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To: Gersh Avery who wrote (7004)	10/15/1999 2:32:00 AM
From: MonsieurGonzo	Respond to of 11051

Gersh:" Greenspeak On Risk " Thanks for posting that article, Gersh; excerpts... "Collapsing confidence is generally described as a bursting bubble, an event incontrovertibly evident only in retrospect. To anticipate a bubble about to burst requires the forecast of a plunge in the prices of assets previously set by the judgments of millions of investors..." "...if episodic recurrences of ruptured confidence are integral to the way our economy and our financial markets work now and in the future, the implications for risk measurement and risk management are significant..." "...fear and disengagement on the part of investors holding net long positions often lead to simultaneous declines in the values of private obligations, as investors no longer realistically differentiate among degrees of risk and liquidity, and to increases in the values of riskless government securities. Consequently, the benefits of portfolio diversification will tend to be overestimated when the rare panic periods are not taken into account..." "At a minimum, risk managers need to stress test the assumptions underlying their models and set aside somewhat higher contingency resources--reserves or capital--to cover the losses that will inevitably emerge from time to time when investors suffer a loss of confidence..." "...These reserves will appear almost all the time to be a suboptimal use of capital. So do fire insurance premiums." (1) hello, we're Capitalists, and we have business cycles (2) specific risk and diversified risk... still risk (3) simultaneous decay of equities' and bonds' NAV. IOW When/If John and Jane Doe experience < 0% YTD returns from their "diversified risk" SnP index fund, and < 0% YTD returns from their "risk-less" Bond Fund; the shit is gonna hit the fan, America. Their loss of confidence in "the system" tends to affect all equity and asset market liquidity. So, you FatCats with risk management facilities need to re-crunch your linear programs - with preservation of kapital rather than growth as your objective function - and take what appears to be a sub-optimal portfolio position now. -Steve