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Thread: In The USA: the Next Revolution

  1. #481
    Council Member bourbon's Avatar
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    Quote Originally Posted by Bill Moore View Post
    I think Dayuhan's point about the market determining a fair price for services and goods is the ideal state, but in many cases is no longer true. Computer based trading frequently has nothing to do with the true value of company, but rather is driven by an equation that tells the computer when to buy and sell resulting in billions of dollars moving rapidly from stock to stock driving prices up and down in an irrational manner.
    Yup, it is part of a broader problem involving the clearing and settlement systems in our economy.

    Quote Originally Posted by Bill Moore View Post
    I used to make a lot of money in stock market at one time, even when the overall market wasn't doing so well. I can't make sense of it now. Could be I just lost my magic touch, but I think there are forces influencing it now that have made the old rules obsolete.
    High Frequency Trading accounts for around 70% of trade volume; retail investors are chum.
    “[S]omething in his tone now reminded her of his explanations of asymmetric warfare, a topic in which he had a keen and abiding interest. She remembered him telling her how terrorism was almost exclusively about branding, but only slightly less so about the psychology of lotteries…” - Zero History, William Gibson

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    Quote Originally Posted by Surferbeetle View Post
    Free historical options data sets?
    Wharton might be available through your institution. I honestly have no idea where our feeds come from; ain't my area, but free stuff is usually comprehensive but recent (Yahoo, Google), or historical but limtied (mostly indices or select baskets).

    I have a cboe app and am aware of the google daily rollups but am interested in time series data to check my understanding...just a retail guy, nothing heavy duty. My low cost broker does not seem to offer those time series.
    You can exercise on recent data well enough.
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    Quote Originally Posted by Bill Moore View Post
    I think Dayuhan's point about the market determining a fair price for services and goods is the ideal state, but in many cases is no longer true. Computer based trading frequently has nothing to do with the true value of company, but rather is driven by an equation that tells the computer when to buy and sell resulting in billions of dollars moving rapidly from stock to stock driving prices up and down in an irrational manner.
    Well that's not true at all.

    Statistically I don't know if this impacts long term value investors over time or not...
    Of course it impacts the long position. Expanding liquidity means there's more capital free to park.

    ...but I think an argument can be made that the price of a stock is still driven my the market, but not by the value of the service or goods provided in many cases.
    What's the difference? The value of a service or good is determined by the demand for it and its available supply. Mating demand with supply is precisely a market does by definition. Folks tend to forget that supply and demand are functions that evolve over time plus some other parameters. So markets need not only deal with a snapshot of some God's eye view of the condition of buyer and seller, but also with risk each takes in agreeing on a price now for fulfillment later.

    The other issue is the too big to fail issue, and that has artifically determined value in many cases, not the value of the service or goods. If the market determined the value then these companies would have gone out of business.
    You needn't introduce such an awkward, loaded notion as "artificially determined value" to understand "to big to fail." You just need to get rid of the assumption that either value or losses are conserved.

    Additionally large companies that consolidate competiters by buying them out gain a pricing advantage that prevents effective competition, and without effective competition for some products (food being one of them) you can't rely on the market to determine fair prices.
    So...large companies can undercut the prices of newcomers, and this means they can set any price they want? See where that goes wrong?

    We're in a period of transition, the voices from occupy wall street are only one voice informing what the future economic system will look like. I agree with Dayuhan, at least if you rely on the mass media to stay informed about OWS they're mostly young punks with no message, but that shouldn't distract political leaders from the fact that there is a great deal of discontent with the current system throughout America (and apparently globally).
    When isn't there?

    I used to make a lot of money in stock market at one time, even when the overall market wasn't doing so well. I can't make sense of it now. Could be I just lost my magic touch, but I think there are forces influencing it now that have made the old rules obsolete.
    Yes, there are. One is scale. The other is empiricism. Another may be that you're overestimating the performance of your portfolio, or your contribution to its success.
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  4. #484
    Council Member davidbfpo's Avatar
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    Default Who owes how much to who?

    The BBC has a smart graphic to illustrate:
    the gross external, or foreign, debt of some of the main players in the eurozone as well as other big world economies. The arrows show how much money is owed by each country to banks in other nations.
    Oh yes, please be seated when checking the US's role.

    Link:http://www.bbc.co.uk/news/business-15748696

    Finally to those who decry simplicity yes there are gaps, such as how much is owed to PRC.
    davidbfpo

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    Quote Originally Posted by davidbfpo View Post
    The BBC has a smart graphic to illustrate:

    Oh yes, please be seated when checking the US's role.

    Link:http://www.bbc.co.uk/news/business-15748696

    Finally to those who decry simplicity yes there are gaps, such as how much is owed to PRC.
    I could puke when I see such terrible statistics, for they've been presented by utterly incompetent people.

    People NEED TO LEARN the difference between gross debt and net debt and START TO IGNORE gross debt, and instead look at net debt.

    That page says 50,659 € foreign debt per German.
    Some commenter on my blog came with the same useless stat (4.2 trillion) recently.
    FACT is that we have NET foreign ASSETS in excess of 12,000 € per German.

    This
    http://en.wikipedia.org/wiki/Net_int...tment_position
    plus this
    http://en.wikipedia.org/wiki/Foreign...hange_reserves
    is what to look at when you're interested in the accumulated relations with foreign countries.

    Germany ran a trade balance surplus during the 50's, 60's, 70's, 80's and 00's (even when both states were added). Of course do we have net foreign assets. Everything else would be extremely illogical.


    So why would anyone who's not clueless look at gross foreign debt instead?

    Probably for sensationalism, ignoring the utterly misleading effect on the vast majority of the readers.

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    Council Member tequila's Avatar
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    What is the contribution of the financial sector?

    High pre-crisis returns in the financial sector proved temporary. The return on tangible equity in UK banking fell from levels of 25%+ in 2006 to - 29% in 2008. Many financial institutions around the world found themselves calling on the authorities, in enormous size, to help manage their solvency and liquidity risk. That fall from grace, and the resulting ballooning of risk, sits uneasily with a pre-crisis story of a shift in the technological frontier of banks’ risk management.

    In fact, high pre-crisis returns to banking had a much more mundane explanation. They reflected simply increased risk-taking across the sector. This was not an outward shift in the portfolio possibility set of finance. Instead, it was a traverse up the high-wire of risk and return. This hire-wire act involved, on the asset side, rapid credit expansion, often through the development of poorly understood financial instruments. On the liability side, this ballooning balance sheet was financed using risky leverage, often at short maturities ...

    If risk-making were a value-adding activity, Russian roulette players would contribute disproportionately to global welfare. And if government subsidies were the route to improved well-being, today’s growth problems could be solved at a stroke. Typically, this is not the way societies keep score. But it was those very misconceptions which caused the measured contribution of the financial sector to be over-estimated ahead of the crisis.
    The proper role of the financial sector is to assess risk and allocate capital to productive purpose.

    The most profitable sectors of finance, as Haldane notes, do not involve this function at all - they are principally forms of gambling, with the exception that the players enjoy a substantial government subsidy (if not a full governmental backstop) and play with other people's money.

    I'm not sure why such people are afforded either respect or power, but we award them outsize amounts of both. Such an unstable arrangement does not appear to be sustainable IMO.

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    Quote Originally Posted by tequila View Post
    The proper role of the financial sector is to assess risk and allocate capital to productive purpose.
    Which is precisely what it does. What seems to be lost on some is the notion that risk assessment and determining productive opportunities is not an exercise in self-evident pontificating.

    I'm not sure why such people are afforded either respect or power, but we award them outsize amounts of both.
    Because we've produced the $1.6 quadrillion line of credit that sustains low unemployment and multi-trillion dollar GDPs.

    Such an unstable arrangement does not appear to be sustainable IMO.
    Only if we peg the definition of "sustainability" to either zero volatility or some arbitrary degree of it.
    Last edited by Presley Cannady; 11-23-2011 at 09:19 PM.
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    Council Member tequila's Avatar
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    Quote Originally Posted by Presley Cannady View Post
    Which is precisely what it does. What seems to be lost on some is the notion that risk assessment and determining productive opportunities is not an exercise in self-evident pontificating.
    Please advise me how the inflation and subsequent destruction of the RMBS derivatives market was a precise assessment of risk and an outstanding allocation of capital to productive purpose.

    Because we've produced the $1.6 quadrillion line of credit that sustains low unemployment and multi-trillion dollar GDPs.
    Really? How did you produce that? And why did you get so bad at producing it since 2008?

    As for massive credit lines, I think Ben Bernanke has a lot more to do with that than you.

    Only if we peg the definition of "sustainability" to either zero volatility or some arbitrary degree of it.
    Do you think that the events of 2008 or 2011 constitute a sustainable environment?

    Apropos:

    Rash to Some, Stock Buybacks are on the Rise

    When Pfizer cut its research budget this year and laid off 1,100 employees, it was not because the company needed to save money.

    In fact, the drug maker had so much cash left over, it decided to buy back an additional $5 billion worth of stock on top of the $4 billion already earmarked for repurchases in 2011 and beyond.

    The moves, announced on the same day, might seem at odds with each other, but they represent an increasingly common pattern among American corporations, which are sitting on record amounts of cash but insist that growth opportunities are hard to find.

    The result is that at a time when the nation is looking for ways to battle unemployment, big companies are creating fewer jobs, and critics say they are neglecting to lay the foundation for future growth by expanding into new businesses or building new plants.

    What is more, share buybacks have not fulfilled their stated purpose of rewarding investors over the last decade, experts say. “It’s a symptom of a deeper problem, which is a lack of investment in the long term,” said William W. George, a Harvard Business School professor and former chief executive of Medtronic, a medical technology company. “If we’re not investing in research, innovation and entrepreneurship, we’re going to be a slow-growth country for a decade ...”

    The principle behind buybacks is simple. With fewer shares in circulation, earnings per share can rise smartly even if the company’s underlying growth is lackluster. In many cases, like that of the medical device maker Zimmer Holdings, executives are able to meet goals for profit growth and earn bigger bonuses despite poor stock performance.

    ...

    In addition, executives, who are often large shareholders, stand to benefit from even a small, short-term jump in stock prices.

    Earlier this month, Pfizer increased its estimate for stock repurchases this year to between $7 billion and $9 billion — essentially spending in one year nearly all of the money it set aside in February for multiyear buybacks. There has been a steady drumbeat of other companies laying off workers even as they have disclosed plans to buy back more stock. On June 23, Campbell Soup said it would buy back $1 billion in stock; five days later it announced plans to eliminate 770 jobs. Hewlett-Packard announced a $10 billion stock repurchase in July, and jettisoned 500 jobs in September after it discontinued its TouchPad and smartphone product lines ...

    Powered by huge stock buybacks — the company bought $500 million worth of its own shares last year, more than twice what it spent on research and development — Zimmer posted earnings growth of 10 percent a share, even though operating income and revenue grew by less than 5 percent in 2010.

    That helped its senior management, including the chief executive, David C. Dvorak, collect millions in cash and stock incentive payments by meeting earnings-per-share goals. For example, 50 percent of Mr. Dvorak’s $1.03 million cash bonus was tied to achieving per-share earnings of $4.28 in 2010. The company earned $4.33, but without the share repurchases the company would have made $4 to $4.10 a share ...
    Last edited by tequila; 11-23-2011 at 09:37 PM.

  9. #489
    Council Member Dayuhan's Avatar
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    The result is that at a time when the nation is looking for ways to battle unemployment, big companies are creating fewer jobs, and critics say they are neglecting to lay the foundation for future growth by expanding into new businesses or building new plants.
    Companies hire workers, build plants, and expand into new business because they see increasing demand for their products. Why would a company build a plant and hire workers to produce goods if there's no market for the goods to be produced?
    “The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary”

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  10. #490
    Council Member bourbon's Avatar
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    Quote Originally Posted by Dayuhan View Post
    Companies hire workers, build plants, and expand into new business because they see increasing demand for their products. Why would a company build a plant and hire workers to produce goods if there's no market for the goods to be produced?
    Has living in Asia completely sapped you of creativity?
    “[S]omething in his tone now reminded her of his explanations of asymmetric warfare, a topic in which he had a keen and abiding interest. She remembered him telling her how terrorism was almost exclusively about branding, but only slightly less so about the psychology of lotteries…” - Zero History, William Gibson

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    Quote Originally Posted by Dayuhan View Post
    Companies hire workers, build plants, and expand into new business because they see increasing demand for their products. Why would a company build a plant and hire workers to produce goods if there's no market for the goods to be produced?
    This happens quite often, actually. Companies develop new markets when their executives believe in a product.

    I've experienced how almost ten companies struggled to survive in a market that was barely large enough for two of them, but they welcomed every opportunity to get even more entrepreneurs into their market.

    The reason was that they focused entirely on developing the market. Every new 'competitor' was one more who marketed for the product category.



    On a related note, I've done feasibility studies for small-scale industrial plants that had no chance of ever creating a profit without three shifts.
    The entrepreneur was our client and wanted a reasonable study, so we told him he's got no chance and delivered our study. The study included a break-even scenario labelled "best case".
    He took the best case scenario, talked to his bank (which wasn't able to read the text due to language barrier) and got the credit. He invested and got lucky with unusually high market prices (for a while).

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    Council Member tequila's Avatar
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    Quote Originally Posted by Dayuhan View Post
    Companies hire workers, build plants, and expand into new business because they see increasing demand for their products. Why would a company build a plant and hire workers to produce goods if there's no market for the goods to be produced?
    From the article:

    Over the last decade, in fact, companies that spent the most on repurchases had a total shareholder return of 37 percent versus 127 percent for companies that spent the least, according to research by Gregory V. Milano, chief executive of Fortuna Advisors, which consults with companies on how to raise their share price over the long term.

    In the cases of Pfizer and Zimmer, analysts say the rush to buy back shares crimped development of new products, a prime reason that both companies are experiencing slow revenue growth.

    Despite the looming expiration of the patent for its best-selling drug, Lipitor, Pfizer spent more than $20 billion repurchasing shares from 2005 to 2010.

    “In that era, it wasn’t the best use of cash,” said Catherine Arnold, an analyst with Credit Suisse. “They should have been doing more to fix the company.”

    Matthew Dodds, an analyst with Citigroup, said, “Zimmer has shown little appetite for acquisitions or diversification, yet they don’t sport a pipeline that can drive investor interest."

    Nevertheless, Zimmer is on track to repurchase $1 billion worth of its shares this year, double last year’s pace, and it actually borrowed money last quarter to achieve its goal.

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    Council Member Dayuhan's Avatar
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    Quote Originally Posted by tequila View Post
    From the article:
    Are you prepared to base a conclusion purely on second hand accounts, or are you actually familiar enough with the inner workings of the company to decide what the best uses of its cash are? Surely you realize that analysts may have all kinds of agendas of their own, and that there's likely more than one side to that story... or are you willing to accept the story at face value because it supports your preconceived opinions about corporate governance?

    In any event, if you're a shareholder and you disapprove of the Company's use of cash, you've the option to sell your shares. If you're not, why would you care?
    “The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary”

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    Quote Originally Posted by tequila View Post
    Please advise me how the inflation and subsequent destruction of the RMBS derivatives market was a precise assessment of risk and an outstanding allocation of capital to productive purpose.
    Short answer, credit ratings were assigned with great precision in the initial securitization, but the models underlying resecuritization were flawed (leading to a reevaluation in 2008).

    Once again, you take it for granted that the exercise of risk assessment is free of error. This is an insane proposition, for the same reasons in finance as it is on the battlefield.

    Really? How did you produce that?
    By making market for value delivered by services and goods and their expected performance in the future. There's value in ensuring that a bushel of wheat will trade at a certain price five months from now. This is what derivatives fundamentally secure.

    And why did you get so bad at producing it since 2008?
    Bad? What do you mean bad?

    As for massive credit lines, I think Ben Bernanke has a lot more to do with that than you.
    With $1 trillion in net assets, the Federal Reserve is one of the single largest actors in the financial markets, but that's three orders of magnitude smaller than notional value of the derivatives market.

    Do you think that the events of 2008 or 2011 constitute a sustainable environment?
    I think trying to determine sustainability from two snapshots is insane.
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    Council Member tequila's Avatar
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    Quote Originally Posted by Dayuhan View Post
    Are you prepared to base a conclusion purely on second hand accounts, or are you actually familiar enough with the inner workings of the company to decide what the best uses of its cash are? Surely you realize that analysts may have all kinds of agendas of their own, and that there's likely more than one side to that story... or are you willing to accept the story at face value because it supports your preconceived opinions about corporate governance?

    In any event, if you're a shareholder and you disapprove of the Company's use of cash, you've the option to sell your shares. If you're not, why would you care?
    Given the number of conclusions that are passed on around here based on less than secondhand accounts, then yes.

    Obviously analysts may have their own agendas, but given the market performance of Zimmer and Pfizer they would appear to have a point, as Jamie Dimon's apology for similar behavior at JPMorgan would also appear to indicate. Can you give a solid explanation of why a firm would invest in share buybacks rather than long term research, especially given the short-term incentives for CEOs to indulge in the former rather than the latter?

    As for why people besides shareholders should care - if you haven't noticed, this thread is about wealth inequality and responses to such in the U.S. A very large part of this in the U.S. is driven by CEO pay, which has become incredibly skewed in the past 25 years despite no corresponding growth in performance?

    Once again, you take it for granted that the exercise of risk assessment is free of error. This is an insane proposition, for the same reasons in finance as it is on the battlefield.
    Where are you getting that I expect risk assessment to be flawless?

    I do expect, however, that if the gamblers are compensated at such high levels that risk assessment would be better performed than it was in 2008. However, I would settle for the gamblers to lose their government backstop and be broken down to the point where their poor risk assessment did not destroy the entire financial system. Then they can go about being imperfect and going bust or being profitable without hurting the real economy.

    By making market for value delivered by services and goods and their expected performance in the future. There's value in ensuring that a bushel of wheat will trade at a certain price five months from now. This is what derivatives fundamentally secure.
    Sure, that is what derivatives were meant to do, but if you believe that most derivatives trading is strictly hedging, then you must be one of those who believes that Vegas gambling exists because people really enjoy card games.

    With $1 trillion in net assets, the Federal Reserve is one of the single largest actors in the financial markets, but that's three orders of magnitude smaller than notional value of the derivatives market.
    More to the point, they are the backstop for much of the gambling that goes on, and the ultimate lender of last resort. They are the ones who will step in when the markets freeze. When they do not, as the ECB seems determined to show us, the whole game can come to an end.

    I think trying to determine sustainability from two snapshots is insane.
    You don't see that 2008 and 2011 are related? That the Latin American debt crises of the 1980s, the Asian financial crisis of 1997, the equity bubble collapse in 2000, the real estate bubble collapse in 2008, and the European fiscal crisis of 2011 form a pattern of repeated bubbles followed by increasingly severe collapses? That doesn't sound like instability to you?

    Perhaps you are one of those who believes the 20th century was very stable - WWI and WWII were just eight years in 100, after all.

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    Council Member Dayuhan's Avatar
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    Quote Originally Posted by tequila View Post
    Can you give a solid explanation of why a firm would invest in share buybacks rather than long term research, especially given the short-term incentives for CEOs to indulge in the former rather than the latter?
    Here's what the company says:

    http://www.stltoday.com/business/nat...7a4a78c22.html

    “We have to fix our innovative core, and that’s what this R&D change is about,” Read told reporters at Pfizer headquarters in New York Tuesday. The reductions are part of a plan to overhaul the company’s research operation to focus on the most-profitable programs, Read said.

    Research and development spending will be $6.5 billion to $7 billion in 2012, the CEO said. That compares with $9.4 billion in 2010 and is $1.5 billion lower than previous Pfizer forecasts. Pfizer plans to buy back $5 billion in shares next year as part of a $9 billion repurchase program, he said.

    Tuesday was the first earnings report under Read, who succeeded Jeffrey Kindler in December. Pfizer is counting on products from the $68 billion Wyeth acquisition in 2009 to replace sales lost to generic copies of the cholesterol pill Lipitor, the world’s best-selling drug. Read said Wyeth drugs won’t be enough to make up for that shortfall, and the company must rein in its unproductive spending.

    “It’s like being the New York Yankees and having a huge bankroll and never being able to win the pennant,” said Tony Butler, an analyst at Barclays Capital in New York. “This is saying: ‘I’ll take the Cleveland Indians budget and see what we can do with that.’ Spending more doesn’t mean getting anything out.”

    “This is all good,” Butler said.

    The company plans to halt funding research in the areas of allergy, urology, respiratory, internal medicine and tissue repair, Read said. Pfizer will focus on the more-profitable areas of cancer, neuroscience, inflammation, vaccines and immunology, he said.

    “At some point your shareholders and stakeholders demand you have a return on investment in research,” Read said. “We’re looking at areas where we think it’s not a competitive advantage.”
    In other words, the strategy is to cut spending on areas they see as having low potential for results and focus on areas perceived as having high potential for results. That's obviously a gamble, just as it would be to pour money into everything regardless of perceived potential, but it's not overtly irrational, and anyone who's going to criticize it would need to look into the actual state of the programs being cut and have an informed opinion on the potential of those programs to generate profitable products. Of course many people will comment without that knowledge, but what does that mean?

    The shares being bought back can also be sold back onto the market at a later date if market conditions call for a more expansionary policy and financing is needed. The Company apparently believes that it will be able to sell at a higher price if recovery in the broader economy progresses... again a gamble, but all decisions are a gamble. If it pays off they'll do well. If not they won't. That's business.

    Quote Originally Posted by tequila View Post
    As for why people besides shareholders should care - if you haven't noticed, this thread is about wealth inequality and responses to such in the U.S. A very large part of this in the U.S. is driven by CEO pay, which has become incredibly skewed in the past 25 years despite no corresponding growth in performance?
    CEO pay has little to no impact on the broader economy, and is primarily an emotional issue. What response would you suggest, really... having the government tell private companies what salaries they can and cannot pay? If the company doesn't generate results the market will have the final say. What more do you want?
    Last edited by Dayuhan; 11-24-2011 at 04:26 AM.
    “The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary”

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    Council Member Dayuhan's Avatar
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    Another perspective on Pfizer's R&D move...

    http://www.forbes.com/sites/matthewh...dical-surgery/

    Whether or not it's the right move remains to be seen, but there's clearly a lot more to it than "hey, let's chop R&D and buy back shares so we can boost EPS and get a big bonus".
    “The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary”

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    Quote Originally Posted by tequila View Post
    Where are you getting that I expect risk assessment to be flawless?
    From your own words.

    I do expect, however, that if the gamblers are compensated at such high levels that risk assessment would be better performed than it was in 2008.
    In other words, flawless.

    However, I would settle for the gamblers to lose their government backstop and be broken down to the point where their poor risk assessment did not destroy the entire financial system.
    The "gamblers" include even you if you so much as deposit in a bank.

    Then they can go about being imperfect and going bust or being profitable without hurting the real economy.
    So no more FDIC insured deposits? Good.

    Sure, that is what derivatives were meant to do, but if you believe that most derivatives trading is strictly hedging, then you must be one of those who believes that Vegas gambling exists because people really enjoy card games.
    67 percent of derivative trades are interest rate contracts, so you're obviously wrong.

    More to the point, they are the backstop for much of the gambling that goes on, and the ultimate lender of last resort.
    Wrong. Treasury holders--specifically institutions--are the backstop for most of the "gambling"--as you inartfully put it--that goes on. Central banks are merely their principle agents.

    They are the ones who will step in when the markets freeze.
    As the system of monetary policy was so designed.

    When they doot, as the ECB seems determined to show us, the whole game can come to an end.
    I hate to call you on this, but show us what exactly?

    You don't see that 2008 and 2011 are related?
    A relationship is testable and evident. There's another term entirely for what you're describing.

    Perhaps you are one of those who believes the 20th century was very stable - WWI and WWII were just eight years in 100, after all.
    No, just one of the ones who doesn't find idle rhetoric particularly useful in understanding the financial system.
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    Posted by Cannady,

    What's the difference? The value of a service or good is determined by the demand for it and its available supply. Mating demand with supply is precisely a market does by definition. Folks tend to forget that supply and demand are functions that evolve over time plus some other parameters. So markets need not only deal with a snapshot of some God's eye view of the condition of buyer and seller, but also with risk each takes in agreeing on a price now for fulfillment later.
    What are the other parameters? Are you making an argument that markets are rational and predictable? Your use of value is technically correct, but I was referring to value as value to society (goods and/or services), and a lot of the market action today has nothing to do with that type of value. Got it, that is just the way it is, that is how the system evolved so those in the know can make a lot of money that is often disassociated with the true value of a company's goods and services. The system still works if you look at from the optic of the stock's value, and not the underlying value of the company. I guess at heart I'm more of a value investor. One would think with the major market correct there are a lot of value buys out there now, but like the masses I remain suspect that something else is going on and it may be impossible for the common investor to find true value now.

    You needn't introduce such an awkward, loaded notion as "artificially determined value" to understand "to big to fail." You just need to get rid of the assumption that either value or losses are conserved.
    Artifically determined value is a loaded phrase, agreed, but there have been instances when stock prices have been "artifically" manipulated (in clear violation of the law). This has always happened, but it seems logical that the risks are greater now due to globalism and the coorisponding ability to move money rapidly around the globe. It may be impossible for governments to effectively regulate this behavior.

    Yes, there are. One is scale. The other is empiricism. Another may be that you're overestimating the performance of your portfolio, or your contribution to its success.
    Are you the author of a "Random Walk on Wall Street"? Agreed again, but at least it seemed that market conditions were somewhat more predictable then, and if the old rules no longer apply, what has changed? Why has it changed? And is that change good?

  20. #500
    Council Member Surferbeetle's Avatar
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    Bill, Fuchs, et. al,

    Happy Thanksgiving to all.

    You might find these links to be of interest when thinking about risk, debt (return rates, quality, ability to recover principle, gross vs net, etc), volatility, and transparency with respect to the topology and networks of the sausage making process that is finance.

    Heed the ‘transparent’ lessons from MF Global, By Dr. Gillian Tett, November 24, 2011 5:39 pm, Financial Times, www.ft.com

    Investors have also made the painful discovery that credit risk and asset price swings are not the only thing which can damage portfolios; counterparty and liquidity risks matter too. And they have realised that published, audited accounts do not reveal those subtle, secondary counterparty and liquidity risks; nor do the reports that hedge funds have traditionally given their clients.

    These lessons are having tangible consequences. One is that the audit profession is now, belatedly, engaging in new soul searching. In the coming months, for example, American auditors will hold a series of round-tables to discuss whether their time-honoured system for auditing banks, say, needs to be updated for the new internet, Twitter age.
    Zero Hedge blog background from wikipedia, http://en.wikipedia.org/wiki/Zero_Hedge

    Zero Hedge is an American financial blog. It reports on Wall Street and the financial sector and is credited with bringing the controversial practice of flash trading to public attention in 2009 via a series of posts alleging that Goldman Sachs' access to flash order information allowed the firm to gain unfair profits. The blog is written by a group of people who write under the pseudonym "Tyler Durden". Though derided by the mainstream press as being fraught with conspiracy theories, the blog grew quickly and has been called a "blog sensation".
    URL for the Zero Hedge Blog www.zerohedge.com
    Sapere Aude

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