Apr

14

"The best way to deal with pirates has always been to kill them, and that's still true today. It should not have taken this long to figure out what to do." A Reader.

I would focus more in this issue on the human dimension. How does the personality of the commander at the scene influence the outcome of a situation? He has to make decisions taking into account the political guidance (or lack thereof), the culture and characteristics of the adversaries, the procedures and the tactics (are they adequate to the new task? Are we flexible enough to understand what is needed in this context?), the training of his sailors, the capabilities available, the environmental conditions and finally the uncertainty that any event has embedded. There are some key questions to answer: What are risks and benefits for each course of action? What is the cost of a failure? How does a local, tactical event impact on the higher strategic and mediatic picture? Although to outsiders it may seem that all he has to do is apply very well established procedures and rules, in real life at sea it is never that way.

Jun

4

 It is very sad how the public continues to lean the wrong way and lose more than they have any right to. Even the big trendists who only look at charts had no right to miss the upward drift of the past few years.

How naive does one have to be to invest money with the trend followers who managed somehow actually to miss the "trend" and claim to the naïve public that there was no trend to follow?

The doomsayers keep coming back with the most unscientific and naïve reasons to stay bearish. What is more heartbreaking is that all their reasons are in fact quite bullish if they took a little time to study and analyze them.

Some reasons to be bearish are:

  1. Stock buybacks: With $600 billion in cash, S&P 500 companies are buying back stocks. For the sixth quarter in row share buybacks have exceeded $100 billion. This must be very bearish indeed since it means that these companies are depleted of any expansive ideas. In reality, stock buybacks are very bullish, as Vic and Laurel have shown. It is also an indicator that these companies believe that their shares are undervalued. Companies with buybacks outperformed over the next six months and one-year intervals.
  2. M&A activities will exceed $1 trillion this year. This is the third year in a row. Almost a quarter of this is done for cash. This must also be very bearish indeed according to the doomsayers. Again, these companies must have nothing better to do with the cash than acquiring other companies. Yes, the doomsayers believe that pumping back liquidity into the market to the tune of $250 billion annually and taking float out of the market is bearish. They believe that mergers are not an indication that these companies perceive the market as good value.
  3. The equity shrink that is taking place due to all the M&A activities must be very bearish indeed since it will leave the investor with fewer choices. Now that more money will be chasing less, stock supply could indeed be bullish-economics 101.
  4. Short positions are at all time highs. It is very bearish, as you all know since the short-sellers are the more sophisticated bunch and they are very capable of predicting the market turns. These short-sellers will have to eventually cover their shorts in the face of the ever-rising markets to avoid total bankruptcy, which will add fuel to the fire and is indeed very bullish.
  5. The most recent bearish reason is the Shanghai stock market that keeps going down. You have to admit that this is very bearish indeed. It will eventually spill over to the US and cause an economic collapse like never before. The laws of substitution dictate that the liquidity fleeing China will be looking for a safe haven in the US markets and can indeed fuel the upward drift even further specially given that the S&P, even with its recent advance under-performing the other world markets, and indeed representing great value at these levels.

As long as the public believes these reasons to be bearish and lets the pundits take their eyes off the actual supply and demand curves, there is no reason to fear that the public will get wise to the facts of speculation and life. This is indeed the most bullish time in history.

Riz Din replies:

The professional pessimists find reasons not to invest when prices are falling (they could go lower yet) and when prices are rising (markets are overvalued and a correction is imminent). By playing to the natural risk-averse mindset of the person on the street, they guarantee an audience. Maybe it is in the public's nature never to get wise.

I have no view on timing market entries and exits at current levels, but in the UK the most bullish time to invest was a few years ago when the FTSE was trading well below 4000 and the newspapers were reporting the death of the stock market. I am thirty years old and expect similar anti-equity sentiment to return at least once in my lifetime.

Alex Forshaw adds:

Well, at least you're seeing reason on China/Shanghai. Much more measured to foreordain a US bull market than a worldwide bull market.

Apr

10

 Mr J.G. reports that he has just found the website Cramer Watch, which tracks Cramer's myriad of picks and compares his performance against Leonard the Wonder Monkey (a random coin toss.) So far Leonard the Wonder Monkey is ahead!

Ongoing Stats:
Jim Cramer is right 49.30% of the time.
Jim Cramer's picks average a 0.12% ROI after 30 days.

Leonard the Wonder Monkey is right 50.13% of the time.
Leonard's picks average a 0.34% ROI after 30 days.

Inspired by this, Vic reports that after fifty years of trading we have finally bought a TV for the office in order to track the possible ephemeral effects that characters like Cramer may have on the markets.

Feb

3

On the topic of bonds - one of my trading partners was recently grousing that she would only see requests for quotes and markets posted by other dealers on investment grade products until about 10:30AM (EST) day-after-day. High-yield securities however, are quoted at a uniform pace all throughout the normal trading session. Application to markets? Perhaps it is that large institutions are less reactive (more algorithmic) to intraday market forces than ever in recent times? Is there a parallel in other markets, which have facilitated enormous degrees of customer mechanization over the past couple of years? I certainly see it in equities …

On the topic of cycles, and the elapsed time since key events - a quick search of my e-mail history shows that the last substantive message that used the word "lobagola" took place in February 2006. Are the elephants extinct?

Feb

2

Mulling over the scraps I've overheard at recent soirees, it seems there are parallel auction markets for ambassadorships at work. Within a given "sales territory," in my case, zip codes 10028 and 10128, there's fierce competition between fund-raisers as to which of them gets credit for any money going to Hillary.

The one who brings in the biggest sack o' cash gets some plum ambassadorship.

One "target" said he was going to tell each money-raiser that he couldn't be seen favoring any one of them over another, so he was going to give directly to a PAC that bypassed all their fingerprints.

Looked at a different way, if one wants to play that game, one is playing not only the party and candidate, but the sub-faction through which one channels the cash … as if having the right bookie is nearly as important as having the right horse. And presumably the bookies are busy cutting each other's throats when no one else is looking.

I suspect this is all very similar to what was happening around the Senate in ancient Rome, and in Berlin's back rooms circa 1938.

Jan

31

I once drove Milton Friedman from San Francisco to the Hoover Institute while he talked to my dad about his book Free To Choose. (Being dad's unofficial chauffeur for things he wanted keep secret - principally his visits to the hospital and meetings with, as yet, unsigned authors - was my penance for being the black sheep elder son.) Like any sensible author, Friedman spent most of the time talking about royalties, but I do remember a brief exchange on the subject of money. Since the subject of money supply was one of the book's themes, shouldn't there be a glossary or some definition of what it was? It could be put in the back, said dad. Friedman's response was to laugh. That would, he said, make the appendix ten times the size of the book.

C. Kin adds:

Central bank forecasting Published: January 30 2007 11:47 | Last updated: January 30 2007 20:57

Milton Friedman, in one of his final interviews, suggested that monetary policy should be run by a computer. Since the future is uncertain, any interest rate mechanism will make wrong decisions. But humans add another flaw. Monetary policy requires managing expectations of future inflation and interest rates. Policymakers must be able to communicate effectively. Ben Bernanke's initial difficulties and the Bank of England's current woes reflect this challenge. The problem is not policymakers' views but rather that few can understand what those views actually are.

Sweden's Riksbank, the world's oldest central bank, has just joined a small group of institutions with a no-nonsense solution: policymakers publish a forecast of where they expect to set interest rates in the future. This is not as radical as it sounds. If they are competent, they should have a view. And it forms another step towards transparency. Europe's central banks once made inflation forecasts on the assumption of constant interest rates - a pretty silly premise. Now the European Central Bank and BoE assume a more realistic market yield curve. But they expend an inordinate amount of energy hinting at how plausible they believe that curve is. Far better just to say, explicitly, what they think.

Why do most central bankers see forecasts as the last taboo? Partly, self interest - they would frequently be revealed as being wrong. Yet there are two credible objections. First, while financial markets are grown up enough to understand forecasts are uncertain, the general public might not be. Second, making explicit numerical rate forecasts by committee is difficult. Pioneering New Zealand, Norway and Sweden in effect have either a single dominant decision maker or small groups of bank insiders. The ECB's 19 rate-setters and the BoE's nine look unwieldy by comparison. Reformers can forget the Federal Reserve. It is not so long ago that a congressman told Alan Greenspan that he finally understood what the chairman had been saying. "I must have misspoken," was Mr Greenspan's famous reply.

Copyright The Financial Times Limited 2007

Rudolf Hauser adds:

The most important problem with central bank discretion is not the lack of transparency, although that certainly does not help, but rather, it's that central bankers might take actions that make the problems worse rather than better. The problem with a computer program is that it has to make some static assumption about some key variables that might in effect change over time. However, it is possible for a perceptive central banker to anticipate those changes and adjust central bank policy accordingly. It might be much less costly to adjust monetary policy than to force the market to adjust to a predetermined monetary policy.

Forgetting the many specific ways of implementation, there are basically two guides to monetary policy. One is to target high-powered money (the monetary base or in other words the sum of reserves held at the central bank and currency) or a definition of money selected that the Fed could reasonably control through the use of the monetary base adjustments. There are a number of problems here, including changes in the demand for money, the fact that other financial instruments aside from the chosen definition of money are quasi-money and could substitute for the chosen definition (which could itself be fully money - such as an IRA savings deposit), and effectively controlling that definition just by manipulating the monetary base. The other approach is to target the interest rate for high-powered money (the Fed funds rate) or some other interest rate relative to an equilibrium real interest rate. The main problem here is determining what that real equilibrium interest rate is, which includes being able to determine the market's inflation expectations included in the nominal interest rate. The advantage is that changes in the demand for money might not present a problem, and that real equilibrium rate might change over time with shifts in the savings/investment balance and changes in time preference of consumption. Discretionary central bank policy has often just focused on perceptions of the economic outlook and attempted to react to those forecasts by changing interest rates or other targets to moderate the impact of undesired directions in inflation or unemployment. Given that stable prices should be a central bank's key objective in its monetary policy, inflation targeting is a third alternative, with adjustments to interest rate, or money supply targets to be used more directly. Although standard assumption can be made for the demand for money (income velocity) and for the real equilibrium interest rate, setting up an automatic computer program for a policy aimed at inflation is more difficult. It need not be the case if one has a market forecast of future inflation based on an efficient market for inflation-indexed securities to plug into a program that then specifies what adjustments should me made to the more direct targets.

When one has an astute central banker such as Alan Greenspan, discretionary policy might work better. The more stable the environment, the more effective a computer program might be. I favored Friedman's computer approach of targeting M2 until the turbulent times of the 1990s when there appeared to have been significant changes in the demand for money. Until that time, monetary growth had been extremely stable under the Greenspan Fed. After that, monetary growth accelerated to accommodate increases in the demand for money related to various financial crises, etc. Relying on an arbitrary computer program might not have been as effective. In the past, discretionary policy often made economic performance much worse, as was particularly the case in the depression of the 1930s and inflation of the 1970s. Focus on recent performance often created a worse pattern of boom and bust. The Fed has learned something from those past mistakes, so it is possible that those mistakes are less likely to be repeated in the future. But one never knows, and reacting to new circumstances is not the same as avoiding exact repeats of past mistakes. Also, as new people come to the positions, those past lessons might not be as well remembered as they should be. At this point, I am reluctant to rely on a computer program, but I realize that relying on discretionary policies also has considerable risks. What should be the case is that a stable price environment with either no inflation or a predictable minimum rate of inflation should be the standard by which the Fed is judged.

Jan

26

 There are 441 operational nuclear power reactors around the world today, with the IAEA reporting that 130 new nuclear power plants are either being built or are in the planning stages. These are conservative estimates, with the actual number of new plants likely to be much higher. [Read more here]

As you might expect, the above site gives a very bullish view on uranium. On the other hand, it is almost impossible to find a bearish article. However, the availability of uranium properties with legitimate producing possibilities is very limited. Even then, a new uranium discovery (or even an established but unbuilt operation), usually takes about ten years to get into production. From what I've read, permitting it can be lengthy and expensive; one forward looking company spent nuclear's "dark years" acquiring already licensed properties … its price is up about 40% over the past year but about 3500% over the past five years.

It's not unusual to find untested companies whose stocks have already experienced runs of 1000-2000%. Even CCJ, the class of the field, has run up something like 700% over the last five years.

If you want to stick with the picks-and-shovels aspect of investing, find out whose got the contracts to build the new plants and who refines the raw product into usable material.

– Jack Tierney

C. Kin comments:

I recall from my early days in the business (early '90s actually) that there were a large number of dormant penny stocks left over from a prolific bubble in uranium shares in the '40s and '50s. Perhaps the chair could direct us to a historic reference on the topic, which was presumably as frenzied and irrational as the dotcom craze. I remember hearing stories about companies whose shares would take flight on rumors that they were about to develop an atomic train/boat/airplane and nuclear-powered consumer products.

Such companies today may very well (if they still exist) herd mountain goats and supervise moose pastures.

I'd love to read up on the topic (from someone other than Doug Casey).
 

Jan

16

Wedge Capital Management is a long-only value investor that I admire. Their quarterly newsletter (Wedge Watch) sometimes has some interesting tidbits. In this issue, there is a discussion on how the U.S. today might very well be compared to the UK of 1900 … the world's leading global power, stock market, etc. and how that changed over the next 100 years. U.S. growth continued, while the UK got bogged down in two immensely costly wars. The upshot, however, is that despite all this, the UK, too, gave investors 10% per year.

Read Wedge Watch

Stefan Jovanovich comments:

The comparison of the United States at present with the United Kingdom a century ago has been made by a number of very bright people. While I can understand its appeal, I do not see how it fits the known facts with regard to military power. It is simply not true to say that Britain was the world's dominant military power in 1900. The British Navy found itself being challenged in Atlantic waters by both Germany and the United States and in Asian waters by Japan (hence the appeal of Jackie Fisher's battle cruiser building program). On land, the German Army had been acknowledged to be preeminent since the Franco-Prussian War. Much of the appeal of Mahan's sea power thesis was that it offered consolation to Anglo-Saxon readers that the Hun could still be beaten even if its superiority on land could not be challenged. The present situation for the United States is far different. For better or worse, the world has never seen the combined arms military power that the American military now has. If, tomorrow, the United States decided that it wanted to take over and hold the entire Arabian Peninsula's oil reserves, there is no combination of forces on earth that could prevent them from doing so. The Chinese are working hard to build up their army and navy by abandoning conscription and having fewer professionally trained and paid soldiers and sailors; but their air and sealift capacity is still so weak that they cannot seriously threaten to invade Taiwan, let alone travel halfway round the world to challenge the Great Satan. Theoretically, the European armies of NATO represent a countervailing force to America's deciding to make "blood for oil" a reality. The armies of the European countries have 2/3rds of the troop strength of U.S. forces, but only Britain has the ability to send its soldiers to other parts of the world, and that capacity is - at most - 10% of what the United States has. The financial comparison between the U.S. now and Britain in 1900 may be more appropriate, but it should be noted that by then Great Britain was no longer the largest economy in Europe, let alone the world. It had been overtaken by Germany by 1885-90, and both Germany and the U.S. were significantly larger economies when measured by national income. The British market's total equity capitalization may have been 50% larger than the U.S., but it was only 20% larger than Germany's, and a great deal of the London market's valuation was in the shares of Canadian, South African and Asian companies. By 1907 there was sufficient uncertainty about the sovereign's real value that the pressure of claims from the San Francisco Earthquake and Fire on Britain's property and casualty insurers was enough to produce a near-panic in the London gold market while the German market remained largely unaffected.

Dec

19

Sean Penn Accepts ‘First Amendment Award’
Hits Media, Calls for Impeachment
Published: December 19, 2006 11:00 AM ET updated 2:45 PM

Penn said he admired New York Times columnist Frank Rich but disagreed with his position that pursuing impeachment now would be “decadent.”

My gag reflex doesn’t allow for consumption of Frank Rich, but the use of the word decadent is really interesting. Think of the connotations: luxury, splendor, raw pleasure… How mentally ill does one have to be to equate a political process with such sensations? How invested in pursuit of control over others’ lives must one be to publicly describe powerlust this way?

Dec

15

There is little doubt that the dollar has declined in real terms over the last 25 years. In 1980, a $100 bucks would buy you over 20,000 yen. Today, your $100 gets you a little less than 12,000 yen. That’s about a 40% decline. Sounds huge right? Well if you think about, the dollar has only depreciated 1.6% per year, on average. That sounds a lot different doesn’t it? Right now, the Yen is trading at -516 forward points to the dollar. That means the market is already priced for a 4.36% dollar decline against the yen over the next year. I don’t know if that makes sense or not but it easily explains why Japanese investors aggressively export capital and buy US Treasuries en masse. The coupon available on US Treasuries easily exceeds the implied depreciation of the dollar. Based upon the dollar’s track record against the Yen since 1980, it’s unlikely to move down by more than 4% in any single year period. There is an obvious trade here.

Based upon my own empirical observations, it is very difficult to join all the doomsayers on the dollar. The dollar is unbelievably sticky. Cab drivers in Malaysia, Th##land and Bali all ask for dollars. They will take the local currency but they prefer dollars. Same in Eastern Europe. They don’t ask for Euros, they want dollars. More telling is the way trader performance and risk is measured in non US banks. No one says “Hey Pierre, how many Euros did you make today?” Or “Lee, what’s the pv01 of that trade in Korean won?” The dollar is the King at the low end (cabbies) and at the high end (finance). It will take a very long time to dethrone.

Steve Ellison adds:

The market may be more efficient than you think. Forward pricing of currency contracts depends on the difference between the risk-free rates available in the two countries. Japan still has very low interest rates. 4.36% seems very much in the ballpark as an estimate of the difference between the risk-free rates available in the U.S. and Japan.

Nov

14

Hedge Manager Is Almost Famous
By LANDON THOMAS Jr.
Published: November 14, 2006

Managers of billion-dollar hedge funds do not usually drive Hondas — except at Goldman Sachs, that is. Traders at Wall Street investment banks are now priming themselves for another big bonus haul this year. And Raanan A. Agus, the manager of one of Goldman's largest internal hedge funds, and the owner of a Honda minivan, will be in line for one of the richer paydays.

This puffpiece on a Goldman trader in today's New York Times lacks a discernable "news peg". Anyone have a theory as to why the agenda-driven broadsheet would run a story like this?

Gregory van Kipnis replies:

NYT does human interest stories, usually about the downtrodden. However, perhaps the angle is that there have been so many stories about hedgefund types who live rich, conspicuous (and sometimes dishonest) lives they (Goldman Sachs) felt it is time to show a counterexample to minimize public backlash.

Eliza Bethan adds:

There is a new TV soap-opera/series that will stereotype hedgefund managers. Among the images to be broadcast are self-praising or youthful managers with advanced degrees, arrogance in winning at all costs, overcoming defeats and obstacles, and of course media stardom, all with a lack of humility and humor…

Oct

17

My idea is directed at fixed income types but should apply to other asset classes as well. Here goes:

Death of Salesman, RV Salesman that is: Most Relative Value (RV) ideas peddled on the street are not really RV trades at all. They are just another form of directional bets on whether the market will go up or down. And we all know that is pretty much random, at least in the short term. Can we measure how much “directionality” is contained in RV ideas? Sure. Simply look at the implied forwards against the current spot levels. If the spot vs. forward differential is anything larger than a normal bid-offer spread, then your RV trade is directional. Let’s look at an example. One of my favorite trades is the 5y- 30y swap spread in Japan. The spot spread was +135 on October 3rd and the 3m forwards implied a spread of 10 bp lower, or +125 bp. Ten year JGB futures, JBZ6 on your Bloomberg, was also a point higher at 134.61. Let’s further say you wanted to put $100,000 of risk to work on the 3rd of October. You either did 5y 30y spread for pv01 of $100,000 or you sold 119 lots of JBZ6. Today, the curve is 10 bp flatter and JGBs are down one point. So the PNL on both trades is about the same. But the return on the JBZ6 is much better since we used a lot less capital (leverage capital, and credit capital) to execute the trade. Further, the futures trade returns cash each day when there is positive MTM. So if you have positive expectations on your trades, and you should, futures are much better. You get to use the cash as it’s realized each day. How about a quick a dirty way to decide if an RV idea is better expressed by a simple directional trade? Simply divide the spot/forward differential by the RV Zscore. I call it the DZ score. A ratio of 1:1 is awesome but is tough to find. As the ratio moves further away from +1 it s gets harder and harder to justify an RV trade. The next time Mr. RV Salesperson knocks on your door, ask them how the DZ ratio looks. If it’s far from one, you’re better off kicking some futures around. This all comes down to the very obvious point that the amount of risk capital is potentially infinite whilst the amount of available alpha (sorry for the buzz word) is limited. It pays to be selective. Wait for the juicy pitch.

Ckin responds:

Some relative value terms that I often hear:

1. I can’t even create new bonds at this level!

2. This is the cheapest bond in my inventory on an option-adjusted spread versus libor.

3. That swap I proposed gives up 5bp in yield, but picks up 7bp compared to swaps.

4. This swap gives up 5bp, but you take out 4 points in cash and shorten option-adjusted duration by 2 1/2 months.

Oct

4

Reading through the Mark Foley headlines, I found my thoughts turning to Barney Frank, and I took a look at his current website.

Clicking through to his Committee assignments, I noticed the Subcommittee assignments for Financial Services.

The Three Stooges — Sanders, Waters, Maloney — are all "ranking" and would chair their units if the Democrats take the House.

I am certain my 11 year old son knows more about monetary policy from sitting at my dinner table than Maloney knows.

This is really scary.

Sep

14

Venture Capitalists' Pay Is Better Than Their Returns, WSJ Says

Sept. 14 (Bloomberg) — Returns on venture capital may have been poor of late, but the salaries and bonuses enjoyed by executives of venture firms are still gratifying, the Wall Street Journal said in its "Tracking the Numbers" column.

Here's the fee menu:

I wonder what the menu of a fund-of-private-equity-funds would look like?

Sep

13

I have been trying to gain insight into the economics and sociology of the number of friends one has. Some concepts that are relevant are the substitution of family ties for friendship, the reduced time that we have for friends when we have children, the opportunity cost of having a friend when you have other high value uses for your time, the amount of investment that you place in a friend and what the rate of return on that investment is (and how to measure it). Mobility is often reduced by the amount of friends one has, but life-span is increased and apparently friendship is a more important determinant of happiness than money. Here is a simple mathematical study on friendship and its rewards, based on having 150 friends.

I believe that many of the same factors that determine the number of friends you have determine the number of markets or stocks that you own, and the loyalty that you place on them. Perhaps the methods of studying friendship and the concepts that help us determine our choices could be of use when determining what to buy or sell, and where.

We all could be better friends in one way or another, and I plan to reach out to a few people and become a better friend today. Perhaps this will make me happier and more profitable in my investments also?

Rod Fitzsimmons Frey adds:

There are those who are skilled at being a friend. The adolescent view of a good friend is that he is a good listener, concerned for you, sympathetic, etc. That also describes a Labrador Retriever. I think Optimism is the defining quality of somebody who is good at friendship.

He pays you a visit because he is optimistic you want to see him. He buys a small gift for you when he spots it because he is optimistic you will like it. He telephones after a year because he is optimistic the news will be good. Conversations are about the present and future and not past faded glories. Making new friends is the ultimate vote of confidence in the future.

Not quantitative, unfortunately, but relevant to market activities.

C. Kin comments:

Friendship is in some ways an early form of credit … the accumulation of "favors" receivable. I seem to recall from Sidney Homer's History of Interest Rates that kings would make overtures of friendship with other neighboring kings. Gestures of goodwill, tributes, etc., would require reciprocity with a slightly higher value in the future. Failure to reciprocate (a default) would be met with derision, anger, distrust, a disruption of commerce, and all of the other unpleasant things that occur when royalty gets slighted.

Vince Fulco mentions:

While I am a strong believer in the more altruistic reasons for developing friendship vs. the commercial ones laid out here, Charles' historical mention scratches at some great work by Robert Cialdini, a psych professor, regarding reciprocity. It is a generally inherent trait, some call it a mental flaw, of all humans. A flaw because as Cialdini's studies point out; upon receiving something of only nominal value from a friend or acquaintance, we have a tendency to respond in kind with a return favor or gift many times the value.

This phenomena and many other excellent examples are found in his book Influence: The Psychology of Persuasion which I highly recommend for the reference library.

Jeff Rollert adds:

I differ with the implied symmetry of value. Last weekend I traded $20 and an old stereo for a very nice mountain bike for my son at a place where we normally donate stuff. They had a lot of bikes which were not selling. The receiving area needed a new stereo. I clearly won in my mind, they in theirs, yet on market value a third conclusion may have been reached.

Steve Leslie says:

One thing that I always admired about Winston Churchill was he would invite friends and associates for long dinners at his estate house. His suppers were legendary as some of the great politicians, diplomats and thinkers of his era were invited to discuss the events of the day. And these suppers would last long into the wee hours of the morning. I can only imagine the discussions and as I recall, Churchill continued these especially through World War II. Now if Churchill could find the time to have over a group for supper while the fate of the free world hung in the balance what does that say for us.

Speaking personally, there is no greater enjoyment for me than to be invited to someone's home for dinner. There is just something wonderful about being liked so much that another would want you in their most cherished and private part of their world. It is as if they are saying to me "We are welcoming you to be a part of our inner circle of trusted friends."

Kashi Vishwanath mentions:

Your book and website indicate that you (and your colleagues) are willing to look at alternate explanations than the conventional party line. Here is one on Winston Churchill for your consideration and debate.

Conventional thinking has put Churchill on a pedestal. Witness the recent comment in your thread on friends. Ditto the innumerable books and hagiographies on him. Etc.

All that for someone that sought to continue colonial exploitation, ridiculed and disparaged MK "Mahatma" Gandhi, abused the native population of the Middle East and Africa in his time there and sought to maintain that going into the future, supported slavery, and so on. To call him a "leader of the free world" raises weaknesses in one's own critical and independent thinking. Free for what and for whom? and at what cost?

Jan Petter-Janssen continues on the topic:

As a student on a foreign continent the first weeks are really exciting. Since most students know no one or very few when they arrive, making friends is really easy. Everyone is in a kind of friendship vacuum. After a while the number of friends declines a bit since one cannot find enough time for everyone. This is like in micro economy where a monopolist sets marginal revenue equal marginal cost.

Adapting economic thinking and finding how to increase the social revenue and reduce the time cost of a friend may be a good idea (with the risk of such an idea being regarded cynical - which would imply your friends reducing their revenue of having you as a friend).

Another aspect with friends is to balance socializing with working. You work in order to buy goods and services, so you could say that the marginal benefit of interaction and transaction should be equal? I can definitely see myself in such a dilemma because trading stocks gives me the benefit of competition, achieving goals, and studying the mystery of the marketplace, but little social benefit. However, the balance is found by cutting out TV and video games, so then I have enough time for socializing too.

Sep

1

A largely in-line data set this morning may serve to further a flattering bias to the bond market. Among a few comments from primary dealers that I work with are indications that:

1. The 5yr area of the curve is exceedingly rich, largely for technical reasons (the on-the-run 5yr issue was tight in repo. this week, also Asian central bank buying).

2. February Fed Funds futures are indicating 5.20%, so there are slight odds of a rate cut 6 months out.

3. the hourly earnings figure (the only area of the report that was weaker than the Bloomberg estimate) provides a slight bias to flattening.

While I generally do not recommend trades, I would like to point out the the 1yr/2yr inversion is ~20bp following the NFP report. I am finding it hard to envision a reasonable set of circumstances that would not cause this relationship to flatten or normalize (on a constant maturity basis) over the next few months.

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