A couple of days ago, I read an article “How To Trade Using Game Theory” on SeekingAlpha. I had to figure out what “game theory” is, and also “quantitative easing” (QE), since QE is at the heart of this article.
GAME THEORY postulates a finite number of players, choosing strategies that is most advantageous taking into account the actions of other players
QE is simply the Fed increasing the money supply by buying up Treasuries, thereby flooding the banks with cash. Then, in theory, the banks increase lending and interest rates go down. [more]
These goofy things rallied today, to the point where they are pickable again on CAPS (c’mon, folks, what are you thinking?). Did I short them on my Fool portfolio? You betcha.
I like the opinion of one analyst (I herein paraphrase): We continue to believe that the value of these securities is zero.
Saw a newswire story that GM’s rump is still selling a buck a throw. And, AIG’s CEO showed a little chutzpah in an interview, and the stock took off like a rocket. Please: put down the beer-goggles. There is no way on God’s green earth that:
**GM’s rump is worth more than $0.00 per share
**AIG will be able to pay back $180B or anything close to it [more]
Just a few notes as a consumer of healthcare and health insurance. [more]
So, you are happily typing away your blog post. The blogging system automatically starts a new line when get the end of the current line. When you want a new paragraph, you hit ENTER. The display inserts a blank like then starts you on a new line. But: what if you want to start a new line, but do not want a blank line also (maybe you are doing a list)? [more]
I read a CNET story from last Sept. that the gasoline generator in the Volt gets about 50 mpg. Actually, not bad, if accurate. Besides: all you need is a more efficient generator or convert to an alternative fuel. Apparently, this is how they are getting 230 mpg rating: [more]
Saw a very interesting article today from Bloomberg. It said that Honda has placed a big bet on fuel cells that use hydrogen. Once Honda makes a corporate decision, they stick with it; they have spend $gazillions on this technology already. Frankly, I would not bet against Honda. It also explains how Toyota was able to drop a dime on Honda for hybrids. [more]
The Fool article about the existence of CDS' on Treasuries resurrected an old memory about "synthetic bonds". Last fall, when Hell was freezing over, credit default swaps (CDS) where often mentioned as an important villain. I had never even heard of them, so did research about it on the web, and ran into something called synthetic bonds. I will explain it to the best of my ability (not that I really understand it, however).
The key here is how a CDS works: it generates a cash flow. Say A sells a CDS on, say, $100M of LEH bonds, and B buys it. B gives A small % of the CDS value periodically; in return, A promises to pay out $100M if the bond defaults. Neither A nor B owns the underlying LEH bond.
You want to buy $1M worth of long-term corporate bonds for eMeringue. Problem: eMeringue is not selling bonds currently, and those who have them won't sell them to you. So, you fabricate one, called a synthetic bond, out of thin air.
1) You buy $1M worth of long-term Treasury bonds.
2) Then, you sell a CDS on $1M of eMeringue bonds, using the Treasury as collateral
3) this is OK with the buyer, because you will simply fork over the Treasury if eMeringue defaults
This is what happens:
a) you get the interest from the Treasury
b) you get the interest payments from the buyer of the CDS
c) the total of a & b equals the interest rate on a real eMeringue bond
d) when time is up, you cash in the Treasury, and the CDS simply expires
e) if eMeringue defaults, you get to keep a & b, but lose the Treasury
Note that the behavior of your synthetic bond in c, d, & e is identical to the behavior of the real thing: you get the interest, but lose the initial investment if it defaults. The key: it can only happen if you can find someone who wants to buy a CDS on eMeringue bonds. [more]
Just an FYI. You want to trade directly on the price of oil and gold directly, but do not want to open a margin account and start trading on the NYMEX. Investing in gold miners or oil drillers is not quite the same thing. Well, here is how. [more]