New Year

No one is more ready for a New Year than I am.  I'm ready to toss this wretched old thing to the curb.  In addition to personal tragedy, the political silliness and meanness was stressful, sad and exhausting.

If I were to have one wish for the new year, that would be to compel our leadership--no matter which side of the aisle or ideology they stand to embrace the precepts embodied here:

In the time of war
Raise in yourself the Mind of Compassion
Help living beings
Abandon the will to fight
Wherever there is a furious battle
Use all you might
To keep both sides' strength equal
And then step into the conflict to reconcile.

Vimalakirti Nirdesa

I've had this on my Wisdom Page for a long time. I was compelled to come back to it this year.  It is simple.  It is powerful.  It is a singular call to action.  It works at any level of our personal or political lives.

Process

I found myself discussing the importance of 'process' with someone recently.  The essential:  If the process is well thought out and well executed, then the outcome will be shaped accordingly. This was my observation shaped by decades of business experience.  I was speaking specifically in terms of leveraging the expertise of different constituencies to tackle large organization/institutional initiatives.  But it applies to solo endeavors as well. 

What am I talking about?  I'm talking about the importance of overlaying a solid process to achieve a desired outcome.  It means that whatever goal we are tackling, our process that we develop (and follow!) toward achieving that goal is one of the greatest predictors of our success in reaching that goal.

Some examples.  If we want to get physically fit, then we need an exercise plan that will incorporate nutrition, strength, cardiovascular and flexibility components to achieve optimum results.  If we want to be fiscally fit, then we need a financial plan that will incorporate proper savings and spending levels, and an investment plan that makes sense for our risk profile.

Hopefulness that in our doing nothing will yield great results will universally result in poor outcomes--unless one is extremely luckily.  My sitting here typing coupled with great hope that my cardiovascular fitness will improve will yield a disappointing result. Living beyond one's means consistently will not yield good results for long term savings.

There are many other types of examples. Regardless of our goal, the same overlay stands: a considered approach to any desired outcome is the result of good planning and hard work.   Thus, the aphorism, "Luck is where opportunity and preparedness meet."

Notwithstanding our  best efforts to consider all things in our plan,  we can be certain that unanticipated events may unfold.  No one has a crystal ball.  No one.  So when such things happen, having some grace and courage under fire helps us craft Plan B. There's no shame in having a Plan B.  I've been in business situations where I have had to have a Plan C in addition to A and B. 

The key to successful execution on those plans (any plan) is simply to say if "X" happens then I will do "Y".  The discipline is to not shrug when "X" presents itself, but rather to act.  If I have another accident in my car, I will take driver's lessons.  If my weight gets beyond ###, I will cut back on sweets. 

Simply put: 

• Set a goal.
• Define desired outcome(s).
• Plan a strategy.
• Execute a strategy.
• When shit happens, adjust accordingly.

Shit always happens which is why it was my favorite bumper sticker in the 1980's.  True then.  True now.  Naturally the upcoming New Year is rousing such thoughts.  I'm going to dial back to 2008 when I produced a Mind Map of my resolutions...(Rummaging in blogger bin......)  Here it is.

It is sad to have to put 'fun' on a resolution list.  But this was my "balanced score card approach".  It does work...so long as one maintains the rigor of managing by it.

The Big Short

I haven't posted in this space for more than 4 years.  I watched the movie, The Big Short, weekend before last, and I was reminded of much of the good work/research that I had done in this space. There was a point where I didn't think that I would want to view the movie, as so much of it seemed to be a "been there, done that."  Due to some DNA quirk, much of the 'subprime is not a problem' fell false to my ears.  Accordingly, I spent an inordinate amount of time doing amateur research; but I did it, doggedly.  And what I concluded was that there was no way that subprime would not be an issue.

There were several things that led me to that conclusion--not just based on general ramblings of others. You can see some of what I wrote here on subprime, and what I wrote here on hedge funds and systemic risk.

1. First and foremost, the average income (for people who had income) to loan balance ratio for issued mortgages lowered considerably. Naturally this was a requirement to be able to sell over valued homes.  Runaway home-prices + easy money.  This statistic has NOTHING to do with subprime, but everything to do with stupid underwriting.  And I dug through the information published by the government to find this statistic.  Again...no one reported on this salient fact.
2. The risk curve on the mortgage insurers underwriting reports had shifted to the left.  Meaning that defaults were happening more quickly and in greater number.  None were reporting on this published fact (but there was lots of conjecture--correct conjecture).  The supportable facts were there.   I found these reports on line after a bit of rabbit holing on line, and once the fan blades were flinging dung they were soon yanked and not available later.
3. All of the banks were still basing their loan loss reserves based on passed delinquencies, per my review of the financial statements of both mortgage lenders and the mortgage insurers.  I didn't understand that in relation to number 1 above.  I also don't understand why none were reporting on this--it was one of the easiest things in the world to discover and it was something that was worthy of being reported.
4. The amount of synthetic instruments (credit default swaps) were not reported on any exchange. Accordingly, after reading some information about what happened in 1929 and the role of off-exchange instruments in the collapse, I believed that there would be a problem.
5. That insurance companies who heavily invested in bonds had balance sheet risk was not anticipated in the news outlets.  My research (and I wrote about it in this space) told me that it would.

One of the things that I identified with in the movie is the "early is wrong."  Most palpable to me was the emotional wringing that these guys went through--to be 'right', but not seeing evidential matter in the market prices to support their positions.  I though the movie did a great job of conveying that angst and inner turmoil.

Finally, the tongue in cheek nature of several of the asides to explain some of the technicals was inspired.  The complexity of all of it is snooze worthy--but having the likes of Selena Gomez, Anthony Bordain explain it made these concepts accessible.

I may spend a little more time looking at a few market 'things' and posting here.