23 February 2011

This Week on Bear radio: The conservation of risk and the illusory safety of hedging

In this episode we talk about how financial hedging can actually lead to bigger risks by encouraging imprudent behavior and endowing a false sense of security. The whole AIG debacle proved you can’t always rely on insurance (which is what hedging is, after all). Try as one might, it is simply not possible to eliminate or even minimize risk. You can only succeed in changing where the risk lies. Instead of the risk of an actual crop failure the risk now is that the insurer will make good on a claim. We also debate whether the people movement revolutions sweeping through the Arab world are bullish or bearish for the global economy. It can definitely be said that there is no historic correlation between commodity prices and geo-political unrest. For just one example, oil prices have both risen and fallen (aside from short term spikes on major news) substantially during major periods of upheaval and wars in the middle east.

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NOTE: Remember to tune into the Optimistic Bear weekly financial round-up every Tuesday at 9:00pm, Pacific Time. You can also listen to previous shows.

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