Martin Kronicle

Had a great albeit demanding challenge teaching in NYC this past week. The CFAs are very smart, and they ask very detailed questions. I have to be over-prepared in terms of knowing the material.

Here is some feedback from the class:

Michael,

Thanks for the excellent program you gave yesterday, effectively distilling a lot of experience into a short talk. I’ll be spending some time going over your website, and particularly interested in any suggestions for trading system design software and data as well as brokerage services Thanks again, especially long term info on (xyz instruments) and great reading list!

Here is an excerpt from the new book The Big Short by Michael Lewis as published in Vanity Fair.

The main character is Michael Burry, who like many traders, is idiosyncratic, driven, intelligent, and hard-working. In Burry’s case though, the market for what he was looking for didn’t exactly exist when he formulated his initial thesis. This to me is a much more interesting read than Liar’s Poker, which I hated.

The faint ticking sound of these loans would grow louder with time, until eventually a lot of people would suspect, as he suspected, that they were bombs. Once that happened, no one would be willing to sell insurance on subprime-mortgage bonds. He needed to lay his chips on the table now and wait for the casino to wake up and change the odds of the game. A credit-default swap on a 30-year subprime-mortgage bond was a bet designed to last for 30 years, in theory. He figured that it would take only three to pay off.

The only problem was that there was no such thing as a credit-default swap on a subprime-mortgage bond, not that he could see. He’d need to prod the big Wall Street firms to create them. But which firms? If he was right and the housing market crashed, these firms in the middle of the market were sure to lose a lot of money. There was no point buying insurance from a bank that went out of business the minute the insurance became valuable. He didn’t even bother calling Bear Stearns and Lehman Brothers, as they were more exposed to the mortgage-bond market than the other firms. Goldman Sachs, Morgan Stanley, Deutsche Bank, Bank of America, UBS, Merrill Lynch, and Citigroup were, to his mind, the most likely to survive a crash. He called them all. Five of them had no idea what he was talking about; two came back and said that, while the market didn’t exist, it might one day. Inside of three years, credit-default swaps on subprime-mortgage bonds would become a trillion-dollar market and precipitate hundreds of billions of losses inside big Wall Street firms. Yet, when Michael Burry pestered the firms in the beginning of 2005, only Deutsche Bank and Goldman Sachs had any real interest in continuing the conversation. No one on Wall Street, as far as he could tell, saw what he was seeing.

Cartoon via Investment Postcards From Capetown

From the NYT:

How Privacy Vanishes Online

The 3 Facebook Settings Every User Should Check Now

The Limelight, A Church Turned Nightclub, to be Reborn As Market….the things I saw inside this place…

The Economist:

Agribusiness in India: Green Shoots

Private investment is helping India’s farmers in a way government support cannot

I’ll be traveling for the next few days, so posting may be light. I’m teaching a few commodity courses on March 18 at NYSSA.