Economic Tensions and "Risk-on, Risk-off" Transactions

The past year has witnessed much economic turmoil. This turmoil is highlighted by several significant market shaking events, including the Japanese earthquake and tsunami, the U.S. debt ceiling crisis, the ongoing European sovereign debt crisis as well as the aftermath and recovery from the subprime mortgage crisis.

As such, there is much interest in taking risk exposures based on the prospects, or lack of, economic flare-ups. Sometimes, these types of positions are whimsically referred to as "risk-on, risk-off" transactions with a nod to the Karate Kid film franchise.

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