Tuesday, June 30, 2009

Worthy Readings

Here's the best of what I'm reading lately:

Barry Ritholtz has finally thrown down the gauntlet to John Carney and others regarding the CRA's role in causing the housing crisis. Ritholtz says the CRA didn't play a major role, Carney says the CRA's role was much more than insignificant. Ritholtz challenges anyone to a debate for $100k on the topic.

Barry also has an interesting list of who he thinks is responsible for the housing bubble and credit crisis.

Good and bad from Zerohedge: first the good: Tyler Durden highlights a "data glitch" that resulted in a massive overstatement of housing data improvement in San Diego:

"The California Association of Realtors expects to make sharp downward revisions in its recent monthly reports of soaring home sales in the San Diego area, Robert Kleinhenz, deputy chief economist of the trade group, said in an interview. Those revisions will mean modest downward revisions in statewide sales, he added...

The California Realtors have reported that San Diego sales in April were up about 63% from a year earlier. Mr. Kleinhenz said that is expected to be revised downward to a gain of about 20%. For May, the group reported an 89% increase in sales in San Diego; that will be slashed to about 6.5%, the economist said."

Ummm - revisions from +63% to +20% and from +89% to +6.5% are not a glitch - they are a colossal fuck up.

Now the bad: Tyler Durden misunderstood a change in the reporting of program trading numbers to the NYSE and got his readers all hyped up again about lack of transparency and conspiracy theories. The NYSE will be automating the data instead of relying on the firms to submit it themselves, and it should make the data more transparent and more accurate. TD's impact is noted, however, as he garnered a speedy reply from the NYSE which explained the change. Clusterstock jumped on the original ZH story, again spreading paranoia where none is needed.

The NY Times published a pretty amazing article about China limiting the use of online gaming currency.

"China is one of the world’s biggest markets for huge so-called multiplayer online games like World of Warcraft, and tens of millions of young people are believed to be trading virtual goods and credits for real goods and cash.

The coin of fantasy realms have already moved markets here. So-called QQ coins — a form of currency produced by the Chinese Internet giant Tencent — have sometimes risen sharply in value against China’s official currency, the renminbi, alarming officials at the nation’s Central Bank.

Some people have even traded virtual currencies in China, and exchanged them for clothes, cosmetics and other goods.

Last year, nearly $2 billion in virtual currency was traded in China, according to the China Internet Network Information Center. Some experts say they believe there is a much larger underground economy in the virtual world...

Chinese officials have worried that online currencies could ultimately serve as an alternative to China’s official currency, the renminbi, and have an impact on the country’s financial system."

I mean - WOW. This is actually a pretty mind boggling story. They are worried that World of Warcraft ducats will screw up their financial system?

NY Times' Joe Nocera has a message to Madoff's victims: "Get Over It" (courtesy of Dealbreaker)

"Besides, as I’ve argued before, the S.E.C.’s negligence notwithstanding, shouldn’t the Madoff victims have to bear at least some responsibility for their own gullibility? Mr. Madoff’s supposed results — those steady, positive returns quarter after blessed quarter — is a classic example of the old saw, “when something looks too good to be true, it probably is.” What’s more, most of the people investing with Mr. Madoff thought they had gotten in on something really special; there was a certain smugness that came with thinking they had a special, secret deal not available to everyone else. Of course, it turned they were right — they did have a special deal. It just wasn’t what they expected."
I agree with Nocera to SOME extent, but not completely. After all, as I've mentioned before - if Madoff was sending me bogus trading confirmations showing made up trades, I'm not sure how I'm supposed to figure that out.

This Bloomberg story is from last week, but it's absurd headline highlighted a continuing cognitive dissonance we seem to be suffering from: "Housing in Peril as Obama Fails to Get Financing Breakthrough." See, in case you haven't figured it out yet, there is not a new financial invention Obama can create that will make unaffordable homes suddenly affordable. We actually DID that already - with negative amortizing loans, where people actually paid LESS than the interest they owed on their mortgage, causing their balance to increase. That's part of what caused this crisis. There is no magic pill - home prices will fall until they are no longer unaffordable. They aren't falling because they are too low, they are falling because they are still too high.

Karl Denninger wants to stage a modern day revolt for the 4th of July.

until next time,



Anonymous said...

Thanks for providing some good insight and well thought through responses to the financial world. ZH has provided lots of data and interesting topics, but sometimes we need a bit more level headed player in the game. That's you.

Martin said...

I have heard that the restrictions on "gold farming" in online games are not so much the result of perceived social problems - after all they are a feasible export good for China - but more likely the reaction to large-scale untraceable money-laundering that is supposed to go on thorough these markets...

Anonymous said...

Kid, i have an off topic question and you seem to really know your stuff you im sure you can give me an simple explanation in no time. Question: 3 component index, A B C .33% of index each. A=30vol, B= 50vol, C=80vol. You can make up your own correlations for this example. Could you please show me the steps to work out the index vol for this example using the above numbers?? Thanks a ton.

Anonymous said...

Re Madoff: I used to run money but I quit. I run my own and for a few family. I would run across someone with 100 M investable occasionally. The ones I knew had 5-10 guys like me. Not one. That's the first mistake with Madoff. The second mistake was the preponderance of people that did business with him because he was Jewish. If that is the extent of your due diligence, that you put your entire fortune with a guy because he is the same ethnicity/religion as you. Well, in the immortal words of KD, "Sold to you sucka."