Seeking Alpha

Varun Munjal's  Instablog

Varun Munjal
11 Followers
12 Following
Send Message
Hinduism is about compassion and Western peoples are about large amounts of cruelty that cancel each other out because every next/successive public defender can be cruel in a novel but really just recently unexplored narrative direction. 99% of what they say is not true, just fashionable. The... More
  • The Importance Of Liquidity 4 comments
    Jul 8, 2012 9:39 AM

    Monetary transactions between people are described by fluctuating rates. People team up in organizations (recognized by brands) that transact money at lower rates than outside the organization. When organizations become intransparent about money that belongs to owners, and "report" quarterly, people ought to take that discount into mind compared to private stakes, which are transparent.

    To describe the rates on the money transacted, there is "credit risk", which reflects fear of illiquidity, which reflects fear of insolvency. How can the rate on money not reflect credit risk? It can't. Hence equity stake can be called a kind of credit stake. The interest rate on "stocks" is so subject to credit-risk frenzy ("volatile") that we don't even call it an interest rate, it a rate of return. (Conventionally thought of as "interest rate" on stocks rather than interest rate on "stocks"). The stock interest rate leads interest rates and the Treasury follows.

    Interest denotes positive reinforcement: approach more than absence-of-avoidance. But the connotation is different: the financial world equates low interest rates with safety through the concept of credit risk. To those who are educated rather than willfully ignorant about bankruptcy, credit risk can be understood completely through illiquidity. For these believers, "interest" earnestly means "interest". Low interest rates on stocks (high "forward P/E") pretend to safety but they indicate exertion and over-extended asset prices, while high interest in stocks indicate perceived danger at a time when near-term (predictable) cash flows are more substantial.

    The value investor is a master operator of liquidity because he always has his eye on the ball. Liquidity also eventually makes oneself respected (creditworthy). Everybody else is thinking about gains because, frankly, their fears do not include pennilessness, so they hold negative-reinforcement financial attitudes, including speculation. But the man who knows that the specter of bankruptcy is everywhere precisely because it is seen nowhere is the man who exploits the illiquid. Liquidity is the vehicle through which something becomes more.

    Themes: philosophy, psychology
Back To Varun Munjal's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

This post has 4 comments:

Track new comments on this article
  •  
    Money-market funds a mystery. How can you make more on T-bill than on loans? Maybe they just make a lot on the loans and the money market thing is a scheme as if you can put a bond fund in a bank. Maybe the money market fund is collateral for the leveraged lending. The lending must be more leveraged well the truth is the reserve ratio is the same or whatever it is, more backup money means more high interest-rate money.
    25 Jun 2012, 11:31 PM Reply Like
  •  
    "Eye on the ball" phrase is variation of "took my eye off the ball", Donald Trump, circa mid-1980's.
    30 Jul 2012, 11:55 AM Reply Like
  •  
    Treasury follows inversely (through proxy of inflation but stock interest rate is anyways epiphenomena on consumption or full employment depending on what you believe)
    24 Oct 2012, 06:09 PM Reply Like
  •  
    High interest = High interest rates, i.e. low interest. Typo
    1 Nov 2012, 11:38 PM Reply Like
Full index of posts »
Latest Followers

Latest Comments


Most Commented
Posts by Themes
acquirer, construction, industrials, insolvency, long-ideas, market-outlook, philosophy, psychology, renovation, residential, security, technology, value investing
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.