How to Guarantee a Meltdown

June 27, 2014

Just keep doing the same thing you did that caused the last one.

And if the people who bailed you out say you have to follow new rules, make sure those rules never get put into effect.  Witness the latest on derivatives regulation from our esteemed Congress:

http://www.nationalmemo.com/one-step-toward-next-meltdown/

By the way, I wrote the article.

hh


Book on the Way

June 26, 2014

After a long hiatus, I’m back.

I worked on a very interesting project to hedge commercial real estate while I was gone – a project that the market needed. Sadly, complacence and the pressure of “money to be made” took over and the new hedge product didn’t get implemented.

‘Twas ever thus.

When Wall Street is making tons of money doing something, the various companies on the Street all crank up the volume as much as they can. Everyone who has the skills and specialized knowledge to execute the “hot” business is working flat out, and new people are being trained as quickly as possible. Each firm thinks it can do a bit better than its competition. Better means more profits, more volume, and strangely enough, lower risk. They can’t all be right, but don’t try to tell them.

My book will be different from the others on the crisis because it will show how the people who drove that extraordinary volume ($600 billion of new subprime mortgages per year at the peak) felt they were personally not going to pay a terrible price for taking on such large risks. Come to think of it, they were right.

The terrible price was spread to everyone, especially to homeowners across America.


Not-So-Smart Phones

January 14, 2013

Looking to get untethered from my home computer, I recently made the plunge into smart phone world.  I guess I’ve come full circle, from being an early adopter with a phone in my car when they were rare, to a Luddite with no cell phone at all, and now back again.

After a weekend with the online help, I put my trading and email apps on the new phone, and even figured out how to use it hands-free in my car after the dealer failed.

Today, I got a ton of returned, undelivered e-mails, all of which had a link that claimed to be a Fox News investment article.

DON’T TOUCH THAT LINK!

Some of you have contacted me using the feedback feature, and if we’ve had correspondence, you were added to my yahoo address book.  My apologies for the spam, especially if you infected your own computer by hitting the link.

I was truly impressed with the coordination of the people who hacked my yahoo email this morning.  In a period of less than ten minutes, they managed to log onto my email from Indonesia, Brazil and Nicaragua.

So here’s my advice…. after changing passwords and putting extra security questions in place, I decided to disable all mobile phone logins for that account when Yahoo sent my new mobile phone a text about resetting permissions, and it never got to my new phone.

Be careful out there.

hh


Option Ideas

January 10, 2013

As I watch the markets and the news, I come back to the basic idea that the politicians may well deal the markets a major blow over the next few months, so I want a hedge.

In the December time frame, I put on a hedge by buying calls on SDS, the ironically named Exchange Traded Fund (ETF) that amounts to a 2x levered bet against America.  When the S&P hit 1430 on the way up, I took my lumps and got out.

Now I’m just getting started thinking about buying a call option on pure volatility — the VIX.

We’ve got three ginned-up “crises” coming over the next few months, and the most serious, the debt ceiling, is even being suggested as a monthly serial drama that would put 1930′s Hollywood serial dramas to shame. Read the rest of this entry »


Good Questions

January 6, 2013

The post about US Treasury CDS has garnered some great comments, including this one from Jill:

Every time you mention CDS, I am reminded of big Joe Cassano. I was in awe when it was disclosed that AIG had $78 billion of CDS exposure backed by subprime mortgages that allowed collateral calls when something dropped in value. And the guy made 300 million while working at AIG and then a million a month when hired back as a consultant after he resigned.

So this particular CDS on the 5 year Treasury note pays off when there is a loss in value or when there is an actual default?

Do you have to own the notes in order to purchase the CDS?

Wouldn’t the sellers of the CDS have their minions out there everyday on financial tv and in the press screaming warning of a default? Think of the money that will be made on the hype!

Who are the major sellers of CDS?

Read the rest of this entry »


Pundit Watchlist

January 4, 2013

Over the next couple of months, the American public can expect an ever-louder din of opinions as we approach the next bogus political standoff — the debt ceiling hostage crisis.

Bogus? I’m not saying it isn’t a crisis when elected public servants threaten to sabotage our country and the world economy.  It certainly is.  That’s why it was such a shock when a routine (and silly) bookkeeping matter suddenly became a pressure point in 2011 after years and years of “clean” increases to the debt limit.

But what other country spends money and then pretends it’s optional whether to pay the bills for what they’ve already spent?  That’s what makes planning to instigate a crisis over the debt ceiling so bogus. Read the rest of this entry »


Risk Arbitrage Redux

January 3, 2013

When I began investing decades ago, one of the earliest versions of hedge fund strategies was to simultaneously buy the stock of a “target” company in a takeover and sell the stock in the company that was doing the purchase. While not nearly as profitable on a percentage basis as guessing ahead of time which company will be taken over, it nearly always works.

There was a profit to be made as long as the deal got completed, something that usually happened and usually resulted in a 10% or higher return in a couple of months.

Today I saw evidence of the modern version — making political contributions to “freshmen” politicos to help them retire campaign debt.  How cool is that?  Lobbyists who seldom make political contributions to challengers can endear themselves to the winner after the election, yet before they get sworn in. The lobbyists can put their money to work on newcomers without having to take the large risk that they’ll lose to the incumbents.

This brings to mind a book topic I’ve been trying to figure out how to research. Read the rest of this entry »


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