Get a Piece of the Schlock
There is a benefit to reading books on marketing for those that will never be marketers: it will immunize you to sales pitches. Think of it as studying the strategies of the enemy. When you talk to salesmen, you can flip their words back at them, or tell them “no,” to the questions that have...
Book Review: Manias, Panics, and Crashes (Sixth Edition)
This is the first book that I have reviewed twice. I reviewed the third edition of the book previously, but I am reviewing the sixth edition now. Kindleberger places the manias, panics, and crashes on a common grid, to see their similarities, In it he draws on a number of common factors: Loose monetary...
Bubbles are Easy to Spot, well almost…
Bubbles are easy to spot. Wait, don’t most people say that bubbles are impossible to spot? I’ll say that again: bubbles are easy to spot. Why? People have the wrong theory on bubbles. They listen to those that don’t understand the efficient markets hypothesis, and think, “Prices are always fair predictors of the future. I...
Book Review: The Greatest Trades of All Time
This book grew on me. Think of it as “How I hit a home run in investing.” Who are the sluggers that earned outsized returns? But, there is a problem here, and the book would have been better if it had recognized the problem. In a few cases, the “greatest” made one (or a few)...
Dominoes
When I was a kid, I liked to set up large arrays of dominoes so that I could watch them fall. Early on, I realized the errors in setup were frequent enough that I left gaps such that if I accidentally knocked down a domino, it wouldn’t destroy all of the work. I usually put...
Financial Complexity, Part 1
FT Alphaville had an article recently where they featured an academic paper Complexity, Innovation and the Regulation of Modern Financial Markets by Dan Awrey. It’s not a mathematically complex paper, though it deals with complex financial instruments and it is quite relevant to our present troubles. Let me start by quoting the beginning of the...
How Would You Run a Rating Agency?
Rating agencies grew up rating corporate credit risk. The nice thing about corporate credit risk is the failures happen at least every seven years. There was a sideline on municipal credit risk, but since munis rarely defaulted, it was not very relevant. Guess what? Moody’s, S&P, and Fitch are very good at predicting corporate default. ...
Book Review: Bond Math
This book is the opposite of the book Interest Rate Markets, where bond markets were described, but there was no math. This book was written by an academic who has done many seminars for bond professionals so that they could understand the math behind bonds. The math rarely transcends algebra, except where he used...
US vs Moody’s, S&P and Fitch
The rating agencies are the whipping boys of the market. Like princes who had a whipping boy to take the hit for their transgressions, so the rating agencies take the hit that should go to the regulators, which delegated their credit-risk responsibility to the rating agencies. That works out well for all, in one sense:...
What is Liquidity (V)
I am sure that I will write more on this topic, should I live so long. My contentions are: Securitization does not create liquidity, it only redirects it. The Fed does not create liquidity, it only redirects it. The Treasury does not create liquidity, it only redirects it. When I wrote this, one reader asked...
Chasing Your Tail Risk
There are many people out there following aggressive investment strategies, but they want to be covered if things go wrong. Why not sell down the positions a little and buy some high quality short-to-intermediate-term bonds? What!?! Give up the upside?! They would rather buy some insurance — something that will pay off big if things...
On Longevity Derivatives
I am a firm believer in “you can’t get something for nothing.” So it is when a new derivative is proposed. Either there are natural counterparties to take up the exposure (reducing their risk), or speculators must be encouraged to take the risk (more likely). So, with longevity derivatives, the risk is people living too...
