What a difference three months makes.
Back in June, before the brief risk flaring of third Greek crisis/bailout suddenly destroyed many traders' summer vacation plans when Tsipras unexpectedly announced a Greferendum at the end of June only to morph into the cabinet he replaced by conceding Greek sovereignty to Germany, the biggest "tail risk" according to Bank of America's global fund manager survey was a "geopolitical crisis, perhaps as a result of the ongoing fallout in the middle east and Ukraine.
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Then, in July, [12]after Schauble made it clear that Germany was willing to take a gamble on a "temporary" Grexit, even if it was merely a negotiating bluff, the risk spectrum promptly shifted and the biggest fear became a breakdown of the Eurozone, with geopolitical crisis fading away into the collective algorithmic subconsciousness.
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Fast forward one more month to August, when according to the latest, just released survey concerns about both geopolitics and Greece have been largely forgotten, as have Chinese debt defaults, and instead these have been replaced with far more overarching fears about a China recession (made all the more acute after China's devaluation) and an Emerging Market debt crisis. In fact, according to BofA, "2 out of 3 investors think either China recession or EM debt crisis = biggest "tail risks."
Not unexpectedly, not a single investor was perturbed by either of these two headline risks as recently as one month ago, which goes with the territory: after all these are "tail risks", as in previously unxpected developments which suddenly gain abnormal prominence, which "nobody" could have previously anticipated, making them as close to "black swans" as possible in this centrally-planned age. Although "gray swan" may be more appropriate...
It also means that once "they make the list", the factor that will impact the market is none of these, and instead a new tail risk will have to emerge and grab the investing public's attention.
We look forward until the next month's edition of the BofA survey to find out just what the latest and greatest prevailing tail risk "fear" will be. Somehow we doubt it will be "Yellen's just concluded first rate hike in nearly a decade."
