This period of the Aleph Blog covers May through July of 2010. The one big series that I started in that era was “The Education of a Corporate Bond Manager” series. The idea was to describe how a neophyte was thrust into an unusual position and thrived, after some difficulties.
How I learned the basics, and survived 9/11.
How I learned to trade bonds, and engage in intelligent price discovery.
What is the new issue bond allocation process like, and what games get played around it?
On the games that can be played in dealing with brokers.
On selling hot sectors, and dealing with the dirty details of unusual bonds.
On dealing with ignorant clients, and taking out-of-consensus risks.
Then there was the continuation of “The Rules” series:
On the biases the come from yield-seeking.
Repeat after me, “Yield is not free.”
Reaching for yield always has risks, but the penalties are most intense at the top of the cycle, when credit spreads are tight, and the Fed’s loosening cycle is nearing its end. It is at that point that a good bond manager tosses as much risk as he can overboard without bringing yield so low that his client screams.
Securitization segments a security into liquid and illiquid components.
“Governments are smaller than markets; markets are smaller than cultures.“
A fundamental rule of mine, but one with a lot of punch.
On the differences between panics and booms.
Much research fails quietly, but other researchers don’t learn about the dead ends. Better that they should learn of the failures, and avoid the dead ends.
Sell low tax cost lots and donate appreciated stock to charities.
Gives a simple rule to control central banks so that they avoid the present troubles.
Yes, offering yield is the oldest way to trick people into handing over their money.
A good place to get started if one wants to get up to speed on insurance stocks, but there is a lot there.
Going over Kartik Athreya’s letter criticizing nonprofessional economics bloggers. Why the math behind macroeconomics and microeconomics doesn’t work.
When you are a part of a small broker-dealer, all manner of harebrained deals get offered to you. This explores three of them. Note: management did not ask my opinion on the fourth deal, and that is a large part of why they no longer exist.
One more note: the guy who was going to pledge $5 million of stock in example 2 for a $1 million loan? The stock is worth $7,000 today.
The economics of the states tells us a lot more about the national health because they can’t print money to buy national debts. (Though they can can raid accrual accounts…)
My view is that neoclassical economists are wrong. Aggregate demand has failed for four reasons:
- Overleveraged consumers will not readily buy.
- Citizens of overleveraged governments will not readily spend, for fear of what may come later from the taxman, or from fear of future unemployment.
- Aggregate demand is mean-reverting. It overshot because of the buildup of debt, and is now in the process of returning to more sustainable levels. The same is true of private debt levels, which are being reduced to levels that will allow consumers to buy more freely once again.
- When the financial system is in trouble, people get skittish.
Complex and expensive hedging solutions, many of which embed some credit risk, can be less effective than lowering leverage, and (horrors) holding some cash.
This one had its detractors, because I believe the paradox of thrift is wrong. Too much aggregation, and it does not allow the dynamism of the economy to adjust over time, even from severe conditions.