Janet Tavakoli: Where Were Drama Pundits [Whitney, Taleb and Gasparino] When It Mattered?
Taleb’s Empirica Kurtosis “black swan” fund had negative returns in 2001, the year of the 9/11 black swan event. Taleb later claimed he only called it a hedge fund “in May‐Oct 2001.” Perhaps he meant something else, because Empirica Kurtosis wound up at the beginning of 2005 with lackluster returns , and performance specifics are not public, but it may have been a stranded swan.
Taleb has appeared in public with Arianna Huffington who has credited him with courage, yet he plays the victim and resorts to unwarranted name calling when asked legitimate questions. He has said Myron Scholes belongs in a retirement home and called Nobel Prize winners charlatans. Viciousness isn’t the same as courage. It takes courage to be transparent not just when results look fabulous (temporarily or otherwise), but when they don’t make you look as favorable.
Taleb taking it from all sides. Time to disclose performance data?
Via Alea, Small Lessons from a Big Crisis, Andrew G Haldane, BofE
During the golden era, competition simultaneously drove down returns on assets and drove up target returns on equity. Caught in this cross-fire, higher leverage became banks’ only means of keeping up with the Jones’s. Management resorted to the roulette wheel.
. . . when evaluating banks and their management, there is a need for greater focus on returns on assets rather than on equity. Good luck and good management need to be better distinguished. Put differently, returns to investors and managers need to be more accurately risk-adjusted if the right balance between risk and return is to be struck for individual firms and for the financial system as a whole. Second, there is a need to place much stricter system-wide limits on leverage.
Bloomberg: Sri Lanka Looks to Soros, Mobius to Bolster Market
Sri Lanka wants George Soros, Mark Mobius and other top fund managers to invest in the country and help the Colombo Stock Exchange “take off” after the end of a 26-year civil war.
Daily average trading on the Colombo Stock Exchange surged 20 times to 1 billion rupees ($8.7 million) after the government declared victory over the Tigers on May 16, driven by demand from the local population, de Silva said. The key Colombo All- Share Index has climbed 12 percent during the period, taking its gains this year to 42 percent.
The exchange wants to double its capitalization to $14 billion in a year, he added.
This should be interesting. Impact cost for short-term traders way too high - the only play is buy & pray.
Stanford Lawyer, May edition: Q&A: Legal Matters with Charles T. Munger
The conglomerate rage of buying companies at 10 times earnings and issuing stock time after time at 30 times earnings to pay for them was a legitimate business operation mixed with a Ponzi scheme. That made it respectable. Nobody called it illegal.
Unlimited leverage comes automatically with an option exchange. Then, next, derivative trading made the option exchange look like a benign event. So just one after another the very people who should have been preventing these asininities were instead allowing foolish departures from the corrective devices we’d put in the last time we had a big trouble—devices that worked quite well.
I would argue that the economists have not been all that good at working concepts of good and evil into their profession. Nor do they understand, at all well, the economic consequences of bad accounting.
Warren and I have skills that could easily be taught to other people. One skill is knowing the edge of your own competency. It’s not a competency if you don’t know the edge of it. And Warren and I are better at tuning out the standard stupidities. We’ve left a lot of more talented and diligent people in the dust, just by working hard at eliminating standard error.The culture of Goldman Sachs as a partnership was morally superior and better for the surrounding civilization than the culture that came after it went public.
A bit dated, but nevertheless worth the time:
Partial transcripts available at the R-Squared Energy blog.
Clusterstock: Ex-Bear Jeremy Grantham Now A Snorting Bull, Says Stocks Going To Moon
… what the bears are missing, Grantham says, is that the entire world is now pumping more stimulus into the system than the entire world has ever seen. And stimulus has a much bigger impact on stocks than it does on economies.
So by analogy to the normal Presidential Cycle effect, driven by stimulus and moral hazard, we are likely to have a remarkable stock rally, far in excess of anything justiﬁed by either long-term or short-term economic fundamentals.
My guess is that the S&P 500 is quite likely to run for a while, way beyond fair value (880 on our revised data), to the 1000-1100 level or so before the end of the year.
A large rally here is far more likely to prove a last hurrah … a codicil on the great bullishness we have had since the early 90s or, even in some respects, since the early 80s. The rally, if it occurs, will set us up for a long, drawn-out disappointment not only in the economy, but also in the stock markets of the developed world.
If this extends to Indian markets, we see Nifty to 4500, Sensex to 15000 before end of the year?
EUROINTELLIGENCE, Satyajit Das: Lessons of the Global Financial Crisis: 1. The End of Ponzi Prosperity
In the US, financial services’ share of total corporate profits increased from 10% in the early 1980s to 40% in 2007. The stockmarket value of financial services firms increased from 6% in the early 1980s to 23% in 2007.
The “disease” is the excessive debt and leverage in the financial system, especially in the US, Great Britain, Spain and Australia. The “cure” is the reduction of the level of debt that is now underway (the great “de-leveraging”).Even after recapitalisation the capital shortfall in the global banking system is likely to be around US$ 1-3 trillion. This equates to a forced contraction in global credit of around 20-30% from existing levels. Within the financial sector, de-leveraging is well advanced. In the real economy it is in the early stages.