Blog: The Market's Not Fragile Like a Flower, but Fragile Like a Bomb.
Risks are piling up while financial leverage increases.
Two weeks ago I sent a flash report that the markets had entered a Fragile state. Since then the US stock market has rallied to new highs, so we might wonder how the markets can be Fragile, but also still have upward momentum. In fact, what does a Fragile market state mean?
I thought it might be a good time to review the market states as outlined by the Market Uncertainty State Indicator (MUSI). Though I go into that in some detail in the hypertext book, and there are several blog posts and newsletters that go into more detail, an update might be worthwhile.
First, I'll go into an explanation of the four states from a risk/return standpoint, which will go into some empirical statistics. Second I'll discuss the intuition behind those results using an explanation based upon investor behavior and economics.