http://www.johnmauldin.com/frontlinethoughts/european-summit-a-plan-with-no-details
Let's Just Change the Rules
I've always had a soft spot for Bunker Hunt. Yes, I know, he was a voracious manipulator who tried (and did) corner the silver market back in 1980, but boys will be boys. Maybe it's a fellow-Texan thing. He went bankrupt because they changed the rules on him. Lesson for all of us: Never assumes the rules are what you think they are just because they are written down, if someone else can change them. You can only push so far and then the peasants revolt.
And that is the final thing that happened at the summit. The banks "voluntarily" took a 50% haircut. Voluntary in that Merkel, Sarkozy, et al. told them that the alternative was a 100% haircut. "That's the offer, guys. Take it or leave it." Cue the theme from The Godfather.
And because the write-off was voluntary, there would be no triggering of credit default swaps clauses. Because if it's voluntary it's not a default – capiche?
And that smooth move, dear reader, triggered a rather significant unintended consequence, which resulted in the market "melt-up." Let me see if I can walk you through this rather bizarre world of derivative exposure without exposing too much of my own ignorance.
Let's say you bought credit default swaps on a certain bank's debt (let's use JPMorgan, but it could be any bank) because you think that Morgan is exposed to too much credit default swap risk. Just in case. Now, if (say) Goldman sold you the CDS, they could and would in turn hedge their risk by shorting some quantity of Morgan stock, or perhaps if the risk was sizeable enough, the S&P as a whole. It would depend on what their risk models suggested.
But as of yesterday, the risk evaporated: there would be no CDS event. So why buy CDS? Time to cover. And then the shorts get covered.
Further, the risk to financials was cut by a large, somewhat murky amount. But it was definitely cut, so buy some risk assets. Which puts any long/short hedge fund in a squeeze, especially those with an anti-financial-sector bias. But because of the nature of the hedge, the whole market moves. It involves rather arcane concepts that traders call delta and gamma. (Remember that the recent rogue traders had been at delta trading desks?) Guys at those desks can calculate that risk in a nanosecond. You and I take a day just to wrap our head around the concepts.
And it just cascades. The high-frequency-trading algo computers notice the movement and jump in, followed quickly by momentum traders, and the market melts up. Because a significant risk was removed. But not without cost.
Let's go back to where I noted that Italian interest rates are rising even as the ECB is supposedly buying. What gives? It is clearly the lack of private buyers, and a lot of selling. Because now you can't hedge your sovereign debt. If you ever need that insurance, they will just change the rules on you, so why take the risk?
Destroying the credit default swap market will make it harder to sell sovereign debt, not easier. Those "shorts" were not the cause of Greek financial problems; the Greeks did it all to themselves. As did the Portuguese, and on and on. Now admittedly, rising CDS spreads called attention to the problem, much as rising rates did in eras long past. And that did annoy politicians. And clearly, banks that had exposure to that market got the "fix" in to make their problems go away.
(OK, this is just my conjecture; but I have speculated before – with reason – that a major writer of sovereign CDS were German Landesbanks. Think Merkel didn't have that report? As did Sarkozy, on French exposure? It was a very high-stakes poker game they were playing this week. But one side of the table could rewrite the rules.)
Now, I know I am greatly oversimplifying the CDS situation. Even so, a great deal of the volatility of recent times can be laid at the feet of the CDS market, because it is so opaque. There is no way to prove or disprove my speculations, because there is no source that can really plumb the true depths of the situation. And that is the problem.
I am not against CDS. We need more of them. But they should all be moved to a very transparent exchange. If I buy an S&P derivative (or gold or oil or orange juice), I know that my counterparty risk is the exchange. I don't have to hedge counterparty risk. The exchange tells whoever is on the other side of the trade that they need to put up more money, as the trade warrants. Or tells me if the trade goes against me.
The banks lobbied to keep CDS "over the counter." The commissions are huge that way. If they are on an exchange the commissions are small. This was a huge failure of Dodd-Frank. And we all pay for it in ways that no one really sees. As the Bastiat quote at the beginning said, there is what you see and what you don't see.
Equity markets are supposed to help companies raise capital for business purposes, not be casinos. Investors want to and should be able to buy and sell stocks with a long view to the future. And increasingly there is the feeling that this is not the case. When I talk to institutional investors and managers, it is clear that they are very frustrated.
I am not arguing against hedge funds here. There is a need for short sellers in a true market. But that selling should be transparent. In a regulated exchange, you can see the amount of short interest. Everyone knows the rules. But without an exchange, things happen for reasons that are not apparent. An event like the Eurozone summit changes an obscure rule with some vague clauses about triggering a credit event – and the market reacts. This time it was a melt-up. Next time it could be a meltdown, as it was in 2008.
CDS markets should be moved to an open regulated exchange. And while we are at it, high-frequency trading should be stemmed. This could be done easily by requiring all bids or offers to last for at least one second, instead of a few microseconds. You make the offer, you have to honor it for a whole second. What a concept. That would not hurt liquidity, but it would cut into the profits of the exchanges (especially the NYSE) – but I thought these were public markets and not the playground of the privileged few.
Sunday, October 30, 2011
Saturday, October 29, 2011
How to get a real education
http://online.wsj.com/article/SB10001424052748704101604576247143383496656.html
如何获得真正的教育？
SCOTT ADAMS
我明白为何美国顶尖的学生要去学习物理、化学、数学和古典文学。这群聪明的孩子将会是未来的教授、科学家、思想家和工程师，他们将推动人类文明向前。但我们为什么要让只能拿到等级B的学生也从头到尾和他们坐在同一个教室里呢？这就像试着训练你的猫为你报税——浪费时间和金钱。去教等级B的学生一些有用的技能岂不是更有意义，比如说创业？
技能组合。在创业课程的过程中，你第一件应当学到的事就是如何让你自己变得有价值。让任何一个普通的学生都能在某一个特定领域里发展出国际级水准的技能是不太可能的，但学着如何将几件不同的事情做的相当好还是比较容易的。
朝前失败。如果你去冒险，你可能应该这样，你就能发现你自己在90%的情况下都会失败。而诀窍在于，当你做失败时能有所收获，并用这种经验来获取对今后有用的技能。我在银行的第一份工作失败了，我在电话公司的第二份工作也失败了。但你会惊讶的是，我从这些工作生涯中学到了多少技能，这些技能能应用到几乎任何领域，包括漫画。学生们应该学会失败是一种过程，而不是一种阻碍。
采取行动。在我大学生活的最后一年，我询问我的导师，我应该如何去追求、实现自己成为一个银行家的目标。他告诉我去了解在银行业里哪里发生最新变革，就去哪里。于是我这样做了。银行业不适合我，但这个建议任然有用：去有活力刺激的地方。而距离是你的敌人。
吸引运气。你无法直接控制好运，但是你可以用一种让幸运更容易发现你的方式来管理你的事业。为了成功，首先你必须去做一些事情。而如果这些不起作用，这可能在90%的情况下都如此，再去做别的事情。幸运会找到实干家的。日报的读者们会发现这一点显而易见，而对十几岁的青少年并不明显。
战胜恐惧。我在学院选修了公开演讲课并在进入公司的期间又学了更多。这种训练对于学习如何在公共场合掩盖紧张有些许帮助。接着我参加了Dale Carnegie的课程。它改变了我的人生。Dale Carnegie的方法完全忽略了演讲的技巧，并训练你去享受对着一群人发表演讲的体验。一旦你在人群前变得放松，技巧自然就来了。多年以来，我已经给成百上千位听众做过演讲，并享受在台上的每一分钟。但这并不是在为Dale Carnegie做宣传。重点在于人们能够通过训练，用热情来代替恐惧和羞涩。每一位创业者都能用到这个技巧。
书写简洁。我参加过一个为期两天的商务写作课程，它教会我如何直截了当地写出句子并且去避免多余的词汇。简洁让想法更有力。想要例证吗？去读读Steve Jobs和Warren Buffett的东西。
学会说服。创业学的学生应该学会各种形式的说服艺术，包括心理学、销售、市场推广、谈判、统计、甚至设计。通常这些技巧散布横跨几门学科。对于创业者，将这些作为一个整体来学习是很有意义的。
这就是我的初始清单，能够很好的适合等级B的学生们的这类课程。这个清单并不全面。显然一个创业者也能从关于金融、管理以及更多的课程中受益。
记住，孩子是我们的未来，而他们中的大多数都是等级B的学生。如果这还没有让你惊觉，那你可能真该警醒下了。
—Mr. Adams ，"Dilbert."的创始者
如何获得真正的教育？
SCOTT ADAMS
我明白为何美国顶尖的学生要去学习物理、化学、数学和古典文学。这群聪明的孩子将会是未来的教授、科学家、思想家和工程师，他们将推动人类文明向前。但我们为什么要让只能拿到等级B的学生也从头到尾和他们坐在同一个教室里呢？这就像试着训练你的猫为你报税——浪费时间和金钱。去教等级B的学生一些有用的技能岂不是更有意义，比如说创业？
技能组合。在创业课程的过程中，你第一件应当学到的事就是如何让你自己变得有价值。让任何一个普通的学生都能在某一个特定领域里发展出国际级水准的技能是不太可能的，但学着如何将几件不同的事情做的相当好还是比较容易的。
朝前失败。如果你去冒险，你可能应该这样，你就能发现你自己在90%的情况下都会失败。而诀窍在于，当你做失败时能有所收获，并用这种经验来获取对今后有用的技能。我在银行的第一份工作失败了，我在电话公司的第二份工作也失败了。但你会惊讶的是，我从这些工作生涯中学到了多少技能，这些技能能应用到几乎任何领域，包括漫画。学生们应该学会失败是一种过程，而不是一种阻碍。
采取行动。在我大学生活的最后一年，我询问我的导师，我应该如何去追求、实现自己成为一个银行家的目标。他告诉我去了解在银行业里哪里发生最新变革，就去哪里。于是我这样做了。银行业不适合我，但这个建议任然有用：去有活力刺激的地方。而距离是你的敌人。
吸引运气。你无法直接控制好运，但是你可以用一种让幸运更容易发现你的方式来管理你的事业。为了成功，首先你必须去做一些事情。而如果这些不起作用，这可能在90%的情况下都如此，再去做别的事情。幸运会找到实干家的。日报的读者们会发现这一点显而易见，而对十几岁的青少年并不明显。
战胜恐惧。我在学院选修了公开演讲课并在进入公司的期间又学了更多。这种训练对于学习如何在公共场合掩盖紧张有些许帮助。接着我参加了Dale Carnegie的课程。它改变了我的人生。Dale Carnegie的方法完全忽略了演讲的技巧，并训练你去享受对着一群人发表演讲的体验。一旦你在人群前变得放松，技巧自然就来了。多年以来，我已经给成百上千位听众做过演讲，并享受在台上的每一分钟。但这并不是在为Dale Carnegie做宣传。重点在于人们能够通过训练，用热情来代替恐惧和羞涩。每一位创业者都能用到这个技巧。
书写简洁。我参加过一个为期两天的商务写作课程，它教会我如何直截了当地写出句子并且去避免多余的词汇。简洁让想法更有力。想要例证吗？去读读Steve Jobs和Warren Buffett的东西。
学会说服。创业学的学生应该学会各种形式的说服艺术，包括心理学、销售、市场推广、谈判、统计、甚至设计。通常这些技巧散布横跨几门学科。对于创业者，将这些作为一个整体来学习是很有意义的。
这就是我的初始清单，能够很好的适合等级B的学生们的这类课程。这个清单并不全面。显然一个创业者也能从关于金融、管理以及更多的课程中受益。
记住，孩子是我们的未来，而他们中的大多数都是等级B的学生。如果这还没有让你惊觉，那你可能真该警醒下了。
—Mr. Adams ，"Dilbert."的创始者
Saturday, October 15, 2011
Bankruptcies of governments have done less harm to mankind
"Bankruptcies of governments have, on the whole, done less harm to mankind than their ability to raise loans."
- R.H. Tawney, Religion and the Rise of Capitalism, 1926
- R.H. Tawney, Religion and the Rise of Capitalism, 1926
Monday, October 10, 2011
Too fat to fly
http://www.vanityfair.com/business/features/2011/11/michael-lewis-201111#gotopage6
The road out of Vallejo passes directly through the office of Dr. Peter Whybrow, a British neuroscientist at U.C.L.A. with a theory about American life. He thinks the dysfunction in America’s society is a by-product of America’s success. In academic papers and a popular book, American Mania, Whybrow argues, in effect, that human beings are neurologically ill-designed to be modern Americans. The human brain evolved over hundreds of thousands of years in an environment defined by scarcity. It was not designed, at least originally, for an environment of extreme abundance. “Human beings are wandering around with brains that are fabulously limited,” he says cheerfully. “We’ve got the core of the average lizard.” Wrapped around this reptilian core, he explains, is a mammalian layer (associated with maternal concern and social interaction), and around that is wrapped a third layer, which enables feats of memory and the capacity for abstract thought. “The only problem,” he says, “is our passions are still driven by the lizard core. We are set up to acquire as much as we can of things we perceive as scarce, particularly sex, safety, and food.” Even a person on a diet who sensibly avoids coming face-to-face with a piece of chocolate cake will find it hard to control himself if the chocolate cake somehow finds him. Every pastry chef in America understands this, and now neuroscience does, too. “When faced with abundance, the brain’s ancient reward pathways are difficult to suppress,” says Whybrow. “In that moment the value of eating the chocolate cake exceeds the value of the diet. We cannot think down the road when we are faced with the chocolate cake.”
The richest society the world has ever seen has grown rich by devising better and better ways to give people what they want. The effect on the brain of lots of instant gratification is something like the effect on the right hand of cutting off the left: the more the lizard core is used the more dominant it becomes. “What we’re doing is minimizing the use of the part of the brain that lizards don’t have,” says Whybrow. “We’ve created physiological dysfunction. We have lost the ability to self-regulate, at all levels of the society. The $5 million you get paid at Goldman Sachs if you do whatever they ask you to do—that is the chocolate cake upgraded.”
The succession of financial bubbles, and the amassing of personal and public debt, Whybrow views as simply an expression of the lizard-brained way of life. A color-coded map of American personal indebtedness could be laid on top of the Centers for Disease Control’s color-coded map that illustrates the fantastic rise in rates of obesity across the United States since 1985 without disturbing the general pattern. The boom in trading activity in individual stock portfolios; the spread of legalized gambling; the rise of drug and alcohol addiction—it is all of a piece. Everywhere you turn you see Americans sacrifice their long-term interests for short-term rewards.
What happens when a society loses its ability to self-regulate, and insists on sacrificing its long-term interest for short-term rewards? How does the story end? “We could regulate ourselves if we chose to think about it,” Whybrow says. “But it does not appear that is what we are going to do.” Apart from that remote possibility, Whybrow imagines two outcomes. The first he illustrates with a true story, which might be called the parable of the pheasant. Last spring, on sabbatical from the University of Oxford, he was surprised to discover that he was able to rent an apartment inside Blenheim Palace, the Churchill family home. The previous winter at Blenheim had been harsh, and the pheasant hunters had been efficient; as a result, just a single pheasant had survived in the palace gardens. This bird had gained total control of a newly seeded field. Its intake of food, normally regulated by its environment, was now entirely unregulated: it could eat all it wanted, and it did. The pheasant grew so large that, when other birds challenged it for seed, it would simply frighten them away. The fat pheasant became a tourist attraction and even acquired a name: Henry. “Henry was the biggest pheasant anyone had ever seen,” says Whybrow. “Even after he got fat, he just ate and ate.” It didn’t take long before Henry was obese. He could still eat as much as he wanted, but he could no longer fly. Then one day he was gone: a fox ate him.
The other possible outcome was only slightly more hopeful: to hit bottom. To realize what has happened to us—because we have no other choice. “If we refuse to regulate ourselves, the only regulators are our environment,” says Whybrow, “and the way that environment deprives us.” For meaningful change to occur, in other words, we need the environment to administer the necessary level of pain.
The road out of Vallejo passes directly through the office of Dr. Peter Whybrow, a British neuroscientist at U.C.L.A. with a theory about American life. He thinks the dysfunction in America’s society is a by-product of America’s success. In academic papers and a popular book, American Mania, Whybrow argues, in effect, that human beings are neurologically ill-designed to be modern Americans. The human brain evolved over hundreds of thousands of years in an environment defined by scarcity. It was not designed, at least originally, for an environment of extreme abundance. “Human beings are wandering around with brains that are fabulously limited,” he says cheerfully. “We’ve got the core of the average lizard.” Wrapped around this reptilian core, he explains, is a mammalian layer (associated with maternal concern and social interaction), and around that is wrapped a third layer, which enables feats of memory and the capacity for abstract thought. “The only problem,” he says, “is our passions are still driven by the lizard core. We are set up to acquire as much as we can of things we perceive as scarce, particularly sex, safety, and food.” Even a person on a diet who sensibly avoids coming face-to-face with a piece of chocolate cake will find it hard to control himself if the chocolate cake somehow finds him. Every pastry chef in America understands this, and now neuroscience does, too. “When faced with abundance, the brain’s ancient reward pathways are difficult to suppress,” says Whybrow. “In that moment the value of eating the chocolate cake exceeds the value of the diet. We cannot think down the road when we are faced with the chocolate cake.”
The richest society the world has ever seen has grown rich by devising better and better ways to give people what they want. The effect on the brain of lots of instant gratification is something like the effect on the right hand of cutting off the left: the more the lizard core is used the more dominant it becomes. “What we’re doing is minimizing the use of the part of the brain that lizards don’t have,” says Whybrow. “We’ve created physiological dysfunction. We have lost the ability to self-regulate, at all levels of the society. The $5 million you get paid at Goldman Sachs if you do whatever they ask you to do—that is the chocolate cake upgraded.”
The succession of financial bubbles, and the amassing of personal and public debt, Whybrow views as simply an expression of the lizard-brained way of life. A color-coded map of American personal indebtedness could be laid on top of the Centers for Disease Control’s color-coded map that illustrates the fantastic rise in rates of obesity across the United States since 1985 without disturbing the general pattern. The boom in trading activity in individual stock portfolios; the spread of legalized gambling; the rise of drug and alcohol addiction—it is all of a piece. Everywhere you turn you see Americans sacrifice their long-term interests for short-term rewards.
What happens when a society loses its ability to self-regulate, and insists on sacrificing its long-term interest for short-term rewards? How does the story end? “We could regulate ourselves if we chose to think about it,” Whybrow says. “But it does not appear that is what we are going to do.” Apart from that remote possibility, Whybrow imagines two outcomes. The first he illustrates with a true story, which might be called the parable of the pheasant. Last spring, on sabbatical from the University of Oxford, he was surprised to discover that he was able to rent an apartment inside Blenheim Palace, the Churchill family home. The previous winter at Blenheim had been harsh, and the pheasant hunters had been efficient; as a result, just a single pheasant had survived in the palace gardens. This bird had gained total control of a newly seeded field. Its intake of food, normally regulated by its environment, was now entirely unregulated: it could eat all it wanted, and it did. The pheasant grew so large that, when other birds challenged it for seed, it would simply frighten them away. The fat pheasant became a tourist attraction and even acquired a name: Henry. “Henry was the biggest pheasant anyone had ever seen,” says Whybrow. “Even after he got fat, he just ate and ate.” It didn’t take long before Henry was obese. He could still eat as much as he wanted, but he could no longer fly. Then one day he was gone: a fox ate him.
The other possible outcome was only slightly more hopeful: to hit bottom. To realize what has happened to us—because we have no other choice. “If we refuse to regulate ourselves, the only regulators are our environment,” says Whybrow, “and the way that environment deprives us.” For meaningful change to occur, in other words, we need the environment to administer the necessary level of pain.
Thursday, October 6, 2011
Sunday, October 2, 2011
Everybody is a genius
“Everybody is a genius. But, if you judge a fish by its ability to climb a tree, it will spend its whole life believing that it is stupid.” ~Albert Einstein
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