Phorgy Phynance

The new phone book’s here!

with 5 comments

The new phone book’s here! The new phone book’s here! This is the kind of spontaneous publicity I need! My name in print! That really makes somebody! Things are going to start happening to me now.

The Jerk (1979)

I made it to the blogroll on Panzner’s Financial Armageddon blog! Thanks 🙂

[Update: I was saving this image until I had a chance to review “Financial Armageddon“, but thought it was appropriate to display it here 🙂 ]

endisnearfinarm.jpg

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Written by Eric

August 8, 2007 at 12:26 pm

Posted in Personal

5 Responses

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  1. Check this guy out.

    http://accruedint.blogspot.com/

    He knows quite a bit about the business from the few posts I’ve read.

    RowdyRoddyPiper

    August 9, 2007 at 7:08 am

  2. Thanks. Yeah, it does look very good. I’ve just subscribed to the RSS feed and will add it to my blogroll. I’ve seen it referenced before.

    This brings up a point I’ve been hinting at lately. It is quite easy to criticize “media” or “blog” based research, but there has been a real metamorphosis lately. That is particularly apparent just in the past few years. Real, serious, economists, analysts, and financial reporters have begun breaking out on their own and maintaining serious financial blogs. It sounds cheezy (at first), but you can find really good quality research. The blog you pointed out, Accrued Interest, is a great example. The key is to be able to think and filter all the content.

    Thanks again.

    phorgyphynance

    August 9, 2007 at 7:33 am

  3. The reason it is quite easy is because the media and bloggers generally make it so, at least for those with a clue. I am interested in other people’s views but not necessarily their unfounded opinions (this is not directed at you). I also despise fearmongering and opportunistic journalism. If we go back to 2003-2004 I am sure the same journalists decrying subprime and irresponsible lending were writing articles on how you’re a moron if you don’t own your own home. I’m not saying people can’t change their minds on a subject, but they should save the indignation and self righteousness for someone that falls for that crap. I actually tend to think that bloggers can get it better than journalists because they don’t have an editorial board to serve, but that’s kind of damning with faint praise as I think very little of financial journalists.

    RowdyRoddyPiper

    August 9, 2007 at 7:59 am

  4. Hi RRP,

    Your despise for fearmongers is well noted and explains some of your earlier reactions to my “fearmongering”, but in my very first post on this blog I said that I am actually an optimist and I AM. My fear was a result of speaking with lots of really well informed people and absorbing as much as I could over a two year period. Granted, two years is not a lot of time, but an obsessed two years can probably extend the effective period a bit longer.

    My own analysis was fairly simple. I built a pricing model for hybrid capital securities

    http://www.nuclearphynance.com/Show%20Post.aspx?PostIDKey=81730

    It is based on empirical ratings transitions over the past 20 years. It includes the coupon deferral option, the extension option, subordination risk premium as well as individual risk premium associated with the particular issuer. I was very happy with the model and was about to “launch” it at a fairly high profile company offsite the week after I resigned (so unfortunately they will never really know what the model does now).

    In testing the model, I calibrated with the issuers senior debt. I figured if the model could not price senior debt correctly, then there is no chance it could price a hybrid correctly. Effectively, if you turn off the optionality, you’ve got a bullet pricer and I calibrated the model so that it will reproduce the issuer’s yield curve.

    As part of this process, I calibrated to the swap curve, i.e. the model can reproduce the swap curve. From this, I add in default risk via the empirical transition matrix and generate par yield curves for the various credit ratings. Comparing this to some Lehman Corporate Indices gives an idea as to the risk premium above and beyond default risk.

    For most periods of time, the risk premium (beyond default risk) monotonically increases as you go down the credit spectrum. That changed around September of last year. Since then, the risk premium for high yield has been completely out of whack and even turned negative.

    For a couple months prior to Bear Stearns’ HF meltdown, I had been voicing my opinion that HY was particularly vulnerable. Initially, my words fell on def ears. With over $1T AUM, I was the only real “quant” there and they were not accustomed to that kind of analysis. Slowly, and with persistence, people started to listen to me. Then, when Bear Stearns’ HF blew up, I absolutely KNEW there was going to be a serious correction in HY.

    I was similarly convinced about the impact a repricing of risk would have on private equity and LBO activity. This was not something I just dreamt of overnight. I have been researching private equity and LBOs for months prior to ABX tanking. The path of financial dependence was clear to me.

    I guess what I’m trying to say is that I certainly AM NOT a fearmonger in general. I really am an optimist, but there is a time when fear is the right emotion and that time is now I think. It doesn’t mean curling up in a shell, it means going into fight mode. Turn up the Metallica and get ready to kick some @$$ as others around you piss on themselves.

    Cheers!

    phorgyphynance

    August 9, 2007 at 8:33 am

  5. One other thing…

    My opinion on sovereigns is also something that didn’t come to me over night. I would get into arguments with other analysts saying that I didn’t think oil would go down to $50. I was preparing to give an hour presentation on oil that was eventually canceled, but I had at least started the research. One avenue I wanted to explore was the impact of oil on the bond conundrum, i.e. an “oil savings glut”. It was during a meeting with a senior economist at GS that I started thinking about this. Previously, whenever I had heard about a “savings glut” it was in regard to Asian savings. The connection to oil was new to me.

    As a result, I started watching the behavior of sovereigns with respect to oil in order to try to get a handle on its impact on the US yield curve.

    I’m not claiming to be an expert on any of this. My knowledge is still pretty shallow (obviously), but just wanted to point out that it has involved some actual research and a lot of thinking.

    phorgyphynance

    August 9, 2007 at 9:00 am


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