Volatility Was Supposed To Be Temporary

What Sustained Uncertainty Does To Judgment

“You don’t fully switch off anymore.”

This was how a senior trader described life to me recently at the Commodity Trading Week event in London this month.  

Markets now trade almost 24 hours a day - always on the go.  

And increasingly, so are the nervous systems of those connected to the markets.

Against a backdrop of geopolitical instability, energy insecurity, supply chain fragility and rapidly shifting market conditions, many professionals are operating in environments that no longer feel temporarily volatile. 

Volatility itself is becoming the backdrop.

In speaking with people across the industry, what strikes me is that the real pressure is no longer simply operational or financial.  

It is psychological, emotional and physical. 

Much of this however is unnoticed by those sucked into the machine of the industry.  Operating, high functioning, focused, concentrated professionals steady on the task.  

Prolonged uncertainty has a subtle and pernicious impact on people who are exposed to it.

It changes how people think, feel and react. 

It splits attention, with part of it tethered to exposure in the markets:

• Headlines, Trump tweets, Iran's response, China positioning, price of oil…

• Overnight developments... reactions, counter reactions 

• Positioning, posturing, relationship management

• Supply flow - blocked, storage, depletion, dependencies 

• Risk - known and unknown

• Foreign exchange movements 

The market never really shuts off.  

And more commonly, especially in today’s climate, neither does the mind.

When Volatility Becomes The Backdrop

It goes without question that the current climate feels different for most of us.  

We have come to know volatility as a condition that might surprisingly, sporadically and sometimes rudely interrupt a calm, reliable, almost ‘predicable’ rhythm.  Once it came, it would be short lived and then peter out to allow us to resume our sense of normal, settling back into a tempo that we’re more familiar with. 

More recently, we are finding that there is a ‘new normal’ with volatility levels remaining elevated with a sense of ‘any minute now’..., especially in the energy markets CBOE Crude Oil Volatility Index (OVX) for example.

There are certain professionals such as Jim Carroll, Senior Wealth Advisor & Portfolio Manager at Ballast Rock Private Wealth who have dedicated much of their professional lives to studying and understanding volatility in the markets. 

There are very few who are discussing how to manage the impact of said volatility in our lived experience. 

At the Commodities Event, I observed conversations moving between geopolitical conflict, energy markets, AI, supply chain fragility and risk systems.  What I picked up also was a common denominator underpinning all of these discussions, a subtle, resigned, tension of the unknown.

There was an agreed sentiment.  The environment is becoming harder to model structurally.  

One panelist, in a side bar conversation said to me, ‘We don’t fully know or fully appreciate what’s coming.  We can’t see it. They (the organisations involved in the markets) can’t see it either’. 

Insight such as this makes the psychological impact more important to pay attention to.  

At an organisational level, it’s a blind spot.  At an individual level - some may actually start to be feeling unnerved.  

Here’s the thing.  

Sustained uncertainty changes judgement over time.  

It’s a gradual process as humans have a need for certainty.  

We apply logic to get a ‘handle’ on the situation.  We apply logic and compute power in the process of modeling out, planning and preparing.  The more uncertain the future, the more intense the study and focus into solving for the unknown.  

At a separate conference that I attended (on mining), I asked a financier how they model for the unknown.  The answer was to lick a finger and hold it in the air.  It does feel like that at times.

When in a climate of sustained uncertainty, as we are now, our ability to assess and judge a situation changes. Here are some markers to look out for: 

• Attention narrows.

• Time horizons compress.

• The need for certainty increases.

• Flexibility becomes harder precisely when flexibility becomes most necessary.

It is a gradual cognitive tightening that goes unnoticed whilst still sounding rational. This may well be accompanied by a physical tightening in the body, that may show up as: 

• Sleep deprivation (hyper alert, racing mind, chronic fatigue)

• Physical aches (pain in the back, neck, shoulders, jaw, headaches)

• Digestive issues (gut brain connecting mental stress to indigestion, loss of appetite)

• Leading to burn out (sustained emotional stress resulting in apathy, loss of motivation, frustration, irritability, mood swings, impatience with others)

“Are You Hedging Or Are You Trading?”

That was an important question posed by one of the panellists Dr Sadar Abdul Rasheed, Executive Director - Commodity Risk Control at Savola Group when considering how decisions are made in this climate. Are people unconsciously taking directional views, reacting emotionally to uncertainty or seeking profit from opportunity under the guise of hedging?   

Increasingly, individuals and organisations appear to be asking themselves strategic questions whilst unknowingly responding emotionally.

Some are adapting to changing conditions.  Others are trying to reduce the psychological discomfort of uncertainty itself.

Under prolonged pressure, defensive behaviour can begin disguising itself as prudence.

And highly intelligent people are often exceptionally good at making emotional reactions appear rational.

This is one of the reasons sustained uncertainty becomes so difficult to manage.

People rarely experience themselves as becoming more emotionally driven.

They experience themselves as becoming more justified.

And therein lie the seeds of dissonance.  From what we think to how we feel, behave, act and experience.  

Dr Sadar's question highlighted how in volatile environments, the line between disciplined risk management and emotionally driven positioning can blur.

Now take this and extend the volatile environment to last longer than we are accustomed…

To be or not to be… an Air Traffic Controller

There was an archetype that emerged from one of the panellists Alessio Pecorella, Head of Market Risk at ENI Trade & Biofuels at the event. He spoke of an Air Traffic Controller.

An individual who has the ability to operate inside uncertainty and complexity whilst maintaining clarity as conditions change rapidly around them.  Someone adaptive, flexible and calm enough to think clearly whilst others freeze.

The context of the analogy was a discussion around the role of Chief Risk Officers. Historically viewed by some organisations as operational gatekeepers or ‘box ticking’ functions, increasingly they are being brought much closer to the front end of strategic conversations.

This is so that they may identify foreseeable threats, and equally importantly, hold awareness of interconnected risks, unintended consequences, dependencies, timing, opportunity and exposure all at once.

Air Traffic Controller…an admirable role to aspire to.

However, it should not go without recognition that the role itself is notoriously stressful, particularly for the untrained and unprepared.

There is one thing to be intellectually competent.  

Quite another to operate well psychologically, emotionally and physically whilst uncertainty remains unresolved around you.

Which raises an important question.

If volatility itself is becoming structural, what capabilities become necessary to operate well inside it?

The challenge increasingly may not simply be analytical, it may be the ability to:

• Remain psychologically flexible in the face of continued uncertainty.

• Tolerate incomplete information without collapsing into overreaction, paralysis, excessive control or false certainty.

• Recognise when urgency is beginning to distort judgement.

• Notice when the search for clarity morphs into a search for emotional relief.

• Observe when defensive positioning starts disguising itself as prudence.

And perhaps most importantly, to recognise that prolonged uncertainty affects people gradually, subtly, at times invisibly and long before it becomes obvious externally.

This is part of the lived reality of operating inside high pressure systems where exposure, ambiguity and consequence remain persistently elevated over time.

The difficulty is that many high performers adapt externally before they process internally.

They continue functioning.
Performing.
Delivering.
Leading.

Whilst simultaneously becoming more focused, with blinkered vision… and consequently more internally fatigued without fully recognising it themselves.

Final thoughts

Technology may accelerate analysis.
Models may improve forecasting.
Artificial intelligence may increasingly support decision-making.

But judgement still sits in the space where information remains incomplete, ambiguous and emotionally charged.

And in increasingly complex systems, the greatest risk is not always volatility itself.

Sometimes it is the unnoticed way prolonged uncertainty impacts the people operating inside it and the decisions made as a result.