Wednesday, January 24, 2007

Bloomberg: "Davos Economists Say Derivatives Demand Creates Risk"

A brief quote or two...

"Surging demand for derivatives is making financial markets more vulnerable to any slowdown in the global economy, said economists and executives at the World Economic Forum.

`You can easily get liquidity from the market every second for anything,' said Bank of China Vice President Zhu Min at a panel discussion on the global economy in Davos, Switzerland. `We really don't know what the risks are.'

...or three.

"...a glut of cheap money allowed investors to bet more borrowed funds in financial markets. That's prompted policy makers including European Central Bank President Jean-Claude Trichet to say investors may not be accurately assessing risk.

Montek Singh Ahluwalia, deputy chief of India's planning commission, said derivatives demand is a problem because `people don't have much experience of this' with the instruments in declining markets."

Not to create apprehension, but if these guys see this as a concern, how should ordinary investors see it? I wonder what kinds of nightmares these guys have?

Your financial buttresses to a derivatives-related "glitch" in the financial markets are probably better than you might think. They're the usual things you will see recommended around here. Learn about and use good asset allocation, reflecting risk/volatility levels you really can handle, including something of a value investing-oriented approach. Coffee cans buried in the back yard are not the way to go.

Read it.

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