My broker pushed me to buy Nation Bank of Greece bond in 2008 telling me that they don’t carry any material risk as they are almost like government bonds. Gold used to be safe haven! Now with the violent moves, it may not be any more. My 2 cents, risk is the fear of loss. It is perception which is kindled by recent experience or deeper traumatic experience. I thought Merrill Lynch was not risky at $95. But, at $6.50 BAC, I think it can go to zero!

What is safe? What is risky? It all depends on your perspective!

People tell me that they are very conservative investor, so they put money in index fund. Go figure! Until they say index down 50%. Is US treasury bond safe? Is Cash safe? Time will tell. I think not. But, I am not sure what to do about that. So many people spend lot of money and effort in doing estate planning etc. Will it work? Will this cash mean anything when your kids grow up?

But, one thing is for sure. I never cared about such things when I had nothing. And, I was still quite happy leading a risk free life. Can you give that to your kids in the ipad generation?

The post In the eyes of the beholder appeared first on Mathisys Quantcap.

Does every living being have right of survival? Some may argue yes. But, if every living being does live, how will we provide all the necessary oxygen?

Humans have a very different philosophy. We strive to make every human child live to his or her fullest. What if we succeed?

Does every investor have right to make money? Who gave them that right? How much value does the investor truly bring to wealth creation process which is increasingly becoming skill based process?

Investors as a collection can’t expect their share to be larger than the wealth creation, by definition. Should it be 30%, 40%, 70%, 90%? And why?

We create wealth at the rate of GDP growth. Everything else is zero sum game. Muted or negative GDP growth means wealth destruction.

Again, of that GDP growth, what percentage should belong to the investor?

When banks, fed are providing easy money, what does investor bring to the table?

How many projects have you heard where investors have lost money? Do they come out and say that I am Madoff victim? They are too ashamed to say that. Investing is greed, and not telling others is embarrassment. We have a very large selection bias.

We live in a world where we have lawyers, insurance, and taxation. You pay north of 75% of your upside profit and keep full 100% of your loss. Very bad odds for investment. Does it mean, market is so inefficient in that your odds of success is so high.

You will delegate the wealth creation to the CEO who came from such a stellar resume (but who is as vulnerable as you are when it comes to his own future and his own 5 year old’s college education?)

I argue, that, an average investor is playing a giant casino, and should have a negative expectation of return in exchange for this entertainment and the dream of making it big (just like a lottery).

An average investor is delegating to so many intermediaries who each have to survive and make $150k per person to justify their own eduction. How many people each intermediary will be able to distribute to to keep his/her cost minimal?

I argue that we are bound to lose money if we delegate. We, as investors, need to take matters in our own hands. Investors need to define discipline and demand that. Investors need to manage companies more directly. We need owner’s capitalism not manager’s capitalism. We need smaller companies to facilitate that. Capital markets as an efficient conduit for capital with regulators and board responsible for accountability is not a valid concept when we have such a large cost in lawyers, taxation and risky bet on talent.

I argue for active investing, I argue for active involvement. Investment for the sake of investment is only going to destroy wealth.

If you don’t have time for being active and informed investor, invest in something that makes more sense for you, rather than mutual funds or indices. Best yet, invest in yourself (education, kids or lifestyle). If you have even more capital, it doesn’t hurt to be in cash or low yielding risk free assets. Being in cash is like paying for insurance (inflation is cost of insurance; Don’t you buy insurance?)

The post Rights of Survival or Giant Casino appeared first on Mathisys Quantcap.

Corollary: Can government create jobs?

For a long time, we have heard that capitalism is the “right” philosophy. Government has no business telling people what to do.

I believe(d) that. Then, why is western world changing? Why is governments trying to create jobs? do they think capitalism failed? Are investors no longer capable of creating jobs?

What is wrong?

What is wrong is, we no longer can endure pain. The western world is too used to getting lifestyle (and resources) as birth right. We even want our survival as a right (no longer, you need to work to survive). Ha!

We are not God (if it exists). We are born to persevere. We are born to learn and achieve freedom by working hard and smart. Nothing is our birth right. Our society provides us the luxury of learning and other freedom and that is why we all have freedom. But that is humanity, not earnt! That is human largesse. That is the only give away we should be reliant upon.

We have to earn the rest.

We create job the hard way. When somebody needs a service, a job can be created. West should leave the capitalism to work and let the jobs be created.

Right now, at least in US, there is a huge overhead of taxes and other entitlements on the job creators that jobs are not being created. (How many of you had spent hours waiting for continental representative to ask simple questions, I would have easily paid some money to be able to do that). Reason: hiring the extra representative is too expensive..

There are needs. There are unemployed. And, that is where the government comes in. Create and enforce rules which provide people certainty in their interactions. The jobs will come.

Current economic meltdow — I am sorry, we (out of imperfection of capitalism) created so many jobs where people are out there to fool others. Their jobs should be eliminated. At least, that is what capitalism is telling. They don’t want to accept that and unfortunately so does their government. Funny thing is that these people are in both main street (people who overstretched), but also on wall street (they seem to have overstretched as well : but, less accepting to coming reality).

Who are the hard working people who can be the answer? I wish I know. I would like to bet on them. But, they are there and will provide us the direction.

The post Is government God? appeared first on Mathisys Quantcap.

They argue, that majority of wall street workers make measly $150k, so the bonus amounts are not outrageous. So, are they arguing $150k to be the minimum wages?

They made money on their skills. Borrowing at 0% and buying market with that money is a great skill (GS made a lot of money by shorting vol in March 2008: equivalent of getting long the markets).

In an ordinary year, they spend 15% of time to fight for compensation. The best of the best (GS), even have their former employees in governments working for them.

They talk about the challenges of retaining talent. Ah, so where are they going to go? Hedge funds? How many will go to hedge funds? Why should everybody be paid large sums because select few want to go to hedge funds.

Banking is about borrowing and lending with proper controls. That is their value add to the society. They should be at par with the rest of the society.

If they create businesses, they should start companies, and get paid accordingly (no harm if they go to hedge funds for that). If they create businesses for banks, how do they bring more value to the table than the guy who starts Domina’s pizza franchise in India.

Let me tell you the real reason. Peer pressure! The cost of living in NYC and LN is so high (your kids go to $35k private schools. You need $100 dinners. You need “fill in the blanks”). They can’t survive without such large compensations.

The guy next door (the hedge fund guy) makes so much money. They want to make that too, and are not willing to take the risk. Solution, demand from the confused system.

The post Funny Money – Minimum wages on Wall Street appeared first on Mathisys Quantcap.

Do you like transparency? Or you hate it!

It is not good when it is about your privacy. But, when it applies to your dealings, it has to be transparent!

If you know how much money your counterparty is making off a transaction, you will demand fair share. Where does that leave your counterparty though?

It is in the incentive of a businessman to be less transparent. Hide fees. Figure out ways so that you don’t know or understand how you are paying (and worse, you are going to pay).

Mutual funds hide fees in their underperformance. They will tell you that they bought a stock at $50.10, when in reality, their broker bought it at $50, and booked it at higher price for them, pocketing $.10 which is undeclared commission.

Hedge fund has a whole concept of soft dollar, even legitimizing the above.

Insurance companies manage your money. Promise you return on your premium. Return which is much lower than long term bonds (granted, these days, US bonds carry very low interest, but it is not always the case).

New age companies (such as Facebook itself) don’t want to tell you what do they do with your information.

If you are looking to renovate your kitchen, do you really get a straight answer from your contractor?

What will you do if they really tell you the real cost? Would you give them business?

PS: In my view, regulations should work on increasing transparency, reducing conflict of interest. Not dictate or decide if some business models are correct or incorrect.

The post Can you see it? appeared first on Mathisys Quantcap.

Growth comes from improving efficiency. By coming up with better way of fulfilling our lives. Not by producing more, or consuming more.

America and the western world forgot the value of productive work. Every wants to enhance their lives by fooling somebody else, as opposed to helping somebody else.

The financial crisis of 2008 look distant. We are already seeing the new crisis. There are so many of us whose skill set are proving useless. How many of us are willing to acknowledge that. How many of us are looking beyond the glass and ask, can I do better (as opposed to, why am I stuck?). The group of people in this category will only grow.

My nephew told me that it is looking scary. Indeed it is scary. Who knows if London riots evolve into something sinister. What are we doing about this. 9/11 and follow on events brought down the world to its knees. So, hatred is winning.

What is the answer? Optimism. Sure. I am an optimist. I believe in GOD and creativity of human beings. I guess that is where it stops. We need somebody/something to help us provide growth.

PS: I don’t consider FB, Google, and apple to be those people. There are many reasons why they have their own shortcomings. We need more than that. We need people to take charge in a better way than democracy. We need a superior sBuy growth get Value free.

The best one I heard. If we have growth in America, then it will increase employment, taxes… and it will solve the problems.

So, growth is available in Walmart. Can we buy it?

Solution other than democracy. Can we come up with an alternative?

The post Buy Growth and Get Value Free appeared first on Mathisys Quantcap.

You decide what makes sense.

Fed’s mandate is employment and inflation. Long term or short term?

You can go thru the academics of it. In a recession, it appears, printing money means — no risk of inflation (recession means risk of contraction). It can only increase employment…

Why?

I suppose, because, we now have the formula. Decades of economics just gave us the formula for fighting deflation and increase employment.

How about centuries old formula — we need to earn our living.

Hmm… Do I see T3 or Bourne Ultimatum

T3 had a formula. Expect the unexpected. Not sure why… Bourne wanted to know why?

Do we want to understand why QE3 will work? Specially, since, people want to keep doing what they were doing (irrespective of the contribution). Answer — Give money to people:Build infrastructure:Keep generating employment…Employees get money and they spend. GDP will grow…

Obama will take care of all of us, because everybody has a birthright to live well.

Why would that work? Whose money are they printing?

May be we will see a prequel with Alan Greenspan (and he will tell us why Ayn Rand told him to let everybody free by borrowing with no consequences… ) and Bourne would interpret her differently…

The post Bourne Ultimatum/T3/QE3 – An introspection appeared first on Mathisys Quantcap.

You can “invest” in anything today. You can invest in treasuries (least perishable) to orange juice. Wait! Why should you invest in orange juice? I thought investment is for long term. Does OJ really stay good long term? Have you tried drinking frozen oj? It is disgusting!

You can invest in natural gas. The cost of storing natural gas is almost 10% (including leakages). Do you really expect that it will go up more than 10% a month in your investment horizon.

They invented these funny instruments called double shorts that you can buy in your 401K. So that you can make money when markets go down. Markets did go down, just google on internet and find out who made money.

I bought munis. Great investments. Secure, liquid. But, when I tried to sell them, they told me it is off the run. So, not liquid anymore. Who made the money?

The famous AAA super senior sub-prime CDOs. Who made the money again?

Have you ever bought an insurance which when you needed it, they told you that you didn’t buy insurance with right options.

Do they tell you how much they will get paid from doing the deal with you?

Do you really think you will benefit by investing in mutual funds? Have you looked at how much they make?

Do you really have this nice advisor who buys you 35c donut and 50c coffee so that he can advise you what to do with your money. What does he know that you don’t?

Just ask, who is making the money? And what is their incentive to tell you if a particular transaction is bad for you? And based on your own answer, decide!

The post Who made the money? appeared first on Mathisys Quantcap.

Go to a car mechanic. He thinks your transmission needs replacement. It will cost you lot of money. You get second opinion. Give the car to the mechanic. Come back and pick up the car. Did he steal any other part? Did he really do what he is claiming he needed to do? How did you check that? You trust him!

Driving a car at 70 mph on a freeway on your lane. Not expecting that the guy in the next lane will hit you. You are not worried. You trust he will do the “right” thing.

How many times you had been in a situation where you almost passed out, and this noble guy helped you (and others didn’t snatch your wallet).

Trust. Whether you are trusting somebody in noble profession (the doctor), or somebody driving (acting out of self preservation logic), or just humanly trust, that people will do the right thing, is what keeps the society.

What if that guy snatched your wallet and took some money from it when you were not yourself. What if the car mechanic replaced some other parts of the car. You won’t know.

Welcome to wall street. Do you trust your advisor and/or your bank and/or your credit card company?

You signed the contract. He has every right to take money from you, because you signed on the dotted lines.

Why?

May be you have a better answer. I would love to know. Mine is very simple. Wall street has the highest level of opportunities to find the flaws in the trust system. So, it attracts people with low level of integrity. Money is supreme for them. If you have agreed by signing a 500 page document, so be it. You are his breakfast, lunch, dinner and that expensive wine.

Somebody told me, it is better to have smart enemies than stupid friends. So, don’t get me wrong. I do desire a system where these businesses and people exist. And, properly channeling them, should produce for the society.

In an amazing way, our system has brought these people in a narrow set of professions (Las Vegas Pimps and Wall Street). Shouldn’t it be easy (and beneficial) to regulate them?

The post In GOD we trust! Who Else? appeared first on Mathisys Quantcap.

I am confused. If I have lot of “so called” fiat currency, I find that it depreciates fast. So, should I buy gold? What if some enormous amount of gold comes in production? What if everybody loses faith in gold (remember that unthinkable happened in 2007 – when Lehman went bust and even JPM was not too far behind).

May be silver, oil or electricity?

What is wrong with them?

Let us look at electricity. Why would somebody sell you electricity? They would ,only if, they produce that. And, if you don;t use it when it is produced, then… who pays for it?

You get my point. The value is there only if you use it. It is not an asset.

Is potato/wheat/cotton/natural gas an asset?

Is oil/silver/gold or Michael Jackson’s music library an asset?

You decide! But there are enough people who will profit from your beliefs.

Let us go back to basics to understand. Let us go to the barter system.

Accumulation of wealth should be same as accumulation of resources. Investments should be same as an ability to accumulate wealth.

Wealth is “resources” when you need them. So, you care about the resources you need! And, somebody else is willing to part with them in exchange for what you have to offer at the right time.

Too complicated! Education simplifies it.

The post What is money? appeared first on Mathisys Quantcap.