Interesting Articles/Videos/Presentations

ixus

Thought I'd make a single thread for this so in future I'll only post anything I find in here. Would welcome contribution from others even if they're old.

1. An interesting article by Michael Lewis of Liar's Poker fame. It's about how the Heuston Rockets calculate the stats of one of their unsung players.

2. Also, The End of Wall Street is a great read about the guys who first discovered and profited from the subprime crisis.

3. http://video.dld-conference.com/watch/aj4OXAg Daniel Kahnemann and Nassim Taleb discuss biases, the illusion of patterns as well as the perception of risk and denial.

It's an hour long and am sure most have heard Taleb's ideas lately but found it interesting listening to Kahnemann of pospect theory fame.

4. Another Glorious Chapter in the History of "Financial Innovation" - Satyajit Das

5. Recipe for Disaster: The Formula That Killed Wall Street

6. these on AIG :
The Beautiful Machine A Crack in The System Downgrades And Downfall

7. Marc Faber's 2/17 presentation. The link below is a power point presentation. You'll need Microsoft Office, and you can save it or run it online. I can't vouch for it's authentity though I have downloaded it and it got through all my filters no problem.

It's a great presentation if you're interested in this sort of thing. http://tinyurl.com/d5w46g


8. 2009 Prospects – Trench Warfare - By: Satyajit Das

9. A short (7 min) video to help you understand Quantative Easing

10.

thebang wrote: »

I watched this on PBS in the States - its a great documentary about what happened from The Bear Sterns through to the Lehman Collapse.
http://www.pbs.org/wgbh/pages/frontline/meltdown/

ixus

11. Deleveraging lifts dollar to fresh highs

12. Insight: Credit default swaps and amplified losses - By Satyajit Das

ixus

13. Stop OTC CDS Abuse NOW OTC = Over The Counter.



Note the Volume (in light blue) on the sell side (red is stock being sold, green is being bought).

This insanity is caused by the CDS feedback loop; here's how it works.

I buy a CDS on GE (a few weeks ago) for a couple hundred basis points ($200,000 per $10 million)

The SELLER of that CDS protects against possibly having to pay by shorting whatever he can against that short credit position. This means he buys PUTs, he shorts the common, he does whatever he needs to in order to lay off that risk. He does this because if GE goes bankrupt their stock would presumably go to zero; therefore, if he has a potential $10 million exposure on the CDS he will short $10 million face value of the common stock, or buy enough PUTs to pay him $10 million if the stock goes to zero.

The PUT writer (assuming he buys PUTs), being a market-maker, will in turn short the common to lay off the risk as well.

This hammers the stock price which then reflects into the pricing models for the CDS, driving them higher.

This cycle repeats; unfortunately credit rating models include market cap as one of their inputs, which causes a credit downgrade (eventually.)

That in turn adds more pressure.

This cycle is repeated until the company is destroyed....

For those who don't follow this i'll try and explain:

The person who buys CDS (insurance cover) makes a profit if the company defaults or it's rating is downgraded. If this is a naked CDS ( they don't own any asset of the company stock/debt etc), they are hoping/betting that the company heads downward.

The person who sold the CDS needs to hedge against this risk. They do this by either shorting the stock or buying PUTs in the stock. A purchaser of a PUT profits when the share price goes down.

Now, the person who sold the PUT has to hedge against the loss they will make if the share price goes down. So, they in turn have to short the stock.

The problem is with the sheer size of CDS and that it is unregulated. At least PUTs have CALLs to balance the equation more or less.

ixus

14. The U.S. Financial System Is Effectively Insolvent - by Nouriel Roubini

Hanley

This needs to be sticked/pinned....

ixus

15. Wall Street on the Tundra by Michael Lewis

This is a long read and it's more about the psyche of the Icelandic people than anything.

thebang

Thought this was very interesting - he seems like a private man and I didnt expect him to be so frank
http://www.scribd.com/doc/11593471/Paulson-Funds-Annual-Report

daveirl

This post has been deleted.

ixus

daveirl wrote: »

This post has been deleted.

Aye, probably a bit OTT alright, got a bit caught up in it myself but I've a decent level of respect for Denninger and his blogs/posts on tickerforum. He was openly shorting the financials before Bear Stearns collapse. A lot of people on that forum appear to have made a packet with PUTs on the financials over there.

Anyway, you got any decent articles to add Dave? Would appreciate contributions from the more experienced posters here.

ixus

Robert Shiller’s Lecture at the New School on Why the Financial Crisis wasn’t foreseen

Haven't got around to watching this yet, but I'm sure it's good stuff (1 hr 47 mins long).

thebang

http://www.ft.com/cms/s/0/453e55ca-0c0c-11de-b87d-0000779fd2ac,dwp_uuid=ae1104cc-f82e-11dd-aae8-000077b07658.html

ixus

Japan reconsidered - Paul Krugman

The I note from this is that Krugman is sounding defeatest. This is a guy who is supposed to be on the economic team (or have some input) to Obama's policy.

If you haven't heard of him, it's worth going back over some of his previous articles/blogs.

thebang

ixus wrote: »

Japan reconsidered - Paul Krugman

The I note from this is that Krugman is sounding defeatest. This is a guy who is supposed to be on the economic team (or have some input) to Obama's policy.

If you haven't heard of him, it's worth going back over some of his previous articles/blogs.

I do agree with him in the article.

I recently read Conscience of a Liberal. I have never studied economics formally but he sometimes just seems plain anti-wealth, rather than wanting a good basic deal for people.

This is really good, very evil! Similar vein to otc abuse article.

http://us.ft.com/ftgateway/superpage.ft?news_id=fto112720081103084720

ixus

It's going to be an L - By: Wolfgang Munchau

So it looks like it is going to be an L – not a V or a U. I mean an L-shaped recession, one that starts with a steep decline, followed by very low growth for many years. In a V-type recession, the recovery is instant. In a U-type, it comes eventually. My guess is that we are currently somewhere in the middle of the vertical bit of the L, but it is the horizontal bit that is the scariest.

ixus

Some stuff from last year. Wish I had archived all the stuff I've read....

Four mega-dangers international financial markets face

Insight: Misplaced bets on the carry trade

80-20 mortgages: No money down without PMI

Equity Loans as Next Round in Credit Crisis

The $1.1 Trillion HELOC Problem

ixus

Credit Default Swaps: Quantum Hedges - Part 1 - By: Satyajit Das

Technical stuff.

ixus

Panics and Booms, a lesson from 1897 - from Options ARMageddon

Thanks to Patrick for an absolute gem. Earlier this week, he linked to a fantastic newspaper article written in 1902. That article actually reprinted a paper written five years previously, in 1897, entitled “Panics and Booms” by L.M. Holt. When Holt wrote the paper, the economy was at the tail end of a depression that had begun in 1892. Holt argued that booms always follow busts, so folks should anticipate the return of flush times. Fast-forward five years, a new boom was in full swing, and the newspaper republished Holt’s paper as a warning that the next depression was due around 1910, give or take. The Bank Panic of 1907 arrived a bit ahead of schedule.

It’s a great read, particularly now when most observers remain conflicted about what kind of economic funk we’re in. Mr. Holt described quite clearly the economic conditions we face today, a depression created by over-indebtedness. And he offers a prescription for how to dig ourselves out: pay back debt. It’s a prescription I endorse wholeheartedly.

The paper is so good, for posterity’s sake, I have reproduced it here in full. [Hey! Posterity! Yeah you. My wrists are aching after typing all 3500 words of this. You better like it! ]

Another reason it’s worthy of full reproduction: Irving Fisher generally gets credit for having created the “debt deflation theory of depressions.” Holt beat him to it by 36 years. Enjoy!......

ixus

Credit Default Swaps - Quantum Hedges - Part 2 By: Satyajit Das

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Mass Hysteria Over AIG Obscures Simple Truths: Michael Lewis

The Next AIG Scandal? - The firm's problems may extend to its 'healthy' insurance side.

ixus

The Big Takeover - Rolling Stone

The global economic crisis isn't about money - it's about power. How Wall Street insiders are using the bailout to stage a revolution

ixus

From http://www.calculatedriskblog.com/

Discussion of Geithner plan flaws.

https://www.youtube.com/watch?v=rQLnVyEx0Kg

http://globaleconomicanalysis.blogspot.com/
- Mish normally has something to say to counter whatever Krugman says.

ixus

From thepropertypin some chart analysis.

Inflation v. Deflation

ixus

Respect The Rally Until Proven Elsewise

Many seem to be in disbelief of this rally given the poor economic backdrop. However, technically the rally needs to be respected until proven otherwise. Let's take a look.

There is enormous technical resistance in the area between the two thin lines. Moreover, there is still a possibility of a headfake above the 50 day Exponential Moving Average as we saw in January.

Yet, as long as the 50EMA holds, this rally should be respected.

The implied target is the 200EMA and as you can see that would be a substantial move up from here. Will we get there? I have my doubts. However, equity bears need to be aware of the possibility. Also note that the 200EMA is downward sloping, so perhaps the 200EMA is tagged at an area closer to 900 than where it is now.

ixus

Did Goldman Goose Oil? (from tickerforum)

How Goldman Sachs was at the center of the oil trading fiasco that bankrupted pipeline giant Semgroup.

When oil prices spiked last summer to $147 a barrel, the biggest corporate casualty was oil pipeline giant Semgroup Holdings, a $14 billion (sales) private firm in Tulsa, Okla. It had racked up $2.4 billion in trading losses betting that oil prices would go down, including $290 million in accounts personally managed by then chief executive Thomas Kivisto. Its short positions amounted to the equivalent of 20% of the nation's crude oil inventories. With the credit crunch eliminating any hope of meeting a $500 million margin call, Semgroup filed for bankruptcy on July 22.

But now some of the people involved in cleaning up the financial mess are suggesting that Semgroup's collapse was more than just bad judgment and worse timing. There is evidence of a malevolent hand at work: oil price manipulation by traders orchestrating a short squeeze to push up the price of West Texas Intermediate crude to the point that it would generate fatal losses in Semgroup's accounts.

"What transpired at Semgroup was no less than a $500 billion fraud on the people of the world," says John Catsimatidis, the billionaire grocer turned oil refiner who is attempting to reorganize Semgroup in bankruptcy court. The $500 billion is how much the world would have overpaid for crude had a successful scam pushed up oil prices by $50 a barrel for 100 days.

What's the evidence of this? Much is circumstantial. Proving oil-trading manipulation is difficult. But numerous people familiar with the events insist that Citibank, Merrill Lynch and especially Goldman Sachs had knowledge about Semgroup's trading positions from their vetting of an ill-fated $1.5 billion private placement deal last spring. "Nothing's been proven, but if somebody has your book and knows every trade, it would not be difficult to bet against that book and put the company into a tremendous liquidity squeeze," says John Tucker, who is representing Kivisto.

What's known for sure is that Goldman Sachs, through J. Aron & Co., its commodities trading arm, was in prime position to use such data--and profited handsomely from Semgroup's fall. J. Aron was Semgroup's biggest counterparty, trading both physical oil flowing through pipelines and paper oil, in the form of options and futures.

When crude oil peaked in July, Semgroup ran out of cash to meet margin requirements on options contracts it had with Aron, contracts on which it had paper losses of $350 million. Desperate to survive, Semgroup asked Aron to pony up $430 million it owed on physical oil. Aron said no, declared Semgroup in default on its contracts and demanded immediate payment of losses.

Some answers may emerge in late March when former FBI director Louis Freeh releases a report on the trading surrounding Semgroup's demise. He was hired by Semgroup and given subpoena power by the bankruptcy court judge in Delaware. Meanwhile the Securities & Exchange Commission is investigating, and lawyers involved in the bankruptcy say that Manhattan District Attorney Robert Morgenthau's office is looking into the actions of New York firms in the collapse. His office declines to comment.

Goldman says only that any allegations of oil price manipulation are "without foundation." Merrill and Citi (nyse: C - news - people ) declined comment.

Goldman and Aron (where Goldman Chief Executive Lloyd Blankfein got his start) have had a deep connection with Semgroup. In 2004 two former Goldman bankers bought a 30% stake in Semgroup for $75 million through their New York private equity firm, Riverstone. Both men, Pierre Lapeyre and David Leuschen, had helped form Goldman's commodity trading business, and Leuschen had been a director at Aron.

In late 2007 Semgroup entered into an oil-trading agreement with Aron. The companies began trading both oil futures and physical crude. Aron sent much of the oil it bought from Semgroup to a Coffeyville, Kans. refinery in which Goldman owns a 30% stake.

Semgroup's troubles mounted in the first quarter of 2008, when it had to post $2 billion in margin to cover losses. Goldman offered to underwrite a $1.5 billion private placement. Kivisto's attorney Tucker and others believe that it was in the Wall Street research for this offering that Semgroup's trading bets became fatally exposed. In April the banks (Merrill Lynch and Citibank were co-underwriters) required that Semgroup submit its trading positions to a stress test, a process one source describes as a "proctology exam." Goldman ended up abandoning the placement as investors balked at braving the liquidity crunch.

Meanwhile the futures markets had gotten wacky. On June 5, with no news catalysts, oil futures spiked $5 a barrel, the biggest one-day jump since the outbreak of the first Gulf war. The next day, on no news, the price jumped another $10 to $138. Traders say that in the days leading up to the $147 peak on July 12 there was the smell of blood in the water. "We just kept bidding the market higher," one trader says.

According to a trading summary submitted with court documents, Semgroup had entered into some terribly costly trades with Aron. In February 2008 Semgroup sold Aron call options on 500,000 barrels of oil for July delivery with a strike price of $96 per barrel. That meant that at the peak Semgroup's loss on each of those barrels was $51, or $25.5 million on that trade. Goldman says it "can't comment on the trading positions of counterparties."

Shortly before it filed for bankruptcy, Semgroup sold its trading book to Barclays (nyse: BCS - news - people ) Capital. Barclays' bold bet was that the price of crude would fall, erasing the losses. It is believed that 30 days later Barclays was sitting on a $1 billion gain as oil indeed fell, to $114 a barrel. Barclays wouldn't comment other than to confirm it still owns the book. That prices plunged after Semgroup failed is more evidence of manipulation, says Catsimatidis: "With the portfolio in Barclays' hands they could not squeeze the shorts anymore. The jig was up, and oil collapsed."

Since the bankruptcy, Aron has agreed to pay Semgroup only $90 million to settle up accounts. That's not enough for the dozens of oil producers who still haven't been paid for $430 million in oil that Semgroup delivered to Aron. "We sued J. Aron because Semgroup didn't do it," says Phillip Tholen, chief financial officer of oil company Samson Resources. "I can't fathom why they wouldn't file against J. Aron for those monies."

One possible answer: the Goldman connection. Going after Aron's cash would complicate matters with Riverstone, which still wields sway over the board. The creditors have reason to keep Riverstone and Goldman happy; the duo has teamed up to buy myriad energy assets in recent years, most notably a $22 billion leveraged buyout of pipeline king Kinder Morgan. They are likely to team up again to buy choice Semgroup assets out of bankruptcy.

ixus

CONGRESS PASSES WIDE-RANGING BILL EASING BANK LAWS (from tickerforum)

Congress approved landmark legislation today that opens the door for a new era on Wall Street in which commercial banks, securities houses and insurers will find it easier and cheaper to enter one another's businesses.

The measure, considered by many the most important banking legislation in 66 years, was approved in the Senate by a vote of 90 to 8 and in the House tonight by 362 to 57. The bill will now be sent to the president, who is expected to sign it, aides said. It would become one of the most significant achievements this year by the White House and the Republicans leading the 106th Congress.

''Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century,'' Treasury Secretary Lawrence H. Summers said. ''This historic legislation will better enable American companies to compete in the new economy.''

The decision to repeal the Glass-Steagall Act of 1933 provoked dire warnings from a handful of dissenters that the deregulation of Wall Street would someday wreak havoc on the nation's financial system. The original idea behind Glass-Steagall was that separation between bankers and brokers would reduce the potential conflicts of interest that were thought to have contributed to the speculative stock frenzy before the Depression.....

...''I think we will look back in 10 years' time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930's is true in 2010,'' said Senator Byron L. Dorgan, Democrat of North Dakota. ''I wasn't around during the 1930's or the debate over Glass-Steagall. But I was here in the early 1980's when it was decided to allow the expansion of savings and loans. We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundness.''.......

ixus

Dennis Gartman’s Not-So-Simple (but materially fewer) Rules of Trading:

or 20 years on the day after Thanksgiving, Denis Gartman has been publishing his “Rules of Trading”. This year was no exception. Reading his rules reminds me of a quote from a man called Donal Deeney from Monaghan, Ireland, who has now passed away; he sums it up nicely, “It takes a wise man to learn from his own mistakes, but a smarter man to learn from the mistakes of others”.

There are lessons to be learnt here:

1. Never, Ever, Ever, Under Any Circumstance, Add To A Losing Position… not ever, not never! Adding to losing positions is trading’s carcinogen; It is trading’s driving-while intoxicated. It will lead to ruin. Count on it.

2. Trade Like A Wizened Mercenary Soldier: We must fight on the winning side, not on the side we may believe to be correct economically.

3. Mental Capital Trumps Real Capital: Capital comes in two types: mental and real, and the former is far more valuable than the latter. Holding losing positions costs measurable real capital, but it costs immeasurable mental capital.

4. This Is Not A Business of Buying Low and Selling High: It is, however, a business of buying high and selling higher. Strength tends to beget strength, and weakness, weakness.

5. In Bull Markets One Can Only Be Long or Neutral, and in a bear markets, once can only be short or neutral. This may seem self-evident; few understand it however, and fewer still embrace it.

6. “Markets Can Remain Illogical Far Longer Than You Or I Can Remain Solvent.” These are Keynes’ words and illogic does often reign, despite what the academics would have us believe.

7. Buy Markets That Show The Greatest Strength; Sell Markets That Show The Greatest Weakness: Metaphorically, when bearish we need to throw rocks into the wettest paper sacks, for they break most easily. When bullish we need to said the strongest winds, for they carry the farthest.

8. Think Like A Fundamentalist; Trade Like A Simple Technician: The fundamentals may drive a market and we need to understand them, but if the chart is not bullish, why be bullish? Be bullish when the technical and fundamentals, as you understand, them run in tandem.

9. Trading Runs in Cycles; Some Good; Most Bad: Trade large and aggressively when trading well; trade small and ever smaller when trading poorly. In “good times,” even errors turn to profits; in “bad times,” the most well research trade will go awry. This is the mature of trading; accept it and move on.

10. Keep your Technical Systems Simple: Complicated systems breed confusion; simplicity breeds elegance. The great traders we’ve know have the simplest methods of trading. There is a correlation here!

11. In Trading/Investing, An Understanding of Mass Psychology is Often More Important Than An Understanding of Economics: Simply put, “When they are cryin’ you should be buyin’! and when they are yellin’, you should be sellin’!

12. Bear Market Corrections Are More Violent and Far Swifter Than Bull Market Corrections: Why they are is still a mystery to us, but they are; we accept it as fact and move on.

13. There Is Never Just One Cockroach: The lesson of bad news on most stocks is that more shall follow… usually hard upon and always with detrimental effect upon price, until such time as panic prevails and the weakest hands finally exit their positions

14. Be Patient With Winning Trades; Be Enormously Impatient with Losing Trades: The older we get, the more small losses we take each year… and our profits grow accordingly

15. Do More Of That Which Is Working and Less Of That Which Is Not: The works in life as well as trading. Do the things that have been proven of merit. Add to winning traders; Cut back, or eliminate losing ones. If there is a “secret” to trading (and of life), this is it.

16. All Rules Are Meant To Be Broken… but only very, very infrequently. Genius comes in knowing how truly infrequently one can do so and still prosper.

Jesse Livermore Money Management Rules:

For all of those who may not know Jesse Livermore, he was one of the greatest traders of the 20th century. He started out in bucket shops and was later able to amass a fortune equivalent to billions of dollars today. Livermore's rules for trading were sound and have sparked interest in the trading community for the last 75+ years. In this article, we are going to discuss the money management rules Jesse Livermore used when trading. These money management principles are just as valid today as they were when the market crashed in 1929.

Rule 1: Don't Lose Money

This is a simple of enough concept right? Well if it was this easy, we all would be millionaires. However, Jesse Livermore is laying out the basic tenet that a "speculator" should do everything in their power to stay in the trading game. So, one should not place all of their funds in one position. Also, it is not in the best interest of a trader to establish their entire position at once. Jesse Livermore believes that traders should enter trades in lots, where you would purchase your first 25% of shares at a pivot point and then continue to add to this position until you are able to take a full stake. The goal here is to add to a position as it goes in your favor, which again will prevent the loss of funds, because if you are wrong you can easily exit the position. This may work well for larger investors, or investors with longer timeframes, but I do not think this will work well for day traders, as this will dramatically increase your trading costs.

Rule 2: Always establish a stop

Jesse Livermore stated that a stop is one of the most important parts of trading. Livermore felt that a stop should be established prior to entering a trade. This stop should take in account for the size of your account and the volatility of the stock you are trading. Livermore's personal rule was that he would not risk more than 10% on any one trade. Livermore also stressed the fact that your stop, if hit should not generate a margin call. He felt that the last thing a trader should do is fund their account for a margin call. This is a recipe for producing massive losses, which is a direct contradiction of Rule#1. Livermore called traders who did not establish stops, "Involuntary Investors". Livermore described involuntary traders as people who buy and hold a stocks in hopes that they will rally. These traders will not sell their stocks for any reason until their targets are met."

Rule 3: Keep cash in reserve

Livermore felt that cash is king. A trader without cash is equivalent to Blockbuster with no movies. Livermore stressed that traders must fight the urge to constantly be in a position. This desire to constantly trade will tie up capital, that should be used for more promising opportunities. So, Jesse Livermore felt that a traders should always keep a portion of their account in cash, so that you are armed to take what the market offers you. Patience is the key to success, not speed.

Rule 4: Let the position ride

This for me is the hardest part of trading. I will at times put on two or more losing trades, which then affects my perception of risk and the market. Then on my fourth trade or so, I will put on a position and close it out right before it gives me a huge gain, because I have been conditioned to now believe that the market is only offering small moves. This part of trading, is proving to be my own personal struggle. Livermore believed that a trader that is able to keep their losses small and let their winners run would ultimately be successful at the game. He felt that if you were right in your position and nothing about the trade told you otherwise, that you should hold that trade as long as possible. Traders should be overly concerned and monitoring losing positions, but with winners, you should just let them run. Now this rule does not have any place for apathy. You should not go out and simply buy and hold a position forever. Remember, even with winners, you still must have a stop in place, do not forget money management Rule #2.

Rule 5: Take the profits in cash

Jesse Livermore felt that after a huge winning trade, you should take 50% of that and place it in cash. This money should be put aside in the bank, hold it in reserve, or lock it up in a safe-deposit box. I do not necessarily agree with this money management rule, because if you treat your investment wins as if they are going to eventually leave you, this must have some affect on your subconscious, which in turn will hurt your profits. I think if you put aside maybe 20% and then treat yourself to a nice dinner or a small shopping spree is better because it provides you positive reinforcements of your trading activities.

It is a shame that Jesse Livermore was unable to follow his own money management rules, because if he had, maybe his life would not have ended so tragically.

Amos Hostetter: One Great Trend Trader

Amos Hostetter, the once wise sage of Commodities Corporation, offered wisdom we felt worth sharing.

Amos Hostetter: Trading Dont's

* Don't sacrifice your position for fluctuations.
* Don't expect the market to end in a blaze of glory. Look out for warnings.
* Don't expect the tape to be a lecturer. It's enough to see that something is wrong.
* Never try to sell at the top. It isn't wise. Sell after a reaction if there is no rally.
* Don't imagine that a market that has once sold at 150 must be cheap at 130.
* Don't buck the market trend.
* Don't look for the breaks. Look out for warnings.
* Don't try to make an average from a losing game.
* Never keep goods that show a loss, and sell those that show a profit. Get out with the least loss, and sit tight for greater profits.

Amos Hostetter: Dangers in Trading caused by Human Nature

* Fear: fearful of profit and one acts too soon.
* Hope: hope for a change in the forces against one.
* Lack of confidence in ones own judgment.
* Never cease to do your own thinking.
* A man must not swear eternal allegiance to either the bear or bull side.
* The individual fails to stick to facts!
* People believe what it pleases them to believe.

Think about how simple Hostetter's wisdom appears on the surface. But how many adhere to such principles?

ixus

The Quiet Coup

Baseline Scenario’s Simon Johnson, former Chief Economist of the World Bank, explains why our crisis is so similar to emerging market implosions of the past:

Easy read format :

IMHO, this is a fantastic (if long) read. Found on Option ARMageddon

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

by Simon Johnson
.........

ixus

from Green Bear on thepropertypin:

Charles Biderman, founder and CEO of TrimTabs Investment Research, discusses mutual fund, ETF, and hedge fund flows on Bloomberg TV on March 20, 2009 on Investor sentiment.

https://www.youtube.com/watch?v=YmYpsKL5Zn4

ixus

http://www.newyorkfed.org/research/epr/forthcoming/0903dudl.pdf

The Case for TIPS:An Examination of the Costs and Benefits
[Treasury Inflation-Protected Securities (TIPS)]

(found on acrossthecurve, yet to read it)

ixus

Was the AIG Bailout a Conspiracy? From the Daily Beast

Japan - The incredible shrinking economy Article in the Economist.

The Reverse Black Swan, Part I from Businessweek

Weimar 1923 may have more lessons than US 1932
Are we heading for another Great Depression? - from the Telegraph

The Financial Crisis: An Inside View
- this is a paper written by one of the right hand men of Paulson in the Treasury. It's in pdf form and 50 pages long.

ixus

ixus wrote: »

The Quiet Coup

Bill Moyers interviews Simon Johnson.

ixus

The Incredibly Shrinking Market Liquidity, Or The Upcoming Black Swan Of Black Swans - An article about program/quant trading.

Quantology Revisited: The Negative Convexity Implications Of Delta-Hedging

ixus

In Nature’s Casino - The origin of CAT (catastrophe) bonds


Inside Wall Street's Black Hole

For years, investors have relied on a complex formula to manage risk. But what happens if the Black-Scholes model is wrong—and we're in bigger trouble than ever?

The End of the Financial World as We Know It - thought I'd put this one up before...


UBS and the Diamond Smuggler

The private-banking scandal that is rocking Swiss finance began with illegal diamonds, a tube of toothpaste, and a rogue American banker. An exclusive look inside the low end of high finance.

ixus

Dennis Gartman audio (50 mins long)

Really interesting listen.

ixus

The Financial War Against Iceland: Being defeated by debt is as deadly as outright military warfare. - A long read from GreenBear on thepropertypin.

by Prof Michael Hudson

ixus

ixus wrote: »

The Quiet Coup

Baseline Scenario’s Simon Johnson, former Chief Economist of the World Bank, explains why our crisis is so similar to emerging market implosions of the past:

Easy read format :

IMHO, this is a fantastic (if long) read. Found on Option ARMageddon

Is America the new Russia?

ixus

Watch out this weekend

.....Armstrong's unique 'economic confidence model'

What makes Armstrong's story exceptional is his astonishing economic confidence model, which he developed in the 1970s and 80s.

Looking back at centuries of economic data, Armstrong identified a long-term business cycle of 309.6 years, which is broken down into six waves of 51.6 years – roughly the same duration as Russian economist Nikolai Kondratiev 's more famous cycle. Armstrong's 51.6 year wave breaks down into a further six waves of 8.6 years, which break down into a further three individual waves of different duration......

Wonder does it tie in with this:

The Incredibly Shrinking Market Liquidity, Or The Upcoming Black Swan Of Black Swans

I have a lot of time on my hands
Anyway, I find it interesting investigating the various different ways at looking at the markets.

ixus

Forget Treasuries, is copper the future for China?

...Meanwhile, if you’ve been watching the copper market you’ll have noticed a bit of an arbitrage trade going on. Over the past month, European prices have routinely been “rallying” on strong Chinese buying. With prices much lower at the London Metal Exchange than in Asia — and shipping costs also low — the arb trade does make sense. However, what does seem peculiar is that the arb seems to be closing upwards and being driven specifically by China, whose manufacturing and general export industries — for which copper is a major input — are still drastically suffering from the impact of the financial crisis. What’s more, there’s no imminent sign that exports are likely to recover anytime soon.

Nevertheless, the point is China is buying. So much so that it’s driving the market towards 6-month highs.....

Copper looks set to move through its 200 day moving average.

ixus

Controlling your Emotions - Applying Behavioural Finance to Value Investing

The Bear Is Hiding Around the Corner

Robert Shiller is Running for the Entrances
- The Yale economist known as a bubble-popper extraordinaire is bullish on tomorrow, even if that tomorrow may be a decade away.

Ten Guidelines from Richard Bernstein on His Final Day at Merrill

ixus

Irrational everything - Prof. Daniel Kahneman

Funds try to spot the great oil rebound BY Ambrose Evans-Pritchard
Oil is too cheap. At around $50 a barrel, it is trading far below the production costs of almost all new sources of crude and energy substitutes.

Erin Go Broke - By PAUL KRUGMAN

Inflation is looming on America’s horizon - By Martin Feldstein

thebang

This whole field has really caught my imagination lately and I am trying to get up to date with them (It would be really helpful if I had done more math at college so I could read so more paper on them). I am really interested in them from the point of view of the pharmaceutical industry, which from an outside perspective does not calculate its risks very well (There is an article in the Harvard Business Review about their use at Merck, bu unfortunately I cannot post the link).

I find real options a really interesting concept, but I wonder if they are just a MBA type - management fad coded in mathematical b*****t!

Will Real Options Take Root?

http://www.cfo.com/article.cfm/3009782

This will make one less optimistic about the concept............Enron

http://www.businessweek.com/1999/99_23/b3632141.htm

An finally something more academic if you decide you are interested (Not too many maths, although I tried to read a paper by Jacco Thijssen of TCD on the subject and it was, well, confusing for me)

http://pages.stern.nyu.edu/~adamodar/pdfiles/papers/realopt.pdf

All in all I love the idea (will try to do some academic work on it one day) and I really wonder if it can made stronger and more refined.

ixus

Structured finance 101

An excellent - straightforward - paper giving a sound overview of the development of structured finance has been published by Joshua D. Coval, Jakub Jurek, and Erik Stafford at Harvard Business School.

The Economics of Structured Finance (in pdf format)

There’s not a mathematical lemma in sight, but the paper doesn’t skimp on detail. Well worth a read. Of note in particular is Table 3, which shows just how crucially important default correlation assumptions were to the under-estimation of CDO risks. Misunderstanding correlation (through the misapplication of the David Li 2001 Gaussian Copula function)

See 5. Recipe for Disaster: The Formula That Killed Wall Street

was probably the single most egregious mathematical modelling mistake the banks made. Note how disproportionately changes to the default correlation parameter affect senior tranches - the ones the banks were holding onto themselves. A mezz tranche (BBB-) moving from a 20 per cent default correlation assumption to an 80 per cent one loses only four notches. A senior tranche (AAA) making the same transition loses eleven notches.

ixus

Insider Selling Jumps to Highest Level Since 2007 Bloomberg Article

HedgeHogging

Hi Ixus,

Thanks for creating this thread. It is a fantastic resource and has provided a huge amount of interesting and insightful information over the last while. I was wondering if you had any more articles on fixed income. I would be keen to read them as am currently trying to learn more about this area.
Keep up the quality posting

thebang

HedgeHogging wrote: »

Hi Ixus,

Thanks for creating this thread. It is a fantastic resource and has provided a huge amount of interesting and insightful information over the last while. I was wondering if you had any more articles on fixed income. I would be keen to read them as am currently trying to learn more about this area.
Keep up the quality posting

Hope it doesnt seem too obvious, but alwayscheck out lex in the FT for good commentary in this area

A good tip - sometimes it doesnt let you look on the articles on the main website without a subscription. if this happens, simply put the name of the article into google and it will appear free of charge

ixus

HedgeHogging wrote: »

...... I was wondering if you had any more articles on fixed income. ....
Keep up the quality posting

Cheers, I don't have any specific articles stored to mind but I'll keep my eye out for some.

High-yield bonds feel thaw

Two great sites would be Acrossthecurve and accruedinterest.

I think that the prime government debt is overbought (US,Guilts, German bonds) but trying to short that is dangerous given the level of government intervention in the markets.

Corporate debt would appear to be where the opportunities lie. Pocketdooz knows more about this market than I do. Maybe he'll post a few articles on here.

ixus

Of couples and copulas
- A follow on from post no.42 from 2Pack on thepropertypin

ixus

Monetarism Defiant
Legendary economist Anna Schwartz says the feds have misjudged the financial crisis.

....“The risk of deflation is very much exaggerated,” she answers. Inflation seems to her “unavoidable”: the Federal Reserve is creating money with little restraint, while Treasury expenditures remain far in excess of revenue. The inflation spigot is thus wide open.....

ixus

HedgeHogging, here are a few links for you on various bonds I found in my bookmarks, in no particular order.

Bond Portfolio Management Strategies

Teaching Note on Convertible Bonds (pdf)

The Case for Convertibles

THE FINANCIAL PIPELINE BOND PAGE


Other stuff:

Probability distributions, trading strategies and leverage: an application of Gaussian mixture models A downloadable paper.

Honey, I Blew Up the Bank

March 07, 2008
Risk Management During Recent Financial Market Turbulence

ixus

From FTAlphaville: An interview with Richard Thaler, one of the founding fathers of behavioural economics (pdf form) and the co-author of “Nudge.” Worth watching.

ixus

itulip: Everyone is wrong, again – 1981 in Reverse Part I: The Great Divide – Eric Janszen

It’s October 1981, the year IBM launched personal computer, air traffic controllers went on strike and were fired by President Reagan, and Israeli jets destroyed a nuclear plant in Iraq. The annual inflation rate in September was over 12%, a 30 year Treasury bond carried a constant maturity rate of 14.68%, and the Effective Fed Funds Rate hit 15.5% as the Paul Volcker Fed stood on the brake pedal, determined to crash the economy to cut off multiple simultaneous inflation channels -- energy cost-push, supply shock, and the reckless monetary policy of the previous administration.

Thing is, no one believed it.