Risk management is not new to the stock market, but it has become more popular with investors of late. One of the reasons could be that so much of our familiar business has moved to an emerging market such as China. Values of assets in an exotic market can swing wildly, as terms of trade and regulations vary so much in foreign countries.
You would not normally spend evenings on the Strip in Las Vegas, to learn how to deal with China. However, there is no harm in learning the basics of dealing with opponents at the famed gaming tables of Nevada. Not that China is a mere opponent; it has huge dollar reserves, holds keys to our stock market inflows, and is the major emerging market by all accounts.
There are no signs of aliens coming to destroy us, but even so there are scenes from the 1996 movie ‘Independence Day’ developing in real life. It started with successive years of drought in Australia, a major grain exporter. China has never had to bother about growing all its food needs, but sourcing grain on the world market gets tougher by the day.
You need not indulge in any unduly aggressive investing to deal with dollar, Euro, and RMB market conditions of 2008. A bank would typically employ an army of specialists to decide on short-selling, leverage, swaps, and other derivatives. The risks are not worthwhile from your individual stand-point because the market could take turns very differently from what people predict at this point of time.
They care for the environment, love sports, and have sent troops to Iraq. You may not be impressed with the apology to their native citizens, unless you are an Aleutian, but Australians are clearly near the top of our pile of allies.
Does Ambac deserve a bail-out? Are assurances of dollars enough to prevent writedowns? How much exposure can stock or a bond take based on credit ratings anyway? Why do regulators allow Insurance industry players to take such massive risks? What should small stock investors make of the rumors in stock market circles?
2008 no longer looks as bright to the Fed as it did last October. It has lowered its GDP growth rate estimate, and raised the figures for unemployment and inflation. The figures are not as bad for 2009 and 2010, but who knows what the Fed could think as those years draw closer?
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