The Gamma-Risk Proportion

The latest example is supply added from the Strategic Petroleum Reserve.

Remember, not too long ago, traders were warned on this web site not to be surprised when a sudden SAR occurs in the energy market. With a cartel fixing the price, extensive horizontal and vertical integration, and copious amounts of speculative demand, the support for prices seems firmly in "control." There is, however, significant political risk that accumulates with the reward (see the article, "When Risk Converges with Reward").

Accepting accumulation of political risk to be a predictive indicator is cognitively dissonant because we are supposed to be working with a free-market model that ontologically processes risk in a legitimate, "uncontrolled," pluralistically consensual proportion. It is critical, however, not to ignore all the risk. Whether balancing the household budget or the national budget, it is critical to model the fullest extent of the risk proportion. Including all the risk factors will accurately model the probable direction of risk, which determines the position of the reward at any particular time.

Nor should traders be dismayed with the sudden reversal. If you were surprised--being long oil, for example, when you should have been short--it is because of faulty, analytical modeling. If you were using a pluralistic model, you failed to see the sudden change because of an ideological, confirmation-bias that falsely assumes we are operating with a free-market legitimacy. We are not!

The predictive model is the bureucratic model. While this model has pluralistic elements, it is largely dependant on executive administration of power. Whether big-business or big-government, risk is deliberately managed to consolidate into a gamma (accumulatively political), administrative proportion. Risk is deliberately organized to be in command and "control" from the top down (i.e., to minimize its otherwise probable, consensual direction).

Identifying the proper predictive model to arbitrage profits from false assumptions largely begs the question, however.

Will ensuring a more pluralistic, consensual, working model stabilize our economy? Are we not more likely to promote growth (cause a distribution from the accumulation) and pay down debt by deconsolidating the risk proportion rather than continue its deliberate, organized consolidation into a too-big-to-fail (gamma-risk) proportion?

Is being even more too-big-to-fail the cure for being too-big-to-fail?