billp70964

Pearls of Wisdom from Bill Ackman

In other words "If I had humility I'd be perfect."

AIG: Before Credit Default Swaps, There Was Reinsurance

"the risk shifting shell game" The quote from the story is the absolute definition of insurance (without the provocative phrase "shell game").

It is true that reinsurance is basically "surplus renting". What's wrong with that? The side agreements basically say the the ceding company will stay with the reinsurer until the "loan" is paid back. Hardly a crime!

BTW there are four types of reinsurance although the article deals with only one-which one is undisclosed.

Every time an insurance company writes a piece of business it has to put aside capital as a cushion. The only way an insurance company can get larger than its capital base is by selling more capital, reinsuring the risk or cheating as AIG did by hiding in an unregulated jurisdiction and not putting up capital. Aside from the last method reinsurance is an obvious, rational and ethical choice.

Eight Reasons Bank of America Is Going to $20

I'm a trader. I've been basically playing the banks from the short side for months doing OK.

Yesterday, I covered and dabbled on the long side but went home flat. I've been truly frightened by the volume on these banks that everyone's talking about (C,BAC,WFC). When you see hundreds of millions of shares trade and the volume is outstripping average daily volumes by three or four times it sharpens my attention.

I know nothing about fundamentals but Jason, there's a turn going on.

IntercontinentalExchange: 'Growth Exchange Without the Multiple'

"Analysts caution about a forthcoming decline in trading volumes, though the anxiously-awaited slump has yet to arrive: U.S. stock-trading volume is up 54% this year,"

This is the intellectual underpinning for every analyst trashing the entire sector-and guess what? It appears to be wrong, especially for equities and options. NYX at a P/e of 7? CME at a p/e 12? NDAX at a p/e of 11?

The entire sector should be bought when the fallacy of the statement above becomes apparent.

AIG and the Free Lunch Myth

It's a very old story. It comes from arrogance. It comes from utter disrespect of the market. It comes from complete lack of experience with markets.

If you're standing on a trading floor (or in the OTC market) and people bid you for a security and have a seemingly limitless appetite for that security a couple of things should occur.

You should start increasing the price-fast! You should also pay sharp attention to that gnawing feeling in your stomach that these folks know a hell of a lot more than you do about what's going on.

Failing that, you certainly should not be handling anybody's money (maybe even your own) because you've just fit the classic definition of a certified idiot!

We saw "models" go bad in 1987 in the options market when Continental Illinois Bank bought a local options clearing firm and nearly brought down the entire banking system of the US in October of '87.

We saw it again in 1997 with Long Term Capital when their model didn't factor in a major volatility upswing.

As a matter of fact, to a lesser extent, we see this in all derivatives markets every single day. It's essentially trading the volatility in a rational manner that makes smart traders money.

AIG did the polar opposite!

Did Derivatives Cause the Crisis?

I agree that the problem was the banks' comfort in holding these positions in mortgage backed assets. You might wonder what led to the banks "comfort".

Simply put, there was no one outside the bank (or inside) screaming about the true values of these securities, nor, for that matter was there any real benchmarks for the values.

This led to "fairyland" valuations. The banks have admitted (out loud, no less) that there was "no market" for these things. Ha! Ha! There's always a market-it's just that people don't always like that market. Thain found a market for ML's junkpile at roughly 22 cents on the dollar.

You know, we might not be in this situation if all these bankers were paid bonuses not in cash but in the stuff they created-at par!

CBOT Takeover Battle: Show The Love

The analysis is quite superficial. There was no evidence at all at the two meetings of shareholders of BOT with both CME management and BOT management that there was any "Chicago pride". It was much more about the money and the fit.

Both CME and BOT are currently very, very involved with technology. Although both maintain floors (as does NYBOT an ICE subsidiary) both are automated to the tune of a very high percent of futures orders (in the 90% area) are electronically executed. This hardly connotes a Luditte membership at either exchange.

BOT members believe ultimately there are more synergies between BOT and CME. However, they are not idiots. If the spread between the market prices for BOT alone, the ICE proposal and the CME bid remain where they are, it is doubtful either of the two deals will win.

The CME (in a huff) views ICE as some sort of unworthy foe. The ICE doesn't want to bid against itself. The market continues to say "NO!" to both deals.

Stay tuned!