Monday, October 10, 2016

Sorry, Central Banks: Risk 
& Volatility Cannot Be Extinguished
Charles Hugh Smith* sees the interventions by central banks as not extinguishing risk, but transferring it to the system itself .. "The unspoken claim of central bank policy is that risk can be extinguished by intervention/manipulation: once the Fed has your back, i.e. is supporting the market, risk disappears, and the easy profits flow to those who buy the dips with supreme confidence in the Fed's ability to magically turn risk-assets into risk-free assets. Unfortunately for the credulous investors who believe this, risk cannot be extinguished, it can only be transferred to others or to the system itself .. While modern portfolio management is statistically based (all those 'standard deviations' you always see referenced in quantitative analyses), the markets behave fractally. Fractals are known as the geometry of chaos, for they describe how seemingly stable systems can quickly, and unpredictably, degrade into chaos .. So by all means, go on believing the Fed has our backs. That works until all the risk that's been offloaded into the system itself takes down everything the Fed doesn't control, and all the 'safe' portfolios blow up."
LINK HERE to the essay

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