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Monthly Archives: March 2008

The Dollar and Credit Crunch

McKinnon explained on wsj that the negative yields (inflation-adjusted) on Treasurys can not be due to “flight to quality” alone. The falling dollar and foreign central banks’ intervention also played a big role. To prevent appreciation of their own currency, foreign central banks are buying more Treasurys thus reducing supply of Treasurys available for the U.S. financial institutions. Both drive up price on Treasurys.

(click to enlarge, source: wsj)

Regulation overhaul by Paulson Jr.

According to NY Times, the Bush administration is proposing the broadest overhaul of Wall Street regulation since the Great Depression.

The plan hands vast new authority to the Federal Reserve…The proposals would, for the first time, create a set of federal regulators with authority over all players in the financial system, be they banks, insurance companies or other entities like hedge funds and private equity funds, which now operate virtually without regulation. But that authority would be limited…

Yuan Exchagne Rate: Appreciation or Depreciation?

(click to enlarge, author’s own calculation)

Europe is China’s No. 1 trading partner. It seems that they did not get the deal the US is getting. Are we going to see more appreciation pressure of CNY/Euro in the future? Or Europe, a union of rough a dozen countries, is fundamentally weaker than the U.S. when it comes to negotiation power?

China’s stock market is cliff-diving

courtesy of Chartoftheday.com

Blackjack and investing

Edward Thorp and Bill Gross talk about their investing philosophy, and its relationship to blackjack.  Mr. Thorp ran two hedge funds, Princeton-Newport Partners and Ridgeline Partners, which went nearly 30 years without a down year, and averaged 19%-20% annual returns.
[Thorp and Goss]
(source: wsj)
"….(the) basic thrust concerns the idea of gambler's ruin, where you lose everything by over-betting. In the context of blackjack, you can never bet more than 2% of your stake without the possibility of eventually losing your entire pot".
Bill Gross, "Here at Pimco, it doesn't matter how much you have, whether it's $200 or $1 trillion. You'll see it throughout our portfolio. We don't have more than 2% in any one credit. Professional blackjack is being played in this trading room from the standpoint of risk management, and that's a big part of our success."

Slump Moves From Wall St. to Main St.

NY Times reports main street consumers start to feel the pinch.

More bank regulation coming

Are we soon to see more regulations on banks, especially on investment banks? Paul Krugman thinks no regulation on "shandow banking system" is the reason why we got here today.  He compared today's financial crisis with the Great Depression in 1930s. But aren't those regulated banks also in trouble?  Can regulation solve the problem?

Paul Volcker on Charlie Rose

Paul Volcker interview (03/18/08) on Charlie Rose.
(what happened to Charlie’s eye?)

(click above picture to play, about 30 mins)