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Posts tagged with finance

Why is gold considered a hedge against fiat currency? If the monetary system collapsed — as in, the USD or the GBP or the JPY were no longer accepted in exchange for goods — are you absolutely sure people would accept Gold as a substitute?

This is not gold coins minted by a current government — it’s gold bars, gold bullion, or gold coins from some historical government (like, Spanish doubloons).

Gold, just exactly like fiat currency, is worth something just because other people think it will be worth something.
So if that’s the case — then why is gold considered a hedge against inflation?

Why is gold considered a hedge against fiat currency? If the monetary system collapsed — as in, the USD or the GBP or the JPY were no longer accepted in exchange for goods — are you absolutely sure people would accept Gold as a substitute?

image

This is not gold coins minted by a current government — it’s gold bars, gold bullion, or gold coins from some historical government (like, Spanish doubloons).

Photo detail

Gold, just exactly like fiat currency, is worth something just because other people think it will be worth something.

So if that’s the case — then why is gold considered a hedge against inflation?

image


hi-res




Follow-up: Herbalife $HLF hasn’t dropped yet. I wonder what the time frame for Bill Ackman’s shorts was?
(Did I mention I got google ads from Pershing arguing the short position?)

Follow-up: Herbalife $HLF hasn’t dropped yet. I wonder what the time frame for Bill Ackman’s shorts was?

(Did I mention I got google ads from Pershing arguing the short position?)


hi-res




I had a Managing Director tell me years ago … that the best strategy to succeed in investment banking was to keep your seat. Success would come, and success would go, but you could never enjoy the fruits of good luck or a heated market if you weren’t in a position where you could get paid. Young and naïve as I was, I remember finding this advice rather cynical and dispiriting. Surely you kept your seat and made lots of money for your firm because you were really good, because clients respected and trusted you, because you gave them great advice. Because you were better than anybody else. This was stupid on my part. He was right.

Nobody is indispensable in my industry. Nobody. Ever. For every hotshot trader or investment banker glorying in her run of luck and outsized compensation, there are twenty waiting in the wings who could do just as good a job. And a hundred who would be willing to work for half pay to prove they could do so too.

I’ve said it a billion times: in investment banking or sales and trading, you’re only as good as your last deal or your last trade. And your last deal or your last trade had much more to do with you being in the right place at the right time—being in the right seat—than with your charm, skill, or intelligence. And none of us know when the right deal is going to hit.

[T]here is nothing about your charm or intelligence that will distinguish you from the line of a hundred identical eager valedictorians waiting outside our hiring office. If anything, they’re probably hungrier and more naïve (hence more malleable) than you. Intelligence is table stakes.

The Epicurean Dealmaker (@EpicureanDeal)

 

Mega admire him for saying this.

(Source: epicureandealmaker.blogspot.com)




by @Macro_Tourist

Interest rates since 3000 B.C.

  • credit crisis of 33 A.D.
  • code of Justinian
  • Uruk, “city of sheepfolds”, had a writing system, counting system, and calendar system
  • 16% rates in Athens 600 B.C.
  • Solon’s reforms 594 B.C.
  • early interest rates just used 1 unit of money per unit of stuff per unit of time; no decimalised share prices in the Code of Hammurabi (1772 B.C.)
  • Temples as proto-banks

With regards to big data, just think how much work @Macro_Tourist (and Sidney Homer) had to do to put these graphs together versus recording some twitter history or server logs. Talk about wealth of information versus interesting information.

Closer zoom:

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Sidney Homer: “Each generation is inevitably surprised by interest rates”

(Source: twitter.com)










John Moody is credited with initiating agency bond ratings, in the United States in 1909. Exactly three centuries earlier, in 1609, the Dutch revolutionised domestic and international finance by inventing the common stock — that of the Dutch East India Company — and founding a proto-central bank, the Wisselbank or Bank of Amsterdam.

…the Dutch … had … stable money, … banking … securities markets…. the leading economy of the seventeenth century. In 1688, the English … invited … William of Orange, to be their king. William brought … Dutch financiers … and in short order England, too, had all the key components of a modern financial system—the Bank of England, for example, was founded in 1694.

A century later … Alexander Hamilton … put in place … a similarly modern financial system during … 1789-1795. By 1795, the US, essentially a bankrupt country before 1789, had strong public finances, a stable dollar based on specie, a banking system, a central bank, and bond and stock markets in several cities. And just as the English had succeeded the Dutch in economic and financial leadership, the Americans went on within a century to succeed the English as the world’s pre-eminent national economy.
Richard Sylla

(Source: www1.worldbank.org)




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The entire history of the US Dollar. by @Macro_Tourist

How is the dollar index constructed nowadays? Roughly like this

50.14348112 * EURO^.576 * YEN^.136 * POUND STERLING^.119 * CANADIAN^.091 * SWEDISH KRONA^.042 * SWISS FRANC^.036

(Source: twitter.com)




I like this concept of “low volatility, interrupted by occasional periods of high volatility”. I think I will call it “volatility”.

Daniel Davies

via nonergodic

 

(PS: If you didn’t see it before: try plotting this in R:

vol.of.vol <- function(x) {
    dpois(x, lambda=dpois(x, 5)
    }

… and so on, to your heart’s content.

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Fun, right?)




Whilst reading John Hempton’s post on shorting $HLF I decided to follow along in quantmod.

Long story short, HerbaLife sells weight-loss supplements through a multilayer marketing business model which Bill Ackman contends is an unsustainable, illegal pyramid scheme. Ackman calls it “the only billion-dollar brand no-one’s ever heard of” and Hempton posts some very unflattering Craigslist marketing adverts:

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thus undermining its credibility.

I should mention that I got some internet ads from Pershing Square Capital Management when I googled for herbalife information. In other words the shorts are spreading the word around to the common man to jump on this short! Destroy this pyramid scheme! You could read this as similar to a penny-stock email, but I view it simply as credible self-interest: I already put my shorts on for what I believe are rational reasons. It’s obviously in my self-interest to convince you to do the same but I do in fact believe that $HLF will and should go down and you know I do because I put my money where my mouth is. Whether that’s an ideal confluence of honesty, moral high ground, and selfishness—capitalism at its best—or some overpowerful hedgies using their marketing dollars to bring down a solid company, I’ll leave up to you.

 

Anyway, on to the quantmod stuff.

Here’s how to generate the 2007–present view:

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require(quantmod); getSymbols('HLF'); setDefaults(chartSeries, up.col="gold", dn.col="#2255aa", color.vol=FALSE); chartSeries(HLF)

Now here’s the interesting part.


(…”Ackman” should read “Einhorn” in red there…)

You can notice in red that trades per day (volume) have risen to 10, 20 times normal levels during 2013—which maybe we can attribute to the “buzz” generated by Pershing Square, @KidDynamite, Bronte Capital, and whoever else is calling $HLF a pyramid scheme.

median(Vo(HLF)) tells me the halfway split between “high” and “low” trading volume for this stock. It’s roughly 2 million trades per day. Then with quantmod I can plot those hi-lo subsets with chartSeries(subset(HLF, Vo(HLF)<2e6)); chartSeries(subset(HLF, Vo(HLF)>2e6)) to get a visual on “calm days” versus “heavy days”. That’s something you can’t do with Google Charts.

Here’s calm (under 2 million trades/day)

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upper half of heavy trading days (over 2 million/day)

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and what I’ll call “pirate days” (over 10 million trades/day)—with plunderers swarming the stock, battling with swords between their teeth

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wherein it’s visually clear that very heavy trading skewed blue over gold—i.e. $HLF closed lower than it opened on that day: the heavy trading volume was taking the price downward.

But more precisely what happened on those days? This is a good job for the stem-and-leaf plot. Notice, by the way, that reality here looks nothing like a bell curve. Sorry, pet peeve. Anyway here is the stem plot of heavy trading days:

> hi.volume <- subset(HLF, Vo(HLF)>1e7)
> stem(Cl(hi.volume)-Op(hi.volume))

  The decimal point is at the |

  -14 | 1
  -12 | 
  -10 | 
   -8 | 2
   -6 | 1554
   -4 | 542
   -2 | 430
   -0 | 988761851
    0 | 345667780388
    2 | 058699
    4 | 1
    6 | 5

I love stem plots because they give you precision and the general picture at once. From the way the ink lies you get the same pic as the kernel density plot( density( Cl(hi.volume) - Op(hi.volume) ), col="#333333" , ylab="", main="Volume at least 10 million $HLF", yaxt="n", xlab="Price Movement over the Trading Day"); polygon( density( Cl(hi.volume) - Op(hi.volume) ), col="#333333", border="#333333" )
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but you can also see actual numbers in the stem plot. For example the ones to the right of +0 are pretty interesting. Slight gains on many of those pirate days, but not enough to bash back a 14-point loss on a single day.










99 Plays • Download

Pierre Bourdieu: “The way élites stay in power is not only by controlling the means of production, but by controlling ideas.”

Gillian Tett: “What if—just as I had studied the gap between rhetoric and reality among Tajik Muslims living in an atheist state (USSR)—I pretended I was a foreigner who had just landed in London,and in the same way looked at the gap between rhetoric in finance, and actual practice?”

  • the things we don’t talk about

Bourdieu: “The most powerful form of ideological effects, are those which need nothing more than a complicit silence.”

Upton Sinclair: “The hardest thing to get a man to understand, is what his job depends upon not understanding.”

  • a lot of media discussion of stock markets
  • some media discussion of currency markets
  • no discussion of bond markets
  • no discussion of the derivatives market

Gillian Tett: ”By studying the other, we can sometimes figure out something about ourselves.”

(Source: BBC)




Jim Simons, a hedge fund manager, to the US Congress: “Most culpable [for the crisis of 2008], in my opinion, were the ratings agencies.”

  • "Our strategies are usually contrarian."
  • "Medallion Fund is almost entirely employee-owned."
  • "We charge ourselves fees."
  • 'In my view hedge funds were not a major contributor to the [crisis of 2008]. Generally [they] have increased liquidity and reduced volatility in the markets.”
  • "Each hedge fund’s leverage is controlled by its lenders."
  • He’s in favour of more financial regulation.

CSPAN via NYT