Risk Management

The Market Wizard's Wizard - An Interview With Jack Schwager

"...someone with a great risk-adjusted return might have employed a strategy of selling way out-of-the money puts on equities since late 2008. That strategy would have produced great return/risk performance, almost like a money machine, but the trouble is that type of strategy also embeds a large tail risk. So even though the track record of this strategy would show low volatility, there would be the risk of catastrophic losses... Ironically, many strategies with low volatility are the most susceptible to event risk.

Trump & Yellen's Collision Course

Although the stock market is giddy from President Trump’s pro-growth policies, there is another constituent not quite so enamored with recent developments...the more Trump pushes on the fiscal accelerator, the harder the Fed will lean on the brake.

The Psychological Impact Of Loss

Despite all of the arm waving and pounding on the table by advisors touting long-term average returns, time-in-the-market, etc., the psychological impact of loss is all too real. While “buy and hold” investing has its appeal during bullish trending markets, the “impact of loss” on individuals is a far greater emotional pull. This is why investors tend to do everything backwards by “buying high” (greed) and “selling low” (fear).

Why Don't The Dollar And Bitcoin Drop To Their Tangible Value (Zero)?

If we refuse to recognize the high utility value of USD and its global ease of flow, then we will continue to misunderstand the demand for the dollar and its appreciation. Bitcoin is quite different from the USD but it, too, has unique characteristics that drive its demand and thus its valuation.

The Problem With Forecasts

Talk about conflicted. Just ask yourself WHY Wall Street spends BILLIONS of dollars each year in marketing and advertising trying to keep you invested at all times. Since optimism is what sells products, it is not surprising, as we head into 2017, to see Wall Street’s average expectation ratcheted up another 4.7% this year.

What Keeps Goldman Up At Night About 2017

Between China, credit markets, financial conditions, political uncertainty, the consequences of Brexit, the presidential elections, global trade, the risk of sharp reflation, and the impotence of central banking, here are the top things that keep Goldman Sachs up at night about 2017.

2016 Year-End Bull/Bear Debate

As we head into 2017, trying to predict the markets is often quite pointless. The risk for investors is “willful blindness” that builds when complacency reaches extremes. It is worth remembering that the bullish mantra we hear today is much the same as it was in both 1999 and 2007. We don’t need to remind you what happened next.

Goldman Warns "China Remains A Key Risk", Sees Yuan Downside Accelerating

With Bitcoin at 3 year highs, China’s renewed efforts to curb declines in its currency are doing little to stop yuan bears who have sent forward devaluation expectations to record highs and options positioning to six-month lows. And judging by Goldman Sachs' outlook - a potential resurgence in Chinese growth fears early next year, but more broadly, a continued bumpy deceleration - things are not getting better anytime soon.

2016 Year In Review

We started this year with the economy deteriorating and finished it with the second interest rate increase in ten years. There were a lot of ups and downs along the way, but ultimately 2016 was defined by three key story-lines:  1) Brexit 2) The Presidential Election 3) Fed Policy. The first two events were votes that shocked the world. The stock market’s reaction to each was arguably even more shocking.