Given that risk management is a very important component of asset management, we need to redefine the role of investment analysis in terms measuring and managing the difference between equilibrium frameworks and out of equilibrium reality. It is not so much that investment is not a science but that its science is shaped by the gravitational pull of the at times irrational minds and actions of man and the imbalances that result from such.

For example in a general equilibrium model both assets and the debt and equity that underpin those assets are correclty valued and there can be no bubble. But in reality the value of debt and equity can at times significantly exceed the net PV of assets or the net PV of future output growth equivalent.

In a time when asset focussed money supply has been pumped up to quite extreme levels so have corresponding asset values in relation to net PV. At one level, the impact of QE has turned investment management from disciplined analysis into a fateful acceptance of the game being played (everything is on red as it were), but at another it has opened up a quite chilling divide between the manufacturing of values and the reality that must eventually return.