Thursday, February 14, 2013

How tail-risk has fallen

There is no doubt that tail-risk, or the risk of a catastrophic meltdown of the financial system, has fallen dramatically in the last couple of years. Consider that two years ago, Europe was mired in one summit after another over the eurozone financial crisis. In 2013, EU ministers are holding a crisis summit meeting over *gasp* horse meat (via The Telegraph):

The summit comes as supermarkets in Britain were urged by the Food Standards Agency to test pork, chicken and other meats for cross-contamination.

Meanwhile, Tesco has admitted that it had been selling frozen spaghetti bolognese ready meals which were between 60% and 100% horse meat.

Tomorrow's meeting has been called by Ireland, which holds the EU presidency, and where the scandal began after horse meat was discovered in frozen beef burgers.

The country's agriculture minister Simon Coveney said the summit was being held to discuss "whatever steps may be necessary at EU level to comprehensively address this matter".

Measures on the agenda will reportedly include labelling processed meat for its origin. Meanwhile processed meat manufacturers in Ireland have been asked to carry out DNA testing in a bid to reassure consumers and export markets.
How times have changed.

Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.

1 comment:

keithpiccirillo said...

I have an open ended question that maybe you or someone can comment on.
I just read John Mauldin's piece at Ritholtzs' site, one that reproduced Jeremy Grantham's recent article implying that often stock market returns and corporate earnings growth are negatively correlated to GDP growth.
I don't understand what the conditions are that could make this happen. I do know he thinks much of the world indices are overpriced with only a few areas only slightly overpriced.
The closest analogous condition I can reference is that old piece you wrote about the Baltic Dry Index often having a similar relationship with shipping stock prices.
As an aside, and generalization perhaps, but it seems to me there are a lot of very good macro managers up in Boston rather than New York.
Maybe that is a stretch but in the same vein, I once read a link at SSRI that showed that liberal and aggressive managers tended to stay, or flock to those cities in New England, (Peter Lynch, John Henry, Seth Klarman, Miller & Heebner of fund fame) while more conservative managers tended to live and work out of the MidWest or South.