears running beneath the surface”, said Hong Kong research outfit GaveKal.

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NO SILVER LINING: GaveKal’s analysis certainly applies to silver, which bore the brunt of the recent selling. This column has warned in recent weeks that the precious metal was looking like a bubble ready to burst and its deflation was rapid, losing almost a third of its value in a week.

“I traded through the internet bubble and traded through a lot of crazy days, and this has been one of the most gut-wrenching times in my 13 years of doing this,” one trader told the Wall Street Journal. “The volatility is enough to make you vomit.”

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GREEK TRAGEDY: Greece’s huge debt pile means eventual restructuring is unavoidable, but the search for imaginary villains goes on.

ECB official Lorenzo Bini Smaghi, a staunch critic of Irish default advocates, this week warned a Greek restructuring would cause “economic meltdown”, adding that investors who bought insurance against default “stand to benefit greatly” from such an event and accordingly lobby in favour of it. Investment banks and law firms “in search of commissions” should also be ignored, he said.

The greedy speculator meme is equally popular in Greece. Last month, they warned of “possible criminal misconduct” after bank shares fell.

This week, Greek prosecutors opened an investigation into German newspaper reports that Greece was preparing to leave the euro.

Furthermore, prime minister George Papandreou told an anti-corruption conference that “profiteering, credit default swaps, derivatives traded without any transparency, are threatening to blow up whole countries”.

At this late stage of the game, such protestations look increasingly preposterous.