Newsletter: From Fragile to Turbulent - But "Minsky Moment" risks have passed

The shift in the Market Uncertainty State Indicator (MUSI) from Fragile to Turbulent requires commentary this month. First, what the change in market state means, and second, why it happened.

Fragile vs. Turbulent

A shock can break a Fragile market. A Turbulent market will bend chaotically, but not break.

Both states are high volatility states. There is little difference between the two when it comes to the volatility (standard deviation) of stock market returns. What does change are the other moments in the probability distribution. The mean, skew and kurtosis all shift in a statistically significant fashion. For investing, the Turbulent state appears slightly more attractive than the Fragile state even though "volatility" remains high. This is how I came to that conclusion.