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Posts filed under 'the market'

SEC shutting down peer to peer lending site Prosper

SEC outlines its reasoning for shutting down P2P lending Prosper citing that since the intention for lending is to expect a certain rate of return, it fits the definition of investing. Therefore the market enabler should be regulated. There are people who believed the SEC is focusing on the wrong thing and going after the small investor who is turning a small profit. I happen to agree with the SEC. What other people do with their money is none of my problem, but how many people who lend on prosper you think actually have an understanding on how current economic condition will affect the default rate of the loans they are making.

I am not saying having financial knowledge will allow you to make a better loan decision, but most people I’ve seen lending on P2P site operate solely on the default rate and interest given by the site based on historical data. When you simplify a loan which has various forward credit risk and interest rate risk into a simply expected rate of return and sell that to the public, that’s no difference than what got the big guys into the CDO mess in the first place.

Add comment November 27th, 2008

blood on the street

When there is blood on the street, buy property. It kinda more easier said then done. Perhaps if you look at it from its intrinsic value, it might have make it easier. I am talking about the recent credit market and the flight for quality drying up anything that’s not issued by the government, depressing the equity market at the same time. Yes, it is true that the sub prime fallout makes obtaining capital more expensive. For those who need to do that in a short period of time, it will depress its earning.

But if you look at corporate earnings for Fortune 500 for the last couple of years, many have enough earning reserved that they don’t have to tap the capital market anytime soon. Companies like GE is not going to run out of money to meet it commercial paper and bond obligations. However, company stocks are being penalized disproportionally to the increased risk.

Since no one wants a stinky fruit, it is obviously true that financial companies are going to earn less in fees from leveraged M&A activities and the debt packaging, but that doesn’t mean that company a diverse company like Bear are 2 credit grade less likely to meet its bond obligation. The fact that Bear has to offer 245 basis point spread for its recent issues is a case in point that there is blood on the street.

But if you are sitting on the most senior tranche or the top 2 investment grade obligations, the intrinsic value of the cash flow hasn’t change since the sub prime crisis start. Does it mean American corporations are 2 times more likely to default? Maybe a little, but not to the extend that it has gone down now.

Unfortunately the credit market doesn’t lean itself towards people with little money like me.  Even with corporate bond ETFs like the LQD@102.66, the move is at most 10% that unless I buy it on leverage or go for the near 5% yield, it’s not as sexy as China play like BHP or LFC.

Add comment August 12th, 2007

Insider trading

I was reading an article from August’s “Market” magazine about insider trading. It talks about how insider would try to buy the short term option of a stock days before the buyout news is announced, caused the open calls to surge. And how SEC uses this information to track down the suspect.

Suppose I don’t have insider information, and suppose I accept that market does not have perfect information and someone knows something I don’t. And further suppose that insider trading exist. One could easily find out when the trading volume on a particular option spikes out of proportion with its underlying stock and piggy back on the information someone has. The information that it uses is all public (historical open calls volume and trading volume of stocks) and the code would be exactly the same as that you would use to detect if a retail site updated an item with the wrong price (say a flat screen for $160 instead of 1600) due to the cyclical nature of volume during the day and reporting(holiday) cycle.
But how do you filter out the noise from “stupid money”? The one that’s caused by those stupid stock spams. I wonder if you can deliberately got on to the list of those stock spams. Then you can apply a negative list to the execution. I only need to examine the the short terms near the money options for companies with market cap less then a certain amount (i.e. G.E is not going to be a take over target because of the capital required). The list HAS to be shorter than the cardinality of a retail catalog!

sucks that the credit market dries up recently. The takeover, hence insider trading are going to be less likely. Better spend time to ponder something else.

Add comment August 4th, 2007

bought BHP @ 40.87

BHP, BHP Billiton Limited, a diversified minning group. Refreshed my position that I sold in May. The stock has historically traded in tandem with gold price. Spot gold price has rebounded from $560 to $630, but the stock has been trading in reverse direction. Bought some at $40.87 yesterday.

Add comment July 19th, 2006

bought GS @ 150.08

GS, Goldman Sachs, an investment bank had a good track record of making extraordinary trades in volitile market. Low PE. Betting on the Fed stop raising interest rate, decreasing the attractiveness of fix income

Add comment July 5th, 2006


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