The swine flu opportunity

Let's recall the performance during the swine flu period of the spread between the pharmaceutical and the airlines' sectors.

The strategy would have been to buy pharmaceutical stocks during those early days, and sell short airlines stocks, as market underreacted to the news, as it already happened during the bird flu.

If missed the first opportunity, the second one is to wait until the gap is widened the most, until it is exhausted, and bet in the other direction (i.e.: long in airline sector and short on pharmaceutical).

--
"El primer caso detectado en 2009 se detectó el 28 de marzo, según la conferencia de prensa ofrecida el 23 de abril del 2009" translation: The first case was detected in March 28, according to the press conference given on April 23, 2009. spread Pfizer-United Airlines-American Airlines (April 23)

... the chart can not be uploaded properly. So feel free to use the dates given to check it out yourself!

Technology@Crisis

Perrow's book Normal accidents (1984) summarizes that technology intensive industries are more prone to suffer those accidents, due to:

- Complexity (nonlinearities.

- Tight coupling (multiple stages of a process which depend intimately on prior stages executing correctly.

1xtra*: absence of negative feedback over an extended period of time.

It is hard-wired in human behavior that we underestimate risk if nothing has happened recently.

e.g.: nuclear power plants, chemical industries, space programs, ..
Since 1974, 18 national level Banking Crisis around the world ('77 Spain, '87 Norway, '91 Finland and Sweden, '92 Japan.

Rogoff & Reinhart find these among the causes of the current crisis:
- Rising housing and stock markets
- Capital inflowsLarge public debt/GDP
- Financial liberalization

Measures aiming Crisis Preparation and Crisis Prevention (gathered from specialists):

- Break up banks and broker/dealers that are too big to fail

- Create exchanges for CDSs and other large OTC contracts

Create financial N1SB for analyzing all blow ups

Require confidential disclosure regarding "network"exposures

- Implement counter-cyclical leverage constraints for bank-like entities

- Enforce "suitability"requirements for mortgage-broker advice

- Require certification for mgmt. and boards of complex financial institutions

Impose more mark to market accounting and risk controls

Impose capital adequacy requirements for all bank like entities

Create new discipline of risk accounting

Impose small derivatives tax to fund financial engineering programs

Revise laws to allow "pre-packaged"bankruptcies for finance companies

Change corporate governance structure (compensation, CRO role, etc.)

- Teach economics, finance and risk management in high school

About Behavioral Finance

Behavioral Vulnerabilities:



About Prospect Theory: An Analysis of Decision under Risk

The theory distinguishes two phases in the choice process: an early phase of editing and a subsequent phase of evaluation; the editing phase consists of a preliminary analysis of the offered prospects, which often yields a simpler representation of theses prospects, whereas the edited prospects are evaluated in the second phase and the prospect of the highest value is chosen.

Outcomes which are obtained with certainty are overweighted relative to uncertain outcomes. Certainty increases the aversiveness of losses as well as the desirability of gains

In the positive domain, the certainty effect contributes to a risk averse preference for a sure gain over a larger gain that is merely probable; in the negative domain, the same effect leads to a risk seeking preference for a loss that is merely probable over a smaller loss that is certain (the overweighting of certainty favors risk aversion in the domain of gains and risk seeking in the domain of losses)

Value function: Reference point + Magnitude of the change. (vs final welfare states)

The value function is normally concave above the reference point and often convex below it, meaning, the marginal value of both gains and losses generally decreases with their magnitude.

Losses loom larger than gains; the aggravation that one experiences in losing a sum of money appears to be greater than the pleasure associated with gaining the same amount (i.e.: the value function for losses is steeper than the value function for gains).

Because people are limited in their ability to comprehend and evaluate extreme probabilities, highly unlikely events are either ignored or overweighted, and the difference between high probability and certainty is either neglected or exaggerated.

... which leads to perceive both insurance and lottery/gambling as atractive.

It is suggested that a person who has not made peace with his losses is likely to accept gambles that would be unacceptable to him otherwise (e.g.: Leeson at Barings Bank, Citron at Orange County)

Value Investing

The three factor model to explain most of the differences in financial markets returns:

1. The premium return of the stock market when compared to riskless assets.Sharpe's Beta.
2. The premium return of small capitalization stocks over large cap stocks.Fama's size effect.
3. The premium return of value stocks over growth stocks.Fama's value effect.
... I don't think the momentum factor is at the same level.

The performance of the stock markets exceeded those of Bonds, T-Bills, Gold and Dollar.
(Siegel's "Stocks for the long run"). But we should also bear in mind certain factors:

1. Take the market's geometric return (not the arithmetic return.

2. Consider the survivorship bias: Siegel only considers the best market in the best century of the history. But Argentina was as wealthy as the US a century ago. Austrians lost all their money at the mid-century. Japan will have to wait some generations to see the 40,000 back, ...
So, to bear in mind: companies do fail (while S&P500 do not consider those), some currencies lose value, and markets / economies sometimes get exhausted for some generations.

Stock returns in developed countries - markets, have outperformed those in emerging countries, with an astonishing Sharpe ratio difference.

The average return of small (and medium) companies outgoes the average return of the big companies both in developed and emerging countries (Fama's size effect).

Relative price is often measured by a firm's book-to-market ratio (BtM). When stocks are ranked by relative price, high BtM (or "value") stocks tend to have higher average returns than low BtM (or "growth") stocks. This is known as the relative-price or value effect.

Active management is encouraged to rely on settled rules. My favorite guide is the 50 day Nasdaq moving average. On the other hand, passive management stands on solid theoretical grounds, has enormous empirical support, and works very well for investors.

Regarding the composition of the portfolio:
Between 5 and 15 different stocks provide enough diversification for a personal portfolio.
(although some behaviorist may call this "the rule of five", ... a rule of thumb that only leads to underperformance)

In that sense, a good long run strategy to apply could be:
% of our portfolio invested in the stock markets = 100 - our age.

A book that should be re read more frequently...
"The intelligent investor" by Graham,

From his best student, W. Buffet, we should learn that a continued and periodically buy, in the stock market, is not only more easy and relaxed than the timming and stock picking strategies, but it will generally provide better results (80% of the Funds fail to match market returns).

And regarding the company's management:
Natural, organic growth for a company is better than the M&A growth.
(stock markets reflect it very well, and the reason the second is so much practiced is mostly because the CEOs looking for perks (i.e. empire building).

Repurchase of its own shares on the market is a better way for the company to pay their shareholders than providing dividends (because by doing that, we are going to suffer double taxation: company's + shareholder's). I think most mutual funds do not suffer the double taxation though. Furthermore it is well documented that senior investors, who are already retired, do prefer not to sell capital (stocks) and perceive the dividends as a rent.

Carta Abierta a Doña Esperanza Aguirre

topic, tags: radio BBC in Spain / English improvement.

Buenos días.

Quería proponer que en la Comunidad de Madrid se valorara la posibilidad de tener una emisora de radio publica.
La emisión que propongo es: BBC World Service

Por qué:
El ingles se debería potenciar más. En España el nivel es bajo con respecto a nuestros vecinos europeos y eso nos hace menos competitivos. (Y a los jóvenes españoles mas esclavos de la deriva del país a manos del gobierno socialista. --> Cuando podriamos disfrutar mucho mas del mercado único laboral europeo si tuvieramos mejor nivel de inglés)


Mas tiempo en embotellamientos, atascos = Más tiempo perdido. Más paro = más horas libres. Etc.
Con esta emisión se avanza en la democratización del inglés: en que no haga falta pagar una academia, viajes o clases para mejorarlo, sino el interés y esfuerzo personal. En las ganas de superacion personales, atributos de la derecha de los que tendriamos que hacer gala mas a menudo.

Por último quería apuntar también que ya hay una iniciativa similar en España.
En concreto se trata de Talk Radio Europe - link. Una emisora de expatriados jubilados ingleses donde las producciones propias (shows normales de radio) se alternan con horarios donde directamente conectan con la BBC (todas las noches desde las 11:30 pm hasta las 07:00 am; de lunes a viernes de 06:00 a 07:00 pm, etc.).
Es una maravilla que sea ingles británico, que no haya anuncios en la emisión, que el acceso sea libre ...

Les mando un cordial saludo, Atte.
RT

Pairs-Trading Strategies @ personal portoflio

I have made some changes recently in my portfolio because I think we have to be prepared for uncertainty in the financial markets.

As a consequence of that, my strategy is almost market neutral.
These are my positions (for a 1700 eur power purchase) :

POP.MC - 600 @ 6.75 e
ACX.MC - 270 @ 14.11 e
MT + 123 @ 24.7 e
NOK + 400 @ 9.13 e

portfolio
--
I think Arcelor Mittal will outperform Acerinox. The last one have not dropped so much during the downturn in the financial markets, and that is just because it has fewer liquidity / # trades.

Secondly, Nokia makes good cellphones (Does Customer Satisfaction Translate to Excess Stock Returns?, the sector´s outlook is bright and the shares have underperformed the market and its sector recently. Certainly it is a risky proposition, since we do not know when the company will pick up again. But .... I like this moment to buy the stock, I think it may have been over-sold.

On the other hand, the Spanish bank, Popular will suffer from spain's PM.
Zapatero and his socialist ideas are not the best macro strategies to deal with the current recession. So the levered position of the bank in the spanish housing market has gloomy perspectives unless BIG! changes in public policy take place -diminishing the taxes, subsidies, government power, government cars, travels, # wages ... it is just not gonna happen.

Asset Allocation for personal portfolio

What if we had $100K to invest today for our own account? ... empirical simulation

The first thing we should do, is to establish the risk adversity we want.
Tough that is a personal decision, there is a pretty simple guide to do that:

% RISKY ASSETS = 100 – AGE (years).
… Bonds, T-bills and gold are good low-risk assets.

Since I am a follower of the Austrian School of economics, I find gold quite appealing, furthermore in such market (and policitcal) conditions.
But I think that a 10% allocation is in the highest range of alternatives. More than that is not an option: gold doesn't produce anything.

So … If we were 40 years old, we’ll end up with this proportions:
Risky assets: $60 000
Bonds / T-bills: $ 30 000
Gold: $ 10 000 (preferably in spot, rather than in financial products. Otherwise... we never know whether we will have it when it is more needed)

- RISKY ASSETS [leveraged]:
- Currencies: $ 20 000
aud.usd - 0
cad.usd - 28 (buy, wait)
chf.usd - 27 (BUY)
eur.usd - 18 (buy, wait)
gbp.usd - (neutral)
jpy.usd - 25 (inverted) (SELL if it is around 1/103 - BUY if it is around 103)
... so as June 19th, we start a position: CHF/JPY (at around: 89)

- Stock markets: $ 40 000
Hedge strategies: $ 20 000 [$ 100 000] : mt.acx / acn.ibm? / gas.oil /
Moving averages crossovers: $ 5 000 [x]
New maximums - New minimums hedged system: $ 5 000 [x]
MACD R2: $ 5 000 [x]
Seasonal trading opportunities: $ 5 000 [x] (1st month) / Options / Volatility / Option wRiting strategies (risks) ...

Trading Volatility / Writing Options

--> the title of the post is a link to a video of a fully developed strategy on option writing. video at fma.org <--

Suggested chart to work with options:
http://tiny.cc/kRlgP
(value of the options: time + volatility + spot _underlying asset)

Let's go to the point:

On a regular basis, we should rather write (sell) options, than to buy them.

The best moment to sell options is when the VIX is peaking / has already peaked.
That is, when it is coming down after a rally (moving averages crossing down).
Thus, the best Options to use are PUTs, never CALLs in such conditions.

On the other hand, the best moment to buy options is when the VIX is in its lowest levels. Consequently we'd rather buy PUTs than CALLs.
We can do it when the moving averages have crossed upward.
Sadly, with that strategy we can find a lot of different occasions when they have just crossed up for a short time of time, coming down afterwards. Such occasions will not provide good results, but among those... there will be the good ones!

Economic Outlook

Be carefull with the green shoots. Economic data / analysis is not all pointing towards a rosy future.
On the one hand, bigger than expected earning forecasts during the last week were released, supporting the rally experienced in the stock markets since march (because actually the earnings' improvement was in fact bigger than the rise by the stock markets).

But on the other hand, it was just released yesterday the June GEAB N°36, with gloomy perspectives for the months to come. Forecasting payment defaults in the UK and the US

... and (spanish):
Estas son las olas principales:
1- La ola del paro masivo. -> Massive unemployment.
2- La ola de las quiebras en serie, empresas, bancos, inmobiliario, estados, regiones, ciudades.
-> Wave of city councils, states, banks and corporation defaults.
3- La ola de la crisis terminal de los bonos del tesoro de EEUU, del dólar y de la libra y la vuelta a la inflación.
-> US' bond crisis. USD and GBP currency crisis, and back to (super)inflation times

Hope these guys are wrong bk otherwise the green shoots are going to get burned during the summer

So, be prepared for worst economic performance, and get a neutral/bearish market portfolio!
--
GEAB 36: http://tiny.cc/Qu0Qj

Consultora Gubernamental

Pop Up stores

Diet > Carbohydrates > Glycemic Index

Harvard's new guide to healthy eating:

Glycemic Index: a ranking of foods based on their immediate effect on blood glucose-or blood sugar levels.

• Carbohydrate foods that break down quickly during digestion have the highest glycemic indexes. Their blood sugar response is fast and high.
• Carbohydrates that break down slowly, releasing glucose gradually into the blood stream, have low glycemic index values.

WHY LOW CARB DIETS ARE BAD?

Your body needs to maintain a certain glucose level in the blood to serve the brain and central nervous system. To ensure that glucose is readily available, your body stores it in the muscles and liver. This storage is called glycogen. If you are not eating the right amount of carbohydrates your body will take these glycogen stores, break them down, and convert them to glucose. Once the glycogen is used up, then starts breaking down muscle protein to synthesize glucose for vital organs. This will make you feel irritable, headachy and sick, and it causes a loss of lean muscle, tissue and water, two things that your body needs. It WILL NOT help you lose weight in the long run because the bodies fat stores can not be converted to glucose. So it's all about eating more of the "good" (complex), low glycemic index carbs, rather than lower amounts of carbs that will keep the weight off for good!

RECOMMENDATIONS:

First, to stabilize blood sugar levels, eat smaller more frequent balanced meals. According to some diets, each carbohydrate in your meals must be combined with a quality protein source and some sort of vegetables.

Good quality proteins include: eggs, fish, white meat, whey (by-product of cheese production).

Second, you should not have a diet too low in fat. The whole craze over high fat, high protein diets are to decrease spikes in insulin and to lower the GI index of foods and meals.

Third, you should purposely use mainly high glycemic carbs after you train. A carb drink with a scoop or two of a low fat protein powder will work wonders right after you train.

Finally, I would combine supplements like creatine, 10 grams of glutamine, and a good anti-oxidant with the post-workout drink. This will give you a big jump-start to recovery and glycogen replenishment.

GIs. These are examples of some good quality carbs:

100% stone ground whole wheat bread (GI=51)

Multi-grain breads(GI=49)

Fruits* act as a simple carb when eaten alone, add a fat and protein for it to become complex.

Vegetables

Bulgar

Beans

Lentils

Legumes

All Bran, or other high fiber cereals

Oatmeal

Beans

baby lima 32

baked 43

black 30

brown 38

butter 31

chickpeas 33

kidney 27

lentil 30

navy 38

pinto 42

red lentils 27

split peas 32

soy 18

Breads

bagel 72

croissant 67

Kaiser roll 73

pita 57

pumpernickel 49

rye 64

rye, dark 76

rye, whole 50

white 72

whole wheat 72

waffles 76

Cookies

Graham crackers 74

oatmeal 55

shortbread 64

Vanilla Wafers 77

Crackers

Kavli Norwegian 71

rice cakes 82

rye 63

saltine 72

stoned wheat thins 67

water crackers 78

Desserts

angel Food Cake 67

banana bread 47

blueberry muffin 59

bran muffin 60

Danish 59

fruit bread 47

pound cake 54

sponge cake 46

Grains

barley 22

brown rice 59

buckwheat 54

bulger 47

chickpeas 36

cornmeal 68

couscous 65

hominy 40

millet 75

rice, instant 91

rice, parboiled 47

rye 34

sweet corn 55

wheat, whole 41

white rice 88

wh. rice, high amylose 59

Juices

agave nector 11

apple 41

grapefruit 48

orange 55

pineapple 46

Cereals

All Bran 44

Bran Chex 58

Cheerios 74

Corn Bran 75

Corn Chex 83

Cornflakes 83

Cream of Wheat 66

Crispix 87

Frosted Flakes 55

Grapenuts 67

Grapenuts Flakes 80

Life 66

Muesli 60

NutriGrain 66

Oatmeal 49

Oatmeal 1 min 66

Puffed Wheat 74

Puffed Rice 90

Rice Bran 19

Rice Chex 89

Rice Krispies 82

Shredded Wheat 69

Special K 54

Swiss Muesli 60

Team 82

Total 76

Fruit

apple 38

apricot, canned 64

apricot, dried 30

apricot jam 55

banana 62

banana, unripe 30

canteloupe 65

cherries 22

dates, dried 103

fruit cocktail 55

grapefruit 25

grapes 43

kiwi 52

mango 55

orange 43

papaya 58

peach 42

pear 36

pineapple 66

plum 24

raisins 64

strawberries 32

strawberry jam 51

watermelon 72

Milk Products

chocolate milk 34

ice cream 50

milk 34

pudding43

soy milk 31

yogurt 38

Pasta

brown rice pasta 92

gnocchi 68

linguine, durum 50

macaroni 46

macaroni & cheese 64

spaghetti 40

spag. prot. enrich. 28

vermicelli 35

vermicelli, rice 58

Sweets

honey 58

jelly beans 80

Life Savers 70

M&M's Choc. Peanut 33

Skittles 70

Snickers 41

References-"The Glucose Revolution" Jennie Brand-Miller, PhD; Thomas M.S. Wolever, MD.,PhD; Stephen Colagiuri, MD., Kaye Foster-Powell, M. Nutr.&Diet.

"The Bottom Line", Harvard Publish Review.

http://www.hsph.harvard.edu/nutritionsource/what-should-you-eat/carbohydrates/

Hacia un nuevo modelo impositivo

post en proceso.
--
otras lecturas:
articulos:
El colapso alimentario del planeta
Conscious - Capitalism
is there a market for conscious capitalism?
libros:
be te solution,
liberalismo paternal

eBooks

El ebook es un invento genial.
Con grandes ventajas y comodidades para ávidos lectores y nuevas generaciones de estudiantes. How the E-Book will change the way we read and write - WSJ

Por ejemplo, una buena forma de mejorar el inglés de forma autodidacta es leer libros a la vez que escuchamos la lectura del correspondiente audiolibro. Aunque hay ediciones especiales para ello -nivel medio/bajo- en las obras que ya han perdido los derechos originales, va a ser mucho más fácil conseguir ambos formatos, y de manera gratuita -los derechos de copyright se pierden a los 50 años de la publicación.

Aquí algunas ideas:

sun tzu, el príncipe // darwin // adam smith, locke, john ruskin, stuart mill, david ricardo, max weber, keynes // (liberalismo) mises, hayek, friedman, bastiat, ...

shakespeare, moby dick, dracula, pride and prejudice, the phantom of the opera, importance of being earnest, strange case of dr jekyll, great expectations, ...


--
20 Best websites to download free ebooks
- scribd
- manybooks
- pdf search engine
- pdf geni
- datasheet
- dailylit
- gutenber proj
...

Motivos para sospechar de nuestros políticos.

Vimos la semana pasada como después de que le pusieran limite a los planes de "impulso económico" a Gordon Brown, no contento con haber conseguido tamaño despropósito, hizo la maleta y se fue a pedir a sus vecinos europeos que hicieran lo mismo.
Y eso, no puede sino reafirmar nuestras sospechas sobre los políticos que nos gobiernan, y nuestras maltrechas economías mientras estén a su merced.

Ordeno por orden de eficiencia económica las diferentes opciones gubernamentales para afrontar la crisis:
No intervenir en la economía, que no lo hagan el resto de países.
No intervenir en la economía, que sí lo hagan el resto de países.
Intervenir en la economía, que no lo hagan el resto de países.
Intervenir en la economía, que sí lo hagan el resto de países.

Pues eso, G.B. no contento con mantener la segunda peor conducta económica, allí se fue a intentar convencer a sus colegas europeos de las bondades del gobierno para planificar la economía ¡!
Y es que si bien puede haber debate respecto de lo conveniente o no de reforzar las industrias nacionales a costa del bolsillo del contribuyente (keynesianos-liberales); de lo que no creo que hay tanta duda, es de que es mejor tener la menor competencia posible a la hora de colocar la deuda pública (1) y más importante, que el apoyo a las industrias que te dispones a impulsar se traduzca en una ventaja competitiva en los mercados internacionales (2): si todo el esfuerzo realizado finalmente no supone una ventaja frente a las empresas extranjeras porque ellas también se han beneficiado del dinero (subvenciones) gratis, flaco favor es el que les propicias a tus conciudadanos.

Respecto a diferentes puntos de vista, que vean en un mayor impulso económico europeo las alas para despegar de la economía inglesa (como espero que sea G.B.), cabe mencionar que Inglaterra no era precisamente una economía que viviera de la exportación de bienes (como sí lo es la alemana) y por tanto el beneficio económico quedaría muy diluido. Por otra parte, el efecto es equivalente al que se produciría con una mayor devaluación de la libra, sin tener que comprometer el bolsillo del contribuyente.