“My comment is on market volatility; with communication mediums becoming much faster (e.g. social networking) and the world becoming smaller many different markets/countries with different policies etc now have to work closer together. Thus we see a large increase in volatility and can expect deeper recessions followed by stronger booms at a higher frequency than before. The caveat here is to assume "this time it's different" is normally a mistake"!”

Eoin Treacy's view Thank you for these interesting observations. There is little doubt that volatility has increased over the last few years. Two coincident events are in no small part responsible. These are the surge in global money supply as central banks responded to deteriorating velocity of money statistics and the proliferation of high frequency trading.

In the short-term there is little prospect of change to either of these conditions so we can logically expect the status quo to remain. However, at some point velocity of money will begin to recover and when it does central banks will need to remove money quickly if they are to avoid an inflationary outcome.

The success of high frequency trading strategies depends on access to data, the ability to make swift transactions and leverage. In a digital age the problem is more of how to sift rather than acquire information and computers accomplish this feat rather well. Exchanges and ECNs have a vested interest in ever more transactions but there is a risk that regulation will interfere at some point. Finally, access to the leverage on which a large number of trading operations rely depends on how accommodative various central banks are. When monetary policy eventually becomes restrictive trading profits will probably deteriorate.

In conclusion, while it is important to understand what the current status quo is, we also need to be aware of some of the potential outcomes which could change it.