Best Explanation in One Sentence - Mises Economics Blog

Whether you agree or not, this line is so awesome I have to include it...Best Explanation in One Sentence - Mises Economics Blog: "'If the money is used to prop up failing companies, that's particularly bad since it is an attempt to override market realities, an attempt that is about as successful as trying to repeal gravity by throwing things up in the air.'"And it does serve as a good reminder

How Scientists Helped Cause Our Financial Crisis

Garbage in, Garbage out. Models are not reality. Models only help explain reality and therefore help our understanding of a reality that is generally too complex to fully grasp. These ideas are taught in every stats, econometrics, and finance class worth its weight. On every test students use (indeed sometimes overuse) "data limitations", "it uses historical data", and "surprises (or black

Schiff continues to believe that the worst is yet ahead.

Peter Schiff 'Opportunity of a Lifetime' in Gold Intl. Assets Not U.S. Stocks: Tech Ticker, Yahoo! Finance: "Schiff believes have another 5 to 10 years of bear market action ahead as America struggles to come out from under a mountain of debt."Clusterstock on the same:"As discussed in the accompanying video, Schiff believes the recent dollar rally and commodity price weakness will prove temporary

A Reporter at Large: Anatomy of a Meltdown: Reporting & Essays: The New Yorker

A Reporter at Large: Anatomy of a Meltdown: Reporting & Essays: The New Yorker: "For more than a year after he was appointed by President George W. Bush to chair the Fed, in February, 2006, he faithfully upheld the policies of his immediate predecessor, the charismatic free-market conservative Alan Greenspan, and he adhered to the central bank’s formal mandates: controlling inflation and

Baltimore Firm Delays IPO to Wait Out Risk - washingtonpost.com

Having just done IPOs in class, this was of special interest.Baltimore Firm Delays IPO to Wait Out Risk - washingtonpost.com: "When Grand Canyon Education of Phoenix went public Thursday, it was the first U.S. company to have an initial stock offering since Aug. 8. On that day, Rackspace Hosting of San Antonio broke the longest IPO dry spell since 1975....Since August, at least 29 companies have

Bell Ringing!

If you get a chance, be sure to catch the NYSE closing bell today. As part of St. Bonaventure's 150th anniversary celebration Mark Larry (the finance club president), Jeff Peterson (my chairman), and Sr. Margaret Carney (University President) will be ringing the closing bell today!here is a video of the bell ringing.

Slippery! Proceed with Caution!

In WNY it has snowed every day for a week so the roads are pretty slick, but that is not what I meant.Bloomberg.com: Economy: "The Federal Reserve took two new steps to unfreeze credit for homebuyers, consumers and small businesses, committing up to $800 billion.The central bank will purchase as much as $600 billion in debt issued or backed by government-chartered housing-finance companies. It

Airlines and hedging back in the news from AVIATION WEEK

The good people over at Aviation Week seemingly still don't quite get it. Hedging is not supposed to be a money making operation. It is supposed to eliminate (or at least lessen) one form of risk. In this case, those airlines that locked in the price of Jet Fuel need not worry about it. True they are paying more than the spot price, but that always happens. When they made their decision,

July 9th, 2004

Was just looking back over old FinanceProfessor.com newsletters (wish I had time to bring them back), and found this from July 9th, 2004." Fed Governor Edward M. Gramlich gave a great talk on the subprime mortgage market. This market, which is relatively new but has grown sharply, deals with making loans to those that are seen as being high credits risks. On one hand these loans “created new

Kiyoshi Ito, 93, Mathematician Who Described Random Motion, Dies - Obituary (Obit) - NYTimes.com

His name may not mean much to many, but if you ever took a PHD finance class there is little doubt you will ever forget him. Ito's work played a major role in the development of the Black-Scholes option pricing formula.From the NY Times: Kiyoshi Ito, 93, Mathematician Who Described Random Motion, Dies - Obituary (Obit) - NYTimes.com: "Kiyoshi Ito, a mathematician whose innovative models of

Two tests=little posting

No, I did not abandon ship. Just been busy. Had a test to give on Saturday and tonight (Monday) and still working with BonaResponds to build a house in Friendship. It is coming along pretty well!Speaking of BonaResponds, we are starting a small micro-finance program where we will be lending to some of the people we are helping. If you want to give to a great cause (and yes it is a donation,

Citi Field Bailout?

I have long had the view that one sure sign of a firm's pending demise is that they decide to buy stadium rights (uh sorry to anyone marketing this type of thing ;) ). Consider: Adelphia (had both Adelphia Court at St. Bonaventure and the dreaded Adelphia Coliseum in Tennessee), Enron (and the former Enron Field), do we add the new Citi Field to the list?BTW There could be some rationale for

Two Finance Professors in the news

Andrew Lo of MIT went in front of Congress recently. He suggested a team including some from academia to study what went wrong to prevent it from happening again. Of course, that is already happening at thousands of firms and hundreds of universities. (from MoneyScience)"Professor Lo, described his idea that the US Government should set up a small agency, modeled along the lines of the

TIPS Strips, Redux - Seeking Alpha

SeekingAlpha has an interesting "interview" with a Barclay's expert (Mike Pond) on Treasury Inflation Protected securities. It covers many topics (from deflation to why TIPS Strips never caught on. Two things for class perspective that my students should definitely be aware of is the relationship between reinvestment rate risk and duration and the impact of liquidity on returns (and why if you

Market And Economic Records Falling One By One (And Not In Good Way)

Whether these are interesting trivia or important indicators will be left for history to decide, but there are some interesting records..Market And Economic Records Falling One By One (And Not In Good Way): "One of the interesting aspects of this unprecedented housing collapse, credit crisis, economic recession and market crash has been all the new records we keep seeing.....* The S&P 500 hasn’t

With no IPO market, companies seek private investors | Deals | Reuters

With no IPO market, companies seek private investors | Deals | Reuters: "Companies wanting to go public are opting for private placements to tide them over until they are mature enough to launch, DeFrawi, who heads InsideVenture, said in an interview. InsideVenture is a service that will begin matching investors with later-stage pre-IPO companies this winter.On Tuesday, InsideVenture announced it

Quick update on Cuban's insider trading case

Two updates:First Cuban has provided an update on his BlogMaverick page in which is is implied that Cuban never intented to keep anything confidential. From the MarketWatch:"on Tuesday posted an email containing a purported transcript of a conversation between Mamma.com Chief Executive Guy Faure and Cuban's lawyers, in which Faure acknowledges that Cuban didn't explicitly agree to keep the

Three part interview with Ken French

Ok, it is official, Clusterstock is my new favorite blog site. They have a three part interview with Ken French. The first part on why index funds are generally better than active stock picking is available here, the second part was on the folly of market timing. The third part is on the returns of commodities entitled that No, You Shouldn't Own Commodities -- Ken French: ""Ken French,

Peter Schiff: A prophet from the past?

A former student of mine (Charlie) sent this to me. Wow. Talk about getting things right! Peter Schiff was absolutely dead on.Peter, I do not know you, but my hat is off to you. It is also a great reason why I NEVER watch financial talk shows. I wonder if Laffer ever paid his penny.

The Public Payroll Always Rises - WSJ.com

One one hand government spending is in a Keynesian way seen as a means of keeping the economy growinging in an economic slowdown, but given the taxes andThe Public Payroll Always Rises - WSJ.com: "As the recession hits home, all across America businesses and families are having to make hard decisions about what not to buy this year, or whether they can afford a vacation or that plane trip home

Officials charge Mark Cuban with insider trading | Entertainment | Industry | Reuters

Officials charge Mark Cuban with insider trading | Entertainment | Industry | Reuters: "According to the SEC, Quebec-based Mamma.com invited Cuban in June 2004 to participate in a private placement stock offering after he agreed to keep the information confidential.When Cuban found out that the offering would dilute the holdings of existing shareholders and be sold at a discount to the market

Are partnerships coming back?

Mark Wilson who teaches Economics here at SBU has been advocating that a solution to the excessive risk taking and misaligned incentives is to return to partnership arrangements where the management would have more at stake.Last week in Michael Lewis' epic "The End of Wall Street's Boom" piece the same idea was mentioned. Now Clusterstock investigates what Goldman would look like if it did go

To Prevent Bubbles, Restrain the Fed - WSJ.com

In another article bemoaning the Fed, the WSJ reports some amazing statistics:To Prevent Bubbles, Restrain the Fed - WSJ.com:First on the performance of the stock market:"On Nov. 14, 2008, the Dow Jones Industrial Average closed at 8497.31. On Nov. 13, 1998, the adjusted (for dividends and split) close was 8919.59. There has been great volatility, but no net capital accumulation as measured by

Stocks For The Long Run, v. 3

Ouch! Clusterstock mentions that real returns following a market peak have been very different than after a bottom.Stocks For The Long Run, v. 3: "If you invested at the 1929 peak, it took 29 years for the value of your shares to recover in real terms; if you invested at the 1968 peak, it took 24 years.The takeaways are: 1) dividends have provided the lion's share of long-term stock market

Yield Spreads point to bad economic times ahead

In good times even the majority of low rated firms can make their debt payments, but in bad times these low rated firms are the first to get in trouble. Investors know this and the spread between low rated and high rated debt gets larger when the economy slows. Thus, it is more than a little troubling that the risk premium has grown to historic levels. From Barron's:Current Yield - Barrons.com:

Warren Buffett Interview

Clusterstock did it again. They found another really cool article. This is the transcript of Buffett on CNBC:That Awesome Warren Buffett CNBC Interview (courtesy of Clusterstock): "It's a tall order to get up at 5am and speak for three hours and never say anything that isn't wise, charming, or funny....Full three-hour transcript here (with minor deletions), courtesy of CNBC. If you don't have

A look at volatility: Levels, Surprises, and History By Risk Metrics's Chris Finger

Doomed to Repeat it? Over at RiskMetrics, Chris Finger has examined the volatility of the US stock market for over one hundred years. While lacking any grand slam home runs, it is an interesting article for a number of reasons.Short version:It starts by breaking the time period into two periods (1940-1945, 1945 to present) and like other researchers the author shows that the volatility has in

Accounting changes are coming, and I feel fine

With all apologies to REM It's the end of the world as we know it, and I feel fine.A New Vision for accounting: "Some of the major changes under discussion: reconfiguring the balance sheet and the income statement to follow the three categories of the cash-flow statement, requiring companies to report cash flows with the little-used direct method; and introducing a new reconciliation schedule

The End of Wall Street's Boom - National Business News - Portfolio.com

WOW!! Have some time? You may just want to drop whatever your plans were for this. It is that good. By Michael Lewis (he of Liar's Poker and Money Ball fame).The End of Wall Street's Boom - National Business News - Portfolio.com: "The era that defined Wall Street is finally, officially over. Michael Lewis, who chronicled its excess in Liar’s Poker, returns to his old haunt to figure out what

SSRN-Modeling the Economic Effects of Bank Regulation and Supervision by Bilin Neyapti, Gonca Senel

This one sort of surprised me. Short version: banks and economies improve with supervision.SSRN-Modeling the Economic Effects of Bank Regulation and Supervision by Bilin Neyapti, Gonca Senel: "...reveals that the higher the RS [Regulation and Supervision], the higher are per capita output, wages and credit, and the lower are the interest rates. Moreover, simulations reveal that bank

Is Now the Time to Buy Stocks? - WSJ.com

In class just the other day we talked about Efficient Markets and concluded that while markets are exceedingly difficult to beat on a risk adjusted basis, it does appear that as we learn more perfect efficiency in the sense of a random walk, is not really the case. So it is a great coincidence that in the Wall Street Journal there is the following by the University of Chicago's John Cochrane.Is

The Lipstick index from NY Times

Pulse - Frown Fighters - Caption - NYTimes.com: "...the Lipstick Index — that frivolous financial barometer that says cosmetics sales rise in direct relation to free-falling finances — has jumped."From The Business Sheet: "The gist is that women couldn't afford luxuries in the depression but wanted to buy something to treat themselves. Something small, cheap, and with a big impact. Lipstick.

Reversion to the Mean - Capital Markets - CFO.com

Wow. I did not see this one coming. It is from the Economist and reported on CFO.com but is research by Deutsche Bank.For the past 25 year Treasury Bonds have outperformed equities, even BEFORE this recent market collapse.Reversion to the Mean - Capital Markets - CFO.com: "...over the last 25 years. As the graph shows, Treasury bonds have actually outperformed riskier asset classes over the

UVA: Sorry, Alumni, We Gambled Our Endowment And Lost

Few things are more humbling than the stock market (and maybe a speed workout on a quarter mile track). Case in point: many of the big time universities with Billions in their endowments (I always wonder why people give more to those that already have so much, but I digress) have seen much of their wealth evaporate.From Clusterstock: UVA: Sorry, Alumni, We Gambled Our Endowment And Lost: "...

Bailout just keeps getting bigger and bigger

The government bailout continues to grow with seemingly no end in sight. First AIG gets both more money and more lenient terms.A.I.G. Rescue Grows to Billion - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times: "The Bush administration revised its rescue of the American International Group, raising the total amount to $150 billion, amid signs that the interest on

Steve Horan on mutual fund fees

Steve Horan used to be a colleague at SBU and is still a friend, so when I heard he was on CNBC (even if only via a call-in) I was positive I was going to link to it.So here is the video of his discussion on mutual fund fees from CNBC.com

3 'superbanks' now dominate industry - Economy in Turmoil- msnbc.com

In an article that quotes many financeprofessors, MSNBC looks at some of the controversy of making the strong stronger. A must must read for any money and banking class!3 'superbanks' now dominate industry - Economy in Turmoil- msnbc.com:Some visual bites:“Large institutions are impossible to manage prudently, let alone regulate,” says Amar Bhide, a professor at the Columbia Business School. In

Treacherous Sands For Adelson - Forbes.com

It is rare to find a better example of ratios and bond covenants than in this piece from Forbes.Treacherous Sands For Adelson - Forbes.com: "Las Vegas Sands said in a regulatory filing that it doesn't expect to comply with its maximum leverage ratio covenant in the fourth quarter. That would trigger defaults that might force it to suspend multibillion-dollar development projects in the U.S. and

Black Swans and recent returns

Yahoo video of Nissan Taleb (Black Swan)Yahoo has a copy of the video from CNBC on Taleb's performance of late. It also has a discussion of his holdings and strategy. Short version: it is VERY good!Remember his Black Swan book is recommended reading for all my classes! (here are some other videos of Taleb)

Wall Street’s Pay Is Expected to Plummet - NYTimes.com

A follow-up on last month's bonus discussion.Wall Street’s Pay Is Expected to Plummet - NYTimes.com: "Bonuses, which soared to record heights in recent years, could drop by 20 to 35 percent across the industry, according to a private study to be released on Thursday. Bonuses for top executives could plunge by 70 percent.But to some, those figures, from the consulting firm Johnson Associates,

Naked Short Selling Is Said to Decline - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times

To quote Paul Harvey, "Not why nor how.... "Naked Short Selling Is Said to Decline - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times: "According to data from three exchanges — including publicly available figures from the Nasdaq stock market — the number of stocks on the naked short-selling watch lists has fallen dramatically. The Nasdaq, for example, has just 56

At the Supermarket Checkout, Frugality Trumps Brand Loyalty - WSJ.com

While many of you outside of SBU know I run BonaResponds, not nearly as many know I help out with my family grocery stores as well. In class we have mentioned several times that one way sales will decline as a result of the recession (and hence worsening it as well) is that customers will switch from more expensive items to cheaper store brand products. This trend has been noticeable at our

SSRN-Costly External Equity: Implications for Asset Pricing Anomalies by Dongmei Li, Erica Li, Lu Zhang

In a paper that will definitely be mentioned in my corporate finance classes, Li, Li, and Zhang look at whether capital structure impacts pricing anomalies. They find they do. This at least is consistent with the idea that financial flexibility is important in choosing capital structureSSRN-Costly External Equity: Implications for Asset Pricing Anomalies by Dongmei Li, Erica Li, Lu Zhang: From

Looking for stock information?

In the SIMM class students are constantly making presentations on firms that I often know little about. In addition to the normal Yahoo and Google finance pages, I have been using Tickerpedia. It is really useful and super easy to use. (and no this is not a paid commercial! lol)..

To Treat the Fed as Volcker Did - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times

The NY Times points to an interesting BreakingViews article on the fed. Short version: The Fed is trying to do too much and some of the things (example maximum employment and stable prices) are seemingly at odds. A possible solution? Simplify it and have the Fed worry only about stable prices.From the Fed's own website:"...the Federal Reserve's duties fall into four general areas: conducting

Lending rates fall to pre-Lehman levels - Nov. 4, 2008

While the financial markets are getting some traction and the worse may be behind us, there still are issues to deal with. For instance, in last two days we have seen that while rates in the markets are returning to more normal levels, Banks are making it more difficult to get loans. This is probably what we want, but does come with the problem of potentially slowing the economy.From CNN: