Thursday, June 06, 2013

Risk on...

...Risk off.

The Karate Kid is a somewhat heartwarming (if still bad) rendition of a revenge story***.  Young spindly kid gets beat up by bully.  Kid takes Karate lessons from Okinawan Master.  Kid defeats bully in a tournament.  Bully graciously accepts defeat for some reason.   At this time in American culture (1984) Karate and Japanese martial arts held massive sway over young impressionable males such as yours truly.

This was largely due to the work of the great Sho Kosugi, whose myriad ridiculous "Ninja" movies (Enter the Ninja, Revenge of the Ninja, Pray for Death, etc.) convinced us all that Japanese martial arts, as opposed to, say, Boxing, was the way to go.  This marketing effort gave "The Karate Kid" credibility...just train for a couple of months and you too could defeat a physically superior opponent.  Forget studying other styles of combat and engaging in intense physical training for several years...just start washing fences and floors and voila!, you had the basics down and were instantly proficient in a street-level physical confrontation.

Of course, the entire genre was instantly destroyed by the abomination known as "Gymkata".  When adolescent men see a movie where the protagonist is defeating a mob armed with spears by performing pommel horse maneuvers, well, to put that into the modern vernacular, the Shark was truly jumped.

The point being marketing and media in the financial markets tend to overly simplify something incredibly complex.  There are no rules like "risk on, risk off" that work in the real world.

It would seem that every time bonds or stocks move 1%, pundits begin talking about "risk on" and "risk off" positions that would leave naive observers to believe these defensive positions somehow block losses.

Who can possibly find it profitable to trade every time markets move 1%, and getting suckered into a bad position at least 50% of the time.  You add the Vig of commissions and other "market frictions" (read: costs) and I have no idea who does this.  Its just another version of a bad marketing ploy...only this time instead of the quick fix of Karate, we have the quick fix of following some ephemeral market trend like "risk on, risk off".

***the film "Conan the Barbarian" abrogates the need to ever make another revenge movie.  What is the point.

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