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Random Thoughts

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All credit booms manifest in their own unique way. All credit busts however look alike.

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  • Fact: mean absolute deviation is not the same as standard deviation. Discuss amongst yourselves.

  • What happens in China doesn't stay in China. Paging Dr. Zhou.

  • Have you yet bid on the coolest bumper sticker the site has ever auctioned?

  • For perspective, consider that the entire savings and loan crisis is estimated to have cost US taxpayers some $519 billion over a ten year period. And consider that 80% of all mortgage debt ever originated has been originated in the last five years (some $7.7 trillion) and that 75% of all subprime mortgages ever originated were created in the last four years (some $975 billion – thank you Stephanie Pomboy).

  • Every credit cycle ends with the bankruptcy of the largest borrower.

  • What assumptions does the Black-Scholes-Merton options pricing equation make? Securities trading is continuous in time, there are no transaction costs, there are no arbitrage opportunities, and stock price behavior follows a geometric Brownian motion (changes in logarithmic price are Gaussian distributed). Insert your own conclusion here.

  • How does one turn a pool of 1 million subprime mortgages into a series of CDOs, 70% of which are AAA rated securities?

  • If the new 'tough' mortgage lending standards (apparently Countrywide is going to ask for some money down now) that are in place were enacted in 2006, some $380 billion worth of mortgages would never have been granted (according to CSFB's Ivy Zellman). Now, ask yourself: are these loans sub prime, Alt-A, or prime?

  • The term 'mark-to-model' isn't yet well known in the financial lexicon. It will be.

  • When the Fed/Treasury print money. Who are the first receivers of that new cash? Who are the last? What happens in between? Who wins? Who loses?

  • The Austrian school of economics embraces complexity. The Keynesian and Monetarist schools embrace command and control.

  • What does John Williams think the real macro stats are once you strip out the government's statistical shenanigans? 4Q '06 y/y inflation: 10.2%. And GDP? 4Q '06 y/y gross domestic product: -1.53%.

  • How does Todd rhyme so much?

  • All credit booms manifest in their own unique way. All credit busts however look alike.

  • Why do NYC airports basically shut down ahead of the actual bad weather now?

  • Needless to say I have deflation going all the way in the Minyanville Final Four. That said, I was sorely disappointed that deflationary depression never even got a bid to the dance.
No positions in stocks mentioned.

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