Contrary to officially myopic central bankers and “no one can see bear markets coming” financial commentators, effective risk management for real life people requires us to anticipate big picture trends and make our own decisions independent of the herd. I have often said that being a prudent risk manager in the financial sector is like being the only sober member in a family of drug addicts, where the rest of the family keeps insisting that they are healthy and normal and you are the problem. Until they implode of course…This clip offers a worthwhile overview of our current cycle.
Current best practices in risk management work only when correlations are stable. At turning points historical relationships between assets break down. The only way to effectively anticipate future risk factors is by understanding root macroeconomic causes. Here is a direct video link.