Mike Stathis

What, If Anything, Are CDS Spreads Telling Us?

What I find remarkable is how the same guys who missed this financial apocalypse continue to follow useless theoretical risk models based on math. Too funny. I suppose they have little choice since they have no other training. In this case, myopia can be disasterous.

You can neither measure nor control risk using mathematical equations. The best risk managers have real trading experience. More important, they are leaders in thought.

Most Wall Street professionals have been fooled by these highly flawed risk models because they do not have math degrees. So when exposed to the intricate theorums and equations, they become hypnotized into thinking they have found some Holy Grail.

The few of us out there with a math background, real investment experience, and who are also thought leaders understand how to measure and manage risk. And we certainly don't use VaR and other bologna. We simply wait around to collect huge profits when these models fail. This is the easiest way to become very wealthy; that is, if you really understand things. Since very few individuals truly understand how this all works, you can imagine how much money is available for a select few.

The global investment community did not learn their lesson after LTCM. And they won't learn it after this crisis. The same cycle will repeat indefinately. And those of us who understand the various flaws buried within the models used by credit risk managers will continue to make huge profits, quite easily I might add.