Now for the real abyss into which our economies stare

[Oleander Ardens]

@Gregoshi: True. The market can still go down even 20% or more, but there are great opportunites. Lucky is the one which has liquidated most of his stocks a year ago. Now it becomes time to feel like an oversexed guy in a whorehous, and get rich to quote Buffet.

The derivatives are actual excellent instrument to spread risk. Sadly the huge volume ot them (xxx trillions) and the large scale of "value-at-risk" have created something counterintuitive to classical financial theory. Usually vast liquidity and models able to capture risk up to certain point (95%) should flatten volatility and increase ability to forecast trends and also allow effective hedging. Sadly "the false sense of precisness" which is even featured in the textbook "Value-at-Risk" by Jorion, Philippe, Value at Risk: The New Benchmark for Managing Financial Risk, 3rd ed., McGraw-Hill, 2006, 600 pages. ISBN 0-071-46495-6. has allowed a great deal of investors all over the world, but especially on Wall Street to circumvent the limitations set by risk management and to huge levers to profit from small margins in many markets, but especially in the derivative one. Blind trust in precise number created by this models has blinded the management for risk in general. It is a bit like to navigate just with GPS - what happens if your expensive Garmin breaks down in the wilderness, and you just kept looking on its screen instead of studying the environment?

OA