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    • Tue Jul 15th 12:38 PM | Rating: 0 0
      Commented on:
      Overselling the Case for Indexing
      sorry, can't get the link to show up correctly.
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    • Tue Jul 15th 12:38 PM | Rating: 0 0
      Commented on:
      Overselling the Case for Indexing
      stanford.edu/~wfsharpe/art/active/...
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    • Tue Jul 15th 12:37 PM | Rating: 0 0
      Commented on:
      Overselling the Case for Indexing
      "www.stanford.edu/~wfsharpe/art/active/...
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    • Tue Jul 15th 12:37 PM | Rating: 0 0
      Commented on:
      Overselling the Case for Indexing
      www.stanford.edu/~wfsharpe/art/active/...
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    • Tue Jul 15th 12:35 PM | Rating: 0 0
      Commented on:
      Overselling the Case for Indexing
      najdorf, I don't know what you are talking about. What is an active option?

      I think that you completely misunderstand my post. There can be no indexing if there is no active management. Active managers in modern economies perform the asset allocation function. Individual active managers can underperform or outperform the market. So what? In aggregate they must return the market rate of return.

      Without them you'd be left with technical analysts, speculators and market timers, so how would they allocate capital properly in the economy without doing fundamental research.

      Read Bill Sharpe's article here if you still don't understand:
      www.stanford.edu/~wfsharpe/art/active/...
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    • Tue Jul 15th 10:34 AM | Rating: 0 0
      Commented on:
      Time to Exempt Mortgage Securities from Mark-to-Market Rules
      Jason, if you have an illiquid asset it makes sense to find its fair value and then to take a liquidity DISCOUNT if it is illiquid. That should write the asset down further, not write it up to a fantasy book value number.

      If short sellers are successful, it is because they correctly assess that the asset is overvalued in the books.

      The argument that does make sense is that valuation models are sensitive to inputs/assumptions which give a fairly wide range of valuations. Different numbers can be justified, but the market, not an accrual accounting rule, should determine the value of a company's assets.

      Finally I hope you will realize that it is unfair to blame every economic problem on the Fed, the SEC, and the Treasury Secretary, etc. These are convenient scapegoats, but usually they are people working hard to ensure the best outcome for the economy, with a few exceptions. Blaming them is like blaming the police for murders while ignoring the role of the murderers. I don't recall the SEC underwriting any loans, nor underwriting them so badly that it drove all the buyers out of the market.
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    • Tue Jul 15th 09:25 AM | Rating: 0 0
      Commented on:
      Overselling the Case for Indexing
      Active managers performs an important asset allocation function in modern economies. Buy side analysts and portfolio managers along with other market participants digest market information and translate it into the impetus behind the invisible hand of the market. Indexing is a free-riding mechanism that misallocates the true cost of the necessary asset allocation function.

      I agree that it is not efficient to have every member of society repeating the same investment analysis in every home and workplace. However indexers are not paying their fair share of the significant cost of producing the actionable results of investment analysis. Its a free lunch in that they get the answers to the exam from the inherent transparency in security prices without having to study or pay for it.

      Indexing is good or not based on the quality of aggregate market knowledge.

      The balance in the mix of information producers and free-riding indexers has been affected to a great extent by information technology and the resultant cost of information.

      If 100% indexing was the case, then asset allocation would be random. Try running a business making random decisions.
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    • Wed Jul 9th 10:31 AM | Rating: 0 0
      Commented on:
      Clock is Ticking for Banks With Asset Quality Issues (Part II)
      Banks are in a world of hurt and will continue in that place for a while. Because investors in the market decided to close their eyes to being sold garbage because they were making money doing so, banks and unregulated lenders threw their underwriting standards out the window in order to churn out garbage in ever increasing quantities. The result is that investors don't trust the banks' underwriting any longer and refuse to buy any more garbage. In fact the baby gets thrown out with the bathwater, and investors refuse to buy regardless of whether the product is garbage or not. Thus we have the current liquidity crisis.

      I think the question is not whether the banks have little time to right their business. That is only a concern for investment bankers like yourself wanting to sell these services to these banks so that they may be able to survive even if in moribund fashion. The real question is when will the banks regain their credibility with the buyers of their wholesale products. That ship is sunk and it's time to build a new one from scratch.
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    • Tue Jul 8th 14:44 PM | Rating: 0 0
      Commented on:
      Is Bernanke Hinting Something About the Fed's Rate Plans?
      Reinko said: "This is also one of the ways to avoid down writings; when it is temporary gone as collateral and is on the balances of the FED, it is not marked to market value."

      Collateral does not leave the balance sheet when it is pledged to a lender. When collateral is pledged on an overnight (or a 28 day) borrowing, you'd better believe that it is mtm daily. In the case of the tri-party repos when the Fed is borrowing, the third party prices the collateral and make margin calls on deficiencies.

      www.newyorkfed.org/abo...

      There are two main types of settlement methods for repos: triparty and “delivery vs payment” or DVP. Fed repos are done via triparty settlement, which means that the Fed and the primary dealers use a triparty agent to manage the collateral. In a triparty repo, both parties to the repo must have cash and collateral accounts at the same triparty agent, which is by definition also a clearing bank. The triparty agent will ensure that collateral pledged is sufficient and meets eligibility requirements, and all parties agree to use collateral prices supplied by the triparty agent.

      The Desk selects winning propositions on a competitive basis. Each dealer is requested to present the rates they are willing to pay for the agreements versus various types of collateral. The three types of general collateral, or GC, the Fed accepts are marketable U.S. Treasury securities (including STRIPS and TIPS), certain direct U.S. agency obligations, and certain agency “pass-throughs” (or Mortgage Backed Securities, often called MBS).

      The significance of the “GC” designation on the collateral is that GC collateral is fungible. That is, the Fed is not looking for specific securities; rather it is looking for any of the eligible securities that do not have scarcity value. As such there are a number of securities that would satisfy the requirements, and neither the dealer nor the Fed needs to know which specific security or securities are going to ultimately be pledged to a winning proposition. The Desk establishes relative values across the three collateral types, and then uses these values to selects the best bids presented.

      The New York Fed makes payment for the securities by crediting the reserve account of the dealer's triparty agent, a commercial bank. This act of crediting the bank's account actually creates reserve balances. When the repo matures, the dealer returns the loan plus interest, and the Fed returns the collateral. The return of funds to the Fed extinguishes the reserves that were originally created by the repo.
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    • Thu Jul 3rd 15:07 PM | Rating: 0 0
      Commented on:
      The Dow In Euros
      I'm not convinced. Can you chart the value of the Dow in corn flakes? That certainly provides a better valuation metric for the Dow because corn flakes, as you well know, are yummy! :)
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    • Tue Jun 10th 12:33 PM | Rating: 0 0
      Commented on:
      Constructing a Portfolio from the Top Down
      To the disciple of the "Oh, that sounds like a good idea" school of investment thought:

      I guess 164 words would constitute a lengthy reply if you are not used to reading. If you object to what I posted so much, why not try to disprove it by arguing cogently that Mr. Nusbaum's article is not fluff? Tell us what great insights you garnered from his article.

      Instead of huffing and puffing for criticizing Mr. Nusbaum, why not reflect on why you are such an eager consumer of his cowpies?

      Information without dissent is not information, it's propaganda. Now take off your benito mussolini hat and realize that we have a first amendment in this country that allows views other than your own.
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    • Mon Jun 9th 10:11 AM | Rating: 0 0
      Commented on:
      Constructing a Portfolio from the Top Down
      I wonder what this clown is paying the site to feature his fluff. There are endless ways to slice and dice the market portfolio. One way to invest is to choose the market portfolio as per mpt. This investment approach has theoretical and empirical support.

      Investing in sectors that may be important in the future can pay off in certain instances and ruin you in others. Take the internet for instance. Some made money in the run-up in the 90s and others lost money in the subsequent crash. Real estate is the more recent example. These were important themes in the economy, but were they sound investment strategies?

      So what is the evidence that this "theme" approach is preferable to other investment approaches?

      This guy doesn't deal in evidence or investment merit. He deals in coming up with yet another tired, repackaged bag of goods to sell to the public.

      I wish that this site would use some judgement in choosing its featured articles.
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    • Wed May 21st 15:58 PM | Rating: 0 0
      Commented on:
      U.S. Credit Card Industry Moving into Uncharted Territory
      "The easy credit led economy which fueled our GDP in 2003-2007 created massive unsustainable public and private debts. The public debt serviced by foreigners is shrinking meaning investor confidence in the U.S. financial system has been temporarily destroyed. Between inflation caused by currency devaluation, wealth destruction in real-estate, energy consumption costing consumer 25% of monthly disposable income (I didn't include food), offshoring and lack of job creation (rather permanent skilled job destruction) the total net loss calculation was 8 Trillion dollars of wealth destroyed in a four year cumulative period."

      www.federalreserve.gov...

      Is your calculator broken? See FED flow of funds as of March 6, 2008. See the last page 116. It shows US net worth going from $44.1 trillion on 2003 to $57.7 trillion in 2007. A net GAIN of $13.6 trillion! That's an entire year of US GDP. 2008 may show a decrease in net worth.

      Tell the truth...you didn't really do any research, did you?
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    • Mon May 19th 13:46 PM | Rating: 0 0
      Commented on:
      Bond Market Needs Revolutionary Change For Investors' Sake
      My feelings are exactly the opposite to the ones posed above. I think (most) bonds are stodgy out-of-date relics of very limited use.

      It may comfort you that you can calculate on day 1 how many dollars you will have in day 365, but how much will those dollars be worth? How much purchasing power will you have?

      Individual bonds with a fixed coupon expose you to interest rate risk. There is a real opportunity cost here that is often ignored. Even if you buy floaters, you have to be careful that you match the reference rate to your holding period and not to the duration or maturity of the bond. Otherwise you are exposed to reversals in the yield curve. Even if you hold to maturity, there is inflation risk in floaters unless you are holding TIPS or a similar product.

      Equities tend to address partially the interest rate and inflation risks as these are baked into the price.

      They are sexier for good reason. Bonds are relics that haven't kept up with the times. That's the reason why there has been a bubble-like explosion of credit derivatives - in order to make the risks correspond to those demanded in the marketplace. Default swaps, bond insurance, IR and FX swaps all serve to address shortcomings in bonds.

      Lastly, and maybe most importantly, look at the long-term expected return of the asset classes. This is the reason that for someone with assets with a reasonably long investment horizon, bonds cannot compete with equities.
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    • Thu May 15th 17:39 PM | Rating: 0 0
      Commented on:
      Seeking Equity-Like Returns, Outside of Equities
      I don't know what to say if you don't know the difference between balanced and all-encompassing. A sentence like: ""Currency speculation-like" losses are also possible." would have sufficed for balance.

      You appear to be in the same intellectual class as Mr. Nusbaum. This statement is neither sarcasm nor a compliment.

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