dsilisk

How You Can Invest in the Pickens Plan

tom, you have been writing great articles and great blog entries for a long time. from a longtime fan, thanks for ur insight to alternative energy investing, because not many people do what you do in a quality way.

Here's Why Trouble Is Brewing

Its not liquidity if the banks are holding it, hoping to make money off it. Its only liquidity if banks are using it to supply cash to the businesses and people who need capital. $576B in liquidity didn't disappear. $576B in money that these banks made up on paper disappeared. They never had this money to begin with. They "loaned" out money that didn't really exist based on a 10% reserve on their sheets, and when the risk of default rose, they "wrote off" the same money.

If you can magically "write off" money, then it makes sense that they had to magically "write on," or invent, these resources to begin with.

Also, we are suffering through this downturn mostly because we have TOO MUCH liquidity. Its instantaneous capital that puts poor people in million dollar houses, that funds businesses which aren't profitable, which makes people feel they don't have to save, so we end up with a negative national savings rate.

Liquidity didn't disappear. The bank's finances just got an injection of reality. Its about time.

Supply and demand. There is an oversupply of pretty much everything in this economy, including liquidity and volitility. Correction to market equilibrium is the appropriate course of action, as painful as that may be to investors.

There’s Only One Right Way to Build a Portfolio

Bull. This is total bull. This reflects everything wrong with investors: the pseudo-mathematical games of MPT, CAPM, and VAR are a detriment to all investments, as well as a JOKE to people who understand the true math behind probability.

Modern Portfolio Theory, the way portfolio risk/return is caluclated, and Value at Risk, the risk management technique of most investment banks, are both flawed because they rely on mathematical models of probabilty distributions which are not appropriate models of the market. The market correction of March, 2007, should have happened once in 8 billion years, according to their model, but it happened again in august and its happenning again in Jan '08.

Reliance on probability distributions is only appropriate if the higher moments of those distributions are calibrated to reflect actual market performance. however, since higher moment calculation is an advanced mathematical technique, the banks aren't technologically advanced enough to use it. therefore probablistic modeling of stock returns will result in statistics that do not correlate to actual events. other models, such as factor models, catastrophe theory, and moving-average risk calculations are safer, albeit more mathematically complex, tools.

Risk is a moving target. Risk metrics should not be fixed, i.e. risk being determined by historical prices. Risk/reward metrics should be calculated within factor models which determine the correct exogenous variables which determine how much value to place on risk. Catastrophe theory, moving-average composition, and factor models MUST be developed in order to make sense of risk/return in a viable (i.e. mathematically sound) sense.

Stop lying to everyone! Stop telling them this whole "risk/reward" thing works. You finance people call variance volatility, and you call volatility risk. That is like the dog saying "All cats have four legs. I have four legs. Therefore, I am a cat." Flawed logic RULES on Wall St., I guess that is why we are in this whole housing/credit debacle in the first place.

If you want to discuss these ideas further, please do email me at daniel.siliski @ rogue-economics.com. Lets put the real math back in finance.

Estimating the Risk in Citigroup Stock and Bonds

What sort of retiree quotes The Notorious B.I.G.? You must have retired very early!

Your 'estimations' are important in underlying that all anyone is working with these days is an estimation. No one knows.

Why was Citi so irresponsible? Why did so many highly-paid portfolio managers take on so much risk? Because their paychecks are just as fat either way. These are not the Harvard MBA business elite--they are ex-frat boys who were all drinking buddies together in college 5-15 years ago.

When I was at college studying economics and mathematics, it was not the smart, hardworking, analytical students who were in the business program hoping to be bankers. The best business minds go on to be economists--but economists don't make decisions. In conclusion: we have idiots running our financial institutions, because banking is a frat.

Also, we saw Citigroup shares rise by 1.75% today. HELLO? What are people thinking! Citi is about to announce dividend cuts, a deal-that-never-was with China, & 10-30 billion in write-offs (don't you love how they can just get out of this with a 'write-off' while the individual investor loses 40-60% of his retirement savings?) The correction for their losses has not been built into the stock price already.

To whomever is bullish on Citi: Warren Buffet's No. 1 rule of investing is, "Never Lose Money." Stop taking the same miscalculated on Citi that Citi took on ARM's. Save your money, so that my taxes don't have to support your broke, stupid butt when you get wiped out.

Under The Radar News - Wednesday

I've been trying to figure out why Siemens is down all morning. No one but you gave early coverage. Thanks so much for your astute coverage of this foreign blue chip.