Hedge funds, which even at their peak of popularity, were regarded with considerable suspicion, have taken a shellacking in the last few months as subprime tainted funds have folded or reported poor results, and “quant” strategies have failed spectacularly, due to extraordinary, allegedly unprecedented market turmoil. Of course, the problem with that defense is that […]
Read more...It’s summer rerun time. By happenstance, I came across a May post, which referred to a Federal Reserve study that had found that risks of hedge funds pursuing highly correlated strategies appeared, by some measures, as high as before the LTCM crisis. We had thought the Fed might be making a mistake in dismissing its […]
Read more...I am reading a very useful primer, “Cognitive biases potentially affecting judgment of global risks,” by Eliezer Yudkowsky, one of the contributors to the blog Overcoming Bias (we made use of one of his posts yesterday). He focuses on existential risk, meaning risks to human existence. Since many people would regard an economic collapse as […]
Read more...Even though the Fed cut the discount rate to 5.75%, and more important, said it was concerned about risks to growth, asset backed commercial paper, which is the epicenter of the credit shock, is being placed at newly high yields: 5.99%, which is now above the discount rate. And remember, not only has the Fed […]
Read more...The New York Times, among others, endeavored to shed more light on why quantitatively oriented funds like Global Alpha (down 26% YTD), Cliff Asness’s AQR (down 13% in August) and James Simon’s Renaissance Technologies (down 7% YTD) are doing so badly. Short answer: these funds rely on models that look at statistical norms, and these […]
Read more...John Kay, in an interesting but somewhat discursive opinion piece in the Financial Times, compares the structuring of complex securities to alchemy, with all its negative connotations. He points out that the elaborateness of the models has the effect of obscuring risks that would be more apparent otherwise, namely, that if you believe markets are […]
Read more...Our colleague Susan Webber of Aurora Advisors has a new article, “Fit vs. Fitness,” in the current issue of The Conference Board Review. The editors were initially skeptical that anything new could be said on the subject of the glass ceiling, but this article persuaded them otherwise. We hope you’ll agree. She draws on personal […]
Read more...Floyd Norris has an article in today’s New York Times, “Market Shock: AAA Rating May Be Junk,” that is enough off the mark to be annoying. The problem with the article isn’t so much inaccuracy as superficiality. Norris points out correctly that a lot of buyers are waking up to the unpleasant reality that that […]
Read more...Readers of this blog know that I have been concerned about the state of the credit markets for some time. We’ve had (until the last month or so), rampant liquidity feeding asset bubbles in virtually every asset class except the dollar and the yen, tight risk spreads (that means inadequate compensation for risk assumption), lax […]
Read more...John Dizard, who writes a pretty-much-weekly column for the Financial Times, typically presenting an exotic investment idea, has long given me the impression he spends much of his day gossiping with people on trading desks. Which means he is very much plugged in, and some of the remarks he makes in passing can be more […]
Read more...Ciitgroup CEO Charles Prince, in an exclusive interview with the Financial Times, said something I expect he will come to regret: Chuck Prince on Monday dismissed fears that the music was about to stop for the cheap credit-fuelled buy-out boom, saying Citigroup was “still dancing”. The Citigroup chief executive told the Financial Times that the […]
Read more...If you are a public company, the odds say that buying another corporation is a bad idea. Academic studies have consistently found that most deals fail, and the reason most commonly cited it that the buyers overpay. Yet as with second marriages, the continued popularity of corporate M&A is a triumph of hope over experience. […]
Read more...In Saturday’s New York Times, Gretchen Morgenson reported that House Committee on Oversight and Reform had issued a subpoena to Towers Perrin, an executive compensation consulting firm, because it had failed to comply with an information request regarding potential conflicts of interest in its pay consulting business. Now because this was a news story, rather […]
Read more...Dani Rodrik posted the findings of a paper by Anna Maria Mayda, Kevin O’Rourke, and Richard Sinnot that concludes that that public has less protectionist leanings in countries with a larger government sector (which presumably means more social services). Rodrik was surprised by their conclusion. I am surprised that Rodrik is surprised. Martin Wolf, the […]
Read more...We had wanted to write about the role of models and more important, model assumptions in the ongoing Bear Stearns hedge fund debacle, and Gretchen Morgenson of the New York Times, in her story, “When Models Misbehave,” provided some useful intelligence. With all due respect to Morgenson, while she touches on some dimensions of the […]
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