Thursday, January 29, 2009

Hedge Funds

As the Fed repairs the economy and the political leaders put out stimulants to get us all ga-ga again, we can look at particular financial areas more closely. Hedge funds, and the related oops (of which there are several types), will be an interesting start.

Yesterday, the WSJ reported how "ponzi" reportings seem to have proliferated after Madoff's revelations. Several factors can be thought of as contributors toward these being discovered. For example, people asking for their money can put strains on the scheme.

We could actually do the determination sooner, using techniques like truth engines. Actually, in Madoff's case, just asking the right questions would have worked; that is, following through further than just taking the guy's word. Collusion (story of an Irish hot dog banker, another poster boy) does come to mind as apropos.

In a sense, the madeoff/ponzi is the poor (non-rich, ok?) man's hedge fund. That is, the hedge funds screen out by the client's pocket's abundance and offer huge returns. So, that they get away with this (a future post will deal with the ethics and legitimacy of that whole game), including some outrageous practices (see below), sort of lets the non-rich person think that someone claiming to know how to get major returns (say, 48%) has to be legit. Didn't they hear similar about a hedge fund (ah, even Harvard bragging)?

Folks, do the hedge funds make any sense only in a culture of excess (other than helping the managers gather bucks)? That is, do we not have too many presses printing too much money? These funds were originally a method for those with an excess of accumulations (again, near-zero sum game, any big pocket, by necessity, is the result of milking oodles of the hapless -- It is encouraging to see empirical studies being done, such as UMass - Amherst).

Some of the characteristics of the hedge funds are bothersome. Take the opaque nature (please). Supposedly, it's to cloud their strategy. How many of these have been studied (see Hedge Fund Center)? I'm not talking just comparative results; that's a silly game. Too, these funds' public flogging of companies makes them like the taliban of business. For this, think about the video of a street in a city near Iran (you know the country) where some sharia law enforcers are holding down a guy in the street and going at it on his back for some infraction (judge, jury and executioner all rolled up into a roving band of thugs).

So, some have argued that hedge funds keep companies in line, the short-sell argument, in short. Oh, they're the conscience (dealing in rumours, see below) of the economy, so to speak? Sheesh, it would be more like a plague in a sense; what can these guys do that is constructive?

Consider this, the farmer helps us with eatables, the factory person provides us cars and planes, the landscaper cuts our grass, the doctor gives us our daily pills, ..., oh wait, those last two are services. In a sense, the hedge funds do provide a service but ought this be allowed in wild-west framework that they expect.

Again, consider this. We have social and legal constraints on various types of abuses. We are not allowed to exploit some person just because they are without power to stop us.

Well, hedge funds, in a sense, exploit little quirks in the economy (which is our body). If they were pure bottom-feeders, it would be okay (picking up exfoliates, etc.). But, no, their intent is to drive things. And, can we honestly say that, as a whole, they do any more than drive things into the ground?

As said, this is only a start of a series. And, I might add, that if some positive notion can be identified by this technique, I'll say so. What are the chances that the collection of things positive about hedge funds would outweigh their problematics? Well, that is one motivation here.

Remarks:

01/20/2013 -- Busyness (where is the sandbox?). The recent Business Week had something interesting article (Steven Cohen, of SAC Capital). Some employed in the business have misgivings about their ways of doing things. One talker, under questioning, was asked if he knew of any hedge fund that was clean, or above reproach using the old concept (as in, no shady dealings). No, he said. They could not survive, otherwise. It's like doping.

11/29/2011 -- Ah, Big Ben helped his friends more than he said, at the time.

05/17/2011 -- Hedge funds need some of our attention.

10/11/2009 -- Discussion has gone over to FED-aerated. Note the 10/11/2009 Remarks about the Business Week article on India's progress' inhibitors. 'Near zero' recognizes that some always suffer more than others, especially in win-win situations, as the whole notion of characterization minimizes visceral reactions by diminishing the real in favor of the abstracted (ah, the modern world, you say?).

09/11/2009 -- Win and lose. Everyone wants the former. The latter actually is what balances the equation.

08/17/2009 -- As promised, FEDaerated is here.

04/17/2009 -- Minsky and the facts of ephemeral value are a couple of topics on the list.

03/30/2009 -- Near-zero will be looked at more closely.

01/30/2009 -- Hedge funds are about risk management, according to sanitized views, and may very well have a rational basis. Yet, various motives, which probably come out of the lack of control, seem to demonstrate that which Minsky tried to describe as the inevitable descent to a stench.

Modified: 01/20/2013

Wednesday, January 28, 2009

Why finance? II

Finance and economics go hand in hand. Both are respectable fields of study and are commendable disciplines, though the latter is a dismal science. The former was spiffed up by mathematics and the computer, according to a special report in The Economist.

Yes, the confounding from modernism adds interesting twists requiring advanced concepts and methods to protect the innocent. Too, we see poster boys emerge, such as Thain, which could provide a focus for delimiting what is wrong and what might be done. Of course, the Fed is experimenting like mad and further exacerbating the problems.

Oh, that we could have some analog of the Hippocratic Oath for these money, and economy, guys; oh, wait, hasn't medicine run after the buck, to boot? Or, could business schools, in their lecturing on busy-ness, consider ethics as fundamental (actually, foundational)?

What about a vow of poverty? Yes, let the monks handle the money. Ah, I can hear the clamor now. What? Richness is the motivation?

Let me remind you folks of the myriad of people who labor and do not put their hands in the till. Where did finance learn that the leech is their ideal animal spirit (ah, yes, we need to bring up that notion of Keynes')? Bulls and bears are merely chimera.

We could find many with the right attitude (probably there are some even in finance). There are professors in these two disciplines who have not raked in oodles of money. Despite the set of those who have exploited the opportunities, many apply principles of science and engineering to the disciplines, dismal though their efforts may be.

So, the computer did not cause the malfeasance in finance, though it definitely adds new dynamics. In short, a whole new arena of study and of operational prowess is going to emerge and evolve. One example is being discussed.

So, as said before, we can do better.

Remarks:

08/01/2013 -- Ben cannot unwind or taper downhe has too many Doves. We'll have to get back to the king thing (yes, the divine rights of the CEO, new royalty, in other words) and dampening of these types by a new outlook (Magna-Carta'√≠sh).

04/03/2011 -- Need to look at some background. Too, tranche and trash.

01/31/ 2011 -- Referenced from 4th January. And, the chimera shines.

11/06/2009 -- There ain't no train, just like there ain't no free lunch (TANSTAAFL).

08/02/2009 -- Wait! More exposures: "computers, some housed right next to the machines that drive marketplaces like the New York Stock Exchange, enable high-frequency traders to transmit millions of orders at lightning speed and, their detractors contend, reap billions at everyone else's expense." To anyone who isn't at Goldman Sachs or the like, does that appeal to you as the way that we ought to be handling our beans?

So, is this what financial engineering is all about? Sounds more like leeching.

07/17/2009 -- China has eaten our lunch (and dinner). Shows how silly our games are. Yet, finance can be run by people who can be non-profit in scope and who have an impeccable (oh, what quaintness!) un-interest in money.

06/17/2009 -- Michael Milken says that structure counts (see WSJ article). Remember, the theme here is that a lot of securitization is bunk, many times. Sheesh, talk about a perpetual motion machine, always moving monies from the pockets of the hapless to that of the fat cats.

03/30/2009 -- The WSJ today looks at the Future of Finance. The idea is that finance is like the cardiovascular system. Okay. So leeches are a good metaphor for the sucking out that we see. Like the AIG guy who was central to the losses that we the taxpayers are paying and who left with $300M. We'll be referring back to this discussion.

01/29/2009 -- Earlier, there were some words put here about Truth, Fiction, and Finance. Well, pick up the 1/28/09 Wall Street Journal and look at an article about a 'proliferation' of ponzi schemes. We all know about Madoff as he mis-handled a lot of moeney over a long period of time. But, a lot of states are finding that they have a madeoff/ponzi going on within their borders. How much of finance is a sham?

The WSJ mentions that the hedge funds' claims to high returns is one possible cause as people try to duplicate that. Sort of a Jones' keep up thing, we can suppose. Well, a reading of hedge fund tacits raises all sorts of suspicions to the rational mind. Just how legit are these things and why are they even allowed? Are we that much into some mass insanity?

Modified: 08/01/2013

Monday, January 26, 2009

Earned value II

'Earned Value' is used generally. Perhaps, one might argue for another term which may come about at some point. In the meantime, those who deal with projects, and funding such, have grappled with the issues for years. In many cases, there have been advances in planning well such that things come about as planned. But, it is a known fact that projects and products mostly don't follow plan. There are good reasons for this.

T-issues are one factor. Too, the same abstraction-phile attitude mentioned throughout this, and the related, blogs need, to be understood better, not that plenty haven't spent oodles of time and energy on the issues.

So, if the pros have trouble, what chance does the common person have? Well, it's probably true for some that the issues dissolve, for those in power namely. Of course, many succeed despite not being in power (this is another t-issue, yes truth engines). Others, who are driven by external circumstances, are not so adept, nor can they be it could very well be argued.

Why, then, this effort and focus? How 'oops' are handled is key to the subject. It just happens that that which is covered by 'earned value' is another key factor (as, loops and hoops). Itemizing and discussing the others, over time, will be apropos.

As an aside, we will re-look at IQ and PIQ and other types (IQ and more, plus mis-measure).

But, the real core of the issue is that we only have 20-20 ex post facto vision. And, some would argue that we don't even have that. The phenomenon of differing eye witness accounts is the best example. Our attempts at removing this problem with reductionists' techniques, mathematics, and computation will not remove the basis cause. No, it's not even a people issue.

The future is, in a sense, undecidable, in many different ways, despite attempts at regimes that attempt definition of best practices, of risk reduction (oh, yes, the financial guys have shown us what a charade this is!), method optimization, and a number of other disciplines. Fortunately, there are glimmers of light, such as fuzzy methods, chaos engineering, and a few other forward-thinking attempts at control.

Ah yes, look at control theory (for instance, try IEEE Control Systems Society) whose domain is where these issues, in part, lie; it's a century-old plus field of study, yet there is no thought of complete understanding of the issues nor of utmost predictability.

Granted we can compute things like orbits, such that pinpointing things like eclipses is a common affair (complicated, though it is), but what will next week's weather be? Even without our (meaning the human race's) influence, would weather forecasting be any easier? Oh, yes, who would be here to observe?

So, there is a lot on the plate. One thing to do will be to sync the two views: 7oops7 and Truth Engineering.

Remarks:

09/09/09 -- We'll need to look at UUUN, as a framework, for assessing planning and reporting schemes for program management. Too, accepting this type of uncertainty into the genre is not counterproductive.

09/03/2009 -- Computational foci raise miraculous need. Yes, we need to talk NP and more.

09/02/2009 -- Lets face it, folks, undecidability needs to be discussed and adopted in any complex situational setting, especially if computers are involved. Only hubris pushes us to make loud exclamations about what we're going to do in the future.

07/14/2009 -- Nope, confounding continues.

06/25/2009 -- Yes, this is one of 5 issues.

05/18/2009 -- Testing in flight is within sight.

Modified: 09/00/2009

Friday, January 23, 2009

Earned value

Many posts referred to this topic of earned-value, assuming that there had been an attempt at cohesion and closure. Well, no such post exists (yet), so the below will fill in the blank.

For starters, anytime that we plan a future activity (where the timeframe can be from the next minute to much longer), we have expectations and then the actual reality. Well, these don't always line up after the fact. Many times, hype tries to fill the gap as the expected value does not add up.

It's true, too, for serious things, like engineering, though, in that case, the gap or disparity is not as great as we see with economics (dismal science) , finance (ah, let's count the ways), medicine (unfortunately).

So, 'earned value' is a way to attempt to map results to plan to do things like check status of a project. Think of it this way. If one is doing a task and thinks one is 50% complete, what does this mean? Well, that estimate could apply to the steps in the process, amount of resources (or even dollars) used, the state of what's being produced or accomplished, and other things. Tying these things down is not as easy as it may seem.

How do we know? Well, Microsoft could tell us a lot, as could a few manufactures of complicated systems. Many other examples abound. In short, many feel that the problem is not solvable in the contexts allowed now. We really need a better way to think of these things.

So, let's get the hole in the blogs filled, or at least outlined, so that future discussions can refer back and extend the topic, and used 'earned value' as the label.

Remarks:

09/02/2009 -- Lets face it, folks, undecidability needs to be discussed and adopted in any complex situational setting, especially if computers are involved. Only hubris pushes us to make loud exclamations about what we're going to do in the future.

07/14/2009 -- Nope, confounding continues.

05/18/2009 -- Testing in flight is within sight.

01/26/2009 -- 'Earned Value' is used generally. Perhaps, one might argue for a more general term which may come about at some point. In the meantime, we'll continue to use that tag.

Modified: 09/02/2009

Wednesday, January 21, 2009

A New Day

For starters, read the Inaugural Address of President Obama.

Expect that the coming changes will be interesting from several angles. But, that finance will awaken to its fiduciary duties once again, rather than create toxicity, is a key issue to address.

In short, the chances for improvements are boundless and deserve our attention. That there can be rigor and science involved improves both the interest and our challenge.

Engineering, product management, and all other disciplines can benefit from this paradigmatic shift, to boot. Additionally, will t-issues become more in vogue and obtain acceptability?

Remarks:

11/08/2016 -- New Day, again.

10/10/2013 -- Ben is leaving (did he get called out?); Janet is stepping up to the plate. Will Janet bring a new game?

11/07/2012 -- Another new age is upon us. Well, not for a couple of months. We just had the vote yesterday. One has to think of all of those things left undone during the last four years in the context talked about above (which was written about four years ago). What will the next four years bring? Can we list the undone and talk what ifs? Perhaps.

01/22/2009 -- As promised, the link to the Address has been added.

Modified: 11/08/2016

Sunday, January 18, 2009

Why finance?

Good question (again)? Even if we can answer this for the function, we have to ask for what do we need the leeches of finance (that is, the collection of non-essential gamers)? From whence comes the rationale for 7-figured, and socialized, pay for the supposedly best-and-brightest (ah, yes, the favored) while the majority eat crumbs?

Well, earlier we were going to look at money and its use in an economy. But we got way-laid as things falling apart took our interest away. Well, finance has several roles in this matter but has really become too warped for its own good.

That the evolution in finance resulted in a small set, comparatively, of people becoming super-rich while the vast majority find themselves decimated tells us a lot. Recent events just keep adding to the arguments for a need to look at this whole thing more clearly.

One metaphor (medically inspired) that would be apropos is that money is like blood to the body of the economy. So, we see use of words like liquidity. Now, in a sense, finance is supposed to be the flow system, and we use human circulation as an example.

You see then that the financial leeches mainly suck out the value. All sorts of reasonable economic argument supposedly supports this framework; well, that is not true as we will see.

Another role for finance is that played by the CFO who is supposed to help a company handle its money well. Again, what has evolved here, in many cases, is the use of money to not be excellent in the particular product or service area, of the company, but to game the system for exorbitant returns (2 cases).

That this type of game is allowed needs serious consideration.

Then, we have folks trying to support themselves, and their future, from their work who, once they get to the feeble state, are being trashed by pension handlers who are probably after glory more than trying to help their pensioners, in many cases, and who think that the gaming method is it. Hah!

Of course, that Social Security has ponzi-ed (made-off) itself over the years just shows how deeply ingrained is all this foolishness.

Marx is laughing at the supposed epitome of capitalism which is only a pseudo-casino in reality.

Remarks:

11/07/2012 -- Another new age is upon us. Well, not for a couple of months. We just had the vote yesterday. One has to think of all of those things left undone during the last four years in the context talked about above (which was written about four years ago). What will the next four years bring? Can we list the undone and talk what ifs? Perhaps.

01/27/2010 -- It's really ca-pital-sino.

11/06/2009 -- There ain't no train, just like there ain't no free lunch (TANSTAAFL).

08/02/2009 -- Wait! More exposures: "computers, some housed right next to the machines that drive marketplaces like the New York Stock Exchange, enable high-frequency traders to transmit millions of orders at lightning speed and, their detractors contend, reap billions at everyone else's expense." To anyone who isn't at Goldman Sachs or the like, does that appeal to you as the way that we ought to be handling our beans?

So, is this what financial engineering is all about? Sounds more like leeching.

05/18/2009 -- Oh yes, got us in a mess and still wants the bonus.

03/30/2009 -- The WSJ today looks at the Future of Finance. The idea is that finance is like the cardiovascular system. Okay. So leeches are a good metaphor for the sucking out that we see. Like the AIG guy who was central to the losses that we the taxpayers are paying and who left with $300M. We'll be referring back to this discussion.

03/11/2009 -- We also need to look at accounting's role messing up affairs.

01/28/2009 -- Poster boys, et al, motivate.

01/27/2009 -- This week the Economist has a series of articles on the 'Future of Finance' (several articles, all are a must read).

01/27/2009 -- Two aerospace cases to look at in depth. For one, the IPO never happened. For the other, only partial offsetting of debt happened. Both offer a lot to understand what when wrong with financial thinking (engineering and otherwise).

01/26/2009 -- The finance industry seems to have a problem with entitlement, to wit Merrill Lynch paying bonuses with our taxpayer money. We have to ask in relation to this discipline (oh, perhaps wrong word): what the hell happened?

01/26/2009 -- As described a year ago, things continue to fall apart. "You see, this scenario dreamt about by Adam Smith has descended into a computationally based mayhem which has lost its mathematical, political, and spiritual basis and upon which there cannot be a sustained economy. The corpses of the system litter the landscape."

01/23/2009 -- A lot of financial advice is given from an abstracted basis. Perhaps, this is as it needs to be, we'll look at that. But, in terms of cohort-ness and experience, one who has actually been retired for awhile ought to be able to, though not necessarily, speak about the issues better than some view based upon a hypothetical framework.

01/22/2009 -- A new day. It may do well to list the roles played within the financial realm. We know that banking is (can be) respectable. What about that role labeled financial adviser? Do they just hype structures and instruments?

Modified: 11/07/2012

Friday, January 9, 2009

Lessons to be learned

Well, oops abound, as we can easily see. This year, we'll continue with the broader scope, yet find time for a focus on the plane program that is scheduled to fly its product this spring (2009).

Here are a few lessons to be learned, for starters.
  • -- The WSJ tells us that civil contempt charges can lead to years in jail without trial. Say what? Yes, folks, in the good old US of A, it is possible to get into a situation that essentially requires you to prove your innocence to get out the clink. Can you see how that is opposite the usual approach to criminal justice? The crook can claim non guilt and require the prosecution to prove otherwise. We'll get more into this type of thing. Lessons: Happily, some states, such as Arizona, have put restraints on judges who do this type of thing. Such behavior reeks of hubris, does it not. As well, where do our rights come in?
  • -- Harvard and others are crying poor now. Just a few months ago, some gloated at the returns going into their endowment funds that were the results of using leveraged techniques. Lessons: Hey, will they learn from this? Or will we, the taxpayers, have to bail them out?
  • -- Why just pick on Harvard. Another fund's manager, this one dealing with pensions for hard-working public servants, cried that they need to do risky stuff to get their 8% returns. Lessons: Folks, when you hear this type of argument, think that it's a call for leveraging, by necessity. What it means is that someone doesn't want to pay up the proper basis for the future. Why don't we learn that we're dealing with a near-zero game? Any one who has expanding pockets is sucking it out of myriads more. That is, every winner maps to oodles of losers. Yet, that is argued as fair by many.
  • -- Who's the daddy? Well, people thought that those who played the games were the brightest and smartest. Of course, we bailed out some highly paid people, if you folks recall. A recent report showed that Saudi Arabia can survive on an oil price of about $43 per barrel. Other countries need a much higher rate due to many factors, some of which involve leveraging. Lessons: Where is a lot of the Saudi money? US Treasuries. That the markets game needs a lot of attention; it is not the proper basis for an economy.
We'll continue in this vein for awhile, building up material for discussion.

The following are add-ons that will be coordinated with the seeds.
  • -- Some think that there is a case for stock in building wealth. Perhaps, this could be true (or was) in certain senses. It is not categorically (refer to fund manager item above). For one thing, a gaming flavor has intensified with the computational support such that we do not know what is what at the end of any day. Okay, uncertainty is always something that we face. Lessons: Describe and discuss how this problem can be resolved. Also, look at how purely gaming schemes cannot be our future (not entirely).
  • -- Value and froth are many times synonymous, it seems, in the realms of casino capitalism. Part of this is because financial engineering has no real basis. Lessons: Value is much more than what the market can address, and, yes, it is beyond mathematics, to boot.
Remarks:

10/11/2009 -- Discussion has gone over to FED-aerated. Note the 10/11/2009 Remarks about the Business Week article on India's progress' inhibitors. 'Near zero' recognizes that some always suffer more than others, especially in win-win situations, as the whole notion of characterization minimizes visceral reactions by diminishing the real in favor of the abstracted (ah, the modern world, you say?).

09/11/2009 -- Win and lose. Everyone wants the former. The latter actually is what balances the equation.

07/14/2009 -- Looks like more than the finance guys need to learn something. Confounding ought to be left for safe games.

03/30/2009 -- Near-zero will be looked at more closely.

01/27/2009 -- Now a new day and way to consider these matters.

01/12/2009 -- Split out add-ons, which will grow for awhile.

01/11/2009 -- The tone changed above in a few areas in keeping with the Mission and Method. But do note that it says lessons to be learn, not lessons learned. We're dealing with open issues here.

Modified: 10/11/2009