Ansatz* for the new year

 * In physics and mathematics, an ansatz is an educated guess[1] that is verified later by its results.
For the record, I’m starting a bit late (Jan 5, 2012) but I don’t think I have missed much other than the recent bowl games.
Just getting back to seeing where things are at and I finally got a hold of a copy of ‘In the garden of beasts” by Larson, which I selected as my holiday reading.
I was struck by his recitation of the facts surrounding the period of May 1933 when Hitler finally took office in Germany. The key issue at the time, as now, was that the most pressing German problem was the $1.2 Billion of debt owed to American creditors, a debt that Hitler seemed increasingly unwilling to pay.
Anyone wanting to gauge the impact of what inflation from 1933 to today looks like, it shows that only 79 years ago, a Billion dollars used to be a lot of money, nowadays its simply a “big unit” –
 I am just struck by the fact that people are slowly waking up to the fact that there is in fact an upward limit to the amount of global credit – whether you are a nation, a wealthy individual, a company or a bank, its hard to figure out where to hide you wealth.
As for the markets, it remains true that the “velocity of risk” continues to increase, spurred on by increasing short term focus and behavior on the part of everything from financial markets, to media, to politics. There is a regular, consistent series of events ranging from earnings, to economic figures, to events and shocks that will continue to cause fluctuation in the markets.
The fight against transparency continues unabated, with the public fleeing the stock market in droves over the past year, leaving the computers to trade amongst themselves in a perpetual race to the bottom. It seems quite clear to me that the players in the market are changing.
Once again turning back to the 1930’s, when a billion used to be a big number, I quote zerohedge from yesterday:

Retail Investors Pull $140 Billion From Equity Funds In 2011 Which Close The Year With 19 Consecutive Outflows

If that does not send off some alarm bells about the herd starting to move, I don’t know what will draw them back, but most likely greed or fear will be the drivers. As such – some ability to execute macro hedges or trades, or at least be agile enough to liquidate / reallocate quickly is at the very least necessary in the current environment, else place your assets in cash or other negative variance asset.

So what? We will see how it plays out – but for now those are my observations. The hard part comes in turning predictions into trades and trades into money.


Happy New Year!


About bohicaman

Former Trader, Risk Manager, CRO, COO, etc. Global experience in all forms of listed and OTC derivative markets Citizen of the world Resident of the USA Favorite color is blue
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