Monthly Archives: October 2012

Yield is the Last Refuge of Scoundrels

Governments involved in financial repression (keeping savings rates below the inflation rate) encourage their citizens to do stupid things by reaching for yield.  Remember, most people think of yield as a magic chicken that lays eggs on schedule, and never gets sick or dies.  Those who truly understand markets know that yield is an allocation […]

Dealing in Fractions of Sense

So the SEC wants to take on some of the market distortions caused by decimal (and sub-decimal) pricing.  Well, there are the things that can’t be argued about and the things that can. Starting with what can’t be argued about: liquidity is not a free good.  In a trading market, it exists because market makers […]

Sorted Weekly Tweets

Insurance   Insurers Must Boost Reserves for Residential Mortgage Bonds http://t.co/z1Plcc9z Pretty trivial; change small, not worth making $$ Oct 26, 2012 The Randian and the Bailout http://t.co/45wGJSo2 Without a tax gift from the US Tsy, $AIG couldn’t pay off the bailout http://t.co/2O4k7vpA Oct 25, 2012 For that last tweet, full disclosure, long $AIZ for […]

On the Virtue of Hard Questions for Young Analysts

Yesterday I represented the Baltimore CFA Society at the kickoff meeting for the 2013 CFA Institute Research Challenge.  As is the norm, the Washington, DC CFA Society (which is 2.5x larger than us) and Baltimore choose a local company for the students to analyze.  Last year, it was Under Armour [UA].  This year, it is […]

Redacted Version of the October 2012 FOMC Statement

September 2012 October 2012 Comments Information received since the Federal Open Market Committee met in August suggests that economic activity has continued to expand at a moderate pace in recent months. Information received since the Federal Open Market Committee met in September suggests that economic activity has continued to expand at a moderate pace in […]

Why I LOVE Blogging

Abnormal Returns (one, two), The Reformed Broker, and Felix Salmon all opined on the health of the Financial Blogosphere today.  It’s dying.  It’s not dying. As an actuary, I don’t have to be so strident.  Death is a normal thing for fallen men and their creations.  The only question is how rapidly they die.  A […]

The Rules, Part XXXIV

“Once something is used for hedging purposes, it becomes useless for predictive purposes.” I know this is kind of a trivial insight now, but when I originally wrote it, it was more cutting-edge.  That said, it is still not fundamentally understood by most.  Most still look at a fragment of the puzzle.  Few look at […]

On PB-ROE

Here is an e-mail from a reader: I’m curious about the intercept of the PB-ROE line. In your examples (http://alephblog.com/2012/02/25/thinking-about-the-insurance-industry/), only life had a negative intercept; the others were all positive. Here’s the implication:  PB = a + b ROE (where a and b are the intercept and slope). If I divide both sides by […]