Matt Levine’s Money Stuff: Leverage Goes Down When Markets Do

Deleveraging

Here’s one simple way to think about financial markets. There is stuff, and the stuff has prices, and the prices move around. There is some inherent volatility of the stuff. For the last year, for instance, the volatility of the S&P 500 stock index was mostly in the neighborhood of 10% to 14%. The volatility of the US dollar/Japanese yen exchange rate was maybe 6% to 10%. These numbers change over time. For most of 2022, the S&P’s volatility was above 20%.

And there are investors, and the investors have portfolios, and the investors target some volatility for their ...