kabab

http://babaksjournal.blogspot.com/
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    • Sun Jul 20th 13:08 PM | Rating: 0 0
      Commented on:
      Short Selling: Others Want Protection Too
      <p>
      Re the WSJ quote:
      </p><p><...
      ..but the effect was completely temporary," he [Jones] said, because the move only added extra hoops, and didn't prevent people from taking bearish positions if they wanted.
      </i></p>&l...
      So right! In fact I decided to blog about a way I discovered last week to cover my LEH short w/o losing my ability to short again. Though this must be old news to seasoned traders, I couldn't find much written about it on the web.
      </p>
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    • Tue Jun 10th 12:20 PM | Rating: 0 0
      Commented on:
      Lehman Brothers Capital Raise 'Sobering' - Analyst
      I find it highly troubling that Lehman has been buying its own stock even as it issues new shares. This smacks of the firm trying to manipulate its own stock price. I doubt they can, though, try as they may. It would be interesting to find out how much capital Lehman has already committed to stock they have repurchased. Their repurchase program could qualify as another of their very bad trades.
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    • Wed Apr 30th 04:07 AM | Rating: 0 0
      Commented on:
      First Solar's Future: Bright or Dim?
      To those who think the author is young and therefore foolish:

      We are seldom old enough to have experienced something that we would have otherwise learned from studying history. Traders who in their mid-life think they have seen all in the last 20 years of their career are particularly prone to this kind of age hubris. If he is young, the author is also articulate and intelligent. And I happen to agree with him long term: the chance of picking a winner in a rapidly changing technological landscape is next to nil--that is, if he can hold out for a few years, his short will pan out. But tomorrow, he'll get his teeth kicked in, I'm afraid.

      --
      The market can stay irrational longer than you can remain solvent.
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    • Wed Mar 26th 04:34 AM | Rating: 0 0
      Commented on:
      Dear Fed: Skip Treasuries, Fix MBS Market
      I think this is a bad idea:
      <quote>
      I’m just thinking out loud here, but if the Fed, or some government agency, committed to buying MBS paper at a given price (like it has long stood ready to do in the Treasury market), wouldn’t it likely settle the mortgage market down and go a long way toward stopping the downward spiral in house values and credit markets?
      </quote>
      Isn't this what FNM and FRE are designed to do? Granted, they don't <em>commit</e... to purchase at a specific price, as you propose. If they did, it would amount to targeting long term interest rates. (The risk premium of MBSs would be reflected in even higher priced treasuries.) So you'd have the government manipulating both short and long term rates. Me say, that long term rates must never be manipulated. (It can't be done, anyway: nobody, can pony up the trillion required.) Long term rates reflect, in part, the market consensus of inflation expectations. You can't peg both short and long term rates because to do so would require that you peg inflation: something no one can do.
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    • Fri Jan 4th 19:17 PM | Rating: 0 0
      Commented on:
      Black Swans, Real Estate and Financial Stocks
      Geoff,

      I've read Taleb's "Black Swan," and have profited from it, both personally and financially. Besides selling his Black Swan idea, Taleb advocates that we all swallow a healthy dose of what I think he calls "pragmatic skepticism/empiricism,... and revisit accepted theories--especially those in finance and economics, and see if they stand up to the no-nonsense viewpoint of the empirical skeptic. A viewpoint that appeals to me especially because of my background in physics.

      So in this vein, I'll make a feeble attempt at picking apart your defense of portfolio theory, below :)

      "The core precept in portfolio theory is that risk and return are coupled."

      Yes, but a good number of successful value investors think this is nonsense. They buy, when in their judgment, the downside risk is minimal, and the upside, large. That is, they don't believe in this model; they believe in another model, and they have money to show for it.

      "The price of a security reflects the markets’ consensus opinion of the value of the discounted future earnings generated by the company or asset represented by the security. "

      Really? Sure, the estimated value of discounted future earning means something to a long term investor. But to say that whenever I buy or sell a stock I am voting on the value of its discounted future earnings, is plainly nonsense. My decision to buy or sell depends on other factors as well. These include recent volume and price action, market sentiment, etc. Most traders, and investors, in fact, consider second order effects, such as *expected* market sentiment, *expected* price, etc. That is, a kind of hysteresis seems to govern the price action: every trade affects the trades after it. To say, that every transaction constitutes some kind of vote on the future value of earnings, it would seem, is an academic exercise removed from reality.

      All the same, thanks for your insightful article! I love to see this black swan idea being discussed!!

      -Babak

      P.S.
      I have a more fundamental gripe with the tenet of risk/reward: it may be a kind of tautology. That is, I have a sneaky suspicion that such a relationship can be made to hold true for any model. That is, it may suffer from what Taleb calls the "confirmation bias." One interesting simulation experiment may be to see if one can devise an imaginary model in which risk/reward are *not* correlated, or perhaps even a model risk/reward are inversely related. Would such a thing be even possible?
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