TraderPlanet.com :: DavidMerkel's Commentaries

The Best of the Aleph Blog, Part 13

David Merkel — Thu, 09 Feb 2012 15:21:42 +0000

This portion goes from February 2010 to April 2010.

Probably the biggest new thing I did at the blog was start "The Rules" series. Personally, I think all of them are best articles, because they proceed from deeply held beliefs of mine. So I start with those:

The Rules, Part I

There is no net hedging in the market. At the end of the day, the world is 100% net long with itself. Every asset is owned by someone, regardless of the synthetic exposures that are overlaid on the system.

The Rules, Part I...

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A Proposal for Money Market Funds II

David Merkel — Wed, 08 Feb 2012 08:29:15 +0000

I thought that I had a really good proposal for dealing with money market fund problems. And it is good, far better than what the SEC is proposing. My proposal is better because it treats money market funds like ETFs -- they are pass-through vehicles, and as such, do not need capital buffers.

And, my proposal is better, because it recognizes that credit events should be rare but acceptable aspects of how money market funds work. Think about it: particularly when short term interest rates are ...

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Against Risk Parity, Redux

David Merkel — Tue, 07 Feb 2012 14:54:13 +0000

Here are two articles to read on risk parity:

Pro: Pick Your Poison

Con: The Hidden Risks of Risk Parity Portfolios

I'm on the "con" side of this argument, because I am a risk manager, and have traded a large portfolio of complex bonds. For additional support consider my article Risks, Not Risk. Or read the second half of my article, "The Education of a Corporate Bond Manager, Part X." There is no generic risk in the markets. There are many risks. Interest rate risk and credit risk are differ...

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Sorted Recent Tweets

David Merkel — Mon, 06 Feb 2012 21:27:33 +0000

Trying a new format here, I think readers will like it better. Most things are better after additional effort. Think of this as a news links by subject post.

Economics

If you look in the back, it seems that there were 58 respondents. From page 13: Methodology & Panel Selection Invi... http://t.co/p8sVZl9g Feb 06, 2012
Will the great interest rate gamble pay off? http://t.co/hgj5XSKc People want to believe that you can get something for nothing; ain't true. Feb 05, 2012
Central Planning at the Fed...

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Against Risk Parity

David Merkel — Sun, 05 Feb 2012 04:59:12 +0000

Many investment ideas are promising so long as few do them. Yes, there is an opportunity, but it is limited. "Shh, don't tell everyone about it."

Thus, the concept of "risk parity." Lever every asset class up until it has the same volatility as common stocks. Under theoretical conditions, one could make extra money doing this, and with less risk than just a common stock portfolio.

That makes sense when few are doing it, but not when many are doing it. When I worked for Hovde Capital Advisors, I...

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Industry Ranks February 2012

David Merkel — Sat, 04 Feb 2012 14:49:53 +0000

Industry-Ranks-2-2012

I'm working on my quarterly reshaping -- where I choose new companies to enter my portfolio. The first part of this is industry analysis.

My main industry model is illustrated in the graphic. Green industries are cold. Red industries are hot. If you like to play momentum, look at the red zone, and ask the question, "Where are trends under-discounted?" Price momentum tends to persist, but look for areas where it might be even better in the near term...

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We Eat Dollar Weighted Returns — III

David Merkel — Thu, 02 Feb 2012 08:43:37 +0000

Somebody notify the Bogleheads, they will like this one, or at least Jack will. Yo, Jack, I met you over 15 years ago at a Philadelphia Financial Analysts Society meeting.

How bad are individual investors at investing? Bad, very bad. But what if we limit it to a passive vehicle like the Grandaddy of all ETFs, the S&P 500 Spider [SPY]? Should be better, right?

I remember a study done by Morningstar, where the difference between Time and Dollar-weighted returns was 3%/year on the S&P 500 open e...

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On Corporate Cash

David Merkel — Tue, 31 Jan 2012 10:24:33 +0000

In human terms, we are most often best off with the via media, that is, the middle way. So it is with corporate cash. The first article I wrote on the internet argued for the value of excess cash in the hands of intelligent management teams.

But there is a limit to that, and more so when many companies build up large slack cash balances. Think of the converse: only one really intelligent company has a lot of slack cash. That company starts buying up other companies like a clever private equit...

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Post 1700

David Merkel — Sun, 29 Jan 2012 04:26:00 +0000

Every 100 posts, I breathe a deep breath and try to catch up on where we have been. It's not always easy for me; I write about so many different issues, and I shift in response to changes in the markets.

So, where have we been?

Discussing finding jobs in the shrinking field of finance
Analyzing Gross Domestic Purchases
Controversial articles -- The Retirement Bubble, Occupy Your Time Productively, A Large Middle Class Isn't Necessarily Normal
On failed asset managers -- We Eat Dollar-Weighted Ret...

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On Junk Bonds

David Merkel — Fri, 27 Jan 2012 10:01:47 +0000

If someone were to ask me my opinion on Junk Bonds at present, fool that he would be to ask me because I know real experts elsewhere, I would say this: They are good for a speculative trade, but dumb money has arrived. Be ready to sell when the momentum fails.

High yield ETFs sell at decent premiums which leads to the creation of more units. High yield closed-end funds -- 73% trade at a premium. You could issue a new high yield CEF, and come out at a lower premium than the current average. I t...

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On Opaque Transparency

David Merkel — Thu, 26 Jan 2012 06:45:04 +0000

There are two things that I want to comment on Fed policy this evening: Transparency is overrated, and Bernanke does not understand savings.

Transparency is Overrated

Ever heard of the phrase "data overload?" Greenspan would do that verbally in his testimony to Congress, providing them with more data than they needed, and occasionally contradictory so that each side could quote what they wanted.

Well, the present transparency policy of the Fed is another version of data overload. Give lots of da...

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Recent Tweets

David Merkel — Thu, 26 Jan 2012 05:50:40 +0000

@The_Analyst does Hempton do Twitter? Bright guy. Jan 26, 2012
RE: @SoberLook It's not a pledge, indeed, but it is an estimate. The bond market has reacted quite strongly to the e... http://t.co/crpU3QpH Jan 26, 2012
RE: @SoberLook Does this post from Alea change your opinion at all? http://t.co/2hs1LTyN... http://t.co/p3Plmjnb Jan 26, 2012
MF Customers Face Long, and Possibly Fruitless, Slog http://t.co/MoMIalrc Law s/b modified: customer accts s/b top priority in broker BK Jan 26, 2012
Sola...

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Redacted Version of the January 2012 FOMC Statement

David Merkel — Wed, 25 Jan 2012 18:57:37 +0000

December 2011	January 2012	Comments
Information received since the Federal Open Market Committee met in November suggests that the economy has been expanding moderately, notwithstanding some apparent slowing in global growth.	Information received since the Federal Open Market Committee met in December suggests that the economy has been expanding moderately, notwithstanding some slowing in global growth.	No change.
While indicators point to some improvement in overall labor market conditions, the un...

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Recent Tweets

David Merkel — Wed, 25 Jan 2012 10:30:56 +0000

They may not have meant to publish it, but the results don't seem too earthshattering -- ... http://t.co/MkmCtxnJ Jan 25, 2012
@Convertbond He was 1 of my professors @ Hopkins, & the only 1 w/a consistently free market viewpoint; Talked w/him @ http://t.co/k4mL15rp Jan 25, 2012
India to pay gold instead of dollars for Iranian oil. Oil and gold markets stunned http://t.co/ZRmnIjOz @JamesGRickards sounds like Ch 1 $$ Jan 25, 2012
Bears gone wild! http://t.co/s0mvx9LK What does it mean when bear...

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On Financial Intermediation

David Merkel — Wed, 25 Jan 2012 10:18:59 +0000

I appreciate Steve Randy Waldman, who writes the excellent blog Interfluidity. Even before I started blogging, while I was at RealMoney, we interacted over CPDOs, along with Alea, and several others that were onto the scam. That was a fun time, because aside from the Canadian rating agency Dominion, there was no one else questioning the idiocy of the AAA ratings aside from a few bloggers -- we are the conscience of Wall Street, but that doesn't mean that we get any pay as a result. We write t...

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