Changing risk profiles - we are getting closer to an inflection

"The received wisdom is that risk increases in the recessions and falls in booms. In contrast it may be more helpful to think of risk as increasing during upswings, as financial imbalances build up, and materializing in recessions."

-Sir Andrews Crockett 11th international conference of bank supervisors 2000. 

This quote provides a great counter-intuitive view of thinking about risk through time. The risk seen in recessions is just a build from causes during the growth phase of the cycle. This view is a simple variation on "Minsky Moments". The reach for and breath of speculative excess leads to the inevitable realization of volatility when the downturn comes. The shift in expectations, the loss of liquidity, the uncertainty during the transition, the divergence in fundamentals all lead to higher volatility. 

Risk has to be viewed through the transition of time and not as a snapshot in isolation from the past or where markets may be headed in the future. The excess today will lead to the volatility of tomorrow. The trick is finding the correct excesses and the lead-lag relationships. The trends in fundamentals hold the key to the trends and volatility of prices.