Posted on 10/10/2014 5:07:41 PM PDT by SatinDoll
High-yield bond mutual funds saw outflows total an eye-popping $7.1 billion last week.
"HY flowmageddon," said Goldman Sachs' Charles Himmelberg in a research note we saw via @lebullmarche. "This is the largest HY outflow on record – a 6-sigma event when flows are scaled by mutual fund assets under management!"
[snip]
A 6-sigma event is extremely rare. If you want to put a number to it, think 1 in 500 million. According to Business Insider quant reporter Andy Kiersz, it's like flipping a coin 29 times in a row and getting heads each time. It's like rolling a die 11 times in a row and getting 6 each time.
(Excerpt) Read more at businessinsider.com ...
Lower case sigma, not to be confused with upper case sigma.
Is there a plain english version handy?
It’s the bi-blog, trying to sound hip as always.
If the average amount of weekly outflows is x billion, then the chances that outflows of this amount are so rare, that you would have to go 500 million weeks for this to happen.
Six degrees of Standard deviations is one of those things that should be the cause for pause.
You are not alone, bayliving.
I have no understanding of what this means, either.
Someone thinks it is significant, but without some knowledge of the bond markets, which I do not really have, it is hard to evaluate his opinion.
> A 6-sigma event is extremely rare. If you want to put a number to it, think 1 in 500 million.
I think it isn’t. Just like “science” used to say that rogue waves were impossible, the driver for this phenomona will eventually be described.
doesnt make it less rare. Jeez, the guy asked for a simple explanation. Do we really want to get into the whole concepts of Black Swans?
I don’t know if this is hyperbole or significant.
A 6-sigma event is exactly like rolling a 6 eleven times in a row: if it was chance it was phenomenally unlikely, but a far more plausible explanation is that the die was loaded. There are a whole lot more crooked or misunderstood games than there are 6-sigma events.
In this case, the people calculating probabilities are assuming corporate performances are independent. Obviously, the junk bond companies are all in the same economy, dealing with the same corrupt Crony capitalists in FedGov, so the independence assumption is not accurate. A better analogy for this probability would be rolling one die: what are the chances that the die and all ten of its reflections in a mirror all come up as six?
Black swan.
Except for the fact that the higher the leverage, the more likely that event will eventually occur.
Is there a plain-English version? Fat chance!
If you noticed it was originally published nearly two-months ago and the scenario is only now becoming obvious, what with the DOW falling.
I paid off my house, sold the Cadillac, have no loans at all - still, I do not feel comfortable. It is stuff like this which really gives me the willies!
What I think it means is an economic free-fall.
Business Insider is like the National Enquirer of financial stuff. A lot of hype. The guy is an Obama supporter.
Basically, everyone is fleeing “junk bonds”....projected high returns, guaranteed high risks. Bonds issued by Argentina, Detroit, Solyndra, etc. fall into this category.
With all that money leaving at the same time, it's either planned or somebody or somebodies know something bad is about to go down and they are taking their money and running...
I gotta bad feeling about this and it started the day of Obola's inauguration.
Please let me know when it's time to worry then.
Some junior trader somewhere in London just pushed the wrong button. It happens to me all the time.
I don't think anybody knows what any of this means. There's just so much that could go wrong at once, that governments might lose the ability to manipulate things.
I'm wondering if a lot of people aren't taking some money out of riskier things, and not putting much new money in stocks or bonds. Having some money aside, paying things off, and buying supplies a bit ahead of time for winter might be cutting down on investments.
It just feels weird, and nobody seems to have much of an explanation about why the market has been so strange this week.
So what happens if all the money in bonds and derivatives are withdrawn? How would banks get the money to pay this?
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