Category Archives: Market inefficiencies

Asset Backed CP Yields Move Higher

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 […]

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More on Global Alpha, Quant Woes

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 […]

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Financial Times on the Alchemy of Finance

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 […]

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Conference Board Review on Prejudice and the Glass Ceiling

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 […]

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Floyd Norris: Off the Mark on Subprimes

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 […]

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Has the Credit Contraction Finally Begun?

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 […]

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John Dizard Clears Up Some CDO Mysteries

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 […]

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The Musical Chairs Theory of Markets (Chuck Prince Edition)

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 […]

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Why Do Shareholders Let Corporate Acquirers Get Away With It?

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. […]

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Towers Perrins Stonewalling Congress on CEO Pay Inquiry

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 […]

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Protectionism Lower in Countries With Larger Government Sectors

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 […]

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Bear Stearns and the Vagaries of Models

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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Guess Who Has Few Defaults in Their Subprime Portfolio?

An article, “Better Deeds,” by Doug Smith at Slate tells us that, contrary to popular opinion, one group of subprime mortgage lenders has done well with the product and is experiencing default rates comparable to that of prime mortgages. And no, they aren’t seeing rising arrearages either (generally speaking, mortgage defaults and foreclosures track the […]

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Bill Gates, Socialist

Since Microsoft Chairman Bill Gates has increasingly shifted his focus from his technology enterprise to his charity, the William and Melinda Gates Foundation, he has also had time to clarify and refine his objectives. Unlike the super-wealthy of the past, whose giving typically has been motivated by a combination of enhancing their prestige (often revealed […]

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