Friday, July 25, 2008

A. M. Post:

Teal Lily
Carol Robinson

1. Sun Tzu said: The good fighters of old first put themselves beyond the possibility of defeat, and then waited for an opportunity of defeating the enemy.

2. To secure ourselves against defeat lies in our own hands, but the opportunity of defeating the enemy is provided by the enemy himself.

3. Thus the good fighter is able to secure himself against defeat, but cannot make certain of defeating the enemy.

4. Hence the saying: One may know how to conquer without being able to do it.

5. Security against defeat implies defensive tactics; ability to defeat the enemy means taking the offensive.

On Insight: In this week's New Yorker, there is an article called The Eureka Hunt (abstract here) regarding the timing of good ideas. There's an interesting dichotomy that must take place. First you have to focus the brain's attention on the problem. Second, you have to back away from the problem to activate a particular part of your brain's cortical area (anterior superior temporal gyrus (aSTG). It's the part of your brain that searches for consilience!

Because of that "space" needed, one generally has insight upon the early part of waking or in the shower. I'll add blowing drying hair to that. It was interesting to read this yesterday, as I typically have insights precisely at these times. In fact, in working through thorny issues at work, it was important to me to have enough time in the 'process' (from start to deliverable) to subliminate on the issue as sometimes these insightful moments are ones where you really that you were faulty in your thinking on some matter.

A Modest Proposal: To NG's point about the bonuses...I had this thought upon waking this morning. It would seem reasonable to me for the government to levy a special 'assessment' on principals of a firm if through their mismanagement there is a required 'intervention'. In fact, if I were a stockholder, I would insist upon there also being some sort of assessment in the event that capital requirements are endangered. How would that work? (Warning--not well thought through)

  • Bonus pools would be different for principals/non-principals with the qualification that if you are a non-principal, but your bonus is in excess of X% of the bonus pool, you would be considered a principal for these purposes.
  • The bonus pool would have a 5 year look-back. In the event that capital requirements of the institution were to fall below statutory limits OR if the financial institution were to go aground and require government intervention, then the bonus pool would be tapped before the FED intervened and before the existing shareholders were diluted.
How would you ensure that the bonus dollars are available in such an event? These are financial geniuses right? There are a number of ways (these are not mutually exclusive):

  • The principals would guaranty it;
  • They could do holdbacks or treat it as deferred compensation;
  • They could purchase a surety bond;


nice said...

Since we hit Oil in the $122 range this a.m. - every little pull back in the price of oil since the move off the $122 area - has had strong buying in the Oil stocks today (so far)...

At the moment probably more so due to the fact that those buying the dip all week in commodity stocks are down and many probably washed out yesterday short-term - so we had a shortage of sellers this a.m.

Not one for picking bottoms - but could be a counter trade here I guess to work off the oversold...
but I would rather trade with what is trying to go up.

Let someone else pick the bottom and confirm that the trend up in oil stocks is going to reassert itself.

In fact, we are at the trend line today for Oil's big run which started in March.

A strong confirmed break of this trend line over the next weeks could be bullish for the markets...
(or at least a 'stabilization' in the oil price' could be bullish)

That being said though - oil does have a strong seasonality in Aug/Sep... and already all the oil analysts are saying we are within days of a bottom in energy prices.

However I wonder if the battle now
in terms of whether oil goes up or continues down - will be less a battle between buyers and sellers - and more having to do with these Hedge Funds and others caught up in the oil market and how they have to unwind their stuff??


Also I would imagine that the large effort to elevate the financial sector last week was done so that "recapitalizations" could occur...

So too large a drop back in the prices of those financial stocks will have made the entire intervention last week a complete waste of time.

USD's been pretty steady after those horrendous econ numbers the past 2 days.


nice said...

Surprised to see the Semi Index back down to it's yearly lows this week - despite falling oil prices..

Many stocks that should be moving up now as oil falls have not - so at the moment they don't trust that the fall in oil continues.

Other than a continuation of the recent market moves - one possibility is that everything grinds up again one last time into August expiration - before a final move down this Fall in which everything goes down.


I'm off now - for a vacation - gotta spend all those recent 'activedollars'!

'nice' to have spent some time here on Leisa's blog the past few months...


Leisa said...

Enjoy your vacation. You've earned it!