‘A 12th ’sigma’ event if there is such a thing’

Dennis Gartman, author of the daily investment letter of the same name and contributor to CNBC, has been in the markets a while.

But never in his entire trading career does he seem to have encountered anything like Thursday’s Wall Street plunge.

On Friday, he called what happened a ‘12th sigma event’:

What we witnessed yesterday was a series of movements of utterly unprecedented proportions, with currency price changes that are at the 6th and 7th and 8th standard deviation from the norm… a 12th “sigma” event if there is such as thing. We wish never to witness another day such as yesterday in what remains of our trading lifetime and we wish for everyone’s sake that even the youngest amongst us never see such a day again. We are told that such massive shifts in prices that are “out there” on the edges of the bell shaped curve can occur only once every several thousand years.

We hope that that is correct and that in having gone through yesterday’s violent action we have spared those younger than us the psychic and real economic damage that such days can wreak upon us. An unusual day? Ah historic day? No, it was a truly unprecedented day. Let us hope that the precedent holds. We fear, however, it shall not?

Gartman also broached the subject of the yen’s epic move against the euro, a cross-rate which usually remains reasonably stable.

His thoughts were focused on an implosion in the carry trade, emphasis FT Alphaville’s:

What happened here? What drove the Yen/EUR cross to move in such violent fashion? It was the reduction of risk; the shedding of risk; the abject disdain for risk that became, ironically, the driving force for the creation of risk and that made risk even riskier. How can that be? It can because money that was borrowed in Yen terms at very low rates and invested elsewhere… the so-called “carry trade”… has been in the process of being unwound; that is, those investments were being sold and the funds taken were being repatriated back into Yen, taking the Yen higher as share prices were weakening. Yesterday, that unwinding became a nuclear “implosion” of sorts as the “carry trade” became a true burden on the shoulders of the global equity market. It was indeed a “Perfect Storm” of unwinding or risk and the strange creation of fully fledged panic.

http://ftalphaville.ft.com/blog/2010/05/07/223821/a-12th-sigma-event-if-there-is-such-a-thing/

From six sigma to twelwth sigma...ay,ay,ay

 

"Once in a lifetime events" occur every ~10 years. "Records" are made to be broken. The market is no exception. :eek: