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How to Manage Risk and Investments under Financial Repression Conditions Imposed by Advanced Economies

This working paper discusses how to manage risk and investment opportunities under continuous uncertainty, due to high debts that developed countries hold resulting in Financial Repression conditions. Since the beginning of the financial crisis in 2008, debt in the advanced economies has increased in historical high levels and therefore constitutes the decisive issue for the long-term global economic policies. There are different methodologies to reduce debt, however policy makers in the advanced economies have chosen to implement the financial repression method, since it is the least understandable and least painful for the people who participate mandatorily in the process of debt reduction. The main tool to implement the financial repression method is by using Quantitative Easing program (QE), because it works effectively. However, quantitative easing produces major risks to the economy, hence, market conditions are changed. In line with the new conditions, the investment choices consist of the following asset classes: Infrastructures, Global Equities, Senior Loans, High Yield Corporate Bonds, Floating Rate Notes and Real Estate. Risk management is linked to the expected payoffs from risk taking on different asset classes in regards to how they are chosen and allocated. Risk taking can be measured with the use of the cash flow method that concentrates in past performance and the real option method that concentrates in balancing the probabilities and outcomes from learning and adapting behavior. Crisis management can be effective when information, timely reaction, experience, resources and flexibility, have been integrated into a company.