Shifting gears, here's an interesting way of looking at things.
....As viscosity falls and momentum rises, fluid flows make a transition from the stable to unstable. Water in your kitchen faucet transitions from laminar to turbulent when you twist the tap all the way open. Same with all fluids that move through, over or around pipes, ducts, propellers and wings. Waves, oscillations and shocks all multiply when more mass flows faster with less friction. Honey trickles slowly and quietly; fast-flowing water and air often babble, moan, whistle and shriek.
Circuit breakers and rules that limit program trading are the financial regulators' misguided attempt to put baffles and mufflers back into pipes that have lost all the old kind of friction.....
......Long-term historical trends may provide little guidance in the new environment. When the scale of things changes a lot, the forces that define their motion often change fundamentally, too. Surface tension is everything for a water insect, but nothing for a power boat. Tempests don't occur in teacups—they occur only in much bigger systems, where different physical forces govern. By analogy, local interest and employment rates may not portend what they once did; they may no longer portend much of anything at all....
Volatility and the laws of physics
By Peter Huber
forbes.com |
