With the stock market making new highs, it’s difficult to be a risk manager; the party pooper, the wet blanket.

But when artificial stimulus underlies the economy – and the structural issues with a debt crisis in Europe and the US are being ignored while the problem is not getting any younger – it is at these moments the risk manager speaks common sense.  Logical, mathematical, common sense.

Take sovereign bond fund manager Paul Singer, speaking at the Ira Sohn conference.  He is likely not to be the most popular person at the cocktail party if he keeps talking the truth about unfunded liabilities moving the US debt to GDP ratio to near 500% — essentially a point of insolvency.  That’s not popular, happy stock talk – but it is critical reality we must face as risk managers.

In this issue we take a look at the debt crisis from a European perspective with the full interview with institutional consultant Dr. Bob Swarup.  It is my opinion Dr. Swarup is speaking years ahead of his time in this interview, but it’s hard to say when this bubble will burst.  It is for this reason that brief but stunning comments from Greenrock Research interest rate strategist Bob Southard are so interesting.  On page 23, he has a 1 ½ year time horizon for a market price adjustment, but says the first signs will be seen in the currency market – through a devaluation of as much as 35% — not along the yield curve, as has been a predominate thought in debt crisis modeling.

This all reminds me of an interesting conversation that took place among a group of financial fiduciaries.

“The underpinnings of many asset markets are based largely on stimulus.  To many this represents known risk,” was one thought, which was magnified in public statements at both the recent Ira Sohn Conferences and SALT thought leadership confabs.  The conversation quickly switched to Jeffery Gundlach’s recent comments on CNBC, where he essentially lifted the curtain from behind the wizard of stimulus, noting that “stimulus was in its eighth inning,” and that it was losing its effectiveness  the more it is depended on to “create” needed growth.  These comments were sandwiched with Stanley Druckenmiller thoughts that Fed Chairman Ben Bernanke is engaging in the exact wrong strategy at this moment in history.  Why economists and certain academics don’t see the damage quantitative interference has in the credibility of the yield curve is curious.

“Central Banks entering the yield curve to an unseen extent – as much as 50% of the market in some cases – is market manipulation which always has a history of failure.  It is also logical to assume that at some point the fundamentals underlying the market might find their own gravity?”

With this as a backdrop, one might do well to take the advice of author Bob Rice, whose book, The Alternative Answer is needed now more than ever.  Mr. Rice has a strong grasp of the absurd economic fundamentals and points to real alternative solutions in his new book, which is reviewed on page 13.

This issue of Opalesque Futures Intelligence looks at other interesting topics.  Profile and analysis takes place of Campbell & Company – an old line trend follower with a newly emerging algorithm that is transitioning leadership.  Can a strategy be passed from generation to generation?  We consider this in Campbell but also a much lesser known volatility trader – T2 Associates, which is essentially a Silicon Valley mathematician who systematized the counter-trend volatility trading tactics of his floor trader father – with the operative word emphasis on volatility. Then we consider managed futures trend follower Cole Wilcox, who made a crusade for Tesla – one of three fund products he offers – a household name through a strong media showing.

This publication is dedicated to real alternatives – those designed to perform when it matters most.  I hope you find this issue useful.  If you have any comments or questions, feel free to reach out.

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