Showing posts with label Finance. Show all posts
Showing posts with label Finance. Show all posts
Thursday, April 15, 2010
Monday, December 28, 2009
Come Fly With Me
More than penicillin, more than the atomic bomb, derivatives...the most marvellous invention of the 20th century...or so it seems.
Wednesday, October 28, 2009
A trader is like...
A trader is like a rodeo rider. The market gets violent and shakes everyone but the most determined and convicted trader off its back.
A trader is like a surfer. He analyses wind conditions and tide levels and catches the waves just as they are about to form.
A trader is like a midnight clubber. The booze is on, the music is playing, there are hundreds of people dancing, but everybody has his eye on the exit door.
A trader is like a hunter. He waits in stealth, locks in on his target, goes for the kill, and gets out fast. He lives by the motto "one shot, one kill".
A trader is like a coin-picker. The coins are littered all over the road. They seem easy pickings but a bulldozer is parked right there.
A trader is like a poker player. The market always acts like it has a hand. He either plays along with it or calls a bluff. And he has a trump card--stay out.
A trader is like a trench soldier. 90% sheer boredom, and 10% sheer terror.
A trader is like a daredevil. He makes his judgment of the braking distance, and stands in front of the locomotive train. Get it right, and he lives, but only if he gets it right.
A trader is like a doctor. He monitors the pulse of the market with the EEG, and when the market goes into cardiac arrest, he performs elaborate maneuvers to rescue the health of his portfolio--calmly.
A trader is like an alchemist. He transmutes what is essentially trading noise into the most precious resource of all--gold.
A trader is like a surfer. He analyses wind conditions and tide levels and catches the waves just as they are about to form.
A trader is like a midnight clubber. The booze is on, the music is playing, there are hundreds of people dancing, but everybody has his eye on the exit door.
A trader is like a hunter. He waits in stealth, locks in on his target, goes for the kill, and gets out fast. He lives by the motto "one shot, one kill".
A trader is like a coin-picker. The coins are littered all over the road. They seem easy pickings but a bulldozer is parked right there.
A trader is like a poker player. The market always acts like it has a hand. He either plays along with it or calls a bluff. And he has a trump card--stay out.
A trader is like a trench soldier. 90% sheer boredom, and 10% sheer terror.
A trader is like a daredevil. He makes his judgment of the braking distance, and stands in front of the locomotive train. Get it right, and he lives, but only if he gets it right.
A trader is like a doctor. He monitors the pulse of the market with the EEG, and when the market goes into cardiac arrest, he performs elaborate maneuvers to rescue the health of his portfolio--calmly.
A trader is like an alchemist. He transmutes what is essentially trading noise into the most precious resource of all--gold.
Thursday, October 22, 2009
On Mr Market
I used to think Mr Market was some kind of omnipotent masters of the universe, and we are mere slave to his whims and fancy. But as long as we fear him accordingly and give him the due respect, we would be shown mercy. The streets are littered with the bodies--hang, drawn and quartered no less-- of those who have been victims to his occasional but unspeakable wrath. They serve as stark warnings to the survivors.
But Mr Market is an elusive one. Nobody knows who he is, or has even looked him in the eye before. Some claim to be able to communicate with him through tongues. We call these people chartists. Those who are unable to comprehend these strange languages resort to vague ideas of superstition. So superstitious was I about Mr Market that I worship him in my mind, and refused to even mutter anything that would be construed as disrespect to Mr Market, much like how people do not speak ill of the dead, or of deities. A book I read warned just that, that we shouldn't speak of "fighting the market", for it will hit back, and hit hard. You should think of Mr Market in more benevolent terms, as a figure who will conspire to fulfill your wishes so long as you go with the flow. It's more Zen than biblical.
But now I know better. Mr Market is just indifferent. You can say anything you want, you can do anything you want. It doesn't matter. You can bet against the Black Swans all your life and retire rich. Others blow up even before they start. Go ahead, be so mighty impudent once in a while and remove your stop-losses just before it hits. Don't worry. Nobody is going to come up to you with some sort of a probability bill to pay afterwards, and certainly not Mr Market. He is just a psychological construct. He is just like God.
But Mr Market is an elusive one. Nobody knows who he is, or has even looked him in the eye before. Some claim to be able to communicate with him through tongues. We call these people chartists. Those who are unable to comprehend these strange languages resort to vague ideas of superstition. So superstitious was I about Mr Market that I worship him in my mind, and refused to even mutter anything that would be construed as disrespect to Mr Market, much like how people do not speak ill of the dead, or of deities. A book I read warned just that, that we shouldn't speak of "fighting the market", for it will hit back, and hit hard. You should think of Mr Market in more benevolent terms, as a figure who will conspire to fulfill your wishes so long as you go with the flow. It's more Zen than biblical.
But now I know better. Mr Market is just indifferent. You can say anything you want, you can do anything you want. It doesn't matter. You can bet against the Black Swans all your life and retire rich. Others blow up even before they start. Go ahead, be so mighty impudent once in a while and remove your stop-losses just before it hits. Don't worry. Nobody is going to come up to you with some sort of a probability bill to pay afterwards, and certainly not Mr Market. He is just a psychological construct. He is just like God.
Tuesday, January 13, 2009
Awakenings from a false dawn
At the start of the year, investors, fresh from the festivities, continued where they left off in the so-called year-end rally, and started bidding stocks higher. That helped the stock market rebound more than 25% from its November 21 2008 low. With more money in debt and money markets than equity markets for the first time since World War II, a rally could be spectacularly explosive. Looking at all the positive market indicators--rising oil prices, higher volume, rising indexes--there was a real sense of anxiety that the worst may be over. It may not sound right, that you actually wish for the worst to befall others. But it's just greed. It's just business.
The thing is, if we are on the road to recovery, in the sense that the worst quarter for the world economy was the 4Q 2008, which isn't saying much actually because it was extremely bad (or so we are led to believe), then we should see a bottoming out of stock prices anytime now, because conventional wisdom has the stock market as a 6 month leading indicator of economic health.
Indicators are misleading. They pretend to tell you a lot, but actually they don't. (Which is good actually, because you don't want the stock market to flash green lights for all to see so everyone can see its time to buy. Then you'll always be too late.) Oil prices have since rebounded from the rock bottom of $35, briefly touching $50 due to the Gaza wars, and the Baltic indexes have corrected by quite a bit too.
But any talks of a sustained rally is, at best, premature. The anticipated rally from the Obama presidential inauguration on Jan 20 2009 is not materialising. Instead investors are bracing themselves for what could be a worse-than-expected 4Q corporate earnings. In the space of 1 trading session (Jan 12 2009), financials are surrendering their gains since their November 21 low, and are threatening to breach that low all over again. Like a patient in ICU, a "stable but critical condition" has now suddenly--as usual--"taken a turn for the worse."
The depressed market trading conditions is suggesting that the year-end rally is beginning to take shape as just another bear rally in the grand scheme of a severe downturn. The dead cat has bounced? As an aside, the phrase comes from traders, whose morbid imaginations conjure up images of cats which had fallen from considerable heights and died under the circumstances, would nonetheless still bounce upon impact. That's what gloomy stock markets make you think about. You think about death.
Russell Napier, in trying to answer the million-dollar question, turned to history and examined 4 periods of extreme market undervaluations in 1921, 1932, 1949 and 1982, and found common themes, summarised here by FT's Tony Jackson, "Typically, the bottom was immediately preceded by a turn in commodities (copper especially), auto sales, corporate inventories and corporate bonds. Good news was, meanwhile, ignored by investors."
If we work through the list item by item, it seems that most of the conditions for a market bottom has been satisfied, especially with regards to commodity prices like copper which gained back some 20% since December, and oil, which rebounded from its low of $33.87 (Brent North Sea crude) in December 21 2008, to around $50 a barrel. US auto car sales may seem to be headed down, but once adjusted on an "annualised basis", they are actually not doing too bad. There is a palpable thaw in the credit market frozen over in the mayhem after the Lehman collapse. Bond yields have fallen and companies are issuing rights again.
But the conditions are scarcely enough. Dangling off the last of the list is an ominous remark about how "good news was ignored". It reflected the sentiments of those historic bears when markets were so bad that investors, apathetic to all sorts of news, have all but given up on the stock market.
It is clearly not the case now. Any reports of earnings that were less severe than expected would have the shares spiking straight up. Debenhams reported less severe than expected 4Q results and prompted a 20% rise in its stocks. When the BoE announced interest rate cuts to 1.5%, pushing the pound up(I am not sure why at this moment), the shares of British banks like Lloyds, Barclays and RBS rebounded very strongly in the space of a few sessions. Anticipating a massive auto bailout, investors bidded up the price of Ford from $1.50 to $3.50. Not good.
The thing is, if we are in the midst of a horrible bear market destined for an entry in the history books, and not just one of those barely mentionable cyclical downturns --technically the 2001 recession could be seen as one of "barely mentionables"-- then the bear market has further to go.
It sounds counter-intuitive, but analyst Jim Sibbet, paraphrasing Dow theorist Robert Rhea, explains that bear rallies and false dawns are mainly the effects of pockets of misplaced optimism investors still harbour about the economy, and when the true extent of the economic devastation is slowly revealed to us, piece by piece, the optimism will slowly be weeded out. That is when the market slides to its uncomfortable destiny with a truly unimaginable rock bottom, that is when the market has lost all hopes of recovery, that is when lights have been switched off at the end of tunnel, that is when everybody's mind is made up, and there is no way to go but up. And that is also that elusive bottom, the financial El-Dorado that everyone's been dreaming about. To go to heaven, you must first go through hell.
More ominously, there are some economists who think that we are actually having a continuation of a major bear market that began at the start of 2000. The underlying economic structures did not have a chance to fully recover before cheap credit papered over the cracks and ushered in a short-lived era of housing booms and false prosperity. If the fundamentals are severely damaged, it may take much longer for recovery to happen. I don't know why some like to quote from their CFA textbooks that a recession last for at most 1 year. The people who lived through the Great Depression never saw prosperity in their lifetime. Closer to our times, the Japanese endured a decade of zero economic growth. And we--the people of my generation--may become what others speak of in hushed tones, the lost generation.
The thing is, if we are on the road to recovery, in the sense that the worst quarter for the world economy was the 4Q 2008, which isn't saying much actually because it was extremely bad (or so we are led to believe), then we should see a bottoming out of stock prices anytime now, because conventional wisdom has the stock market as a 6 month leading indicator of economic health.
Indicators are misleading. They pretend to tell you a lot, but actually they don't. (Which is good actually, because you don't want the stock market to flash green lights for all to see so everyone can see its time to buy. Then you'll always be too late.) Oil prices have since rebounded from the rock bottom of $35, briefly touching $50 due to the Gaza wars, and the Baltic indexes have corrected by quite a bit too.
But any talks of a sustained rally is, at best, premature. The anticipated rally from the Obama presidential inauguration on Jan 20 2009 is not materialising. Instead investors are bracing themselves for what could be a worse-than-expected 4Q corporate earnings. In the space of 1 trading session (Jan 12 2009), financials are surrendering their gains since their November 21 low, and are threatening to breach that low all over again. Like a patient in ICU, a "stable but critical condition" has now suddenly--as usual--"taken a turn for the worse."
The depressed market trading conditions is suggesting that the year-end rally is beginning to take shape as just another bear rally in the grand scheme of a severe downturn. The dead cat has bounced? As an aside, the phrase comes from traders, whose morbid imaginations conjure up images of cats which had fallen from considerable heights and died under the circumstances, would nonetheless still bounce upon impact. That's what gloomy stock markets make you think about. You think about death.
Russell Napier, in trying to answer the million-dollar question, turned to history and examined 4 periods of extreme market undervaluations in 1921, 1932, 1949 and 1982, and found common themes, summarised here by FT's Tony Jackson, "Typically, the bottom was immediately preceded by a turn in commodities (copper especially), auto sales, corporate inventories and corporate bonds. Good news was, meanwhile, ignored by investors."
If we work through the list item by item, it seems that most of the conditions for a market bottom has been satisfied, especially with regards to commodity prices like copper which gained back some 20% since December, and oil, which rebounded from its low of $33.87 (Brent North Sea crude) in December 21 2008, to around $50 a barrel. US auto car sales may seem to be headed down, but once adjusted on an "annualised basis", they are actually not doing too bad. There is a palpable thaw in the credit market frozen over in the mayhem after the Lehman collapse. Bond yields have fallen and companies are issuing rights again.
But the conditions are scarcely enough. Dangling off the last of the list is an ominous remark about how "good news was ignored". It reflected the sentiments of those historic bears when markets were so bad that investors, apathetic to all sorts of news, have all but given up on the stock market.
It is clearly not the case now. Any reports of earnings that were less severe than expected would have the shares spiking straight up. Debenhams reported less severe than expected 4Q results and prompted a 20% rise in its stocks. When the BoE announced interest rate cuts to 1.5%, pushing the pound up(I am not sure why at this moment), the shares of British banks like Lloyds, Barclays and RBS rebounded very strongly in the space of a few sessions. Anticipating a massive auto bailout, investors bidded up the price of Ford from $1.50 to $3.50. Not good.
The thing is, if we are in the midst of a horrible bear market destined for an entry in the history books, and not just one of those barely mentionable cyclical downturns --technically the 2001 recession could be seen as one of "barely mentionables"-- then the bear market has further to go.
It sounds counter-intuitive, but analyst Jim Sibbet, paraphrasing Dow theorist Robert Rhea, explains that bear rallies and false dawns are mainly the effects of pockets of misplaced optimism investors still harbour about the economy, and when the true extent of the economic devastation is slowly revealed to us, piece by piece, the optimism will slowly be weeded out. That is when the market slides to its uncomfortable destiny with a truly unimaginable rock bottom, that is when the market has lost all hopes of recovery, that is when lights have been switched off at the end of tunnel, that is when everybody's mind is made up, and there is no way to go but up. And that is also that elusive bottom, the financial El-Dorado that everyone's been dreaming about. To go to heaven, you must first go through hell.
More ominously, there are some economists who think that we are actually having a continuation of a major bear market that began at the start of 2000. The underlying economic structures did not have a chance to fully recover before cheap credit papered over the cracks and ushered in a short-lived era of housing booms and false prosperity. If the fundamentals are severely damaged, it may take much longer for recovery to happen. I don't know why some like to quote from their CFA textbooks that a recession last for at most 1 year. The people who lived through the Great Depression never saw prosperity in their lifetime. Closer to our times, the Japanese endured a decade of zero economic growth. And we--the people of my generation--may become what others speak of in hushed tones, the lost generation.
Friday, December 12, 2008
Bernstein on hesitation
I have always liked Peter Bernstein, one of those Wall Street gurus whose names you can always find plastered in any finance bookshelves. Somehow he seems different from all the rest who practically scream, "LOOK AT ME! I AM RICHIE RICH!" while jamming their books with bland MBA-lingos exhorting you to worship themselves above all else. Probably through his eloquent writings, his reverence towards history and his sensitivities towards the arts and literature, Bernstein has managed to distance himself from the MBA pack.
And this is what he had to say about hesitation in the face of uncertainty. Common knowledge has it that "he who hesitates is lost". Going on to quote Hamlet "the native hue of resolution is sicklied o'ver with the pale cast of thought, and enterprises of great pith and moment lose the name of action.", he went on to debunk the consensus:
My trigger-happy fingers have caused me much grief in the *past.I need to get this drummed into my head.
*(only last night) I had been trying to get into BAC, but I knew the market was very choppy. The ticker was bouncing between 16 and 16.2 for a few hours. Hindsight and common sense is to stay away tonight, but at that moment, when it rose, I was filled with dread that it would run away, and when it fell, I was filled with anticipation to buy. And when it went down to 16 again, I just had to buy at 16, all because I thought I had stayed up all night, and I deserved some action. Almost immediately after the order was filled, it plunged drastically down, closing at 14.9 for the day. The instantaneous reaction from the market was surreal, almost as if some higher being out there was observing you with glee. That sickness in the stomach, familiar eh?
And this is what he had to say about hesitation in the face of uncertainty. Common knowledge has it that "he who hesitates is lost". Going on to quote Hamlet "the native hue of resolution is sicklied o'ver with the pale cast of thought, and enterprises of great pith and moment lose the name of action.", he went on to debunk the consensus:
Yet once we act, we forfeit the option of waiting until new information comes along. As a result, not acting has value. The more uncertain the outcome, the greater may be the value of procrastination. Hamlet had it wrong. He who hesitates is halfway home.
My trigger-happy fingers have caused me much grief in the *past.I need to get this drummed into my head.
*(only last night) I had been trying to get into BAC, but I knew the market was very choppy. The ticker was bouncing between 16 and 16.2 for a few hours. Hindsight and common sense is to stay away tonight, but at that moment, when it rose, I was filled with dread that it would run away, and when it fell, I was filled with anticipation to buy. And when it went down to 16 again, I just had to buy at 16, all because I thought I had stayed up all night, and I deserved some action. Almost immediately after the order was filled, it plunged drastically down, closing at 14.9 for the day. The instantaneous reaction from the market was surreal, almost as if some higher being out there was observing you with glee. That sickness in the stomach, familiar eh?
Thursday, December 04, 2008
Trading tips for NYSE
a list i mentally compiled to myself along the way...
1. If you find yourself 15% up in a day, you can also be 15% down tomorrow. It's called volatility. Liquidate.
2. Do not trade pre-market. Do not trade in the 1st 15min. Have a feel for general sentiment of the day before committing.
3. Asia lags US. Do not use Asian markets to predict US movements. Not even for identical company stocks listed across different exchanges.
4. Do not worry if a trading strategy is sound. If enough people use it, it is sound. E.g. moving averages technical analysis. Just use it as another indicator.
5. Do not be worried about low volume declines.
6. US stocks can be very volatile. Be careful with the stop-loss. If you do not have a stop-loss, justify it. If you have a stop-loss, justify it too. Move on.
7. In general (only for buy), do not queue for stocks at a price a few notches lower than market price. It's completely pointless. If it decides to fall, it will fall through your queue price, and you are wasting time and effort monitoring the stock. Better to have your button on market order once the price stabilises.
8. Try to time the market if you can. Some days you get it right, some days you get it wrong. Plain wrong. Do not over-obsess over the difference of a few ticks. Feel you could have bought at US$0.20 lower? Yea it sucks. Learn from your mistakes and compile a list of WHAT-NOT-TO-DO, like this one.
Now for a real test of my mettle. To the frontline...
2:00am Las Vegas Sands Corp. LVS 5.39 +0.75 (16.16%)
LVS is up 16% in a day. According to Rule No 1, I should sell. Should I?
2:08am Las Vegas Sands Corp. LVS 5.27 +0.63 (13.58%)
Indecision...din sell.
2:15am Las Vegas Sands Corp. LVS 5.09 +0.45 (9.70%)
Ok. The ship has sailed. Queueing to sell at 5.40. Goodnight.
2:20am Las Vegas Sands Corp. LVS 5.04 +0.40 (8.62%)
That's what i get for NOT following my own rules!!!
3:00am Las Vegas Sands Corp. LVS 4.87 +0.23 (4.96%)
*nothing to say*
3:13am Las Vegas Sands Corp. LVS 5.25 +0.61 (13.15%)
Beautiful play of geometric brownian motion here.
3:35am Las Vegas Sands Corp. LVS 5.41 +0.77 (16.59%)
SOLD!
4:09am Las Vegas Sands Corp. LVS 5.03 +0.39 (8.41%)
a foolish game of randomness, but seriously addictive...it's bouncing up and down like a yo-yo, almost predictably, dare i say?
must...get...some...sleep...
1. If you find yourself 15% up in a day, you can also be 15% down tomorrow. It's called volatility. Liquidate.
2. Do not trade pre-market. Do not trade in the 1st 15min. Have a feel for general sentiment of the day before committing.
3. Asia lags US. Do not use Asian markets to predict US movements. Not even for identical company stocks listed across different exchanges.
4. Do not worry if a trading strategy is sound. If enough people use it, it is sound. E.g. moving averages technical analysis. Just use it as another indicator.
5. Do not be worried about low volume declines.
6. US stocks can be very volatile. Be careful with the stop-loss. If you do not have a stop-loss, justify it. If you have a stop-loss, justify it too. Move on.
7. In general (only for buy), do not queue for stocks at a price a few notches lower than market price. It's completely pointless. If it decides to fall, it will fall through your queue price, and you are wasting time and effort monitoring the stock. Better to have your button on market order once the price stabilises.
8. Try to time the market if you can. Some days you get it right, some days you get it wrong. Plain wrong. Do not over-obsess over the difference of a few ticks. Feel you could have bought at US$0.20 lower? Yea it sucks. Learn from your mistakes and compile a list of WHAT-NOT-TO-DO, like this one.
Now for a real test of my mettle. To the frontline...
2:00am Las Vegas Sands Corp. LVS 5.39 +0.75 (16.16%)
LVS is up 16% in a day. According to Rule No 1, I should sell. Should I?
2:08am Las Vegas Sands Corp. LVS 5.27 +0.63 (13.58%)
Indecision...din sell.
2:15am Las Vegas Sands Corp. LVS 5.09 +0.45 (9.70%)
Ok. The ship has sailed. Queueing to sell at 5.40. Goodnight.
2:20am Las Vegas Sands Corp. LVS 5.04 +0.40 (8.62%)
That's what i get for NOT following my own rules!!!
3:00am Las Vegas Sands Corp. LVS 4.87 +0.23 (4.96%)
*nothing to say*
3:13am Las Vegas Sands Corp. LVS 5.25 +0.61 (13.15%)
Beautiful play of geometric brownian motion here.
3:35am Las Vegas Sands Corp. LVS 5.41 +0.77 (16.59%)
SOLD!
4:09am Las Vegas Sands Corp. LVS 5.03 +0.39 (8.41%)
a foolish game of randomness, but seriously addictive...it's bouncing up and down like a yo-yo, almost predictably, dare i say?
must...get...some...sleep...
Tuesday, November 25, 2008
Why I long Citigroup
*disclaimer*
Nothing on this blog shall be considered a solicitation or offer to buy or sell any security, future, option or other financial instrument or to offer or provide any investment advice or service to any person in any jurisdiction. Nothing contained on the website constitutes investment advice or offers any opinion with respect to the suitability of any security, and the views expressed on this website should not be taken as advice to buy, sell or hold any security.
(just in case, you never know these days...)
1. Citigroup is a bank deemed too large to fail. Heck, it has assets larger than the GDP of most countries, with 2 trillion worth of assets (unfortunately I must add, with 2 trillion worth of liability too). With 350,000 employees scattered all over the world from Bugis to as far away as Boon Lay, I'm sure they can clobber up a decent swim team to compete in the Olympics. A disappearance of Citigroup under our radar might spell the end of the modern world as we know it.
2. Oh...and 52,000 employees have been asked, politely I'm sure, to leave. Some may say this smacks of desperation, but I prefer to see it as aggressive cost-cutting.
3. Sorry people from the manufacturing industry, the financial industry, save for porn, is more important than any other in the world. GM can go on their knees and plead for all they want, and the US government just won't budge, but the same government did not hesitate to write a blank cheque to Citigroup in the blink of an eye. Some are just more equal than others.
4. How ironic that capitalism has created a peculiar state of affairs: profits are privatised, but losses are socialised. But that's the way it is these days. I am not here to moralise on the issue, but if you can't beat them, join them.
5. Citi is not AIG. The US Govt sacked the entire AIG board of directors (BOD), but gave a vote of confidence to Citi BOD. Robert Rubin and co have some serious connections.
6. It has a mega-business model that has proven to be hugely profitable in good times. Citibank is a brand which comes with certain prestige. To borrow a cliche from sports, form is temporary, but class is permanent.
7. Mark-to Market (MTM) accounting (fair value) might be scrapped when the ruling is up for review next year. In the event of that happening, the liquidity crisis might just vanish overnight.
8. When a $5 bill can buy you a stake in one of the largest corporations in the world, and have some change left over for a $2 chicken rice, this is an early Christmas gift presented to us by the bungling duo of Irrationality and Fear.
9. Vikram Pandit and various other directors have bought massively (US$8 million of personal wealth is quite a lot, to me anyway) into Citi shares. This apparent show of confidence is reassuring.
10. History never looks like history when you are living through it. It always
looks confusing and messy, and it always feels uncomfortable. It may look shitty now, but humankind from the beginning of time has seen off so many disasters, imagined or otherwise, that I'm sure this too will pass.
Nothing on this blog shall be considered a solicitation or offer to buy or sell any security, future, option or other financial instrument or to offer or provide any investment advice or service to any person in any jurisdiction. Nothing contained on the website constitutes investment advice or offers any opinion with respect to the suitability of any security, and the views expressed on this website should not be taken as advice to buy, sell or hold any security.
(just in case, you never know these days...)
1. Citigroup is a bank deemed too large to fail. Heck, it has assets larger than the GDP of most countries, with 2 trillion worth of assets (unfortunately I must add, with 2 trillion worth of liability too). With 350,000 employees scattered all over the world from Bugis to as far away as Boon Lay, I'm sure they can clobber up a decent swim team to compete in the Olympics. A disappearance of Citigroup under our radar might spell the end of the modern world as we know it.
2. Oh...and 52,000 employees have been asked, politely I'm sure, to leave. Some may say this smacks of desperation, but I prefer to see it as aggressive cost-cutting.
3. Sorry people from the manufacturing industry, the financial industry, save for porn, is more important than any other in the world. GM can go on their knees and plead for all they want, and the US government just won't budge, but the same government did not hesitate to write a blank cheque to Citigroup in the blink of an eye. Some are just more equal than others.
4. How ironic that capitalism has created a peculiar state of affairs: profits are privatised, but losses are socialised. But that's the way it is these days. I am not here to moralise on the issue, but if you can't beat them, join them.
5. Citi is not AIG. The US Govt sacked the entire AIG board of directors (BOD), but gave a vote of confidence to Citi BOD. Robert Rubin and co have some serious connections.
6. It has a mega-business model that has proven to be hugely profitable in good times. Citibank is a brand which comes with certain prestige. To borrow a cliche from sports, form is temporary, but class is permanent.
7. Mark-to Market (MTM) accounting (fair value) might be scrapped when the ruling is up for review next year. In the event of that happening, the liquidity crisis might just vanish overnight.
8. When a $5 bill can buy you a stake in one of the largest corporations in the world, and have some change left over for a $2 chicken rice, this is an early Christmas gift presented to us by the bungling duo of Irrationality and Fear.
9. Vikram Pandit and various other directors have bought massively (US$8 million of personal wealth is quite a lot, to me anyway) into Citi shares. This apparent show of confidence is reassuring.
10. History never looks like history when you are living through it. It always
looks confusing and messy, and it always feels uncomfortable. It may look shitty now, but humankind from the beginning of time has seen off so many disasters, imagined or otherwise, that I'm sure this too will pass.
Wednesday, October 29, 2008
Life is a supermartingale
Hyperinflation - The money is disappearing even as I sit here and contemplate it.
Arbitrage - You are being paid to receive money (positive cashflow)
Markov - Throw away all your financial news articles. History has no bearings on the future.
Supermartingale - Life is a supermartingale. Expectation decreases as time passes.
A friend recently shared a reflection with me:
人可笨不可懒。
Man can afford to be stupid, but not lazy.
This is so true, especially in the modern-day context. Day by day, resources are getting scarcer, but the competition is getting keener. It used to be enough to be good at something. Then the bar was raised--one must specialise. Now, you have to be at the pinnacle of your game. In this winner-takes-all society, only the ones at the top are ambly rewarded with riches. The rest are left scraping at the bottom of the barrels. Just spare a thought for the otherwise supremely gifted Olympic sprinters and swimmers of the Beijing 2008 cohort, who had trained all their lives for their one moment of glory, and turned up only to be left floundering in the wake of Bolt and Phelps.
Faced against insurmountable odds, it is easy to throw in the towel, and give up the fight. Fair enough. There's alternative ways of living than just about fighting for the scraps in life. For those who choose to soldier on, here's a rallying cry. We must persevere, in spite of our stupidity (or limitations). Because, quite frankly, that is all we have left.
As for the other reflection that life is a supermartingale, this is what Emanuel Derman has to say:
In much the same way, by a process options theorists call time decay, financial stock options lose their potential as they approach their own expiration. They call this the negative theta factor θ. It is all too easy to let our thetas rise (much like entropy), but to bring our thetas under control requires a lot of determination and stomach for a fight. The struggles of life has now been neatly encapsulated into a symbol.
An aside,
Tourist: How do you get to Carnegie Hall?
New Yorker passer-by : Practice, practice, practice!
Arbitrage - You are being paid to receive money (positive cashflow)
Markov - Throw away all your financial news articles. History has no bearings on the future.
Supermartingale - Life is a supermartingale. Expectation decreases as time passes.
A friend recently shared a reflection with me:
人可笨不可懒。
Man can afford to be stupid, but not lazy.
This is so true, especially in the modern-day context. Day by day, resources are getting scarcer, but the competition is getting keener. It used to be enough to be good at something. Then the bar was raised--one must specialise. Now, you have to be at the pinnacle of your game. In this winner-takes-all society, only the ones at the top are ambly rewarded with riches. The rest are left scraping at the bottom of the barrels. Just spare a thought for the otherwise supremely gifted Olympic sprinters and swimmers of the Beijing 2008 cohort, who had trained all their lives for their one moment of glory, and turned up only to be left floundering in the wake of Bolt and Phelps.
Faced against insurmountable odds, it is easy to throw in the towel, and give up the fight. Fair enough. There's alternative ways of living than just about fighting for the scraps in life. For those who choose to soldier on, here's a rallying cry. We must persevere, in spite of our stupidity (or limitations). Because, quite frankly, that is all we have left.
As for the other reflection that life is a supermartingale, this is what Emanuel Derman has to say:
At age 16 or 17, I had wanted to be another Einstein; at 21, I would have been happy to be another Feynman; at 24, a future T.D. Lee would have sufficed. By 1976, sharing an office with other postdoctoral researchers at Oxford, I realized that I had reached the point where I merely envied the postdoc in the office next door because he had been invited to give a seminar in France.
In much the same way, by a process options theorists call time decay, financial stock options lose their potential as they approach their own expiration. They call this the negative theta factor θ. It is all too easy to let our thetas rise (much like entropy), but to bring our thetas under control requires a lot of determination and stomach for a fight. The struggles of life has now been neatly encapsulated into a symbol.
An aside,
Tourist: How do you get to Carnegie Hall?
New Yorker passer-by : Practice, practice, practice!
Friday, October 10, 2008
Friday, September 19, 2008
The Domino Effect
Before the turn of the decade, 2 events have already earned their place in the history books: the 9/11 terrorist attacks and the end of an era for investment banking. The current crisis has yet to be played out, and it remains to be seen how this tragedy from the world of high finance impacts the everyman world we live in. The volatility index, the so-called "fear factor", are at levels not seen since World war II. The signs have been there for a while. Dow Jones have been swinging up and down with the regularity of a roller-coaster ride since the start of 2008. As of now, it appears, government attempts to save the world have succeeded in placating the markets quite a bit. The cost of saving these financial institutions have effectively been transferred to the everyman taxpayer. If there ever were a game that goes "heads I win, tails you lose", this is it. The bankers who wrote the CDOs in the subprime boom may have lost their jobs, but they had already made their hay while the sun was still shining, hay that would take the rest of the populace a few lifetimes to make.
Such is the moral quandry facing the Fed. AIG have been described as having "tentacles all over the world". The collapse of AIG would leave gaping holes so large that the world would just implode on its own. With US$1 trillion in counterparty assets, this is no exaggeration. Even Freddie Mac and Fannie Mae have exposures to the tune of some US$8 billion in bonds bought by Bank of China and various other Asian banks. The Fed bailout of these firms, thus guaranteeing the securitised loans, have somewhat sheltered Asia from the financial storm. So far it seems, only Lehman Brothers have filed for the dreaded Chapter 11 bankruptcy. We can only observe with baited breath the fallout following the collapse of the 4th largest investment bank in the world. Not as spectacular as what an AIG collapse would induce --it's more fun reading about the Great Depression than living it--but still worth a look.
List of Counterparties and exposure to Lehman Brothers:
JAPAN
Aozora Bank $463 mln Loan
Mizuho Trust $382 mln "
Shinsei Bank $231 mln "
UFJ Bank $185 mln "
Sumitomo Mitsub Bk $177 mln "
Chuo Mitsui Trust $144 mln "
Shinkin Central $93 mln "
Nippon Life Ins $46 mln "
TAIWAN
Investments
Shin Kong Fin (2888.TW: Quote, Profile, Research, Stock Buzz) $78 mln
Cathay Fin (2882.TW: Quote, Profile, Research, Stock Buzz) $33 mln
Central Reins (2851.TW: Quote, Profile, Research, Stock Buzz) $32 mln
Entie Bank (2849.TW: Quote, Profile, Research, Stock Buzz) $24 mln
Bk of Kaohsiung $18 mln
Polaris Securities $11 mln
SinoPac Fin $2 mln
Bank loans
Hua Nan Fin (2880.TW: Quote, Profile, Research, Stock Buzz) $59 mln
First Financial (2892.TW: Quote, Profile, Research, Stock Buzz) $25 mln
Bank of Taiwan (unlisted) $25 mln
Fubon Fin (2881.TW: Quote, Profile, Research, Stock Buzz) $10 mln
AUSTRALIA
Commonwealth (CBA.AX: Quote, Profile, Research, Stock Buzz) Below $123 mln Range of products
ANZ (ANZ.AX: Quote, Profile, Research, Stock Buzz) $120 mln Mostly to subsidiaries
Westpac (WBC.AX: Quote, Profile, Research, Stock Buzz) Below $8 mln
NAB (NAB.AX: Quote, Profile, Research, Stock Buzz) Below $81 mln
HONG KONG
Citibank (C.N: Quote, Profile, Research, Stock Buzz) HK branch $275 mln Loan
CHINA
Bank of China New York $50 mln Loan
(3988.HK: Quote, Profile, Research, Stock Buzz) (601988.SS: Quote, Profile, Research, Stock Buzz)
SOUTH KOREA
The Bank of Korea said the country's financial institutions had exposure of a combined $1.34 billion to Lehman and Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz) as of Aug 31.
THAILAND
Central bank said Thailand's 14 commercial banks had only $124 mln of direct exposure to Lehman and more than that in foreign exchange contracts. Bangkok Bank BBL.BK said it holds $101 million in senior, unsecured bonds.
SINGAPORE
DBS (DBSM.SI: Quote, Profile, Research, Stock Buzz)^ Insignificant
UOB (UOBH.SI: Quote, Profile, Research, Stock Buzz) Very small
Bank of Nova Scotia(BNS.TO: Quote, Profile, Research, Stock Buzz) $93 mln loan
(Singapore branch)
PHILIPPINES
The Philippines' two biggest banks -- Metropolitan Bank and Trust Co. (MBT.PS: Quote, Profile, Research, Stock Buzz) and Banco de Oro Unibank (BDO.PS: Quote, Profile, Research, Stock Buzz) -- on Tuesday set aside nearly $100 million to cover exposure to Lehman Brothers but the central bank said the total exposure of the local financial sector was small.
What exciting times we live in!
Thursday, December 20, 2007
Things I learnt from Nassim Taleb
(in order of priority)
1. Beware David Hume's black swan.
No amount of observations of white swans can allow the inference that all swans are white, but the observation of a single black swan is sufficient to refute that conclusion.
Chickens pay the ultimate price by haemorrhaging like elephants.
2. Heed Solon's warning: It ain't over till it's over.
3. Learn from Odysseus who stuffed wax in his ears in the Sea of the Sirens:
I am not intelligent enough, nor strong enough, to fight my emotions.
4. Do not get married to yourself. Change your ideas and opinions as often as is necessary.
(In a parallel, Arthur Rubinstein was known as a pianist who changed his musical ideas and thoughts on a whim, much like George Soros and his investment principles.)
5. Children only learn from their own mistakes, no possible warning by others can prevent them from touching the hot stove. Likewise, book knowledge never lasts compared to life's (bitter)experience.
6. Yiddish saying: If I am forced to eat pork, it better be of the best kind.
7. Maths is a way of thinking, (much) more than a way of computing.
8. Your life expectancy increases each year you get older. If national life expectancy is 75, and you are 74, you are NOT LIKELY to die the next year. Remember that 50% of the population have lower than national life expectancy.
Other similar sayings: 50% of the population has lower than average IQ.
If you are not doing more than the average, you are pulling the average down.
9. Survivorship bias:
Imagine 1,000,000 analysts (or monkeys) making completely random predictions on 2 outcomes (market go up/market go down). 1 epoch (whatever length of time you may choose to define) later, only 500,000 analysts get their predictions correct.
Another epoch later, 250 000 analysts remain standing. After 15 epochs, there are still at least 30 analysts (1mil/ 2^15) surviving with 100% records. They are the fools of randomness we worship as Gurus.
10. Gurus usually develop the unfortunate habit of writing books about their random success.
1. Beware David Hume's black swan.
No amount of observations of white swans can allow the inference that all swans are white, but the observation of a single black swan is sufficient to refute that conclusion.
Chickens pay the ultimate price by haemorrhaging like elephants.
2. Heed Solon's warning: It ain't over till it's over.
3. Learn from Odysseus who stuffed wax in his ears in the Sea of the Sirens:
I am not intelligent enough, nor strong enough, to fight my emotions.
4. Do not get married to yourself. Change your ideas and opinions as often as is necessary.
(In a parallel, Arthur Rubinstein was known as a pianist who changed his musical ideas and thoughts on a whim, much like George Soros and his investment principles.)
5. Children only learn from their own mistakes, no possible warning by others can prevent them from touching the hot stove. Likewise, book knowledge never lasts compared to life's (bitter)experience.
6. Yiddish saying: If I am forced to eat pork, it better be of the best kind.
7. Maths is a way of thinking, (much) more than a way of computing.
8. Your life expectancy increases each year you get older. If national life expectancy is 75, and you are 74, you are NOT LIKELY to die the next year. Remember that 50% of the population have lower than national life expectancy.
Other similar sayings: 50% of the population has lower than average IQ.
If you are not doing more than the average, you are pulling the average down.
9. Survivorship bias:
Imagine 1,000,000 analysts (or monkeys) making completely random predictions on 2 outcomes (market go up/market go down). 1 epoch (whatever length of time you may choose to define) later, only 500,000 analysts get their predictions correct.
Another epoch later, 250 000 analysts remain standing. After 15 epochs, there are still at least 30 analysts (1mil/ 2^15) surviving with 100% records. They are the fools of randomness we worship as Gurus.
10. Gurus usually develop the unfortunate habit of writing books about their random success.
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