oftwominds-Charles Hugh Smith: Where Will Risk Erupt This Time?.
So where has all the risk pooled up in the system? In foreign exchange (FX) markets, that’s where.
One of the precepts of this blog is that risk cannot be disappeared, it can only be transferred or temporarily hidden from view. This runs counter to modern portfolio management, which holds that all risks can be hedged with counterparty-issued securities, i.e. options, futures contracts, derivatives, etc.
This also runs counter to the Central Banking Cargo Cult, which holds that any eruption of risk can be smothered by the unlimited liquidity spewed by omnipotent central banks.
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