This applies more to private equity than hedge funds.? Adjust the headline. http://t.co/Zy4kRVlg Jan 21, 2012
Economists: A Profession at Sea http://t.co/86wZognH Too much math, & not enough knowledge of how people, business & finance really work $$ Jan 21, 2012
Clever article $$ RT @srussolillo: A Standard, and Poor, Way of Investing http://t.co/mRr6rlve via @WSJ Jan 21, 2012
Collateral squeeze as strong as ever, Icap says http://t.co/v4QZvndP The big Draghi LTRO reduces repo rates & reduces repo volumes $$ Jan 21, 2012
Deutsche Analyst Sounded Alarm When Asked to Alter Numbers http://t.co/kPBGzk3o The pressure to get AAA ratings may have led to cheating $$ Jan 21, 2012
Investors plowing money into farmland ? but could come a cropper http://t.co/129i3pbR With all of the debt being applied, likely a bubble $$ Jan 21, 2012
I would not be quick to criticize all hedge funds off of this.? Most investors are trend-followers, and this affects ? http://t.co/50fK1lG8 Jan 21, 2012
point counterpoint http://t.co/VerP28OY @researchpuzzler explains why many investment organizations need a process for challenging theses $$ Jan 21, 2012
More myths around Greek CDS trigger risk http://t.co/PH8s3iwB @soberlook sets the record straight; risks are lower than most think $$ Jan 21, 2012
Your Inner Beardstown Lady http://t.co/QKPIopWf We all need to feel good about our investing, so we systemically overestimate our returns $$ Jan 21, 2012
How the Fed defeated President Truman to win its independence http://t.co/srUcFrKq Independence squandered by Greenspan & Bernanke $$ Jan 21, 2012
RT @maoxian: For every ~5000 followers you should be on ~350 lists. Easy to calculate number of fake followers on Twitter with the follo … Jan 20, 2012
About Rising Inflation, Please Remain Worried http://t.co/u8tIk0RA Maybe someone should suggest 2Krugman the fiscal multiplier is negative Jan 20, 2012
Global Deleveraging – You Are (Not) Here http://t.co/J4rCGvGL US only 1/3 of the way to Swedish levels of deleveraging $$ ht @historysquared Jan 20, 2012
RT @historysquared: Japan’s turn, or another false start. $USDJPY http://t.co/0ncucYLE $$ Which straw will break the camel’s back? #crunch Jan 20, 2012
Japan, Spain & France go up $$ RT @historysquared: Debt & deleveraging: Uneven progress on the path to growth http://t.co/sj3cljZU #ouch Jan 20, 2012
Portugal to need “debt haircut” as economy tips into Grecian downward spiral http://t.co/F40Huo5a Just when you thought Greece was all $$ Jan 20, 2012
Shilling says new global recession is here http://t.co/hWEMiSkg Europe leads downturn, US poised for milder decline; he suggests long Tsys Jan 20, 2012
RT @herbgreenberg: JP Morgan today: “We are currently witnessing THE LARGEST DROP IN REALIZED CORRELATION IN THE HISTORY OF THE US MARKE … Jan 20, 2012
Governments in a Hole as Land Sales Plummet http://t.co/pJA2dZN7 Local govts in China rely on land sales 2 fund budgets, slowdown bites $$ Jan 20, 2012
Further Thoughts on Real Estate?s Impact on GDP http://t.co/86NwJQ6S 0% growth in property investment could push China into ?hard landing? Jan 20, 2012
Retiree Imbalance Underlies Filing http://t.co/thdWL5sw Re $EK, always easier 2 offer more benefits, play w/assumptions, pay no $$ cost Jan 20, 2012
Three of a Kind http://t.co/YV57WRl5 Debt ceiling issues; Corporations lobby, get subsidies & pay no taxes; cost savings in Medicare, not $$ Jan 20, 2012
Corporate Debt to Surge in Sweden as Bank Credit Dries Up http://t.co/11mDdeYP Rising bank capital requirements reduce lending, +bonds $$ Jan 20, 2012
Students Shift to Computer Science http://t.co/cYPCTqwO Computing now penetrates into most lines of business and academic discipline $$ Jan 20, 2012
ITU Global Market Data http://t.co/VsUK6MEE Cool graphic showing the global growth of wireless & broadband over the last 10 years $$ #cool Jan 20, 2012
Army Foresees Expanded Use of Drones in US Airspace http://t.co/atcbzCmW Aren’t there some civil liberties issues here? Posse comitatus? $$ Jan 20, 2012
Housing Inventory Ends Year Down 22% http://t.co/xNbdrJkq There is a lot of dark supply out there, waiting to sell when prices rise $$ Jan 20, 2012
RE: @bloombergview It also perpetuates malinvestment.? We overinvest in housing and banking in the US, to the detrime? http://t.co/2yLTBqH5 Jan 20, 2012
@D_T_A_F In 1988, I read The Media Lab: Inventing the Future at M. I. T. http://t.co/orSrsFsa Xerox lost a lot, I learned a lot, great book Jan 20, 2012
New from Aleph Blog The Rules, Part XXIX: Risk premiums should never be capitalized, they should only be taken i… http://t.co/rrhWkItf Jan 20, 2012
New from Aleph Blog On Predicting the Future, Redux: From a reader, ptuomov:If you run a regression of the magen… http://t.co/MGBbnUAq Jan 20, 2012
In the recent run-up, there was talk of the infallibility of equities.? This led to a higher level of variable compensation in the economy through option and share issuance and low pressure to raise fixed wages.? This was yet another form of hidden leverage, which hid the unprofitability of enterprises through share dilution.
That was written in 2001, after the flop of the Nasdaq.? I have sometimes said that bubbles are financing phenomena.? That’s true, but we can phrase it more generally: bubbles occur because of an asset-liability mismatch.? People go long a long-duration asset with short-duration funding.? The short duration funding can be borrowing, or vendor finance, or it can be a labor commitment in order to get equity or option awards.
People chase the long-term asset that seems so valuable, and give up time and interest (money’s version of time) to get it.? They give up more than they imagine for something of uncertain value.? In other words, a mania.? Give up something relatively certain in the short run for something with uncertain long run potential.
The attitude could be summed up with a conversation I heard in early 1998 between my boss and his best salesman, where the salesman said, “It’s a no-brainer, have the market pay your employees.”? His idea was that a constantly rising stock market would provide compensation to employees through stock awards, options, 401(k)s, etc., even as the market was straining at valuation limits.? It is probably a sign that the market is overheated, when market-based rewards become common.
Startups by their nature require that employees be flexible, and give up a lot of fixed guarantees.? What payments they receive at the beginning are small, and less than their work might deserve in most established contexts.? But there is the possibility of the big payoff, and the possibility of total loss.? The asset in question has a lot of variability, but the liability, the work that must be put in, is big, and may not vary much for success or failure.
In the tech bubble, many parties extended vendor credit because there were big profits to be made in the future.? Alas, but they lent to those with very uncertain prospects, and in March of 2000, the chain of leverage started to collapse, both for vendors, and for those that worked in the industries.? Just as hedge funds have a hard time holding onto good employees when performance goes bad, so it is for tech companies when financing dries up, and the stock price craters.? Rats desert the sinking ship.
“Free money” brings out the worst in people.? Do something small in the present and reap a huge future.? Sadly, it rarely works that way, except at the very beginning of a boom.? At the end of the boom, it is a maelstrom, with many people demanding to throw their money away in search of riches that will never be.
Crowd-following is common to humanity.? It takes a lot to stand apart from highly correlated behavior.? I?ve told this story before, but in late 1999, I was talking with my mother (a very good self-taught investor), she told me about many of my cousins who were speculating in tech stocks.? I said to her, ?They don?t know anything about investing!?? My mom replied, ?Oh, David.? You?re such a fuddy-duddy.? I just bought some Inktomi!?
Now, to set the record straight, that was just 1% (or less) of my mom?s assets, so an occasional flyer is acceptable.? Call it ?Mad Money.?? ? For my cousins, it was most of their investable assets.? My mom is fine, and the fuddy-duddy did all right also, but the cousins swore off stock investing.
I am close to concluding that it is impossible to teach the average person how to do well in investing.? They don’t have the patience or the willingness to learn. (Few want to be called “fuddy-duddy” by their mothers.) 😉
Getting rich quick is very rare, but it entrances some people several times in their lives, and rarely does it end well.? It is far better for most people to work hard in areas of the economy that are being rewarded, and invest excess cash in a mix of? stocks, long-dated investment grade bonds, money markets, and a little gold.
After all, it’s not what you make, it’s what you keep.
? For my cousins, it was most of their investable assets.? My mom is fine, and the fuddy-duddy did all right also, but the cousins swore off stock investing.