October's Wild Ride Isn't Over Yet

The first half of October and particularly the last five days and today have been brutal for investors who had bought into the notion of the low-volatility "Goldilocks" economy and markets. They have experienced large losses on their highly correlated positions in different asset classes. Indeed, with the exception of government bonds -- a generally unappreciated asset class until recently -- they have found few if any shelters from the storm. And the market choppiness is likely to continue for what many will feel is an uncomfortably long period of time.

For quite a while now, too many investors have been comforted by two intoxicating notions: that the global economy would continue in a low-growth equilibrium, thus avoiding both a recession and an inflationary boom, and that central banks would succeed in repressing market volatility, not just pre-emptively but also after the fact should an unanticipated event occur. Together, these perceptions encouraged large across-the-board risk-taking that, in many instances, lost sight of fundamental valuations, liquidity realities and unbalanced market positioning.