What has changed though is the increased dollars managed by these funds [now > $3.5T] and the concentration, of these dollars, at the twenty largest funds [top heavy for sure]. What has also considerably changed is the cost of money…aka leverage. It is just so much cheaper…and, of course, is still being liberally applied but, to reiterate, in fewer hands.

Are these “hands” any steadier than they were ten years ago? I suppose that is debate-able but my bet is that they are not. They are still relying on regression-ed and stress tested data from the past [albeit with faster computers & more data]. They may even argue that their models are stronger due to the high volatility markets of ’08/’09 that they were able to survive and subsequently measure, test and integrate into their current “Black Boxes”…further strengthening their convictions…which is the most dangerous aspect of all.

Because…Strong Conviction + Low Volatility + High Levels/Low Costs of Leverage [irrespective of Dodd-Frank] + More Absolute Capital at Risk + Increased Concentration of “At Risk” Capital + “Doing the Same Thing”…adds up to a combustible market cocktail.