Wikipedia defines a Minsky moment as the point in the credit cycle when investors start to incur cash flow problems due to the growing debt load they have acquired in order to finance speculative investments. At this point in the cycle, a major sell-off begins as counterparties start to withdraw from the market, leading to a sudden and precipitous collapse in asset prices, accompanied by a sharp drop in liquidity. Economist Hyman Minsky argued during his lifetime that markets were inherently unstable and that prolonged stability (a bull market, if you will) always culminated in a larger collapse. This has something in common with Mandelbrot's view of market instability, namely that the idea that market prices and volatility are normally distributed - essentially, held within the classic, orderly 'bell curve' of standard distribution - is a dangerous myth. A nice metaphor for market instability in this context is a sand pile slowly growing on a table. As each individual grain of sand is dropped onto the pile, the sand pile grows in a more or less orderly fashion. But at some point, just one extra grain of sand will cause the pile to collapse upon itself. But judging in advance precisely which individual sand grain will cause the tipping point may be impossible. The natural order of markets, in short, may actually be closer to chaos than we think.

Chaos has this eerie ability to pop up seemingly from nowhere. The drilling rig seems to be functioning properly, and then it suddenly explodes. It is probably too early to state with certainty exactly why US markets dropped by 10% on Thursday, albeit they were quick to recover most of their losses. (Indeed the quest for certainty itself may be wholly illusory.) Early potential culprits were identified as fat-fingered dealers or high-frequency algorithmic trading systems, or both. It seems a justifiable question to ask why banks - if they were involved - should continue to have the privilege to distort financial markets to this degree, or why high-frequency trading systems should be allowed to squat upon the infrastructure of the equity market like some kind of hugely manipulative but frankly irrelevant parasite. It is as if financial markets were administered and regulated (nice one!) by the state solely for the purpose of institutional speculation. Other than the pursuit of the profit motive, where is the social utility? But since the causes of the 1987 Crash continue to be debated (although the inherently flawed concept of portfolio insurance is widely deemed responsible), it is probably naive to expect to come to any definitive conclusion about last week's 'Black Thursday' any time soon.

David Fuller's view Markets are often chaotic because that is the human condition. Prices are driven by sentiment more often than not. Many of us use price charts because they show very clearly not only overextensions, up or down, relative to a mean such as the 200-day moving average but often the dynamic single-day moves which signal changes in momentum.

High-frequency algorithmic trading systems, increasingly run by bank computers stationed in the actual exchange to increase the speed of their electronic calculations, are the latest dangerous plaything invented by the banks to give them an edge. They have nothing to do with the purpose of markets although their proponents will point out that they increase liquidity. Yes, until they contribute to sudden, extreme moves which decrease liquidity and distort markets. High-frequency trading systems make nonsense of our supposedly lower financial risk in the west. They are parasitic, as Tim Price mentions and at some future point likely to create further and even more dramatic meltdowns than we saw last week.

Recent rebounds in the markets - from copper to the S&P 500 Index - are consistent with successful reversions to the medium-term trend mean, represented by 200-day moving averages. Closes beneath last week's intraday lows would be required to offset scope for sideways to higher ranging. The Southern European sovereign debt crisis, which dominated sentiment for several weeks, is unlikely to be over but its influence has peaked, evidenced by today's dramatic falls in Greek 10-year yields and those of other similarly affected states.

Don't miss Tim Price's comments on gold in this week's letter.