Rocking the Lifeboat - Comments on the Recent Stock Market Volatility

The cruise ship sank.  The passengers are gathered in the lifeboat.  The officer in charge knows how to reach safety, just over the horizon.  If the passengers trust him, sit in their seats, pull on the oars and bail when necessary, all will make it home.  The problem is one passenger, let's call him Mr. CNBC-FOX-CNN-MSNBC, who is a hysteric.  If the waters are calm, he'll focus on other issues (ISIL, Ebola, the mid-term elections, where is Kim Jong Un?)  But the moment some waves hit the boat, he panics and starts jumping from one side to the other of the lifeboat.  As he thrashes, other passengers panic with him.  Soon the whole lifeboat is rocking side to side (up 1.7% one day, down 1.9% the next day.)  If the rocking becomes violent enough, some passengers may decide to jump out of the lifeboat and try to swim for shore by themselves (we don't go back for those passengers.)

We're surprised less by the recent volatility, surprised more that markets have been so calm over the last three years.  To help explain market volatility, we show this chart to prospective clients:

Read the entire commentary here.