youth is a blunder, middle-age a struggle and old-age a regret.—Benjamin Disraeli


Gold Inverse ETN DGZ
Gold Double inverse ETN DZZ
Gold Double Upside ETN DGP

‘A Huge Amount of Financial Folly’ – WSJ.com

I should mention that people who expect to earn 10% annually from equities during this century—envisioning that 2% of that will come from dividends and 8% from price appreciation—are implicitly forecasting a level of about 24,000,000 on the Dow by 2100. If your adviser talks to you about doubledigit returns from equities, explain this math to him—not that it will faze him. Many helpers are apparently direct descendants of the queen in Alice in Wonderland, who said: “Why, sometimes I’ve believed as many as six impossible things before breakfast.” Beware the glib helper who fills your head with fantasies while he fills his pockets with fees.

We paid the IRS tax of $1.2 billion on our PetroChina gain. This sum
paid all costs of the U.S. government—defense, social security, you
name it—for about four hours.

The best anecdote I’ve heard during the current presidential campaign
came from Mitt Romney, who asked his wife, Ann, “When we were young,
did you ever in your wildest dreams think I might be president?” To
which she replied, “Honey, you weren’t in my wildest dreams.”

Origami Mathematics: Via Robert Lang

The Economic Value of Teeth

This Time is Different: A Panoramic View of Eight Centuries of Financial Crises

The Aleph Blog » Blog Archive » Another Dozen Notes on Our Manic-Depressive Credit Markets

Capitalism is good, but Capitalists often abuse it. Short-sighted
capitalists play for short-term advantage, and end up burning up
relationships. Longer-term capitalists play fair, because they not
only want deal one, but deals two, three, four, etc. They play fair
because they will do better in the long run, even if they are
intelligent…...

Economics isn’t everything. Smart businessmen know that a good
reputation is golden. They also know that happy employees are more
productive. Suppliers that get paid on time are more loyal. These are
the benefits of ethical, long-run thinking.

Grasping Reality with Both Hands: Economist Brad DeLong’s Fair, Balanced, and Reality-Based Semi-Daily Journal

During much of the 2000s, the housing boom was generated by six factors:

1. Interest rates artificially pushed down by the Federal Reserve to try to rotate from high-tech to construction as a leading sector, and so avoid a recession.
2. Closely related, interest rates artificially pushed down by the Federal Reserve to try to stem incipient deflation, and so avoid a depression.
3. Lower spreads than in the past on long-term mortgages out of confidence that the Fed does have and will keep inflation licked.
4. The filling-up of America so that you can no longer build a detached single-family house within half-an-hour’s driving time of the interesting places people want to be, and the consequent rise both in current location premia and expected future location premia.
5. Interest rates artificially pushed down by foreigners seeking political risk insurance—both private (i.e., get your money into a Citigroup account certain to be safe) and public (i.e., keeping the renminbi low and U.S. imports high in order to avoid unemployment in the streets of Shanghai.
6. A speculative housing bubble leading to a crash.

The Organization Kid

Are we heading for a credit crunch?

Penn put to sword Economist.com

The irony of American politics: Hardline Democrats support free movement of labor (immigration) but not free movement of capital (free trade). Hardline Republicans support free movement of capital (free trade) but not free movement of labor (immigration).

The Z-List is the New A-List in Harvard:

A Splendid Exchange: How Trade Shaped the World by Bernstein.

Moody’s – Credit Rating

The real problem is that the agencies mathematical formulas look backward while life is lived forward. That is unlikely to change.

There are significant limits to what regulation can accomplish. As a dramatic illustration, take two of the biggest accounting disasters in the past ten years: Freddie Mac and Fannie Mae. We’re talking billions and billions of dollars of misstatements at both places.
Now, these are two incredibly important institutions. I mean, they accounted for over 40% of the mortgage flow a few years back. Right now I think they’re up to 70%. They’re quasi-governmental in nature. So the government set up an organization called OFHEO. I’m not sure what all the letters stand for. But if you go to OFHEO’s website, you’ll find that its purpose was to just watch over these two companies. OFHEO had 200 employees. Their job was simply to look at two companies and say, “Are these guys behaving like they’re supposed to?” And of course what happened were two of the greatest accounting misstatements in history while these 200 people had their jobs. It’s incredible. I mean, two for two!

It’s very, very, very hard to regulate people. – Warren Buffett

The Problem of Social Cost by Nobel Laureate Ronald Coase

Reason Magazine – Looking For Results

The pollution problem is always seen as someone who was doing something bad that has to be stopped. To me, pollution is doing something bad and good. People don’t pollute because they like polluting. They do it because it’s a cheaper way of producing something else. The cheaper way of producing something else is the good; the loss in value that you get from the pollution is the bad. You’ve got to compare the two. That’s the way to look at it. It isn’t the way that people today look at it. They think zero pollution is the best situation.

Overcoming Bias: My Favorite Liar

“Now I know some of you have already heard of me, but for the benefit of those who are unfamiliar, let me explain how I teach. Between today until the class right before finals, it is my intention to work into each of my lectures … one lie. Your job, as students, among other things, is to try and catch me in the Lie of the Day.” And thus began our ten-week course.

Interview with Marc Faber on CNBC:

Minds of moderate calibre ordinarily condemn everything which is beyond their range.”
- Duc de La Rochefoucauld.

Citigroup stock fell below book value yesterday. I own more than 100 LEAPS for 2010. See you in 2011 in Bahamas. Thank you!

Asset Class Returns in 2008

Buffett’s letters to shareholders

Only four things really count when making an investment – “a business you understand, favourable long-term economics, able and trustworthy management, and a sensible price tag”. That’s investment, everything else is speculation.

Businesses are run by people and the best people are not necessarily the ones with the flashiest CVs. Buffett singles out Susan Jacques, chief executive of his jewellery retailer Borsheims. “Susan came to Borsheims 25 years ago as a $4-an-hour saleswoman. She’s smart, she loves the business and she loves her associates. That beats having an MBA degree any time.”

Via Ben Sargant

Fund-management skill is becoming rather like the 19th-century concept of a “God of the gaps”. Once humans attributed the weather or earthquakes to divine intervention; then they discovered high-pressure systems and plate tectonics. The number of events that required a heavenly explanation (the gaps) grew ever smaller.

Skill, or alpha, is fast becoming a residual: the explanation that remains when all other factors have been discounted. That is not yet a crisis for the industry, mainly because it is still so hard for clients to distinguish skill from luck. But for any thoughtful fund-management executive, it ought to be a long-term worry.

Via Bespoke Investment Group: Philly Fed Turns Negative

In the view of most voters, Sisyphus was lucky. Sure, his task of pushing a boulder up a hill every day wasn’t particularly productive, and it must have been frustrating to watch it roll down again after manhandling it to the summit. But at least he had work. This is the make-work bias – the idea that having a job
is more important than creating value effi ciently. When asked about higher productivity
in the abstract, voters are generally supportive. When asked about policies that “create
jobs,” however, voter concerns about productivity go out the window. Economists, on
the other hand, have known for a long time that productivity is good, even if it leads
to (temporary) unemployment. Technology, which is the main engine of productivity,
also creates jobs – different ones. In 1800, nearly 95 of every 100 Americans worked to
provide food for the country. Today, only three out of every 100 labor to produce food.
What are those other 97 Americans doing? Other jobs.

After Harrison Ford’s first performance as a hotel bellhop in the film Dead Heat on a Merry-Go-Round, the studio vice-president called him in to his office. “Sit down kid,” the studio head said, “I want to tell you a story. The first time Tony Curtis was ever in a movie he delivered a bag of groceries. We took one look at him and knew he was a movie star.” Ford replied, “I thought you were spossed to think that he was a grocery delivery boy.” The vice president dismissed Ford with “You ain’t got it kid , you ain’t got it … now get out of here.”

In Time of Tumult, Obscure Economist Gains Currency – WSJ.com

“Guinea pigs of the world unite. We have nothing to lose but our shirts,” – Minsky.

FT.com: Bring out the dart-wielding monkey

....sell-side stock analysts, who spend 50-80 hours a week on research and presumably have loads of information at their fingertips, are no better than a monkey with a dart at predicting a company’s five-year earnings growth rate. In fact, they are actually worse than a monkey with a dart because they tend to project the recent past into the distant future, rather than assuming growth will revert to the mean. If the analysts’ projections were simply random, the results may have been closer to reality

Darwin got the idea from Malthus ?

Malthus’s book is well known because it gave Darwin the idea of natural selection. Reading of the struggle for existence that Malthus predicted, Darwin wrote in his autobiography, “It at once struck me that under these circumstances favourable variations would tend to be preserved, and unfavourable ones to be destroyed. ... Here then I had at last got a theory by which to work.”

Everyone forgot the old lesson in Economics: Moral hazard: Here is a true-life example.

A good example of moral hazard is a nuclear power station built by former Philippine president Marcos that was constructed on an earthquake fault line in the province of Bataan in the Philippines. EXIM, a U.S. government backed Export Credit Agency, began negotiations with the Filipino government about a nuclear power plant that would be built by Westinghouse. Westinghouse won the contract by bidding $500 million. EXIM guaranteed the loan, ensuring that no matter the result, Westinghouse would be paid, removing any risk for Westinghouse. The actual project cost was $2.3 billion. Westinghouse was paid even though the plant could never go on-line as it was built on an earthquake fault line. Marcos, a known dictator, received $80 million commission from Westinghouse on the plant that he authorized, but did not pay for. The Filipino people pay this debt at a rate of $170,000 a day in interest and will continue to do so until 2018, even though they have not received even a single watt of energy. This project alone accounts for more than 5% of the country’s total debt

If you are going to swim in the shark tank, you’ve got to know where ALL the sharks are.

Information Arbitrage: Pricing Risk: Taking it all Into Account, and No Tears, Please

.....Alpha mag has a nifty little function that allows you to see the mean, median and range of base salary and bonus by firm type and job title.

So a junior portfolio manager has a mean salary of $152,744 plus a $492,819 bonus. A senior trader’s salary comes in at $182,019 with a $431,275 to boot.

A lowly junior analyst has a mean salary of $103,852 – but before we start feeling sorry for the poor mite, his bonus boosts that by an average $168,740, to reach a grand total for last year of $266,171.

Delving deeper, we can cut this by region, firm size and by years of experience. Base salaries in the US and UK for analysts are pretty similar at this level, coming in at an average $111,365 and $108,750. But the London-residents do better at bonus time – getting their hands on around $225,000 compared to their average counterpart stateside who has to make do with $175,734.

The Alpha Hedge Fund Compensation Report

From the movie ‘Trainspotting’:

“Choose life. Choose a job. Choose a career. Choose a family. Choose a fucking big television, Choose washing machines, cars, compact disc players, and electrical tin openers. Choose good health, low cholesterol and dental insurance. Choose fixed- interest mortgage repayments. Choose a starter home. Choose your friends. Choose leisure wear and matching luggage. Choose a three piece suite on hire purchase in a range of fucking fabrics. Choose DIY and wondering who you are on a Sunday morning. Choose sitting on that couch watching mind-numbing spirit- crushing game shows, stuffing fucking junk food into your mouth. Choose rotting away at the end of it all, pishing your last in a miserable home, nothing more than an embarrassment to the selfish, fucked-up brats you have spawned to replace yourself. Choose your future. Choose life… But why would I want to do a thing like that?”

Trainspotting (1996) – IMDb user comments