Indy Telecom & Industrial Media

Will the fed cut rates today?

My prediction is that a 50 bps is likely; however, a 100 bps is very unlikely. As it is, we are at record lows, so going any lower is more likely to hurt the economy than help it (all that cash running amok in the economy has to do something).

Then again, as Paulson and Bernanke seem to be fans of Keynesian economics, they may just hope to inflate our way out of all this bad debt. I mean, do you really see the US paying back the trillions in national debt?

A quick look at this graph from yesterday indicates that Bernanke seems more intent on cutting rates than Greenspan.

Then again, a lot of the problems today are because of Greenspan’s policies, so that may leave something to be desired.

Update: Fed cuts the rates by 1/2 point, and we’re at a record low of 1%.

“Be the change you want to see in the world.” – Mahatma Gandhi

The Economist has a rather insightful article on capitalism. I especially liked this concluding quote -

Capitalism is at bay, but those who believe in it must fight for it. For all its flaws, it is the best economic system man has invented yet.

So, I was off by a few weeks.

Bite me.

Does anyone have any recommendations for good brokers for online options trading ?

I’m looking for low rates/commissions, and quick, effective and consistent execution.

I return late at night to the hotel after spending the whole day poring over a financial model, only to find that I had forgotten the key card to my room.

So, I head over to the concierge desk to get a new one made. And oh, I also find the need to stress the hotness of the chick at the said desk.

Me: Hi, I lost my keycard.
She: Oh. What’s your room number?
Me: 1792.
She: Okay, let me make you a new one.

*a few seconds later*
She: 1729, right?
Me: No, 1792.

*she gets a call, and asks me again about 30 seconds later*
She: 1729, right?
Me: No, as mathematically interesting as 1729 might be, it is 1792.

She: Wait, I’m confused. Did you say 1729?
Me: You’re not very good at this, are you?

I felt like a stick figure in an XKCD comic.

Apparently, coffee can make women’s breasts smaller, according to a Swedish study.

(Quote du jour courtesy of Prasenjeet Dutta)

I normally do not blog about specific brokers or service providers, but ShareBuilder deserves a special mention.

The basic idea behind ShareBuilder is that it lets a user buy complete as well as fractional shares. This is especially great for most people (like me) because while I’d love to own shares of Berkshire Hathaway, it is not quite possible for me to go out there and buy a few of those.

However, ShareBuilder lets you set up periodic automatic transactions where your funds can be directed towards various securities of your preference.

The other interesting aspect is that ShareBuilder’s automatic investment triggers happen on Tuesdays, with the following rationale -

At the end of the day, I think that letting people buy fractional shares is a neat idea, and can help build a rather robust portfolio over time.

(Disclaimer: I do not work for ING or ING ShareBuilder, nor am I associated with ING or ING ShareBuilder in any way. It is simply a great tool that I was impressed by, and wanted to share my thoughts with all you fine readers.)

Andrew Lahde, the fund manager for Lahde Capital, became famous for giving his investors 1000% returns by betting against the subprime mortgage markets.

After making his fortune, Andrew quit the HF industry recently. And his goodbye letter is the stuff of legends.

Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.

Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing p shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list those deserving thanks know who they are.

I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.

So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don’t worry about my employees, they were always employed by Mr. Springer’s company and only one (who has been well-rewarded) will lose his job.

I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life — where I had to compete for spaces in universities and graduate schools, jobs and assets under management — with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.

On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government.

Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man’s interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft’s near monopoly. I believe there is an answer, but for now the system is clearly broken.

 Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won’t see it included in BP’s, “Feel good. We are working on sustainable solutions,” television commercials, nor is it mentioned in ADM’s similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won. At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country?

Ah, the female. The evil female plant — marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So, why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other additive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let’s stop the rhetoric and start thinking about how we can truly become self-sufficient.

With that I say good-bye and good luck.

All the best,

Andrew Lahde

Well, it was bound to happen eventually, but P2P lenders are facing a hard time. Of course, given the economy and the difficulty that some people would have in borrowing from institutions, it was only a matter of time that they explored alternatives. This, and the lending agencies asking the SEC to clarify their status while they were on hold, does not help matters. And neither does a tough economy.

Here are some interesting statistics from LendingStats on Prosper, one of the bigger P2P Loan players. The graphs speak for themselves.

So, it looks like the OPEC is going to convene earlier than their scheduled date of November 18th. What’s the emergency, I wonder?

Will they cut production? I should hope not, because the current volatility and markets could hurt rather than help them.

Most oil producing countries would be happy at a much lower rate, and would much rather have limited volatility to fund their internal projects.  A production cut at this point can only do one thing — bring down the wrath of the rest of the world on them.

A quick look at the production will tell you that despite the downturn, the production has only gone up.

However, the lower prices could potentially be contributing to a higher demand. An increase in prices could only potentially serve to decrease the demand, normalizing their profits in the short term.

Of course, in the long term, they get to keep the oil prices at the much higher rate, which would always be a good thing for them I guess.

More Taleb, yes.  An excellent essay in the Edge Foundation’s Third Culture by Taleb on statistics, and how it is often misused.

And here is an interesting analogy from the essay, comparing a Thanksgiving turkey fed consistently until its unfortunate end, and IndyMac’s performance.

Oh my.

While the rest of the market plummets, investors of Universa Investments LP (where Taleb is an advisor) have gained 50% or more this year.

That told you so sort of gets painful, especially when the man is right.

An interview from August in the Portfolio magazine with Taleb which talks about how he predicted this crisis ages ago:

N.N.T.: Yeah, I only do things where there’s a natural stimulation. I had no natural stimulation to sit in a meeting, so I would not sit in a meeting, and that has worked for me. I want to free up the time to think—that requires the details in my reading and my writing and thinking. Enjoyable activities. When I’m writing, if I get bored, I’ll stop immediately, mid-sentence, that’s it, I don’t write anything that bores me…You have a copy of The Black Swan? Let me show you, I think I have it here, page 225, in the footnote. Read it.

L.G: [Reads] “Likewise, the government-sponsored institution Fannie Mae, when I look at their risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry, their large staff of scientists deem these events ‘unlikely.‘”

N.N.T: That’s the central point. The rest is noise.

L.G.: You wrote that footnote in 2005?

N.N.T: Yes, but actually I saw their positions in 2003, when a very smart journalist, Alex Berenson of the New York Times, came to me and said, Can I show you the risk of Fannie Mae? When I saw it, I almost choked. [In Berenson's August 2003 article, Taleb was quoted as saying Fannie Mae and other major holders of mortgages and mortgage-backed securities chronically underestimate the odds of a big move in interest rates that could decimate the value of their portfolios, over-relying on computer models that don't account for rare but devastating events, i.e. black swans. "The fact that they have not blown up in the past doesn't mean that they're not going to blow up in the future. The math is bogus," he told the Times.] The core of my idea, the central problem here, is not to be a sucker for 1,000 days—not to be a turkey. See?

I’ve been meaning to write about this for the longest time. While the state of the American economy is of much concern, the current state of affairs in the Europe makes our problems look like a walk in the park.

The fundamental problem in Europe has been the attempt at consolidating disparate economic systems and values into a single source, thanks to the Euro. While this has had some success when things were going well, it would seem that this is not particularly true when things are going badly.

This is also complicated by the political climate in the constituent countries and of course, the display of absolute maturity over silly rivalries (because all those Saxons, Anglo Saxons and Vikings are *oh-so-different*).

But there is a deeper issue here. And that is that while the American financial system has been mismanaged, that does not compared to the way Europeans have mangled theirs.

Paul Kedrosky recently had a post on How the US Saved the European Banking System.  In his post, he quotes a short report by Daniel Gros & Stefano Micossi that provides an interesting little table (The beginning of the end game [PDF]).

And to give you an idea of the leverage issues, Lehman had a leverage of 24 (gross, of course — net leverage ratio was 12, which is debt-times-equity).

Goldman keeps its leverage trimmed at around 17-22 (depending on the time of the day and market conditions, of course). Of course, Goldman’s leverage has also been more sustainable in general because Goldman hasn’t needed to borrow as much as its competitors.

The other factor is even more scary. And that is the asset valuation of the financial institutions relative to the GDP of their host nations.

To make it worse, countries are worried about pooling money to help banks in other countries within the EU when their own institutions are struggling. And can you really blame them? This, more than anything, calls into question the sustainability of Euro as a currency.

The other thing that I’ve heard from my friends in the industry is that certain European banking laws give banks the option of not disclosing certain pieces of information that are necessary for banks in other countries. This, of course, makes it hard to estimate the exact financial health of these institutions.

So, given these facts, is it any wonder that European banks and governments are scared? For example, the whole exchange between UK and Iceland seems childish (a friend called it Britain’s revenge for the Viking invasion of 400 800 A.D.). But then, people do funny things when they are scared.

So, Euro death watch, anyone?

Given a society of credit card borrowers and debt-laden folks trying to live beyond their means, it was bound to happen eventually.

Turns out that the National Debt Clock has run out of digits to show our current national debt. It is a sad, sad state of affa

And ladies and gentlemen, we are there. My predictions? We are likely to hit the low 8,000s; however, if we ever go below 8000, the chances of going below the 2002 low of 7784 is unlikely.

And if it does, I’m moving to a farm in Bhutan.

Since we are flirting the 8k range, it might be time to look at the NYSE Circuit Breakers.