4:35AM (IST) in Mumbai

I am sooo jetlagged (it’s 6:05 pm in NY) – I can’t sleep – and so I’m here on ‘me’ blog -

So I got to Mumbai tonight. Arrived at the Mumbai Intl. Airport around 11pm IST, my dad and bro were there to pick me up. It was nice chatting with my bro and dad face to face after a year even though I think I talk to my dad and bro almost every 3-4 days.

So nothing has really changed in Mumbai in a year – it’s the same – the roads by itself are maintained and make for a fast commute from the airport to my house but the drivers on these roads are still the same. I’ve always been amazed at how this country’s roads work – how the traffic manages to work here. It’s this constant, huge, very badly oiled machine that keeps on turning. Sometimes it impresses me – sometimes it makes me want to run. Tonight it’s a bit of both – maybe more of running.

The last time I was here – I was impressed with the way Mumbai was unfolding to be one of the world’s international capitals. Sadly, though I have a feeling that this will never be. Mumbai, no matter what, will never be the international city that cities like dubai/bahrain etc. have become in, only, the past decade.

Anyways – I’m just so wicked jetlagged and a little shifted in my thoughts. India always shifts something in me. Hmm

~Have a great week.

3G and a BB 8330

So I’ll be traveling soon and wanted to check out how to publish new posts from my BB. I’m currently on my BB 8330 running OS 4.5 and am trying to publish this post directly from the built-in browser. If this works – hooray we’ll be on our way posting some rad new topics everyday about where I am traveling and how much I love duty-free shopping especially shopping for scotch maybe I will soon figure out how to snap some pics and post it here from my BB. Till then – stay warm.

My rendition of madness.

Ok so for the first time in a while – I have something interesting to share. Ooooh!

The excitement is killing me [sic]!

Good things are happening all around me – with a twist of lime. The madness with a twist of lime, really now, indeed, the aftertaste is fresh. I think we all know I have a very twisted way of sharing my thoughts, why sometimes I myself do not know why I write what I write. Thank god I call it insanity, anything else and it would be a lie.

Moving on, what in the world is the world thinking? Honestly now, what are they thinking? Bailout???? Come on! Let me reiterate that I am a huge believer in capitalism and that it is every human’s moral duty to be successful. (Of course the word “successful” can be used to mean different things or as I would like to put it – the word “successful” can be twisted to mean other things than making money.) I digress. But bailout means nothing more than a dolled up face for government control. “1984″ is back and this time it’s going to stay. We might as well wait for the day when the government controls everything and has us wearing blue on mondays and grey on fridays (or something like that) – oh and with name tags – Joe the plumber style!

I am surprised that no one sees this – or if they do they turn away and are letting it happen. Printing greenbacks is not the solution – it never was. There will be no cleansing with printing more money. Adam Smith – our father who art in heaven – would have killed himself and burnt all his books if he were alive today.

With the economy the way it is now – bailing out is not the last option. It actually is NOT an option. The bailout will only lengthen the pain – elongate the obviousness of a crashing economy – sustain the complexity of allocating monies to companies in the face of a more simplistic solution to let the market cleanse itself. Yes, I am all for ‘free-trade’ and bailout does nothing but allow the government to print money and send it out to companies they believe need it and in the process own it. Nationalization’s ugly head emerges!

So what is the good thing? Well people are more aware. 2 years ago an average joe didn’t know and care too much about the financial markets – now they are going to be owned by the government! So hell, he has to know in order to vote effectively and let the government decide whether he gets to wear blue or grey on mondays!

Technically, a bailout will only lengthen the painful process of rebuilding and regaining the trust that was lost. Technically, a ‘bad bank’ solution (as suggested by George Soros) is more secure than a straight-up bailout/nationalization.

I know there is more I could write and more filth I could spew at the ugly bailout plan, but I will go trade some usd/euro now. 5 years from now there might not be any more euros

Gnight neverland!

Every drop counts.

Life is funny sometimes. We humans are peculiar beings. Unique in every sense of that word and yet very predictable.

I am currently in a conflict with myself – within the confines of my understanding and experiences and emotions there is conflict. A sort of disagreement on situations. In my professional world I wake up to subprime and walk out of work with ’subprime’. In my personal world I almost feel ’subprime’. When did you last check your FICO score eh?

The combination of not-knowing what is wrong or right, what is good or bad, what is more important – me or my needs or you, is helping me analyze a lot more than I used to. We all know, ‘thought’ is the easiest thing in the world – thinking takes no toll on our brain or our imagination. It is ‘analyzing’ our thoughts that is sometimes the hardest. And to be honest that is where I fall the hardest. And hence, my new quest – Every drop counts. Or does it?

From my recent experiences with a personal someone I realized one thing – we humans don’t adhere to the laws of physiscs. If we pull the reaction is to push away – if we push the reaction is to pull closer. It is rather alarming sometimes what we choose as the ‘right’ thing. As Nassim Nicholas Taleb writes – we are all eventually fooled by randomness. But I question that – sometimes there is order within that randomness. It is not merely regression is it? Sometimes the order within does make sense. I believe that it is this order within the randomness that we ought to be looking for if we are looking for anything at all. But then again the ‘randomness’ might argue that the ‘order’, within, does not last. Hah LIFE! Or maybe chaos and randomness have something to talk about. Anyways, I recently also read the book – “Devil in the White City” by Erik Larson. And it was, in one word, ‘captivating’. The book talks about The Great Chicago World Fair and how it comes brings Architects from all around the US together in a shirt span of time. At the same time it talks about Dr. Holmes – a serial killer who has a healthy season with tens of thousnads of people flocking to Chicago. Even though the narrative is slow I could not keep the book down. I refer to this book to point out that during the this time in Chicago the process of building the structures for the fair was more chaotic than anything, but it all worked out to start on time. There was a certain degree of order within that. And yet we cannnot say for sure if it was just random that that happened.

I always reflect on my life, as we all do, when I am going through changes, good or bad. And I try my best to relate and iron out the creases. But while trying to create that order, more often than not, life bends in ways that it seems so random to even try to comprehend where to start ironing.Why begin when we cannot finish, is usually the question that then arises. Oh mirror mirror on the wall who’s the fairest of them all! Until the mirror says it’s you, you do not move. Let me be a little more clear as to where my thoughts are headed. Yes let me.

We as humans have been accustomed to randomness, and chaotic and sometimes orderly behavior in our lives and yet when we are asked to take that step towards the unknown, we falter, we pause, we judge, we quantify, we question, we analyze, and only after all the answers are in our favor do we take that step. Is each one of use trying to find that ‘order’? Or is it just mere fear of the randomness. Have our experiences taught us wrong then? I personally am a risk-taker, I choose to venture out to the unknown and take a walk. Some of it will live on in my memories while some of it will haunt me. Did any of the above make any sense at all? Oh well until next time, here’s some food for thought – “Work like you don’t need the money, dance like no one’s watching and love like you’ve never been hurt”.

2 macs and vista.

It’s been a while since my last post. I have been out thinking. And more thinking.

Although, whenever I got some time between thinking about this and thinking about that – I was playing around with the 24″ iMac I bought a few months ago.

I have been a mac convert since late 2003. My first apple product was a 12″ Powerbook G4 with OS X 10.3 – Panther. I was an instant fan. Then I got a 20Gb iPod as a surprise birthday gift from my friends at school and the seamless integration with the mac was a thing you could not miss after being a windows/microsoft user for so many years.

Yup, no installing drivers, no “new hardware found” dialog, no “your new hardware could not be installed properly” dialog either.

Seamless.

I used the PB for most of my college days – emails, music, research papers, homework, mathematica, monte-carlo in excel – hell everything. Of course there times when I would face the inevitable – moving stuff I created on my mac to a windows-based machine and making sure it looks like I had intended. But eventually, I would find a way to make sure compatibility was not an issue.

3 years later – there are no more compatibility issues – hell the mac systems can run vista/xp natively now. And moving files from one system to the other could not be easier. But why would you want to do that? With Tiger (OS X 10.4) Apple made sure you don’t need anything more. Of course for the ‘IT’ guys this is not true. They work with languages and software packages for which, sometimes, there are no mac alternatives (and it is only a matter of time though).

Right now, I can’t wait to get ‘Leopard’ OS X 10.5 and start using cover-flow in finder.

To all the windows users – “Convert now”.

The chronicles of tobacco.

This next post is going to be a pretty good use of my time. Apologize for not being able to blog for a long time – are you following the markets? Greenspan can’t keep his mouth shut and I can’t wait to see “Resident Evil: Extinction”.

Keep it real. More about tobacco by the end of this week.

The deal from Falkirk.

William Wallace. Yes we all know him – Braveheart fame. Great movie – enchanting music. And the movie talks about the Battle of Falkirk. So why do I want to talk about it?

Highly Leveraged!

Yes my dear friends William Wallace’s army was leveraged more than he could handle – and he did not anticipate the market (or in his case – his allies) to turn on him.

What was that? Step back a little? OK so let’s see if I make any sense at all.

What is ‘Leverage’?

In a very general sense ‘Leverage’ means – to reinvest debt for a greater return than the cost of borrowing.

So how was Wallace highly leveraged? He depended on allies (borrowed forces), which he wanted to reinvest in the battle against King Edward I (Longshanks). If he won he would have achieved a greater return than the what he invested in having allies swear allegiance to him.

Oh but the mind is a ‘tabula rasa’ – “Et Tu Locke!” – Wallace must have muttered for I would chance to believe he did not know anything about empiricism. I digress – What I meant was that Wallace was ‘blank’ (tabula rasa = blank slate or with no experience – coined by Locke) to the experience whatsoever of working with leveraged positions.

Wallace’s newly befriended allies kicked his behind and instead swore allegiance to King Edward I in return for nobility. Inevitably, Wallace lost the battle of Falkirk. In being dependent – or in our language – leveraged – he was exposed to:
1. His allies giving him the middle-finger salute.
2. His own men/forces being outnumbered and outflanked by Edward’s army – and eventually slaughtered.

So let me try to make sense of this in terms that are closer home for us finance junkies.

I’m talking about positions where firms like LTCM (my recent obsession) were highly leveraged. LTCM used debt/loans/credit extensions to finance their strategies around derivatives/emerging markets/IR swaps/volatility etc. Their exposure in leveraged positions was twofold:
a) Exposure to risk in the investment/arbitrage opportunity itself.
b) Exposure to risk in the investment/arbitrage positions and having to repay loans after they booked losses on their positions.

This is but the simplest explanation and ‘leverage’ is not the criminal here – nor the crime. In fact, leverage is important for market participants to trade actively. However, keeping in mind the Credit Exposure and mark-to-market principles – a highly leveraged position may be extremely risky in case of a very volatile market or even a loss of liquidity in the market.

I have a very skewed perception of analogy. Inspite of the insanity and almost incoherent post above – I hope I have been able to manifest William Wallace and the Battle of Falkirk into the rabid and complex world of debt/leverage and most importantly – structured finance – which I will delve into soon after I get some sleep and someone to make me breakfast in the morning. Goodnight you princes of loans, you kings of subprime.

I can’t wait for all you warriors out there to leave me hate-comments for this post.

An aside: I can’t believe the Tigers beat Seminoles! “Riverboat Gambler” – when will you catch up with Joe Paterno? I believe in you. Go Noles!

When Genius Failed

Maxrum – Again, thanks for the comments and yes I have read ‘When Genius Failed’ by Roger Lowenstein.
Roger Lowenstein is mostly recognized for his work – writing about big-dick-swinging people in the world of Finance as well as a bunch of very interesting articles on the NY Times Magazine. ‘When Genius Failed’ is more of a description of the people involved – John Meriwether, Robert Merton, Myron Scholes than a description of the actual trading strategies which caused LTCM to collapse. But it is still a very good read. Roger also wrote “Buffet:The Making of an American Capitalist” which is also a great read.

However, if you are really interested in the strategies LTCM was involved in you should pick up the book titled “Inventing Money” by Nicholas Dunbar.

As for me, I work in Structured Finance, in the big-bad world of ’subprime’.

Having said that, let me reiterate that all the views and opinions expressed in this blog are my own and have nothing to do with my employer.

Moving on, I had an interesting albeit insane experience last night and for once I will try and put it across as it was. As Thomas Aquinas puts it in his work – Summa Theologica – “God is perfect. HE is different from all other beings in being perfect”. Of course that is but a translation of sorts and those might not be the exact words he used. But, my point is that I think we all are. We all are perfect.

So in the next couple of days I will post a new thought inspired by last night’s incidents and Aquinas and a little bit of insanity.

Cheers! and have a great weekend.

Answers to comments

I am so impressed with the responses that I thought it best to reply to comments in the space of a new post.

Indeed – maxrum – Scholes’ first name is not Martin – it is Myron. Thanks for pointing that out to me. Hopefully, I will get more hits now. (37 and counting within the first 24 hours)

Now onto the first remark you made – Yes, LTCM did collapse in 1998 but the wheels had started turning in 1997. After the Asian financial crisis. The fact that the whole world essentially assumed that there was no risk at all eventually led to the Russian default and hence the LTCM collapse.

In 1997 when problems from thailand started hitting the shores of South Korea, the leaders of the US markets decided to get together on a cold wintry night on the eve of christmas to bail out South Korea – their comrades with a geopolitical advantage. World Bank, IMf and The US Treasury formed a so-called global consortium to reschedule South Korea’s debt in the face of an impending downslide of the complete Korean economy.

Of course it was not all capitalism, it was the fear of a spillover effect. Not surprising, because although Thailand, Malaysia, Indonesia and the sorts don’t have much of an macroeconomic influence over each other’s economy they did have quite a bit of an influence with more links to developed countries than amongst themselves. In the same space – a spillover was not foreseen when the problem started with the Thai economy, but the disease spread fast and I mean real fast. Eventually when Korea was hit, the US came out guns blazing and rescheduled Korea’s debt.

The world sat-back and watched and rightly assumed that the super-developed countries will bail them out in the face of an economical disaster. We entered a no-risk safe haven. LTCM buried their claws in deep. Russia – the superpower of yesterday was not going to go down – with all their missile reserves and some of the best vodka and caviar in the world! No way sir!

It did! Russia defaulted on their debt. Capitalism won and took the blow. IMF had tried to help Russia, but it did not work. The Russian currency devalued massively and all those no-risk angels with degrees from MIT and Harvard and PHDs from the moon – panicked. There was suddenly a huge risk in everything. Let’s buy US Treasuries because USA is still a superpower! The on-the-run rates for 30 year US Treasuries fell because of this hurried buying by every economy that had become very very risk-averse. Money was pulled out from Russia, Brazil, Japan, etc. LTCM could not even unwind their trades effectively because there was no participant in that market – no buyer. This eventually led to the collapse of LTCM and which is why I had mentioned 1997 in my earlier blog, although, technically LTCM did collapse in 1998.

So thanks for reading my blog – maxrum and all the others – and hopefully we will have much much more interesting conversations. I look forward to more comments from you.

In the current Credit Crunch that the US and global markets are experiencing the situation is a little different albeit noteworthy might be the fact that this time the US is saying – Mea Culpa! Mea Maximus Culpa!

Frodo Baggins

That last post was an interesting way to spend my time but I had to justify the title of my blog:

So I was thinking of some recent episodes in my life and was wondering if I could give it a deeper thought.

Disclaimer: These are but ramblings and musings of a much developed and insane mind so bear with me.

Frodo Baggins:
A halfling, a hobbit not more than 4 feet tall saves middle earth from the ultimate evil – Sauron. I was always interested in trying to understand why Tolkien chose such a weak character as the protagonist (of sorts) in his epic fantasy trilogy.

Powerful and magical characters exist in this fantastical journey -
Aragorn a numenorean lord, Boromir & Faramir -sons of the steward of Gondor (the seat of the numenorean kings) – protectors of Minas Tirith.
Gandalf greymane – a maiar and wizard and one who also wears one of the three magical and powerful elven rings – Narya.
Galadriel – lady of Lothlorien – lady of the wood-elves who also wears one of the three magical elven rings- Nenya.
Elrond – The lord of the noldor – the lord of rivendell who fought beside Isildur when Isildur cut off ‘The one ring’ from Sauron’s hand with Narsil his sword. Elrond carries the most powerful of all three elven rings – Vilya.
And then we have Frodo – a 4 feet tall hobbit, grandson of Bilbo Baggins (who found the ring). And also three other hobbits who seem to be a bunch of misfits. The comic relief is duly provided by the 4 hobbits, but also there is an air of acceptance around these halflings. And a very natural sense of comraderie.

The difference I did notice in all characters was that only Frodo, out of all the plot’s main characters, accepted his destiny from the very beginning. He was going to die. How and when and where he did not know, but he did accept it as unwittingly as possible.

Was Tolkien trying to tell us something? “The meek shall inherit the earth” Or maybe I am reading between the lines too much.

From the beginnning of the story – Frodo takes on the task of carrying the burden of the ‘one’ ring. He learns of it’s temptations along the way. The shire taught him a thing or two about hunting but never before was he hunted. The temptations of the ring would have to be paid with blood if he fell for it, as he learns when he almost turns into a wraith when stabbed by the nazgul leader (the witch king of angmar) with a morgul blade.

Throughout his journey to Morgul, where he must throw the ring into the fires of Mt. Doom, Frodo experiences numerous sides of magic and treachery and comraderie. He brushes them all aside, as he trudges along the dangerous path that lies before him. He reflects every now and then, and talks about bag-end and the shire (home).

Just a few chapters before I finished the book for the umpteenth time I was impressed with the character of Frodo. He had no magical powers, no physical-towering advantage. He did have the gritty power of resisting temptation in the face of it. Yet, with all the tests and experiences frodo has throughout his journey – at the end of it all he falls for the ring. He does not want to let go of it. And as we all know (those of us who have read the book or seen the Peter Jackson movies), it was in fact gollum who steals the ring from Frodo and loses his balance and falls into the depths and fires of Mt. Doom.

Frodo does not really ask for forgiveness from the fact that he fell for the ring at the last minute – for a moment it feels like he revels in it. And yet we, the readers, do not crucify him. Is it only because we know of the times he did not get tempted? Or is it because we believed that eventually the ring will consume frodo too? Or maybe it is because we did not really care about Frodo and just wanted the ring to not get into Sauron’s hands? Or, was it just the journey we held on to?

Frodo Baggins’ character and his journey presents a lot of questions (and some answers) to me in my life at this time. Yes, I have journeyed through life and have learnt from my experiences – good and bad alike. Yet, with all that knowledge and acceptance of what lies beyond and the fact that I might eventually be burnt at the stake, it is the journey, I believe, that helps me or rather gives me the power to fall for temptation. Yet again! Yet again I choose to fall for a temptation as magical as the ‘one ring’ itself, not to rejoice in it’s nefarious sentiment to rule the world but to revel in it’s grandeur.

How will you take this journey?