Nothing quite like the break occurring over the last two weeks in the DJIA, SP500, and NQ100, as well as numerous other markets not as closely covered by this site. Real damage has been done to investors, traders, and to the underlying economy. Blame is contagious now in this political season as second guessing about allowing certain strategies such as letting Lehman fail, has infected all those who would classify anything but up unacceptable. Like corn farmers complaining about falling prices, there is a simple idiot test. If you think speculators and hedge funds are responsible for the current crash, you're an idiot. Up, like down, is part of the
moving target called value, and risk is its cousin. Seasoned traders get confused about the relationship of risk value and end up making incorrect decisions about opportunity and danger. When people are allowed to make choices about value, buying or selling, you can be either right or wrong. And when diminishing values create a race to capture remaining values, thing can get cheap quickly, as we have seen.
There are no guarantees about choices which contain risk. But there are no real opportunities without it. When risk is measured and quantified correctly and used in adaptive programs and not in supporting mindless long position in some portfolio by the endless ranks of Wall Street Ivy leaguers concerned with pathetic standard deviation measures, it works, and is able to withstand the pummelling of a crash.
We are witnessing the unwinding of static traditional and exotic portfolio positions competing with the low bid participation created by a squeeze on banks. Raising cash is always harder when others are racing you to the buyer. The de-regulation, less government, and lower tax, self serving neo-conservatives, are experiencing a surge of social medicine they never imagined. Maybe we misunderstood them when they claimed it all for free markets. Maybe they said flee markets.
There is a balance between allowing the markets to discover value and appropriate oversight crafted to regulate tranparency without any grey areas. The worst of the under sight is over, the best of the markets is yet to come.
