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  • How Long Will You Be Underwater (Part I): Some Numbers [View article]
    Jasper M,

    I tried to use the phrasing "bad case" instead of "worse/worst case" because, as you are correct in pointing out, it's not hard to imagine nightmare scenarios for housing. But so much of that is dependent on local conditions.


    That's a great point. Especially if one thinks that the newest homes often weren't built to last, 5 years in you could already be collecting major costs in repairs and upkeep.
    Feb 12, 2010. 10:55 AM | Likes Like |Link to Comment
  • Reverse Convertibles vs. Consumer Protection [View article]

    I have absolutely no problem with the probabilities or payouts. If people want to sell put options while holding full cash, or go short straddles, or however else you want to tap this payout/probability structure, god bless em. If retail investors wake up one morning and say "hey, I want to bet that the market is overestimating vol on this one stock" I'll cheer em on. I conclude on this remark.

    What upsets me is that this payout is (a) bundled in a way that piles on fees and additional risks that are unnecessary and I'm mostly upset that (b) the put option is embedded in a way that is, imho, designed to be very confusing, and it certainly isn't placed front and center and called what it is. People are terrible with tail risk, and they are terrible with discerning embedded options; why not replace this instrument with a fully-funded put option?

    Oh, because nobody would pay huge fees for that.

    I have no problem with people buying individual stocks, as long as they understand they are buying an individual stock.
    Jun 19, 2009. 02:30 AM | 1 Like Like |Link to Comment
  • DIY Stress Test Part 3: Evaluating Size vs. Losses [View article]
    Dr. Lamgol,

    SCAP buffer isn't actually a buffer in reserve, it is the amount of money that the bank in question will need to raise in order to have adequate capital reserves. So it is really a negative value. A SCAP value of $0, like say American Express had, indicates that there is already adequate capital reservers. Citi's SCAP buffer is $93b as of end of 2008, so they needed to have raised $93b, and between then and the release of the stress test they raised enough capital to get that down to $5.5b. Hence the stress test saying Citi needed to raise $5.5b. See:

    On Jun 15 03:31 PM Dr. Lamgol wrote:

    > Hey Rortybomb,
    > Interesting read, though linear extrapolation is absolute nonsense
    > if you ask me. There is no simple formula how one can relate job
    > losses to the bank losses. In addition, you have a big error in the
    > Citi calculation, their SCAP buffer is $93 Billion, not 5.5 as you
    > indicated, so under U3 they will need 139-93=46 B.
    Jun 16, 2009. 05:39 AM | Likes Like |Link to Comment
  • Multiple Regulatory Agencies [View article]
    It's underlying instead of underlining. Here's to not relying on spellcheck so much.
    Jun 15, 2009. 12:59 PM | 1 Like Like |Link to Comment
  • DIY Stress Test Part 3: Evaluating Size vs. Losses [View article]
    As of right now, that first graph is incorrect. I'm trying to get it fixed. Hope over to my site to see it correctly displayed.
    Jun 12, 2009. 01:00 PM | Likes Like |Link to Comment