It is one thing to watch market volatility from a Canary Wharf trading floor. Quite another to feel the ground beneath your feet turn into a speculative bubble, ready to burst. On Wednesday, I found myself in the midst of a real-world margin call, as Mount Merapi in Indonesia decided to liquidate its geological position with a bang.
I had joined a hiking group for what was meant to be a routine ascent. The volcano, a slumbering giant, had shown few signs of life in recent months. But as any seasoned investor knows, it is the dormant assets that often deliver the biggest shocks. At 10:47 local time, the ground began to tremble. This was not the gentle tremor of a bull market correction. This was a full-blown crash.
The roar that followed was like a trillion gilts being called in at once. A pillar of ash and rock shot into the sky, a dark cloud of uncertainty that no hedge fund could diversify away. My group, like a basket of junk bonds, scattered. The air turned thick with sulphur and grit, the smell of a bad debt write-off made tangible.
I ran. There is no more humbling experience for a man who prides himself on rational risk assessment than to be reduced to pure, animal fleeing. The ground beneath my feet was a volatile index of its own, rising and falling with each shockwave. My lungs burned as if I had been inhaling leveraged loans. I thought of gilt yields, of safe havens. There was no safe haven here.
Somehow, I outran the initial blast. We regrouped at a lower elevation, counting heads like a fund manager counting his remaining capital after a disastrous trading day. Two of our party were missing. The mountain had extracted its toll, a cost of living that no insurance could cover.
As I write this from a makeshift shelter, the ash continues to fall like a bearish consensus. The local authorities speak of ‘lateral blasts’ and ‘pyroclastic flows’. In my world, we speak of liquidity crises and contagion. The parallel is striking. When a volcano explodes, it does not care about your portfolio allocation. When a market crashes, it does not care about your long-term strategy.
The Indonesian government will likely spend billions on relief and reconstruction. A classic case of fiscal stimulus, but with a human price tag that no treasury can truly account for. The capital flight from the region has begun, both of people and of tourism dollars. The local economy will feel this shock for years, a slow recovery much like the years after the 2008 financial crisis.
For me, the experience has recalibrated my risk appetite. I have always been sceptical of government spending, but now I understand that some crises demand a state response. I have always championed market efficiency, but the eruption taught me that nature’s markets are far less forgiving than Lombard Street’s.
I survived. But the memory of that first explosive sound will stay with me, a permanent audit of my own mortality. The mountain, like the market, giveth and taketh away. Blessed be the name of the volatility.
Alastair Thorne, reporting from the foothills of Merapi.
