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Risk? A Basic Definition

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Off-site Risk Links, User Submitted

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Tue Dec 2

• Paul Kedrosky: Hedge Fund Leverage, Then and Now: A nice chart (from MIT?s Andrew Lo) of the growth of assets and hedge fund leverage over the last 20 years. You can plainly see the expanding leverage in the 2001-2005 period.
• Greg Mankiw's Blog: Real interest rates plunge!: TIPS offer asymmetric inflation-prot ection. If the price level rises, your principal rises as well. But if the price level goes down, you get your initial nominal principal back. (Don't believe me? Click here.) A new TIPS bond is great when there is risk of deflation. It is a real bond if prices go up, but more like a nominal bond if prices go down. An older TIPS bond, however, is not as attractive. A lot of price inflation is already built into the adjusted principal. All of that inflation has to be undone by subsequent deflation before the nominal floor on the principal kicks in. In other words, after a period of inflation, an older TIPS is closer to a true real bond, whereas a new TIPS is an attractive hybrid. This fact could explain the large jump down in the inferred real interest rate when the Treasury changed the raw bond data it uses.
• Marginal Revolution: The Next Crisis: It's not just Social Security and Medicare which are underfunded. State governments have vastly underfunded public pensions. Here is the abstract to a new NBER paper, The Intergeneratio nal Transfer of Public Pension Promises by Novy-Marx and Rauh.
• Halfway Through Redemptions? ~ market folly: "For a start, average gross leverage has fallen to 142 per cent of assets under management from about 175 per cent in 2006 and 2007. Most respondents, 63 per cent, think the hedge fund deleveraging process is at least halfway over. On average, those surveyed thought redemptions are 52 per cent complete ? with the process to finish around the first-quarter of 2009. Still, about 10 per cent of respondents said they were setting aside cash for known or anticipated redemptions. Overall, cash as a percentage of total assets is now at about 31 per cent, compared to an average of 7 per cent over the past two years."
• Pushing on a string and similar notions on monetary policy ineffectivenes s | Credit Writedowns: Therefore, the main takeaway here was that the Japanese erred in not being aggressive enough, quickly enough. The Japanese should have cut rates sooner and more aggressively and instituted QE more quickly thereafter. I would like to challenge that notion on two counts. First, I believe that quantitative easing should have been the preferred policy tool from the start if the desire was to reflate the economy. Second, I am unsure that monetary policy is particularly effective in the aftermath of a financial crisis due to credit writedowns. and a reluctance to lend by banks as well as debt overhang and balance sheet repair in the private sector.
• Bloomberg.com: Exclusive: Founder Joseph Gruss taught Paulson an important lesson. ?Joseph Gruss used to say, ?Risk arbitrage is not about making money; it?s about not losing money,?? Paulson says. Paulson & Co, which he founded in 1994, also started as a risk arbitrage firm. Over the years, Paulson launched new funds to exploit market trends. ?We always operated with a lot of hedges,? he says. ?We try to minimize market correlations. If you don?t, you?re going to be exposed when a market event happens.?
• MAKE: Blog: Kids can do new things for school
• Assessing Your Divorce Risk - Freakonomics Blog - NYTimes.com
• wargamedownloa ds.com
• wargamedownloa ds.com
• World Wars - POG.COM
• Mish's Economic Trend Analysis: State of New Jersey Is Insolvent: Pension crisis, peak earnings - is there anything not fubarred by these clowns (is it wrong to throw the dispositional) ? Lots of graphs, the dead cat bounce and Japan's twenty year recovery (and they're building robots to help the aged) - do we need implosion before we get transition - author recommends we read "What Has Government Done to Our Money by Rothbard, Economics for Real People by Callahan, and Economics In One Lesson by Hazlitt
• An insider explains how it happened | Confessions of a risk manager | The Economist: Big subjects and little words - "why?&quo t; - "Looking back on it now we should of course have paid more attention to the first signs of trouble. No crisis comes completely out of the blue; there are always clues and advance warnings if you can only interpret them correctly" ;
• Moody's - Credit research index
• Mutual Fund Investing Risk - mutual-fund-in vesting-risk.m iznix.com

Off-site Risk Research Links

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