Tuesday, September 30, 2008

9.66 Standard Deviation Drops Like Whoa!



So I ran some numbers and it looks like the Daily Historical Volatility of the S&P 500 is about 0.91% (This is based on daily prices from today to back in 1950). Today we dropped 8.79%..... This is about 9.66 standard deviations.... in a single day..... so much for Bell Curves =p

Gogola... google beverage goodness...... well not exactly























On a lighter note... to take your thoughts away from your epicly decaying 401k's.... Check this!
I originally saw this on Boingboing.net but I havent' seen it anywhere else so I thought I'd share..

A new thrust into the tasty beverage business.... Gogola... as sighted in India... not actually Google... but pretty damn creative

Swaps totally kick Wallstreet in the face...


A nice tidy article on these 'credit swaps' that you've been hearing all about lately... what Warren Buffet called Weapons of Mass destruction.... For those of you who want to know more its a pretty good explanation, for those of you who are familiar it is still worth a read. Or more appropriately titled... Credit Swaps totally kick the Wallstreet Bull in the face....
PWN3D!!!!

FYI. The size of the derivative markets is huge... it is estimated to be around $480 trillion in face value vs a $51 trillion for the stock market. Other estimates put it closer to $370 Trillion.
This $480 trillion estimate is pulled from Wikipedia
The $370 trillion estimate comes from Economy Watch

Monday, September 29, 2008

Cloverfield Trailer.. recut.. lol


So the night I saw Cloverfield.. i had a burning desire to do a video edit.. with another movie... I got lazy and never got around to doing it... I just found this on youtube and almost wanted to cry.. cry for the pure awesomeness that other people on the internet tend to have the same sense of humor that I do =)...... the cut/edit is exactly wanted and more lol, thank you internet video editor guy...

Saturday, September 27, 2008

Street Fighter Economics...


I was wondering how the hell Goldman Sachs dodged the bullet.... I did some quick digging and found out a little bit.... LOL.... apparently they hedged their exposure to the whole subprime with a hilarious number of shorts.... they totally bought some Turkey insurance.... and tagged out with another unlucky Turkey at an opportune time... (the Turkey scenario as told by Taleb in the black swan is that... if your a Turkey... the first 1000 days of your life you have an expectation that your going to be fed and treated nicely... because since the day you were born... thats all that happened... you never had any idea that on day 1001 (Thanksgiving) that your going to get your head chopped of.... Protect Ya Neck... a la' Wu Tang Clan... )
Big Ups to Goldman Sachs for Epic Finesse.

The Bloomberg Article that beautifully addresses the scenario

"Enter two smart guys who trade Goldman's proprietary books to argue to the CEO and chief financial officer that the subprime market feels soft and that Goldman should short it. This they do, in such massive quantities that they more than offset the long positions in subprime held throughout the rest of the firm, leaving Goldman short the subprime market and in a position to make billions when it crashes. End of story."

"The only difference between Goldman and everyone else was that Goldman had, in effect, an entirely separate enterprise, sitting on top of the firm, with the power to reverse the judgment of its own supposed experts in various markets. They were able to do this, apparently, without ever saying a word about it to their own traders. Instead of telling the fools trading subprime mortgages that they are wrong, and that they should unwind their positions, they simply offset their trades."



Here is another take on the bullet dodging... but with a little less warmth towards Goldman

"Put another way, Goldman Sachs cleaned up during this summer's collapse in subprime mortgage bonds...by selling the subprime mortgage-backed market short. And why not?

It's not like Goldman is barred from shorting the investment markets that it helps bring into being. Nor did it have any special insight; all of the big investment banks were busy creating and selling subprime junk in 2005-2006.

None of the other big banks, however, had the chutzpah to short the very market in junk they'd given birth to - not yet, at least. And few banks seem to have created bonds quite as toxic as Goldman did."


Either way, I give big ups... to JP Morgan and Goldman Sachs... for dodging a serious psycho crusher... Especially to Goldman Sachs for going against the tide...

Friday, September 26, 2008

Epic Hot Lava Exit


This guy is the man...he's one of those SMART guys Ben Stein may have been referencing to

The best-performing hedge fund manager of the past two years has closed down his funds and is returning money to investors after concluding that the danger of losing money from a bank collapse is too high.

Andrew Lahde, founder of California's Lahde Capital, told investors last week that further credit problems - the basis of his profits - were likely but the reliance of the bet on bank counterparties made it too risky.

The move by Mr Lahde, who returned 870 per cent last year in one fund betting against subprime mortgages, and was at one point up more than 1,000 per cent, underscores the threat that is posed to hedge funds by bank failures.


This guy is also the man... John Paulson...

"Funds he runs were up $15 billion in 2007 on a spectacularly successful bet against the housing market. Mr. Paulson has reaped an estimated $3 billion to $4 billion for himself -- believed to be the largest one-year payday in Wall Street history."

Thursday, September 25, 2008

Got Black Swan?

I picked up Nicholas Taleb's book the Black Swan a few weeks ago, and was intrigued... his reservations about things somewhat mirrored my own, but as a amateur, I just figured that someone else knew better. Here are some of the ideas that I gleaned from his book. Specifically what bothered me when I was learning Stochastic Calculus as applied to finance... was the basic argument that the underlying device operated under something that could be modeled by geometric brownian motion or a fixed step random walk. What bugged me about this was the idea that there was a fixed amount of badness that could happen in a given time frame. I think the models are effective and good most of the time, but it seems that you expose yourself to events that you thought were seriously not possible... for instance under a standard normal distribution, the common attribution to standard deviation lets you take a poke at the probability of events happening that are away from the mean. So 1 standard deviation implies that ~68% of events should occur within this range, and for 2 standard deviations about ~95% of events occur within this range etc... So usually you have some level of confidence that you do not have a say... 10 sigma event happen... say like the stock market crash of 1987 where a 20-22 sigma event definitely punched us in the face.... One of the reasons this is important is that, when they price these options and swaps... which are 'insurance policies if you will', the academic argument is that you take all future possible payouts, and then discount them back to what they in aggregate will be worth... so if you have a huge range of possibility, you should be discounting huge swings in possible payouts... if your guess at the range or 'volatility' is way off... the premium you will charge will be off as well. This is just what I gleaned from a few classes and I think the implication of using the wrong assessment for risk is correct.

I would recommend checking out the book The Black Swan by Nicholas Taleb. I don't think he has it perfect either, but I think a contrarian view is healthy in these times of madness.

Btw I started reading the book the BELL CURVE... and after checking out the appendix decided to stop reading the book. The R2 values of a lot of those 'graphs' were below 0.1, which to me... should have been posted on each graph... vs being hidden in the appendix... also R2 value implies how much of the actual data is 'explained' by the regression model... I don't mind low R2... but the way the arguments are presented in my opinion at least, you would hope they have R2 of 0.8 or higher...

Wednesday, September 24, 2008

Tasty Black Swans...



Some articles from seekingalpha.com on the state of the not so awesome economy... and how this massive black swan took a dump on our financial markets....

Here is part 1

Here is part 2

Selected Tidbits

"As Alan Greenspan denies causing the housing crisis today, his words from November 2002 come back to haunt him, “our extraordinary housing boom…financed by very large increases in mortgage debt, cannot continue indefinitely into the future.” He then proceeded to reduce interest rates to 1%, spurring the biggest bubble in history."

"Much of the housing frenzy can be attributed to homeowners getting caught up in the media hype and the cascade of information about others getting rich buying and selling houses. But, Greenspan's 1% interest rates were the fuel for the frenzy. He knew exactly what these rates would do when he said the following words in 2005:

"Like other asset prices, house prices are influenced by interest rates, and in some countries, the housing market is a key channel of monetary policy transmission."

The final nail in the coffin of Greenspan’s legacy was his speech in February 2004. Greenspan suggested that more homeowners should consider taking out Adjustable Rate Mortgages. The Fed funds rate was at an all-time-low of 1%. A few months after his recommendation, Greenspan began raising interest rates, in a series of rate hikes that would bring the funds rate to 5.25% about two years later. Greenspan's advice came at a time when interest rates had bottomed out making it a particularly bad time to take out an ARM. The triggering factor in the current crisis was the many subprime ARMs that reset at much higher interest rates than what the borrower paid during the first few years of the mortgage. Greenspan gave the bad advice and Wall Street provided the money and derivative products which have created our worldwide meltdown."


Speaking of black swans.... Ben Stein explains credit swaps...
Although... the some blame should still be on the Investment banks that got pwn3d for selling these uncovered instruments and apparently underpricing them severely...... it is interesting how everyone automatically jumps on the 'smart people who saw that pricing of these options was way way off'. Ben in the article doesn't actually blame the smart people... "This is what the truly brilliant speculators in these instruments did not miss. " but he does blame the systemic issues with this whole exotic derivatives madness. Perhaps their perception of the implied risk was severely different than the actual risk...... Generally companies write these contracts to generate extra income... the idea is that they can calculate the risk associated with the contract and charge a premium that is in parity or more with the risk incurred... usually these options expire without any fanfare... but being on the sell side you have as it says in the article... infinite liability to an extent.... If you believe in Taleb's black swan arguments... then you would perhaps suggest that the pricing mechanisms for these securities did not account for these ridiculously 'unlikely' turn of events... since the payouts of these exotic securities is complex... Taleb argues that these types of situations are very vulnerable to black swans dropping out of hyperspace and taking a dump on your lawn..... Fat asymptotic tail events really ruin your apple pie.... now he didn't actually say anything about hyperspace or taking a dump, but you get the idea. =)

Tuesday, September 23, 2008

Spore - Peanut Butter Jelly Time

My 5 minutes in the making Spore creature plus the PBJ time song on youtube

The end of an era...


The era of the Investment Banking model has come to an end.... according to Goldman and Morgan Stanley.
Bloomberg story located here

"The Wall Street that shaped the financial world for two decades ended last night, when Goldman Sachs Group Inc. and Morgan Stanley concluded there is no future in remaining investment banks now that investors have determined the model is broken."

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Another look from the Economist... about what the future may hold... and how perhaps the alternative of universal banks may be less tasty than they really are..
The end of an era... spawns perhaps new more hilarious risks...
"By these lights, universal banks appear to offer clear advantages to both shareholders and regulators. Yet some of those advantages are illusory. For regulators, larger, diversified institutions may be more stable than investment banks but they pose an even greater systemic risk. “The universal bank is the regulatory equivalent of the super-senior mortgage-backed bond,” says one analyst. “The risks may look lower but they do not go away.” And deposit funding is cheaper than wholesale funding in part because those deposits are insured. Measures to protect customers may end up allowing banks to take on risks that endanger customers.

For shareholders, too, the universal bank may offer false comfort. A model that looks appealing in part because assets are not valued at market prices ought to ring alarm bells. Sprawling conglomerates are just as hard to manage as turbo-charged investment banks. And shareholders at UBS and Citi will derive little comfort from the notion that the model has been proven because their institutions are still standing. If the independent investment banks survive, they will clearly need to change. But they are not the only ones. "

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An interesting addition is this article "The curse of public investment banks"
From the article:
"Companies like Lehman and, earlier, Bear Stearns saw going public as an excuse to take on more risk and act more recklessly, when in fact becoming a public company makes caution more important, since the margin for error is smaller, and the punishment for failure swifter.

This is the main reason why there are still big question marks hanging over the future of Morgan Stanley and Goldman Sachs. If you're a private hedge fund, like LTCM, you have to actually lose money in order to fail. If you're a public hedge fund, like Goldman Sachs, all that's necessary for your stock to go to zero is that investors worry that you might lose money.

In Lehman's bankruptcy filing, its assets significantly exceeded its liabilities; I think it's fair to say the risk of going bankrupt while solvent was not something which Dick Fuld historically worried overmuch about.

Saturday, September 20, 2008

There Can Be... Only One...


There can be only one... one house remains standing.... after Hurrican Ike..Here is the story

Friday, September 19, 2008

40 to 1 leverage ratios like whoa!




I looked up Lehmans 10K for 2008 in the SEC Edgar database and found this snippet of hillarity....

Check this out... I originally found this via Boingboing.net lol according to this there were 5 firms that the SEC allowed to break the 12 to 1 lever ratio rules... Lehman Bros, Goldman Sachs, Morgan Stanley, Bear Stearns, and Merrill Lynch..... can i get a 40 to 1 leverage ratio?

Hilarious Psychographic Segmentation Fun



So I was sitting in class yesterday, and the professor showed us an interesting tool.. PRIZM... via Claritas.com psychographic segmentation. It's a tool that analyses the top 5 archetypes associated with a zip code... its pretty dead on and pretty hilarious.... their different forms or archetypes have some pretty hilarious names too... such as YOUNG DIGERATI, COUNTRY SQUIRES, GRAY POWER...

For example... if you typed in say a zip code, it would pop up the top 5 types for that zip code. (the size of these segments is supplied if you pay for this service, although my professors says if you were clever you could back it up from census data)
You find interesting things per archetype such as... they have a penchant for Buick Grand Marquises, watch Futurama, drink malt liquor, shop at Banana Republic, read Maxim, and relative education level and median income...

Try it yourself here
(click on the YOU ARE WHERE YOU LIVE BUTTON )

Here are some examples from places I have lived...

Zip code 27606 - Raleigh NC
Young Influentials
City Startups
Home Sweet Home
New Beginnings
Suburban Sprawl

Zip code 63105 - Clayton MO
Money & Brains
The Cosmopolitans
Young Digerati
Bohemian Mix
American Dreams

Thursday, September 18, 2008

Google is about to buy Valve Software

Google is about to buy Valve software of Halflife fame according to cnet and other sources

Conan the Budget Destroyer























Arnold apparently is going to veto the entire state budget of California.

"Top state officials say they are not aware of any instance in which a California governor has vetoed the entire state budget, going back to at least 1950. Michael Bartolic, a researcher with the State Library, said it would appear to be the first veto of a budget in state history"

"During debate Monday night, Schwarzenegger sent a letter to the Legislature's Democratic and Republican leaders demanding a stronger rainy day account to help the state weather future fiscal crises and curbs on when and how that money could be spent. Lawmakers did not meet all of his requests, setting up a possible veto."

The article can be found Here on Foxnews

Tuesday, September 16, 2008

Ipod Guitar


So I installed this Pocket Guitar app found on iTunes App center for the new ipod touch, (old school ipod touches require a jail break info found on that link to Google Code Link for Pocket Guitar). This thing is pretty sweet, you can swap in effects like delay, distortion, chorus, and even swap instruments from electro-acoustic guitar, to classical guitar, to electrical guitar, and even to ukulele. It's pretty tight and you can do slides, chords and fingerstyle... great for those times when someone picks up a cowbell and starts tapping.. you can bust out Don't Fear the Reaper on your ipod.... or some flamenco rumbas....Hats off to Shinya Kasatani for busting this totally sweet application out.

Saturday, September 6, 2008

CF MacBook like Whoa... well sorta


Just picked up this CF-Leather MacBook Cover... sweetness...

Wednesday, September 3, 2008

Tuesday, September 2, 2008

When you know you should fire your agent


It makes my Taco Pop! EPIC LOLZ.. from an email my friend kyle sent me Here is the LINK - EPIC LOLZZZZZZZZZ I can't believe her handler let her say anything like that.....