Chris Monoki

Risk Management, Or Risk Manipulation

Mr. Tan:

One of the best summaries of the risks (ironically) using value-at-risk modeling. Thank you.

Modern portoflio theory an mean-covariance matices have their place, but this episode highlights some serious flaws that will ultimately be rehashed, with in our profession and in academia. Perhaps other thoughts, perhaps coming from Mandelbrot and Taleb, even Soros (reflexivity) will be raised in seriousness. They seem to be paving a better path than the Bauchalier group.

Again, thank you.

Keep pressing,
Chris Monoki

Covered Calls: More on Why They're A Losing Investment Strategy

You have a flaw in your testing of the buy/write, and that it you assume a normally distributed pattern of returns. In the real marketplace, as we now know, returns are not normally distrubuted, but that they are skewed. Morever, while the tails are fatter, the left side is much more fat than the positive side.

Thus a buy/write strategy, say 1%-3% out of the money doesn't necessarily lead to a contraint on upside and allows for the underlying to move. In other words, you're targeted the historical skew of the returns. So, if you write, say, 1% out, and draw down, say, 1% premium, the likeliness of the naked underlying exceed the buy/write drops off significantly because of the skew in returns.

So please, for goodness sake, stop assuming what has been proven to be false: the market is not normally distributed.

S/F
Chris Monoki

Did Ben Bernanke Really Say That About 'Creative Mortgages'?

Herb:

Part of the recent subprime spillover into other nontraditional mortgages stems from the 'mandated' Interagency Guidance on Nontraditional Mortgage Products. The Guidance was written December 2005, but was enforced June 1, 2007. The new standards are a major source of tighter lending standards, and the credit markets are keying off of that, perhaps coupled with the rating agencies' downgrades.

The Guidance was written by the Fed, among others. Interesting how this dramatic source of tightening come from an agency that now needs to fight market's adverse reaction.

I suggest you read it becasue I can tell you this: no other reporter or analyst will bring to light the Guidance as a major spark of the recent credit crunch.

Chris Monoki

North American Galvanizing & Coatings: Buy 'On the Dip'

A concern here is that it seems that nearly all of NGA's topline growth is due to rising prices and not tonnage volume. Rising revenues from prices are less quality than rising revenues from volume demand.

Working are nearly full capacity, it might be hard for NGA to increase volume output unless, of course, the company expands plant capacity. That might prove difficult should NGA need to finance such expansion given the current credit environment.

Over the long-run, a weak dollar can help NGA export galvanized pipe. With the aging of our water distribution network, organic revenues might growth over the long-term. Any hint of that would mark this stock as undervalued on virtually every metric. But price increases alone isn't worth the risk.

Chris Monoki