Taxing reputation

Readers from the investment banking industry might already have noted that my views on tax arbitrage are at the extreme end of ones commonly found within financial services. Most banks seem to take the view that helping their clients pay less tax is a good thing, especially if they can get paid to do it. […]

Civilisation Crushed – A Tale of Two Buildings

When the new Eurostar terminal at St. Pancras opened, it was to almost universal praise. See for instance here for the Guardian’s take or here for the BBC. As the latter puts it: The brick and stonework was near-perfect. The soaring roof was “detailed delicately” … [it is a] World-beating roof And yes, it is […]

The long tail of the monolines

Accrued Interest picked up something that I had missed, namely the continuing long slow death of the monolines. In particular Moody’s downgraded the last of the AAAs, FSA and Assured Guaranty, on Friday. Read about it here. This is rather like that poignant moment when the last of bottle of 1970 Lafite is drunk – […]

Accounting for Warren

How should we view Warren Buffett’s short put position? The FT has some comment which clarifies both Buffett’s thinking and the conflict between insurance and capital markets views of risk. It is useful background to my earlier post about this position. First the facts. Berkshire has sold long dated out of the money (forward) puts […]

Baltic Dried

From Bloomberg: This is, I understand, a 22 year low. Global trade has fallen off a cliff.

Warren’s puts

There is a very nice post on Financial Crookery about Warren Buffett’s written puts. Let us assume that BRK sold $40bn notional 20 year puts (over 4 indices) in 2006-2007 at an average equivalent S&P 500 level of 1400. At the prevailing swap rate and dividend yields, and implied volatility of around 24%, this would […]

That embarrassing conversation

Mark Gilbert nails it: It’s the conversation every parent dreads. “Mom, dad, you know how I’ve always been a little different from the other kids? Well, I think it’s time you knew the truth. I think I’m, um, an investment banker!”

Quote of the day

From Willem Buiter’s blog on, the cry of the small enterprise reverberates: The very fact that we are not systemically important makes us systemically important. The whole post is most amusing.

A tale of four champions

In a moment of whimsy, I decided to use Bloomberg’s good offices to look at the performance of four national champion banks – or at least large banks – over the last little while. I picked Citi, Deutsche, Paribas and Santander. Of course you can argue that these are not real champions, and I might […]

If you go down to the woods today…

…beware the four big bears. From How low can it go? Quite a bit lower, of course. But I do sense real value in the market. For the first time in two years, I’m thinking about a cautious long of UK industrials with solid earnings. Not US, because of the currency risk. Not banks, […]

No arbitrage requires arbitrageurs

No arbitrage conditions are not natural laws. You can only rely on them if there are enough arbitrageurs around to keep the markets in line. At the moment, that isn’t true in many settings. John Dizard points out an example from the Tips market: seven-year Tips bonds are asset swapping at 130 basis points over […]

More awful journalism on credit derivatives

The ignorant journalist’s favourite whipping boy, the CDS market, gets another undeserved beating today, this time from Alan Kohler in the Business Spectator. Managing a considerable density of mis-information, Mr. Kohler is rather histrionic: As the world slips into recession, it is also on the brink of a synthetic CDO cataclysm Would that be a […]

There is an upside

From the BBC: Prices of some of the world’s most revered wines are falling sharply…he price of the 2005 vintage of Bordeaux’s famous Chateau Lafite Rothschild has dropped 25% since the summer. Remember, folks, only buy the best vintages. ’82 and ’85 are great claret years. My view is that ’86 has been consistently over-valued […]

Fannie and Freddie get real

The highlights of the current new realism: Freddie Mac has asked the US government for $13.8B; It suffered a record $25.3B quarterly loss and said that shareholders’ equity was a negative $13.7B. So after being bailed out, it will be worth $100M, presumably. A significant part of Freddie’s writedowns was $14.3B of deferred tax assets. […]

And the winner is…

…Wachovia by a country mile.

Local players for local teams

Recently Sepp Blatter told MEPs he wants to limit the number of foreign players on the pitch to 5. He believes this will encourage clubs to develop home grown talent and to protect the local identity of teams. This is of course in conflict with European employment law, which is why we have to endure […]

AIG and default correlation mis-estimation

Felix Salmon has a nice piece on AIG FP’s strategy and why it went so badly wrong. When AIG wrote protection on CDOs and the like, it got insurance premiums in return, and considered those premiums to essentially be free money, since (according to AIG’s own models, and those of the ratings agencies) the chances […]

The regulation of insurance in the U.S.

The Aleph Blog has a remarkably wrong-headed piece on insurance regulation here, suggesting that federal insurance regulation is a bad thing and that the FED should have let the AIG parent fail. Some comments. First, the US is the only major economy that does not have a national regulatory framework for insurance. Instead it is […]

Debt deflation

Gavin Davies has a nice summary in the Guardian of Irving Fisher’s debt deflation theory. I’ll edit slightly: Deflation is defined as a pervasive decline in the general price level… When such a decline starts, three very dangerous things can happen. First, real (inflation-adjusted) interest rates rise, and the central bank becomes powerless to prevent […]

That AIG bailout again

AIG wrote CDS protection to a bunch of banks. Spreads have blown out and AIG is not AAA, so they have to post collateral. They couldn’t, so the FED lent it to them at Libor + 850. That was last month’s story. This month’s story is a new bailout. Let’s see if we can follow […]