Minyan Mailbag: Centered on Risk
In the desperate struggle to 'earn income,' investors have ignored risk in all sorts of strategies.
Thanks for the reply - With my radio show I get tons of e-mails and I answer every one of them. So I appreciate your thoughtfulness in reply, I know it takes time. One last thought (no need to respond back) for whatever it is worth; I appreciate your thought process and the thinking out of the box. It is hard to stick to the convictions in this day and time. I go along with the same line of thinking. In the short-term, people do not want to hear it and dismiss it. However, I hope that the message saves people from what could be significant financial loss. These issues do not just resolve themselves and magically go away. Keep up the great work! Merry Christmas to you and your family.
I have tried to keep my thoughts and comments centered on risk, for that is where the market (investors) seems to be disconnected. Pricing assets is mostly about risk: the riskier an asset, the less you should pay for it.
But in the desperate struggle to "earn income," investors have ignored risk in all sorts of strategies. Of course, economic policy by the Fed and the government has only reinforced risk seeking behavior. This risk seeking behavior has manifested in essentially short volatility strategies: investors assuming a short volatility risk profile in order to "earn income."
This is occurring (not coincidentally) at a time when leverage in the system relative to economies is at an all-time high. As just one example, consumer debt is now almost 20% of GDP where it was 13% (still very high) just two years ago.
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