morph366

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    • Sun Nov 30th 13:49 PM
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      Rubin's Teflon Finally Wears Off
      The story told in this article is, in a microcosm, reason to doubt that things under Obama will be any different. When will these "Masters of the Universe" ever learn some humility
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    • Sun Nov 30th 13:36 PM
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      Stocks Rebound but Credit Markets Show No Signs of Improvement
      Since the key reversal on the SP 500 which happened on Friday November 21st the yield on the 10 year note has plumetted to levels not seen for 50 years. This suggests that traders in equities and the Treasury, who are supposedly renowned for their discounting acumen, are not looking across the same valley at the green shoots of recovery. This divergence in terms of risk aversion should b quite disturbing to equity bulls.
      Not to say that we cannot go higher on a rebound in the near term but with yields on 10 year Treasuries below 3% it is hard to believe that equity traders have fully "discounted" this recession
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    • Thu Nov 13th 08:36 AM
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      Paulson's Shocking Change of Heart
      Thanks for laying out the Michael Lewis quotes - I remembered them from reading his book some years ago. Even more shocking perhaps than the side of Wall Street that he worked on is the way in which quants with PhD's in astrophysics or whatever, who by their own admission knew hardly anything about finance, were allowed to engineer these impossibly complex instruments that are totally incomprehensible and illiquid.
      Let's hope that after trashing Wall Street they don't move on to companies like Boeing.
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    • Tue Nov 11th 08:57 AM
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      The Case for Derivatives
      It is becoming increasingly apparent from the scale of the revised AIG rescue plan announced yesterday, and the fact that there has still been no real “pricing” of the really toxic stuff by the TARP, that the financial engineers that created this monumental disaster were either unintentionally reckless beyond belief or, if the obfuscation was intentional, this must surely be counted as the largest theft ever perpetrated and taxpayers should be demanding ongoing investigations leading to criminal prosecutions.

      If we just focus on the more benign interpretation (i.e. that it was not malicious intention) one is forced to the conclusion that the mathematics that underlies all of the risk modeling that went into these structured products is absolutely flawed. Not just slightly wrong but fundamentally mis-conceived.

      The saddest part of the whole mess is the hubris and arrogance of the people that signed off on the assessments made by the “quants” of the likelihood of defaults and the probability distributions of financial accidents. Extreme events in time series data are of a completely different complexion to the tails of a normal distribution.

      If risk managers really insist on finding a bit of maths that can account for the likelihood of critical events taking place – such as collapses in real estate prices and implosions of liquidity – a better place to look would be the predator-prey modeling which has been conducted mainly in relation to bio and eco-systems.

      Predators eventually run out of sufficient prey and their populations decline substantially until there is a chance for the supply of prey to be replenished. At such time the predators can get back to business. This modeling gives rise to oscillations in the ratio of predators to prey and right now we are in a bear phase for the predators. One slight modification to the model needs to be made for the government rescue plans etc which will perhaps keep those marginal survivors from the last predation on a life support system long enough so that they can limp off and become ensnared in some new financially engineered scam.

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    • Sun Oct 26th 08:25 AM
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      Equity Markets: The Thaw Begins
      There are many perceptive remarks in this analysis and as you suggest the eventual consequences of this global bail out are hard to imagine as the scale of the monetization being undertaken by central bankers of debts is deliberately designed to try to hang on to as much of the air still left in the bubbles.
      The success of the new bubbles that will be designed to replace those now deflating will depend on how effectively financial engineers can circumvent the new regulatory frameworks.
      Commodities and hard assets will benefit eventually as all the new phantom money that is created from even more complex instruments implodes again but it could be a while. Governments may well be the next patrons of the financial whizz kids that are now being laid off by the banks and hedge funds as they try to figure out ways to prop up their bond markets and currencies.
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    • Sun Oct 26th 08:10 AM
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      Looking at Last Week's Weakness, and What It Could Mean
      Your observation of the historic liquidation of equities is very astute. What intrigues me is whether this is a result of forced selling by over-leveraged funds and will come to pass or whether institutions are undergoing a secular change in valuing those capital assets - equities that have the least claim, unlike more collateralized claims, on the value of a business
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    • Wed Oct 8th 10:07 AM
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      Big Troubles for the Euro
      Disintegration of the eurozone would make the collapse of Lehman Bros et al seem minor in comparison. However the current EU politicians and bankers are doing a good job of appearing like the deckchair attendants on the Titanic
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    • Fri Sep 26th 12:21 PM
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      Quantitative Finance: Adult Supervision Needed
      Where else could you come out of grad school and work as a derivatives trader for 300K plus a year?
      There must be something wrong with what they're teaching at grad school which is what the adult supervisors learn after being in the real world for some time. Academic theory of risk is useless and even though it's fun to talk about Black Swans it doesn't really help to quantify or manage risk.
      The only way to deal with this is through a Darwinian process of asset valuation which is what the US governments seems intent on destroying
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    • Tue Sep 23rd 08:06 AM
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      Crude Oil Back Above $110; Trading Halted (Briefly)
      Hedge funds are playing a strange kind of Russian roulette to find out who will be the last man standing.
      I wouldn't hold my breath on markets ever being rational
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    • Sun Sep 21st 10:59 AM
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      Hank Paulson, Buy-Sider
      In hindsight it could have been smarter for Hank to have saved Lehman with the necessary spin about how it was too interconnected etc. World confidence will have been shaken by hearing that the US President had no idea how bad things were and too many people got to see how deep the abyss could be during trading on September 18th
      If this GSGC (Government Sponsored Garbage Can) scheme does start to look wobbly then picking up the tab for LEH and AIG would have been a bargain for the taxpayer
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    • Fri Sep 19th 08:00 AM
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      Peak Insanity: SEC Plans to Temporarily Ban Short-Selling
      When the European markets closed yesterday failing to rally after an injection of $180bn and Morgan Stanley and Goldman Sachs looked like they were about to be thrown on to the bonfire of vanities the authorities knew that they had to perform like true magicians. So we got two elements in a carefully planned set of leaks/announcements. Firstly the UK’s FSA came out with an outright ban on short selling of financials and then we got the news that an RTC type solution to the systemic financial crisis was being sketched out with Congressional leaders. Perfect timing and worthy of a true magician.

      The nasty hedge fund fat-cats were set up as the distraction while the real illusion is performed which is that the effective nationalization of the illiquid assets of the banking system will restore confidence to the system. And it probably will - eventually and until the accident prone bankers screw up again!

      What I like about the idea is that since it is still vague and has so many nuances and complexities to be ironed out it will allow for a stealth like alignment of the twin needs of separating out good bank/bad bank stuff with the other vital dichotomy private gain and public loss.

      The timing of this was critical and is well reflected in the chart below for the VIX which shows that maximum fear as the 42 level was breached was the signal to the "authorities"... that they really had no choice but to fire the biggest gun left in their arsenal.

      One of the awkward questions that is going to have to be answered is what kinds of instruments will the RTC type entity be actually buying from the distressed banks? Presumably it will include all of the toxic structured instruments that do not trade, cannot be marked to the market and that none of the astrophysicists who concocted them can value either. What price should be paid for these exotic items? How long does the public sector keep them on its books?

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    • Wed Sep 17th 09:59 AM
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      CNBC's $190 Billion Reporters
      Easy to belittle the importance of CNBC and other financial media but the PlayStation/Xbox inspired trading desks can make and lose a lot of money fast on such rumous which was the point that the originators of the story are making
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    • Tue Sep 16th 06:06 AM
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      Surveying the Carnage
      Warren Buffet got it right years ago when he talked about credit default swaps etc as weapons of mass destruction

      If that market seizes up (watch AIG today) then the Fed can put interest rates to zero and banks would still be reluctant to lend any money because no bank trusts anyone else’s balance sheet any more than it trusts its own.

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    • Sun Sep 14th 02:03 AM
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      Lehman's Risk Management Strategy May Have Caused the Problems
      Absolutely right to stress the fundamental problem with all of risk management - it applies dubious concepts from the normal distribution to time series analysis. That's why financial engineers talk about 25 Standard Deviation events that should only happen once in a trillion years or whatever - right now they're happening all over Wall Street Apart from Taleb's book on this I have also written on the subject of bogus application of techniques from physics to finance - so called econonphysics in a book called Long/Short Market Dynamics (Wiley 2007).
      Please excuse the shameless plug but as a result of the hubris of many so called "high powered" quants and the financial models that have come out of their sheds, most banks have balance sheets that hardly anyone (I am being kind) understands and with risks that cannot be quantified
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    • Thu Sep 11th 10:47 AM
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      Markets Are 'Free Fallin'
      The solution to all of this is really simple for the US government. It just has to borrow enough money to get itself completely out of debt.
      View article »