This is what a fat tail looks like: crude oil is down 8.8% today. According to my colleague John Kemp, who knows everything, the standard deviation of oil prices, on a daily basis, is 1.64%. Which means that today’s price movement is equal to 5.4 standard deviations.
In a normally-distributed world, 5-standard-deviation moves never happen. In this world, however, such moves can happen even when there’s no news at all. (Reuters, for what it’s worth, blames “concerns about economic growth and monetary tightening”, which is code for “we have no idea why this is happening, or whether there even is a reason”.)
I do think today’s price move should give pause to anybody who dismisses theories that high prices in oil or other commodities are the result of financial speculation. Clearly there’s no fundamental reason to explain this move: most likely the market was just very long oil, and does what it always does in such situations, which is to move in the direction which causes the greatest pain to the greatest number.
For most of us, these kind of intraday gyrations, rare though they are, are pretty much irrelevant. But they do inflict a toll on the economy, as companies feel the need to hedge such things. And all hedging operations involve some kind of profit for Wall Street.
All of which is to say that a financial-transactions tax looks particularly attractive on days like this. It would reduce speculation, and raise lots of money. What’s not to like?