Markets Gone Wild

Why is it that the Markets are reacting with ever greater volatility?

What do I mean? I follow the Mortgage Bond Market closely. The FNMA 4.0% Bond stood at  101.15 when the market opened on Monday (June 27).  As of 1:45 on Friday the Bond is down to 99.72 - a drop of about 140 points. That's crazy!

Yes, I know that the Greek crisis has (sort of) resolved itself. And, I know that the stock market is having its best week in a year. And I know that QE2 (the Fed program to support the Bond market) came to a close yesterday. And I know that Chicago Purchasing Manager Index came in slightly hot. And I know that trading has thinned before the holiday weekend. And I know that some investors are being conservative before the long weekend...

I know all that. But, I do not believe that those news items explain the market volatility. I have my own theory. I believe that two factors are driving increased volatility across markets. I believe that 'Wall Street' is less successful at making 'honest' money by providing traditional investment banking functions and instead has focused on legal gambling. What will it take for regulators to take action to prevent 'Too Large to Fail' entities from betting our money on outrageous bets?

I also believe that there has been a huge increase in speculative investment - often by small investors. Just think of all those people who have invested in gold. These investors react emotionally to thin (and often late - see Wall Street, above) news.

For what it is worth, I am betting that we'll see Bond prices climb again - soon.
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