Diary of a Financier

Top Newsstuffs (October 15-21)

In Bookshelf on Sun 21 Oct 2012 at 07:09

Finest kind…

Chaos, Fractals & Statistics (1992) | Sangit Chatterjee and Mustafa R. Yilmaz (Statistical Science)
Academic paper discusses the emergence of multidisciplinary mathematics & sciences, specifically those derived from study of dynamical systems.  Recommends a new paradigm in applied mathematics, in which models are built from more accurate nonlinear statistical sciences [as opposed to the Gaussian (bell curve) crap still applied throughout finance today].

Rail Traffic Weekly: No change in growth rates | Association of American Railroads (AAR)
Carloads -2.7% and Intermodal +3.7 (cumulative ytd volume); -6.1 and +2.6 respectively (vs. this week last year).
12 of 20 carload groups posted gains: Farm products +55.1, petroleum products +52.6 & lumber +16.6; metallic ores -26.8, iron/steel scrap -21 & coal -16.9.
[Big jump in farm products ex grain this week.]

Endogenous money: Debunking traditional monetary theory & Paul Krugman’s flashing neon sign | Scott Fullwiler (naked capitalism)
A seminal piece advocating the new, modern monetary economics.  Mr. Fullwiler gets down to the heart of the argument, discussing how banks work (they’re legally permitted to create money) and challenging the traditional monetary theory regimes (like Paul Krugman’s IS-LM crowd).

Verizon unloads $7.5B pension burden to Prudential | Reuters
VZ enters a Pension Terminal Funding agreement with PRU, swapping an upfront premium for an annuity to cover 25% of its pension obligations. This follows similar moves by Vodafone (VOD) & General Motors (GM) earlier this year.

Active Managers & so-called Warren Buffet “disciples” | Pragmatic Capitalism
So many PMs claim to be value investors & disciples of Warren Buffet, but they just track an index (e.g. Bill miller, whose Value Trust just layered on Beta). Actually, “Buffett runs one of the most complex multi-strategy investment portfolios that exists in the world.  It’s essentially a dynamically leveraged option writing, dollar cost averaging, active management, distressed asset approach.”
[A PM should be able to describe: how he generates Alpha–not by leveraging Beta; how his process is repeatable; and what his edge is.]

Quantitative Easings’ effect on earnings multiple expansion | Bloomberg
Overlaying SPX’s PE multiple expansion post-QE2 (starting Jackson Hole August 2010) v. post-QE3 (starting June 2012), Bloomberg points out an analogue. QE2’s precedent is a neat arc (multiple expansion for 6 months, then contraction thereafter) and QE3 is closely following that lead.
[Seems like investors have all the confidence in the world at the outset that QEs will trickle down into the real economy, but after 6 months of futility, they abandon ship.]

Interview: Jean-Marie Eveillard (First Eagle Funds) | King World News
Discussion includes: Austrian school economics & the futility of Keynesianism; “as long as they keep printing enormous amounts of paper, I think gold cannot be overvalued.”

S&P 500 e-mini futures report biggest net long for equity traders since 2008 | ZeroHedge
ES/ contract’s net long is up to 12%–highest since December 2008, just before a 22% decline in SPX.

Spain prepares to make rescue request | Financial Times
“The Spanish government is prepared to make a rescue request that would allow the European Central Bank to begin buying its debt, but the issue is being delayed by the needs of other countries” as European officials want to assess the potential impact of a Spanish bailout on Italy.
[How naive of me: this claim was shelved by German officials the following day.]

NYSE Short Interest drops to 5-month low (September 2012) | ZeroHedge
Short Interest down to 13.6B shares, lowest since May 2012. [In my opinion, that’s still far from exuberant levels between 12.5-13B shares.]

The Pilgrimage | Jawad Mian
A Qatar-based portfolio manager discusses ambition, goal-seeking, and his love affair with the market, as he sets off to launch his own hedge fund (Q Invest) at 28 years old.




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