ask Dcifrths...well, anything...about finance/mkts/ports that is.

[DcifrThs]

anyone interested on a good summary of the china situation read this:

Bloomberg article that does a good job.

Barron

[DcifrThs]

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Superb post on where we are today.

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thanks, i aim to please and the time it took to write it was well worth it. forced me to outline my thoughts.

through this forum's feedback i'd like to improve it though so help me out.

thanks again for your compliment.

Barron

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I don't have the data in front of me, but careful on #8 "unbelievably low volatility". I don't think that's actually true if you look further back then the last 10 or 20 years (can't remember which).

Also...are you talking about implied or realized vol?

If I recollect correctly, we are at what was a normal vol for a long time if you go back far enough. Late 90s was abnormal vol.

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i looked at the implied probability chart for the VIX today (based off S&P equity options). the chart matches what you stated that it got up to 40 in the late 90s.

the all time low was 10.2 (jan. 2007) or so and it is currently trading at 12.5. given that not much has changed since february when it shot up to 18, i'd still say that this is low volatility environment.

i forgot to look up the yen implied vol but i'm sure it shows something pretty similar.

so while you are right that "unbelievably low vol" is a vast overstatement, the relative volatility priced in today i think is too low.

this could easily be the result of low realized volatility in past months/years and an increase in the writing of equity options on the S&P pushing implied volatility down artificially (given that there are many shocks that can happen in the near term that could match or exceed the february spike).

thoughts?

thanks,
Barron

[FastPlaySlow]

What's the "best business" that you have ever come across?

What do you think makes a perfect business, and can you think of an example?

[HP]

easy to answer noob question:

Why is China trying to limit the growth of their economy? To avoid a bubble or something?

[HP]

also one more:

why did the dow jones drop over 10% after 9/11 ? Seems quite high a drop

[Colt McCoy]

Various DCF treatments of the nation's debt and other obligations (future medicare & drug payments, etc.) have indicated a $60-$70 trillion deficit. The country's entire capital stock is only like $45 trillion.

Cutting benefits enough to ever make a dent in this deficit will not be politically feasible anytime soon. Inevitably they'll pay for some of it with tax increases, and the rest through an inflation tax.

Questions:
1) I think a severe economic crisis, including double-digit inflation, is inevitable at some point in the next 10 years. Do you believe this? If not, why not?

2) At what point does the willingness of foreign creditors to hold our debt begin to erode, and the dollar seriously tank?

3) How high does inflation go? How much does the dollar fall relative to major currencies?

[DcifrThs]

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What's the "best business" that you have ever come across?

What do you think makes a perfect business, and can you think of an example?

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the best business i've ever come accross, ay?

well, i guess that depends on how you choose to rank, "best" and "come accross."

i'll take the latter as "know of" and the former as "most profitable."

i think buffet's company has to be up there. i think my former employer has to be up there. i also think many of the investment banks that came from small boutiques to where they are now have to be up there.

the problem is that some of the best businesses i see today suffer from hugely severe survivorship bias.

if we tweak the definition of "best" a bit to "best a priori" then we don't suffer from looking back. but at the same time, we lack the ability to collect evidence.

what determined the founding of firms like MSFT, the brilliant idea and motivation of their founder? or the time during which they were founded? or is it both?

clearly you ask a good question since there is no clear answer. the thought process involved shows that the choice of definition leads us in different directions.

but i think, through an assumption about the intent of your question, the "best business i've ever come accross" might very well be one that failed. specifically, during my MBA i interned for a man who had a patent on a method for valuing intellectual property assets. his business idea was to purchase those assets from companies that required cash for a large up front payment, and then exclusively lease those assets back to the inventors.

the concept was great and the ancillary benefits of having a pool of intellectual property from which an exponential new amount of patentable ideas (or new uses, customers, or combinations of ideas in the pool) could be generated. ultimately, his mis-management, and the nature of the inventor doomed the business.

i hope this gave you something of an answer [img]/images/graemlins/confused.gif[/img]

Barron

[DcifrThs]

[ QUOTE ]
What's the "best business" that you have ever come across?

What do you think makes a perfect business, and can you think of an example?

[/ QUOTE ]

the best business i've ever come accross, ay?

well, i guess that depends on how you choose to rank, "best" and "come accross."

i'll take the latter as "know of" and the former as "most profitable."

i think buffet's company has to be up there. i think my former employer has to be up there. i also think many of the investment banks that came from small boutiques to where they are now have to be up there.

the problem is that some of the best businesses i see today suffer from hugely severe survivorship bias.

if we tweak the definition of "best" a bit to "best a priori" then we don't suffer from looking back. but at the same time, we lack the ability to collect evidence.

what determined the founding of firms like MSFT, the brilliant idea and motivation of their founder? or the time during which they were founded? or is it both?

clearly you ask a good question since there is no clear answer. the thought process involved shows that the choice of definition leads us in different directions.

but i think, through an assumption about the intent of your question, the "best business i've ever come accross" might very well be one that failed. specifically, during my MBA i interned for a man who had a patent on a method for valuing intellectual property assets. his business idea was to purchase those assets from companies that required cash for a large up front payment, and then exclusively lease those assets back to the inventors.

the concept was great and the ancillary benefits of having a pool of intellectual property from which an exponential new amount of patentable ideas (or new uses, customers, or combinations of ideas in the pool) could be generated. ultimately, his mis-management, and the nature of the inventor doomed the business.

i hope this gave you something of an answer

Barron

[DcifrThs]

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easy to answer noob question:

Why is China trying to limit the growth of their economy? To avoid a bubble or something?

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basically to avoid many possible outcomes that result from overly fast growth.

internal inflation, the shock of a market that will likely grow far beyond rational (or even irrational) valuation, the possible internal push for things the government is unwilling to currently allow, forced financial market reform etc.

there are many reasons but the most pressing are the ones that are deemed to pose the biggest threat. imo, those are the inflation & asset price bubble factors.

Barron

[DcifrThs]

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also one more:

why did the dow jones drop over 10% after 9/11 ? Seems quite high a drop

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the dow dropped over 10% because far more people were dying to sell than those that were interested in buying, until the price became attractive.

why there were far more people dying to sell is a question that goes to the heart of stock price prediction. similar instances occur all the time, but to lesser degrees. in this case, i think the sheer uncertainty of what COULD happen caused a great deal of the selling. nobody had ever witnessed a terrorist event exactly like 9/11 and the fact that it took down buildings that housed some of the great financial firms in the world caused some panic that underestimated the ability of those great financial firms to be just that...great. they rebounded and quickly found new headquarters and business proceeded as usual after a period of adjustment.

the horror and increase in risk aversion that followed the event certainly had a hand in the desire to offload risky assets and i'm sure played a part in the closing of the exchange.

there are other reasons i'm sure but i think those listed conveniently above give a general sense of what was going on in the minds of enough of the sellers.

feel free to probe deeper [img]/images/graemlins/smile.gif[/img]

Barron