By: Esteban. on Venerdì 25 Gennaio 2013 14:10
It is a well-known phenomenon that quiet markets, low volatility and a lack of visible risks on the horizon can lead to complacence and increasingly dangerous, leveraged positions. In doing so, these market conditions set the stage for the next cycle of deleveraging and losses. What has also become apparent is a predictable behavioral response to this cycle.
On the other hand, when markets are quiet, investors can quickly forget the pain suffered during prior crises, and may choose to eliminate the cost of tail hedging, or even more dangerously become sellers of tail hedges.
^PIMCO On Hedging: It Pays To Be Countercyclical#http://www.zerohedge.com/news/2013-01-24/pimco-hedging-it-pays-be-countercyclical^