Haven't had time to write much....
- fannie and freddie continue to go between 3- 12
- USDJPY has fallen back to 108 levels
- VIX at 21
- interestingly the stock market has risen back to 1285 levels
I notice that volume is higher when stocks are falling and volume is lower when they are rising... in other words stock returns and volume increases have a negative correlation of about -30%. Similar to the 2001 and onwards downturn for the stock market. This phenomenon indicates that market is more moved by "bad news" and the investor on the margin wants to jump off at the slightest shock.
Given the fact that the "real economy" in my opinion, has not yet felt the effects of the credit crunch, I am still bearish the stock market. However, after the next 6- 9 months, I feel it may be time to buy. Bottom picking is hard but after the next 6 months, I feel the risk reward looks favorable to buy.
Good/Bad Quants are not the problem
A friend forwarded me Paul wilmott's blog entry relating to the current credit crunch about how mostly finance PhDs and "rigid ideas" about modeling correlations were all wrong. I agree with wilmott on quite a few things (rants) but when Wilmott talks about "good quants" in a plug for his own magazine :) ...I feel the term "good quant" is a bit of an oxymoron- not due to a lack of intellignece or good intentions of quants but becausemost times quants donot have CONTROL over what gets traded and how risk gets marked. Incentives and power my friend and incomplete contracts are the answer. In other words, regardless of how GOOD a model is made by however GOOD a quant, ( the quant will doubtless be certified by a Wilmott signature on his forehead) , traders, salespeople and managing directors will ALWAYS act in THEIR interest and all these people's interest is mostly SHORT term. The short term interest results in quick riches and quick meltdowns when the gravy train stops.
COMPLEX MODELS HELP SELL CRAP! MODELS MAKE THINGS HARD TO UNDERSTAND. MODELS MAKE THINGS SEEM BETTER THAN THEY ARE. ....
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3 comments:
What do you mean the "real economy".
I mean the "non financial" side of thing- manufacturing plants workers go out to eat less is an example of real economy ...
The real economy has been hurting but somehow does not show up completely in the govt employment, wage numbers and the retail sales. Sometimes I begin to doubt the veracity of these numbers.
I have started seeing delinquencies in rent payments spike. Some of the poorer tenants have had to go for food stamps and energy assistance last winter. Despite that they had trouble meeting their energy bills. This winter is going to be brutal, especially for the north east states. A lot more people will turn to govt programs and will be pushed below the poverty line.
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