Phorgy Phynance

Archive for September 2007

Public apology to my favorite market blogger Barry Ritholtz

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I suck. I suck. I suck 😦

I read Barry Ritholtz’ blog The Big Picture religiously. It is by far, my favorite blog. Recently, he went on a rant about receiving lame emails containing tips/links.

Ways to achieve a painful, early death

In particular, take note of items 7 and 8

7.) Please do not send me info on something I have already posted on. There is a Google search box at the top right: type in a phrase, and voila! Prior posts on that subject!

8.) Don’t send me links to items I have already posted. Don’t send me links to stuff that are months old. And lastly, don’t send me headline without a link. If you are too damned lazy to find a link, then I assume whatever story you are sending is lazy and dumb also.

When my friend sent me the link to the “Fine Line – Subprime Decline” video, I remembered that Barry had recently said how much he enjoyed a capella. Thinking I had a scoop, I excitedly sent him the link to the video.

Ack! Remembering Barry’s recent rant, I went back to search his blog for his “a capella” reference. To my shock and horror, the reference where he said he enjoyed a capella was regarding a link to the very same “Fine Fine Line” song I had just emailed him about. ACK!

The only thing I can say in my defense is that when I read his post about his love for a capella, I was in my office where YouTube is blocked, so I never saw the video until my friend (who performed and recorded the song) sent it to me. I didn’t put two and two together.

I feel like a total idiot for violating Barry’s rules and give him my word I will use the Google search box on his page before sending him an email again. I’m sure he receives hundreds of lame email a day and the last thing I want to do is to contribute to the noise. Let this be a reminder to others who, although possibly well intentioned, end up violating his death rules.

Sorry Barry!!


Written by Eric

September 24, 2007 at 12:22 am

Posted in Uncategorized

Real money M&A

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Way way back a long time ago (in August), I clarified a semantic issue regarding one of my market forecasts (more like voodoo analysis) I made on July 24 here:

Non-Leveraged M&As versus LBOs

Here is a snippet:

But regarding that quote above from my last post, there is something I wanted to clarify. Particular the chain of events that I outlined, i.e.

subprime CDO imploding -> HY repricing -> CLO slowing -> LBO stopping -> private equity choking -> equities tanking -> M&A increasing -> ???

At the time I wrote that, we were only on step two, i.e. subprime had imploded and HY had repriced (a bit). I think their is still long way down to go for credit, but at the time I wrote that CLOs hadn’t been hit yet, LBOs were not on the radar screen (of most anyway), and the idea that private equity was in trouble seemed ludicrous. How about now?

Now, everything has occurred except “M&A increasing”. At the time I wrote that I was distinguishing LBOs from M&A, but have since learned that many people include LBOs under the M&A umbrella, so I thought I would clarify what I meant by that last item before the “???”.

LBO activity was driven by (at least) two factors: easy credit and value in acquiring companies. The first factor is now gone, which is why private equity is hurting. The second factor remains. Easy credit made it difficult for real-money people to take advantage of the value in acquiring companies because of competition from private equity. With easy credit gone and private equity struggling to get LBOs done, now people/corporations with real money on hand can take advantage of the situation.

By “M&A increasing” I meant that mergers and acquisitions that are not dependent on leverage, i.e. by people/corporations with “real money”, would increase. This, I thought, would prop up equities for a while longer. For example, on July 25, I said:

Since I expect LBO activiate to be significantly hampered, if not halted, and since there is value in stripping some of the companies, I expect more M&A activity to replace LBO activity.

I meant “non-leveraged” M&A. So watch for this. The first sign of this happening that I’ve seen comes from Bloomberg in regard to Warren Buffett. Certainly a “real money” guy.

Buffett’s $46 Billion in Cash Could Buy Kohl’s, Nucor

Here’s an excerpt:

Berkshire Hathaway Inc. Chairman Warren Buffett is ready to spend $40 billion to $60 billion on an acquisition, and his opportunities are expanding as stocks fall and leveraged buyouts dry up.

Shares of health insurers, steelmakers and department stores are as much as 22 percent cheaper than in May, when Buffett said he would “figure out a way” to come up with $60 billion for the right deal. WellPoint Inc., Nucor Corp., Kohl’s Corp. and dozens more companies are now closer to meeting his investment criteria.

It seems we are approaching the faintest regions of that earlier “prediction”. Real money seems to be stepping up and it is not necessarily from the obvious candidates. Watch out for sovereign wealth funds to keep things propped up for a while longer.

A bit dated due to my reduced blogging pace:

Gulf Counters M&A Slowdown With $25 Billion of Deals

and a bit more recent via a guest appearance on Brad Setser’s blog

Soverign wealth funds

Michael Pettis seems to think sovereign wealth funds can prop up the market for years to come. I tend to agree with him (but not sure if the time span is years… or months). By the way, as a sidenote, when I asked someone at work about the possible positive influence of sovereign wealth funds on structured finance, I was shot down pretty publicly. It was brutal. Friendly new colleagues seemed to get a kick out of it and still rib me about it to this day. Pick on the new guy! 🙂 Oh well. I’ve decided to keep my mouth shut about markets and economies during high-profile meetings. After all, I’m not an economist or even a market analyst. I’m a quant. As a quant, I am quite competent and should just stick with what I know when it comes to my actual career. On the “quant” front, however, I’ve recently developed some massively cool technique for rapidly producing analytics, e.g. OAS, OA duration, etc for a large pool of securities. In the “privacy” of my own blog, I can say whatever I want though 😉

Written by Eric

September 23, 2007 at 11:28 pm

True lies and risk management

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Quantitative risk management is actually one of the topics that I can speak about with some authority because I have worked in the area professionally. Seeing the smoke and mirrors that goes on behind the scenes, I managed to convince myself that one of the greatest dangers to the markets is, ironically, risk management. I’ve referred to this as the “Risks of Risk Management“.

But since I am such a small potato, who would listen to me? Anyway, I got a real kick out of reading this latest article by Satyajit Das.

Fear and Loathing in Derivatives – “Perfect Storms” – Beautiful & True Lies In Risk Management

I stumbled on Das’ article by following a few links deeper from the reference pointed out by another of my favorite blogs: Financial Armageddon.

One of the “funny” things is that most hedge funds and investment banks are now FINALLY caught up in sophistication to where LTCM was in 1998.

Written by Eric

September 23, 2007 at 10:37 pm

Posted in Risk Management


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I lack the talent much less the venom to put together such a scathing piece as the one that Alan Abelson beautifully constructed over on Barron’s (via The Big Picture)

It’s publicly available for the time being so run and take a look while you still can:

Debasing Bernanke: BEN BLINKED

Wow! 🙂

Written by Eric

September 23, 2007 at 10:14 pm

Posted in Federal Reserve

Bye bye dollar

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Needless to say, after my comment on August 28

PS: I’ve been ignorantly harsh on both Greenspan and Bernanke, but I have to say that I am quite impressed with Bernanke’s recent performance maneuvering through the current credit crisis. I expect him to hold the target rate at 5.25% on September 18. If he does, I’ll gladly apologize for anything less-than-flattering I’ve ever said about him. If he lowers rates, I’ll lose respect and throw him back in the Greenspan “save my Wall Street buddies” bucket.

I wasn’t particularly excited about the surprise 50 bps cut in both target and discount rates for the general long-term prospects of the US economy, although on a selfish level it was certainly good for my career stability. As far as I’m concerned, it is open season for Bernanke bashing. Greenspan bashing has been accelerating as well. Besides, if things really get bad with the USD, we’ll just move to Hong Kong or something 🙂

One of the things that I learned from Al Wojnilower was that the US economy could certainly keep chugging along for as long as the USD was the world currency. As he liked to repeat often, having the USD as the dominant world currency is like having an “American Express card with no limit”. One of the things that keeps the USD as the world’s currency is its position in sovereign reserves as well as the fact that oil is priced in USD. As far as I can see, both of these factors are beginning a worrisome decline.

With sovereign reserves continuing to diversify away from USD and Saudi Arabia refusing to cut rates in lock step with the US marks a real turn in the outlook for the USD dollar, and consequently the ability of the US economy to continue chugging along.

Written by Eric

September 22, 2007 at 7:28 am

A Fine Fine Line

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This is from a friend and former colleague of mine who is a member of the esteemed Richter Scales 😀

I love it! 🙂

[Edit: Here’s a direct link to the video.]

Written by Eric

September 18, 2007 at 8:29 pm

Posted in Uncategorized

Happy Birthday!

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Oh yeah, another reason for this blog is to show off pictures of Sophia! 🙂


I particularly like this one with grandma 🙂


Written by Eric

September 9, 2007 at 10:00 pm

Posted in Personal