Readings: Sensex oversold, Agriculture Stocks, Black-Scholes wrong?
- Bespoke: International Snapshot
- Wall Street Journal: Agriculture Stocks Belong In Long-Term Portfolios
What’s remarkable about soaring agriculture prices is that corn, oats, barley and wheat aren’t finite resources, like oil or copper . . . A more affluent world population is clamoring for better-quality foods, starting with wheat, a natural high-protein grain and the essential raw material in bread. The ethanol boom may have peaked, but the biofuel movement has further super-charged demand.
High grain prices, low stockpiles, and government encouragement of biofuel development have spurred investment in the tractors, combines and other heavy equipment that Deere makes.
- Portfolio.com: Inside Wall Street’s Black Hole
. . . on October 19, 1987, when the sweet logic of Black-Scholes was shown to be irrelevant in the real world of crashes and panics. Even the biggest portfolio insurance firm, Leland O’Brien Rubinstein Associates (co-founded and run by the same finance professors who invented portfolio insurance), tried to sell as the market crashed and couldn’t.
At the end of 2006, according to the Bank for International Settlements, there were $415 trillion in derivatives—that is, $415 trillion in securities for which there is no completely satisfactory pricing model. Added to this are trillions more in exchange-traded options, employee stock options, mortgage bonds, and God knows what else—most of which, presumably, are still priced using some version of Black-Scholes.
“This is what I’m saying to Merton and Scholes,” Taleb says. “You guys are just parasites. You’re not bringing anything useful to the market. You are lecturing birds on how to fly. You’re watching them fly. And then you’re taking credit for it.”
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