SciFinance®

Good, Bad or Ugly?

Derivatives: are they good, bad or Ugly? Well I think it mainly depend on the people using them. And yes people not understanding derivatives are often generalizing way too much.

I walked into Foyles bookstore in London the other day, and there was a new book titled

"Good Derivatives" by Richard L Sandor.

“Good Derivatives: A Story of Financial and Environmental Innovation tells the story of how financial innovation – a concept that is misunderstood and under attack - has been a positive force in the last four decades.”

Dose that include CDO-cubed?

I have not read the book yet and have not made up my conclusion, is it good or bad? It looked interesting, and the cover was quite good so to say.

Hyper Velocity of Money “Experiment”

During the great recession they experimented with giving out time stamped money (time stamped scripts), money one had to use within the expiration date. This naturally leads to increased velocity of money.

I experienced something similar myself recently. I was ready to board a plain to New York. Then just before boarding they announced it would be 3 hours delayed due to a mechanical problem. Because of this everyone got food Vouchers. Within 15 minutes everyone had got food Vouchers. Then only 2 minutes later they announced the mechanical problem had been fixed and that it was boarding immediately. People now had food Vouchers with value of about $50 in their hands, and the Vouchers had a time stamp on it for the next day, and could only be used at this airport. People had no time to go to the restaurants, but there was a small kiosk near by. In reality their money (food Vouchers) would be worthless within 15 minutes. I went immediately to the kiosk and bought a few items that I not really needed (but better than a worth less money ? ), soon there was a long long line of people trying to spend their time stamped money in the kiosk. The velocity of money exploded, and people just bought something.

The prices naturally did not go up, even if the kiosk was running out of a few items. But this still had some similarities to hyperinflation. When you know your money will fall dramatically in value or even get worthless (due to time stamped money or hyper inflation) you will spend it as quickly as possible almost no matter what you can get hold off.

Robbed by a Robot

I am not sure it qualify as Robot, but at least I was robbed by a machine this morning. No, not by High Frequency trading robot machines, but a silly ugly looking ATM machine. I was taking out $400 in a ATM machine. The problem was the machine only gave me one $20 bill, and yes a receipt for $400 withdraw.

One feel a bit akward in such a situation. If it was a person in a armed robbery one would have the right to self defence, but I figured out no reason to beat up the machine as it would just put me into more trouble. Instead I walked across the street and filed a police report and called the bank that claimed they not could see the transaction and told me to call back later.

I am now wondering if I should go back and beat up that machine? Or just wait and build strength before the big battle with the machines?

Year Of The Dragon

We have entered the year of The Dragon. The word dragon possibly comes from Greek dráken that is related to "See clearly". Will this be the year some people start to see clearly?

Books published by Cyborgs and Algorithmic Pricing of books

Several people (I am not sure I would call them authors at this stage) have with help of computers published several thousand book titles on amazon (I assume most print on demand). I think the record is more than 200 000 book titles by one person + his many computers.

Most "cyborg" books are not of the highest quality I think (I could be wrong). But this is possibly only the beginning, or is it the beginning of the end?

He Wrote 200,000 Books

A friend of me recently made me aware that retailers also are more actively using computer algorithms to set the prices on some books on amazon.com and other market places. The result of algorithmic "price wars" can be books about flies offered at $23,698,655.93

Amazon’s $23,698,655.93 book about flies

plus $3.99 shipping!! First sign of hyper inflation :-?

When will it be allowed to go short at such prices? Did Helicopter Ben buy it?

Computer algorithms writes and publish lots of books these days, they also price and misprice a lot of books. Computers clearly already read books, but do they enjoy it? It depends on the type of the computer I guess.

"Storm the Banks"

I was just walking to Foyles bookstore, and on my way I met a bank with smashed windows, and the bank was marked with "Storm the Banks"...

People are getting angry, big banks got bailed out, and there is little moderation in the bank bonuses for the bailed out banks . And young people are not finding jobs.

Let badly managed banks go bust, let people that are better at running banks and that better understand risk take over.

I would also say take a close look at the monetary system, and the monetary policy!

Too bad my camera is out of battery.

Gresham's law: "Bad money drives out good if their exchange rate is set by law." Do this "law" also apply to banks: Bad banks drives out good ?

Conservative banks that keep plenty of reserves are not able to expand that much in the credit boom and are loosing market shares to banks with no risk aversion. The risky banks are more likely to expand enough to get too big to fail, and are therefore also more likely to get bail out money...

Well the Gresham law can also go in reverse, but that is typically first when things get really ugly.

Coin Melters Busted

As the price of a series of base metal (and precious metal) have gone up, so has also the theoretical melt value of many coins. Well precious metal coins typically do not sell below the melt value. However standard coins in circulation can typically be bought at face value.

I say theoretical melt value, because in many(most?) countries it is illegal to melt coins. But clearly some people got more than tempted to buy coins at their face value and then melt the coins to sell them for the metal value.

"January 8: NEW DELHI: The special cell of Delhi Police, on Friday, claimed to have busted two illegal factories involved in melting old Indian coins and converting them to metal slabs for sale..."

Coin melting units busted, 5 arrested

US 1 cent copper coins in circulation (minted between 1909 to 1982) now have a metal value of 280% of their face value. Please do not melt coins, but as collector items they could be interesting.

Options Embedded in Physical Money

Hot number squares on a Cold Winter day!

It is so cold now that it is difficult even to keep the numbers warm: n(n^2-1)/2>F

When Money Dies

When Money Dies is the title of an interesting book written by Adam Fergusson, first published in 1975 and re-printed in 2010. It is about the nightmare of the Weimar Hyper-inflation episode, where money for a short period basically died out and got replaced with barter.

Money follow cycles like many other things: birth, young age, midlife, midlife crisis, old age, possibly followed by hart attack (basically overnight dramatic devaluation), cancer (hyper inflation), death, and finally re-birth (in form of somewhat “new” monetary system.

Greenspan supposedly in 2002 said: “If the evident recent success of fiat money regimes falters, we may have to go back to seashells or oxen as our medium of exchange. In that unlikely event, I trust, the discount window of the Federal Reserve Bank of New York will have an adequate inventory of oxen.”

Negative Volatility enters the vocabulary of US legal system

It is some years ago now since I wrote the comic about negative volatility (no I did not have the talent to draw it):

Negative Voatility Comic

A forum member recently hinted to me that Negative Volatility also had entered the vocabulary of the US legal system not so long after (in a different context, but still related to options).

"Therefore, a Phlx XL participant’s account that includes a short call position and a short put position in the same option will have a total negative volatility among the two positions. The two positions, when combined, do not offset one another respecting volatility. Instead, the two positions, when combined, result in the aggregate negative volatility of the two positions."

http://edocket.access.gpo.gov/2008/pdf/E8-23490.pdf

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