Wednesday, May 17, 2006


...are all over the place today.

1972, 1987, 1997, (curious how the most recent is always the best remembered) etc. All of these periods have taught us a thing or two about global volatility and and risk management...haven't they? We go back to the cyclical/linear dichotomy described previously.

For my part, this down period is coming much sooner than I had anticipated. In addition, although the dollar is getting hit hard, it is increasingly obvious to the recapitulator that any more tremors will fuel the usual flight to quality. Volatility is up 50% and this the time when one would like to be long Emerging Markets?

The next few days will be interesting indeed.

On the reinsurance front, analaysts are now stating that the physical hurricane risks have been overstated. Owning insurance companies at this point appears to be analogous to a long call with a strike price a few points above the current book to market value and an expiration date a month after the end of the hurricane season when the holder figures out if he is ITM or OTM.

These themes ("we can control risk...unpon further reflection, maybe we cannot") are cascading down from the financial markets to other markets. Its interesting when the most important element of any function based on risk shows up, Luck, to annoint the winners and losers.

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