Quants' Hubris - part the seventh

Blythe Masters rides again! Again! And again!!

So, let the post-mortems continue! This next one also in the NYT, puts more meat on the bones of the issue. Doesn't, alas, provide any insight into whether Hwang's shenanigans are widespread by others. Better hope not. Remember, Blythe's CDS scam happened in full view of regulators, more or less; derivatives have never been much regulated.

"That whole affair is indicative of the loose regulatory environment over the last several years," said Charles Geisst, a historian of Wall Street. "Archegos was able to hide its identity from regulators by leveraging through banks in what has to be the best example of shadow trading."

Couple that with the fact that Archegos is, officially, a non-public entity and thus not subject to SEC oversight... Regulators could, more or less, see the CDS situation among all those public entities. Didn't motivate them to keep the herd from stampeding.

Not all the banks chose to jump later, after his spanking by regulators

Goldman later changed course, and in 2020 became a prime broker to the firm alongside Credit Suisse and Morgan Stanley. Nomura also worked with him. JPMorgan refused. [my emphasis]

The rest of the story amounts to: once the avalanche starts rolling down the mountain, most everything gets scrubbed out.

Voting Lefts - update

One may feel that Coke and Delta and American Airlines, and perhaps more, are finally doing the right thing. Although, in fact, all they're doing is back-pedaling some self-inflicted bad PR. Will they take steps? It didn't work out well last time.

Delta tried such a stunt before, when it went against NRA

Republican lawmakers in Georgia made good on a threat to eliminate a proposed tax break for Atlanta-based Delta Air Lines, after the carrier declined to reverse a decision to cut ties with the National Rifle Association.

And given that Republican legislatures, and Republican state courts, are knee-capping Democratic governors (and may be some Republican ones too?) who are trying to keep Covid under control, ya think they might be just a tad eager to do the same with voting rights? Some hundreds of bills, and a few now law, across 47 states (at last report) to keep all those Left Wing Snowflakes from electing anyone. Everybody knows only Republican Autocrats are worthy of running governments. Vlad told them so.

[update]
Are you surprised that Georgia is trying the same thing, yet again.

Wednesday's action by the Georgia House, on the final day of the state's legislative session, sought to revoke the company's jet-fuel tax break and came amid an intense faceoff between Delta's CEO Ed Bastian and Georgia's Republican political leadership.

Back then

Georgia lawmakers have targeted the multimillion-dollar tax break on jet fuel before as political retribution. In 2018, state lawmakers killed the tax cut after Delta ended a discount for members of the National Rifle Association -- earning the ire of the assembly's Republicans.
Several months later, then-Gov. Nathan Deal suspended collecting the tax.

Quants' Hubris - part the sixth

Blythe Masters rides again! Again!

So, let the post-mortems begin! This one in the NYT, finally, ties Hwang to Blythe, although not by name.

During the 2008 crisis, the insurance giant AIG nearly collapsed under the weight of unregulated swaps contracts it wrote.

Those "swaps contracts" were made up by Blythe, who called them Credit Default Swaps. That tale has been chronicled here more than once.

As shown in the last episode, these are a different sort of swap from CDS, but, given the fact that they're untraceable by regulators, and of unknown control by the banks (individually or en masse), it may turn out that there are more Archegos out there, ready to immolate at any moment.

But, back to Archegos.

As banks tally up their losses and shareholders smart over the hit to their portfolios, the tactics that Archegos employed will draw the eye of regulators and renew calls for further regulation of swaps and similar financial products, called derivatives.

Ya think? The horses are out of the barn, once again.

There are, at least, two categories of derivatives: those that hedge an owned asset, and those that hedge somebody else's owned assests. And one might point out that the latter also births an evil twin, where the weight of the asset out weighs the assets of the holder of the derivative. That's the beauty, as they see it, to the finance wizards: leverage, aka Other People's Money. The key to being Instruments of Mass Destructions is when such derivatives are not just not regulated, but their volume and ownership is untracked. Multiple 'owners' of such instruments 1) unthered to the real asset, 2) there's no limit to how many 'swap owners' may bet on other peoples' assets, and 3) there's no guarantee that the 'sellers' of such swaps each, indivicually, keep track of how many bets are being made on each real asset.

Whether Archegos is a Lone Outlaw, or, as the Great Recession unfolded, one of many pulling the same stunt isn't known as I type. You'd better hope Hwang is a Lone Outlaw. Keep in mind that the players who enabled this stupidity were among the crew that fueled the fever dreams which led to the Great Recession.

"The disclosure system doesn't cover any of this," said Dennis Kelleher, chief executive of Better Markets, a Wall Street watchdog group. "These derivatives are designed for synthetic exposure which de facto conceals ownership interests."

Credit Suisse      check
Nomura Securities  check
Morgan Stanley     check
Goldman Sachs      check
Mitsubishi UFJ     check (although mostly from bailing out MS) 

Prepare for interesting times.

The Tyranny of Average Cost - part the fourteenth

Well, another episode unfolds. Not surprisingly, the Ever Given's plugging of the Suez is yet another example of overestimating the bigger-is-better mantra. Turns out, not necessarily so.

"They did what they thought was most efficient for themselves — make the ships big — and they didn't pay much attention at all to the rest of the world," said Marc Levinson, an economist and author of "Outside the Box," a history of globalization. "But it turns out that these really big ships are not as efficient as the shipping lines had imagined."

In other words, not only do the shipping companies have to run these ships at, or very near, full capacity to reap the reward of size, but they also shift some externalities to others. Like being able to navigate in cross winds, or demanding deeper channels in ports.

The article ends with a mind meld:

"There's still economies of scale, but less and less as the ships become bigger," Mr. Merk said.

The bigger vessels can also call on fewer ports and navigate through fewer tight waterways. They are also harder to fill, cost more to insure and pose a greater threat to supply chains when things go wrong, like Ever Given's beaching in the Suez Canal. Giant ships are also designed for a world in which trade is growing rapidly, which is far from guaranteed these days given high geopolitical and economic tensions between the United States and China, Britain and the European Union, and other large trading partners.

One might also wonder whether the fate of the A380 portends ill for these ships? Some times hub-and-spoke implemented on behemoth vehicles is the wrong idea. What's further amusing:

[T]the savings from moving to ships that can carry 19,000 containers were four to six times smaller than those realized by the previous expansion of ship size. And most of the savings came from more efficient ship engines than the size of the ship.
[my emphasis]

If that sounds a bit like passenger airplanes, you would be correct. With aircraft, the savings have mostly been due to more efficient engines, which in turn have been due to the ability burn fuel at ever higher temperatures. Turns out metal turbines are approaching passe`. And, here is a more recent blurb from GE. (Note that the basic research and funding came from the Damn Gummint.)

So, in terms of ship engines, not quite so sophisticated technology, but still ever more efficiency. In case you were wondering (I was), the Suez has, since 2015, both a north bound and south bound lane, simultaneously. You guessed it: the Ever Given could have T-boned a south bound fellow behemoth. Wouldn't that have been fun?

Quants Hubris' - part the fifth

Blythe Masters rides again!

By now you all have heard/read about the mess Archegos has made of the financial structure. So far, at least, it doesn't appear to have the horsepower to bring down the whole kit-and-kaboodle the way her credit default swap did. But both situations share a characteristic.

Much of the leverage used by Hwang's Archegos Capital Management was provided by banks including Nomura Holdings and Credit Suisse Group through swaps or so-called contracts-for-difference (CFDs) , according to people with direct knowledge of the deals. It means Archegos may never actually have owned most of the underlying securities — if any at all.

So, just like CDS, a pure bet on 'something'. No questions asked.

CFDs and swaps are among bespoke derivatives that investors trade privately between themselves, or over-the-counter, instead of through public exchanges. Such opacity helped to worsen the 2008 financial crisis and regulators have introduced a vast new body of rules governing the assets since then.

So, yeah, there is the risk that other Big Banks were/are doing exactly the same thing with/for other hedgeis behind everybody else's back.

How do a quant predict the future when the present is completely without data?

Parallax View - part the fifty first

Another week's up, so here are today's numbers:

  >= 1,000 -   326
100 to 999 - 1,275

(New) grand total of counties reads at 3,083. While I've not gotten into an argument with the Topo folks over this re-definition of 'affected' counties, it certainly looks like a move to bolster wannaBePresident Huey Long 2024's perpetual lying.

Once again, these numbers just don't fit with other available data: the usual suspects, NYT, CNN, and Johns Hopkins directly. 31 states, with Michigan leading the pack, have been increasing. What's your bet that "... when you have 15 people, and the 15 within a couple of days is going to be down to close to zero, that's a pretty good job we've done." will be true this time, too?

The really big news, hot off the presses, is that Bolsonaro has out-stupid wannaBePresident Huey Long 2024 and Ronny VirusSeed^©:

Brazilian President Jair Bolsonaro replaced six of his ministers on Monday, in a reshuffle that appears designed to secure greater loyalty as the country's Covid-19 crisis balloons. ... Bolsonaro has refused to endorse lockdown measures, citing the health of the economy and the personal liberty of citizens. For now, most restrictions on gatherings have been put in place by individual state governments; Rio de Janeiro, São Paulo, and Minas Gerais are among the states that have implemented nightly curfews. A recent lawsuit filed by the Bolsonaro administration to lift those restrictions was rejected by the Supreme Court.

So, between B.1.1.7 and Brazil's P.1, will anyone (on the Right, that is) listen to Walensky?

Walenksy reiterated warnings from many experts that the U.S. could be following behind by a few weeks what Europe has been experiencing. Countries there have seen some of their biggest spikes of the pandemic, leading to another round of restrictions and lockdowns.

Just as happened last spring, aided and abetted by Ronny VirusSeed^© sicing all those Spring Breakers on the Eastern USofA and, mostly, wannaBePresident Huey Long 2024 sitting with his thumb up his ass for a couple of months; the self-same months, of course. What's the chance that the USofA never sees P.1? If you bet on 0, you'll win. The only chance, that's not 0, is that enough get vaccinated such that community spread gets really, really close to 0. The only way to stay ahead of mutations is to stop transmission. Too bad the last guy was a fucking moron:

My predecessor. Oh God, I miss him.
-- Sleepy Joe last Thursday

"I just gotta get me a game of darts and unlimited brewskis at the Dew Drop Inn." Not to mention all those white, angry, persecuted, shitkicker Republican old guys who are convinced of their immortality ('they ain't no Covid. it's just flu'; trust me on this one. I saw video of one such cretin saying that). As long as they are the only ones who finish feet pointing skyward soon, well, then OK. But, naturally, they'll get a handful of others sick in the mean time.

It's clear now that even tiny, isolated Bermuda can't stave off Covid. What's the chance we will with the likes of Red state governments going fucking stupid?

"Girl, you're as dumb as a sack of hair."

Parallax View - part the fiftieth

Another week's up, so here are today's numbers:

  >= 1,000 -   347
100 to 999 - 1,316

(New) grand total of counties reads at 3,101. While I've not gotten into an argument with the Topo folks over this re-definition of 'affected' counties, it certainly looks like a move to bolster wannaBePresident Huey Long 2024's perpetual lying.

Total is down a smidge over the last month or so. Will that trend continue? Only the Shadow knows. I am not hopeful.

[17-18 March] I contacted Tectonix about doing the cellphone scan from Lauderdale this year, but got back a boilerplate response. Hopefully, they'll do the exercise anyway. It's important.

[19 March] Remind us all. Where did Covid-19 in New York come from? Oh, yeah, Europe, specifically Italy and France. They're doing it (btw, youshould subscribe) again with nasty variants. No herd immunity before the variant assault, no survive the variant assault. That may sound a bit odd, but here's the logic: the longer a virus remains rampant, the more mutations are generated. Some mutations are meaningless, but others, as we now know, are nasty. The only way around this problem is to get vaccines into arms to quell the spread. The Red State governments can't, or won't, grok such a simple idea. They didn't last Spring Break, and they aren't this one either. Expect another surge in a month.

And, now Bermuda is ramping up infections. In the middle of nowhere in the Atlantic Ocean? Read the comments. There are a horde of Neanderthals, just like our Red States. Wait... Bermuda supported the Rebels, and much of its commerce is from South Carolina.

Will Ronny VirusSeed^© (along with the Texas and Mississippi morons) send the USofA into another surge? Only the Shadow knows. At the moment, were I a betting guy, I'd bet more likely than not, yes. All those Red states are Covid deniers, and vaccine deniers to boot. What else is a reasonable bet? As mentioned earlier, I asked Tectonix to re-run the Lauderdale phone trace. I sure hope they do, particularly considering that this Spring Break assault appears to be even greater than last year's. Need I remind: Miami Beach, not Lauderdale, is anarchy this year. What could go wrong?

[22 March] Looks like there's a canary in the coal mine. Bermuda continues to grow Covid.

It is understood the current spike has been caused by the prevalence of a UK variant of the virus which is more contagious, particularly among children.

Forewarned is forearmed. Or may be not.