Neural Market Trends

Paul Wilmott, financial mathematical modeler and all around quant genius, was recently interviewed about how banks relied to much on their (wrong) models to value their assets and how it led to their undoing.  Of particular interest is how he says they overlooked the human side of the model equation.

“You can model electromagnetic waves: a mathematical model that shows molecules of air moving around a plane, making it fly,” he says. “But in a financial model, you need more than numbers. The models in finance are not very good. In this field, it matters if you’re not psychologically synchronised; people don’t behave rationally. You can’t rely on people following equations. It’s half maths and half human.”  [by Elena Moya]

The moral of this story is that fear and greed will make you do stupid things.

Google announced “a new search feature that makes it easy to find and compare public data” a few days ago.  This is pretty awesome and very valuable to traders who want macro-economic information in an easy to navigate way.  Check out the Google video below:

I really admire Bill Miller, he’s my kind of value/contrarian investor.

Bill Miller, who lost 55 percent in 2008 running the Legg Mason Value Trust after beating the Standard & Poor’s 500 Index for a record 15 straight years, is topping the measure again. [By Alexis Xydias and Lynn Thomasson]

It seems that he’s been buying companies with a lot of debt and low ROA that rely on consumer spending, something that a lot of people shy away from these days.

I’m sure many people will say that Bill caught a lucky break here but after beating the S&P500 for the past 15 years, you have to wonder if he really knows what he’s doing after all.

I don’t condone violence but this is funny.

“From two very senior sources – one incredibly senior source – that he went to the gym after … Lehman was announced as going under. He was on a treadmill with a heart monitor on. Someone was in the corner, pumping iron and he walked over and he knocked him out cold. And frankly after having watched this [ed. Fuld's testimony], I’d have done the same too.” [via Businesandmedia]

I wonder if some other “unlucky” CEO from another failed institution were to be dragged into the streets and beat to a bloody pulp, would other CEO’s still be as eager to engage in risky investments in the future?

Looks like investors are angry after their stock market hits a losing streak, the largest in 18 years. Some say its because of fears that the ruling coalition might collapse but I suspect its something else.

So how do you take out your anger after market collapses and your life savings vanish?

Pakistan stock investors threw stones and smashed windows at Karachi’s stock exchange to protest the worst losing streak in at least 18 years, prompting intervention by the police and paramilitary officers.

There had to be another reason for all this volatility and reading further I found it.  In my opinion, the main reason why the Pakistani market is crashing is that foreign investors are fleeing.

Foreign investors slashed their spending on Pakistani stocks to $62.2 million in the 11 months ended May 31, from $1.76 billion a year earlier, according to data compiled by the central bank. [via Bloomberg]

Looks like Musharraf had a lot of friends with money and strangely I feel like throwing a rock at Greenspan!

I hear this type of conversation amongst my struggling friends as well.

Heat or food? Gas or electricity? Medicine or mortgage payments? What to give up? What to cut back? The conversations were everywhere. In the supermarket, I heard one man tell another: “When I was a kid, you woke up, went into the bathroom, and broke up the ice in the toilet. Now my kids will have to do the same. America is moving backward.” [via Business Week]

It’s a sad state of affairs but we’re too blame, we elected socialist leeches and idiots to power.   Only true capitalism can save us now.

I roamed around a lot when I lived in New Mexico and I came across several ghost towns. I loved finding them out in the middle of nowhere and poking around in them. If I had more time I would probably researched the reason why they were abandoned but we didn’t stay too long at them. Usually they were on private property and had big “KEEP OUT” signs and we had to always watched out for a Rancher with a big rifle. Still though, the sign and the lure of ghost town adventure didn’t deter my friend Kevin or me! I mean, how could you not be deterred?

I was chatting with the Chairman yesterday when he sent me this link from Bloomberg about the rise in house inventories and how they’re at the same level since 1973.

In January 1973, the number of finished new homes for sale was 97,000, when the U.S. population was about 212 million, according to the U.S. Census Bureau. In December 2007, 197,000 completed homes were on the market and in January 2008 there were 195,000. The current population is 303.5 million.

It seems that back in 1973, the % inventory to the US population was 0.05% and today its 0.06%. I really don’t know if these numbers are a cause for all the calamity the Bloomberg article alludes too but what it does mean is that home prices probably have further to fall. It’s just a matter of time till we work off the inventory and hit bottom and I think we’re almost there.