Volatility: How ‘algos’ changed the rhythm of the market
“Philippe Jabre was the quintessential swashbuckling trader, slicing his way through markets first at GLG Partners and then an eponymous hedge fund he founded in 2007 — at the time one of the industry’s biggest-ever launches. But in December he fell on his sword, closing Jabre Capital after racking up huge losses. The fault, he said, was machines.”
USAGOLD note: The number of financial market heavyweights who have publicly voiced concerns similar to those of Philippe Jabre is long and growing longer by the day. Many state they are simply at a loss on the future direction of markets as the participation of non-silicon based entities shrinks. “These ‘algos’ have taken all the rhythm out of the market, and have become extremely confusing to me,” famed hedge fund manager Stanley Druckenmiller stated recently. Wigglesworth cites JP Morgan as pointing out that “less than 10 per cent of US equity trading is now done by traditional investors.
One of principles of portfolio management likely to enjoy a resurgence under the stresses of computer-generated volatility is the utilization of gold’s as a safe-haven asset. In fact, many of the professional money managers who have spoken out about algo-risks, like Ray Dalio for example, recommend owning gold for diversification purposes. The chart below shows how gold lags volatility and where we stand today. . . . . .