Archive for ‘investment theory’

A little blurb about Paul Krugman, an economist I greatly admire

By , 29 March, 2009, No Comment

Evan Thomas writes in Newsweek: Obama’s Nobel Headache. An excerpt:

If you are of the establishment persuasion (and I am), reading Krugman makes you uneasy. You hope he’s wrong, and you sense he’s being a little harsh (especially about Geithner), but you have a creeping feeling that he knows something that others cannot, or will not, see. By definition, establishments believe in propping up the existing order. Members of the ruling class have a vested interest in keeping things pretty much the way they are. Safeguarding the status quo, protecting traditional institutions, can be healthy and useful, stabilizing and reassuring. But sometimes, beneath the pleasant murmur and tinkle of cocktails, the old guard cannot hear the sound of ice cracking. The in crowd of any age can be deceived by self-confidence, as Liaquat Ahamed has shown in “Lords of Finance,” his new book about the folly of central bankers before the Great Depression, and David Halberstam revealed in his Vietnam War classic, “The Best and the Brightest.” Krugman may be exaggerating the decay of the financial system or the devotion of Obama’s team to preserving it. But what if he’s right, or part right? What if President Obama is squandering his only chance to step in and nationalize—well, maybe not nationalize, that loaded word—but restructure the banks before they collapse altogether?
emphasis added

Krugman is making the establishment nervous! Probably because they all missed the housing bubble – and Krugman called it correctly.

Krugman foreshadowed the Newsweek article yesterday: The magazine cover effect

I’ve long been a believer in the magazine cover indicator: when you see a corporate chieftain on the cover of a glossy magazine, short the stock. Or as I once put it (I’d actually forgotten I’d said that), “Whom the Gods would destroy, they first put on the cover of Business Week.”

There’s even empirical evidence supporting the proposition that celebrity ruins the performance of previously good chief executives.

Presumably the same effect applies to, say, economists.

You have been warned.

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The Truth

By , 18 March, 2009, No Comment

By Charlie Reese
Politicians are the only people in the world who create problems and then campaign against them.
Have you ever wondered, if both the Democrats and the Republicans are against deficits, WHY do we have deficits?
Have you ever wondered, if all the politicians are against inflation and high taxes, WHY do we have inflation and high taxes?
You and I don’t propose a federal budget The president does.
You and I don’t have the Constitutional authority to vote on appropriations. The House of representatives does.
You and I don’t write the tax code, Congress does.
You and I don’t set fiscal policy, Congress does.
You and I don’t control monetary policy, the Federal Reserve Bank does.
One hundred senators, 435 congressmen, one president, and nine Supreme Court justices 545 human beings out of the 300 million are directly, legally, morally, and individually responsible for the domestic problems that plague this country.
I excluded the members of the Federal Reserve Board because that problem was created by the Congress. In 1913, Congress delegated its Constitutional duty to provide a sound currency to a federally chartered, but private, central bank.
I excluded all the special interests and lobbyists for a sound reason. They have no legal authority. They have no ability to coerce a senator, a congressman, or a president to do one cotton-picking thing. I don’t care if they offer a politician $1 million dollars in cash.
The politician has the power to accept or reject it. No matter what the lobbyist promises, it is the legislator’s responsibility to determine how he votes.
Those 545 human beings spend much of their energy convincing you that what they did is not their fault. They cooperate in this common con regardless of party.
What separates a politician from a normal human being is an excessive amount of gall. No normal human being would have the gall of a Speaker, who stood up and criticized the President for creating deficits. The president can only propose a budget. He cannot force the Congress to accept it.
The Constitution, which is the supreme law of the land, gives sole responsibility to the House of Representatives for originating and approving appropriations and taxes. Who is the speaker of the House? Nancy Pelosi. She is the leader of the majority party.
She and fellow House members, not the president, can approve any budget they want. If the president vetoes it, they can pass it over his veto if they agree to.
It seems inconceivable to me that a nation of 300 million can not replace 545 people who stand convicted — by present facts — of incompetence and irresponsibility. I can’t think of a single domestic problem that is not traceable directly to those 545 people. When you fully grasp the plain truth that 545 people exercise the power of the federal government, then it must follow that what exists is what they want to exist.
If the tax code is unfair, it’s because they want it unfair.
If the budget is in the red, it’s because they want it in the red ..
If the Army & Marines are in IRAQ , it’s because they want them in IRAQ
If they do not receive social security but are on an elite retirement plan not available to the people, it’s because they want it that way.
There are no insoluble government problems.
Do not let these 545 people shift the blame to bureaucrats, whom they hire and whose jobs they can abolish; to lobbyists, whose gifts and advice they can reject; to regulators, to whom they give the power to regulate and from whom they can take this power. Above all, do not let them con you into the belief that there exists disembodied mystical forces like “the economy,” “inflation,” or “politics” that prevent them from doing what they take an oath to do.
Those 545 people, and they alone, are responsible.
They, and they alone, have the power.
They, and they alone, should be held accountable by the people who are their bosses.
Provided the voters have the gumption to manage their own employees.
We should vote all of them out of office and clean up their mess!
Charlie Reese is a former columnist of the Orlando Sentinel Newspaper.

What you do with this article now that you have read it………. is up to you

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This is a post I made today on another blog as I listened to people bitch about politicians……

By , 4 March, 2009, No Comment

Boy, this is a pretty salty crowd tonight, and a very forgetful one, at that. For an excellent analysis of governmental debt, you might try reading this article.

http://www.washingtonpost.com/wp-dyn/content/article/2009/03/03/AR2009030303321.html

For those of you who seem to have forgotten the REAL cause of our problems, which is miscalculated derivative risk, you might read this: the story of the implementation of David X. Li’s radical risk management approach to derivative risk management.

http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all

And for those of you who want to understand the the flaw in Li’s Bell shaped Gaussian copula riskmetrics, and why “catastrophic tails” invalidate Bell curve riskmetrics, you might read this book:

Benoit Mandelbrot: The Misbehavior of Markets.

You all want to point fingers and snivel about one politician or another, but the damage was done far before any politicial, or the Fed, or anyone outside the inner sanctum of derivitive theory knew the scope of Li’s formula’s and the uniform implementation of those theories as they related to securitization of CDO’s, credit default swaps and risk.

It’s unfortunate when this board haggles over politics when there is little understanding of what REALLY happened. Arm yourself with some knowledge and then argue the salient point rather than spew partisan blather one way or another. Very few of the above posts are even germane to our current dilemma…instead you argue the symptoms of the problems. But the cause is well understood by those who understand economics…unfortunately we find ourselves in a liquidity trap that offers few alternatives for recovery, save a bit of luck.

Read todays blog from Nobel prize winner Paul krugsman’s blog, then begin the refutation of riskmetrics, liquidity traps, and the pseudo economic views of the Austrian School of Economics:

“My view, which I thought was pretty clear, is that the liquidity trap is real: no matter how much the Fed increases the monetary base, it has no effect, because it just substitutes one zero-interest asset for another. If the Fed could credibly commit to inflation at rates higher than the 2-ish percent target it’s already believed to have, that would be effective. But right now I don’t see that as a realistic option, hence the emphasis on fiscal policy and bank recapitalization.”

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This from JanPaul on Market Watch

By , 26 January, 2009, No Comment

Somebody mentioned gold will go down when bond yields go up. Why?

Yes, that can happen in a sound economy but in this one would cause gold to soar in price if yields start going up. Why?

Because the Fed has no intention of letting yields go up but, it may happen anyway. If yields start going up it is because the dollar is in trouble and they can’t sell enough bonds at the lower rates. However, it is a two-edged sword because the more the dollar drops the less people will want the bonds because they would get paid back with devalued dollars.

I am not saying some people won’t buy the bonds if the yield goes up but, not enough to help the government out of the mess it is in. There is about $500 billion available for lending and the government wants a couple trillion. So, you could offer 10% yield and you still can’t get enough lenders.

Also, at this time, nations that lend to us need to spend on their own people and economies instead of lend to the U.S. Our nation is basically bankrupt so our people can’t cover the loans we need and the world can’t either.

Then you have the rumblings in the G-20 of a new global currency to be the world’s reserve currency. The people who say the dollar won’t end its reign as the world’s reserve currency say there is no currency to replace it. They are probably right which is why the G-20 was talking about an entirely new currency tied to a “basket of currencies.” Some say it will be a gold backed currency but, I doubt that.

If the world returns to a gold standard, it would most likely be due to oil nations. The Gulf nations are going to depeg this summer from the dollar and go to a common currency. The Malaysian gold and silver backed currency is being pushed by Malaysia to be the “Islamic currency.” Should they decide to go with that currency and then require oil be sold in that currency, it would destroy demand for the dollar.

Even if they only go with a “common currency” tied to a basket of currencies as has been talked about in the Gulf nations, and require oil be sold in it, the dollar’s demand will fall like a rock and all commodities, especially gold will soar in price even if value is falling.

The U.S. government seems to be doing everything it can to destroy the dollar. You have to ask why? Could it be they need an excuse to default or hyper-inflate out of debt. Testimony to Congress says we can’t grow or tax out of this anymore. Well, guess where that road leads?

The Gov. Accounting Office says it leads to the “gradual, if not sudden loss of ..our standard of living…” Guess how a “sudden loss” happens? A currency collapse!Don’t go by what our government says. Go by what they are doing and what they are doing is an all out war against the dollar’s value.

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This video had me in tears laughing.

By , 26 January, 2009, 1 Comment

I WANT SOME TARP
by
Bill Zucker

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a historical perspective on where the markets are currently price…wow!

By , 22 January, 2009, No Comment

Here are some historical snap shots of the FINANCIAL SECTOR of the S and P 500…as you can easily surmise, we are at lows not seen in decades. Wow! This should give you a pretty good perspective, along with the other article I posted below as to just where are banking system is at present. It is reason of unprecedented concern, and my concern is not whether the banking system will rebound, but….will it survive. Of course, the Fed has been doing triple duty pumping cash into the system, but the question remains whether or not the system is so broken that it might be beyond repair.

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I just don’t know what to say these days…and Ray is as baffled as I am…

By , 16 January, 2009, No Comment
As a blogger, I am committing to imparting the small amount of knowledge that I possess to people who might find it interesting or helpful. In the past, this has been a joyous and passionate pursuit for me…that is to say, I have taken a general interest and posted with exuberance.

But the last week has just put me in a state of mind where I find it difficult to find optimism in the events that are currently occurring in our country. You see, I am an optimist by habit, and don’t generally like to dwell on things that are pessimistic or negative. I have found this mindset an effective way to deal with the uncertainties that are part and parcel of any market.

But then I run into a series of economic events of the last 18 months that are genuinely distressing. Like these:

Employment figures that are threatening to fall off a cliff….

An believable drop in retail sales.

Unprecedented upward changes in unemployment claims

An unflattering comparison between the current recession and past major and destructive recessions

So, as a trader I have found myself dealing with some of the greatest levels of pessimism I have ever experienced on our economic climate. I’m a bull by choice, but have learned to trade the market and not the economy. (as I have mentioned in some of my earlier posts). With the exception of the little bear market really a week or so ago, I have found myself perpetually short on everything I trade…and I suppose I don’t really mind being short all that much. But our economy, when taken in aggregate, points to significantly worse developments in the coming months. THE IS A DISTINCT LACK OF ANY INFORMATION THAT WOULD LEAD TO A FAINT RAY OF HOPE FOR OUR ECONOMY.

To make matters worse, this entire situation was brought about by greed and ignorance by both Wall Street and our current administration…you may as well through in, for good measure, a goodly number of Congress. And these factors coalesced to form a real estate bubble that shows no signs of waning in intensity or scope. Worse yet, we have found ourselves in a positive to bail out the very business entities and CEO’s who placed us in peril to start with. And the whole situation makes my stomach churn.

You see, this crisis was not about some external factors, like a World War or catastrophic emergency, no, we PUT OURSELVES in the crosshairs of this crisis through sheer greed and lack of government oversight. We weren’t unwillingly thrust into this disaster against our will….no, we waltzed into our economic disaster with eyes wide open and self-congratulatory smiles upon our faces. It is as if, at this point in time, the executives who engineered this catastrophe find themselves unaccountable. Recent congressional testimony unveils a parade of financial executives who find themselves unwilling and unable to assume any sort of personal responsibility for our current malaise. No, it was someone else’s fault….don’t blame the leadership of the country.

Our president, in his last presidential news conference, claimed his presidency was basically an “unqualified success.” Further, he explained, that certain things did not work as he wished they had, but finds himself without culpability in the general meltdown of the stock and financial markets.

Our secretary treasury, handed out 375 billion dollars to the banking community without any meaningful restrictions on what was to be done with the money, and the banks responded by using the money TO THEIR greatest advantage, not the suffering middle class consumer of our country.

I have never reached the level of disgust I current harbor against the people who are in office to serve the people of our great country, not line their own pockets. And ultimately, it will be the working population of our great country who bear the burden of this administration’s litany of incompetence.

Yes, I am still trading everyday, that’s my job. But it just pains me to watch 10′s of trillions of hard working men an women’s 401(k) programs and other retirement assets suffer losses in excess of 50% and, as I have said, all indicators point to a more pain yet to come.

It’s very hard, almost impossible to obtain any measure of joy and excitement in the current economic climate…only the contrary, I find my days trading a process of mounting frustration.

I’ve been talking with my friend Ray Epley about this. Ray is in management in the automobile sales segment of our economy, which has been among the hardest hit part of the economy. He wonders if there is an end in sight….and I don’t have a good answer for him….because I don’t see an end in sight, only mounting problems.

Ray didn’t like my answer, and I don’t blame him. But it’s the hard working guy like Ray that will ultimately bear the burden of this exercise in futility, and that is a sad fact. After all, all he’s done wrong is go to work everyday and work hard.

Where is the personal accountability in our world? Sure we could make Bernie Madoff the object of our scorn, but you will be amazed in the coming months how many Bernie Madoff’s there are…you see, they were all eating at the same hog trough and no one bothered to tell them that what they were consuming was other’s peoples hope and dreams…of course, that admonition paled in importance to the notion that they might well line their pockets full, brimming with money.

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Trade the market, not the economy

By , 9 January, 2009, No Comment

How is this for some dire employment news?
I was talking with my buddy Ray Epley, who is one of my favorite people to bounce ideas off of, and we were struck by the spate of bad news that has flooded the news of late. Some of the news has been absolutely horrifying, and in normal times would cause investors to panic…

Ray says to me: “Dave, Geez with all this bad news you would think that the market would fall flat on it’s face.”
Dave: “I agree with you, Ray…things sound terrible. I was thinking about getting short on some stocks a month ago. I would have been stopped out with a big loss.”
Ray: “yea, how can the market go up? Aren’t these guys looking at the news?”
Dave: “I don’t have any explanation, Ray….”

And Ray is basically right, with such negative reports on the economy, how can the market rally? Unemployment has been spirally upward, consumer spending is tanking…..what gives?
The truth is, I don’t understand bear market rallies other than they occur and you have to trade them accordingly, whether you understand them or not. Trade the market, not the economy. Sometimes when a spate of bad news floods the market I am tempted to automatically start thinking short, and that is a mistake during volatile times like this…trade the market, not the economy.

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