tag:blogger.com,1999:blog-53246864840716464.post9078450846186470429..comments2024-02-29T00:46:38.800-08:00Comments on Washingtons Blog: Are Interest Rate Derivatives a Ticking Time Bomb?Unknownnoreply@blogger.comBlogger5125tag:blogger.com,1999:blog-53246864840716464.post-90120885864675275442010-04-23T05:41:25.974-07:002010-04-23T05:41:25.974-07:00General point taken, but the statement about Summe...General point taken, but the statement about Summers losing virtually all of Harvards endowment is bombast. Unexpected and painful $1bln margin call, yes. Losing virtually all of $20+bln, no.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-53246864840716464.post-5132946022144134622010-04-22T11:58:27.270-07:002010-04-22T11:58:27.270-07:00OTC Derivates Market is justified by, “it doesn’t ...OTC Derivates Market is justified by, “it doesn’t matter that formal insurance policies are not available. The mathematics of finance provide the answer…The bottom line is that financial catastrophes can be avoided at a relatively insignificant cost.” What if the mathematics of finance, which assume the Efficient Market Theory (EMT), ARE WRONG?<br /><br />The EMT defines markets as: <br /><br />1) being in equilibrium and if unexpected events cause disequilibrium, it is only temporary, that is, markets are self-equilibrating; <br /><br />2) asset prices “fully reflect” all available information, properly represent each asset’s intrinsic value, and as a result, prices are always accurate signals for capital allocation; <br /><br />3) stock prices move randomly or are uncorrelated with, if not entirely independent of, the prior period’s price change, consequently, beating the stock market on a risk-adjusted basis should be impossible to achieve when solely using technical analysis mathematical models or stock charts to make trading decisions. <br /><br />Dr. Eugene Fama’s Famous 45 Year Old Challenge Solved<br /><br />Fama’s (1965, 1995, Financial Analysts Journal) 45 year old challenge for technical analysis is to “rigorously test mechanical trading rules to show they can consistently make better than chance predictions of stock prices.”<br /><br />Technical analysis mechanical trading rules for an S&P 500 Index portfolio substantially beat a naïve buy-and-hold policy—by two-and-a-half times—at just two-thirds the risk. For 81 years, the stock market has not been efficient, the data do not support the EMT, consequently, the OTC Derivatives Market does not have an intellectual leg to stand on!!! Obviously, getting academe to accept this fact is a long and slow process. I desperately need all the help I can get, please read the empirical research paper below. <br />http://www.theastuteinvestor.citymax.com/f/Do_Inv_Emot_Create_Ineff_Mkts.pdfEric L. Prentisnoreply@blogger.comtag:blogger.com,1999:blog-53246864840716464.post-59861330919602246432010-04-22T08:25:22.295-07:002010-04-22T08:25:22.295-07:00In order to have a successful scam, you must have ...In order to have a successful scam, you must have a designated mark (sucker) set up. The municipalities were the mark. <br /><br />SOMEBODY knew this daisy-chain of events would happen, so lets just see who actually benefitted from this scam.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-53246864840716464.post-17609566549711464932010-04-22T04:34:26.840-07:002010-04-22T04:34:26.840-07:00"[...] there is a real danger of too many peo..."[...] there is a real danger of too many people using the same strategy at once."<br /><br />There is no real -danger- of this happening. This is not the -inherent- problem at all.<br /><br />It is the foregone conclusion of any capable and realistic analysis.<br /><br />If there is any cogent logic behind any of these APPLIED-THEORIES-AND-STRATEGIES, right or wrong, OF COURSE, everyone will end up on the same side of the boat. That's the side of the boat where all the BIG FISH are being caught.<br /><br />What actually happens is, -someone realizes in this game of musical chairs played in the dark, that THEY have no chair to sit in.<br /><br />Oh, well.<br /><br />So, -they lie-. THAT WORKS FOR A WHILE.<br /><br />They lie and they say, "The rug fits in my corner of the room -NOW-," knowing full well, that unless someone is so bold as to turn the lights on, -no one will notice the difference.<br /><br />Right, Mr. Fuld?<br /><br />Right, Mr. Blankfein?<br /><br />Right, Mr. Lewis?<br /><br />Right, Mr. Immelt?<br /><br />Right, Mr. Thain?<br /><br />Right, Mr. Perry?<br /><br />Right, Mr. Mozilo?<br /><br />Right, Mr. Madoff?<br /><br />This problem always has been approached as if it were soluble in some UNIVERSAL and proactively positive and profitable sense.<br /><br />It absolutely is not.<br /><br />All these credit economy strategies have always ended up being a NET NEGATIVE when observed over the lifetime of the bubbles being blown.<br /><br />The only solution is to stop trusting these liars and thieves. After all, they are only human.<br /><br />-No-. They are not super-human -in any sense, -whatsoever-.<br /><br />In a credit economy paradigm, the rug does not AND WILL NEVER -really- fit in the room, -regardless the lies being told about the rug and everyone's corner of the room.<br /><br />And when the lights are turned on -the boat will capsize- SIMPLY BECAUSE everyone is ALWAYS on the same side of the boat in a credit economy.<br /><br />They don't have the money to cover their marks.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-53246864840716464.post-79868640082355878312010-04-22T04:12:37.436-07:002010-04-22T04:12:37.436-07:00You wrote: "...If an institutional investment...You wrote: "...If an institutional investment manager held $100 million in fixed-rate bonds, for example, to hedge the risk, should interest rates rise or fall in a manner different than projections, a purchase of a $100 million variable interest rate derivative could be constructed to cover the risk.<br /><br />Whichever way interest rates went, one side to the swap might win and the other might lose. "<br /><br />----------------------------------<br /><br />So, how does the institutional investor ever win anything if they have offsetting transactions where one wins the other loses? Sounds like a zero sum game to me. Is the interest rate swap just paying a percentage of the loss or something?Anonymousnoreply@blogger.com