chillinrecommendations

Without words and totally without economic context.

2011-05-11T18:39:00.000+02:00

"You better cut the pizza in four pieces, because I'm not hungry enough to eat six." by Yogi Berra

Always remember...

2011-01-05T09:13:00.001+01:00

http://www.nber.org/papers/w15815

how true...

2010-12-16T11:49:00.001+01:00

To wit: In the same way that you can’t “win” an argument with your overly emotional wife (or husband), nor can you “win” an argument with a persistently delusion-embracing market.

Berkshire Hathaway

2010-02-28T22:22:00.002+01:00

Dear readers,

Enclosed you find a sequence of the recent annual newsletter of Berkshire Hathaway. Seldomly seen so much truth in so less words:

We tend to let our many subsidiaries operate on their own, without our supervising and monitoring them to any degree... We would rather suffer the visible costs of a few bad decisions than incur the many invisible costs that come from decisions made too slowly - or not at all - because of a stifling bureaucracy... We will never allow Berkshire to become some monolith that is overrun with committees, budget presentations and multiple layers of management. Instead, we plan to operate as a collection of separately-managed medium-sized and large businesses, most of whose decision-making occurs at the operating level.

More Than You Know by Michael J. Mauboussin

2010-01-20T21:17:00.002+01:00

These days I have started reading a book which has a nearer focus on investments, than the books I usually read. I'll start with a quote of a quote out of it:

The only certainty is that there is no certainty. This principle is especially true for the investment industry, which deals largely with uncertainty. In contrast, the casino business deals largely with risk. With both uncertainty and risk, outcomes are unknown. But with uncertainty, the underlying distribution of outcomes is undefined, while with risk we know what that distribution looks like. Corporate undulation is uncertain; roulette is risky.

by Robert Rubin, former Tresury Secretary.

Fallstudie über Mitarbeitermotivation

2009-12-07T15:59:00.003+01:00

Hallo zusammen

Einer der Gründe für meine Inaktivität waren schulische Aktivitäten. Viel Zeit benötigte dabei die Erstellung einer Fallstudie. Gerne möchte ich diese auf meinem Blog zum Download bereitstellen:

Download-Fallstudie

This Time Is Different

2009-12-04T11:38:00.002+01:00

You haven't heard from me for quite a while. Due to scholar efforts and a project work my capazities for my blog was limited. From now on I would like to restart my efforts and move your attention to the following research paper:

www.economics.harvard.edu/files/faculty/51_This_Time_Is_Different.pdf

Defaults of governments happen regularly. Even if the conventional wisdom is that it is an absolut improbable event. As the paper state it: The pervasive view that "this time is different" is precisely why it usually isn't different, and catastrophe eventually strikes again.

Prospect Theory

2009-09-01T21:55:00.003+02:00

As I experienced behavioural finance is not all about heuristics and biases. The book of Thorsten Hens contains many mathematical functions and solutions which exceed my knowledge. Anyway I could profit on some mathematical and especially on logical issues.

Below you find a picture of the prospect theory value function of kahneman and tversky. It delivers the reason why people limit wins and let losses run deeper and deeper. Furthermore it gives a reason to the loss aversion of people who consider a 5% loss more severe than a 5% win.

Regarding the behaviour of this prototyp behavioural investor, Hens delivers an example with which one can examine if the client is an expected utility invetor or an investor according to the prospect theory.

You posses two credit cards and two wallets. The chance of losing one wallet is 25% and this 25% is independent of losing the second wallet. Which investor will decide to diversify the cards and which investor will put both cards in one wallet?

Solution: Daniel Kahneman will put both credit cards into the same wallet in order to minimize the chance of losing one of the cards. Whereas Daniel Bernoulli (founder of the expected utility theory) will diversify his cards into each wallet.

The average phenomenon

2009-08-19T17:35:00.004+02:00

This post is dedicated to all financial advisors and every client who get once in contact with a wealth planning specialist.

I once made an analysis for a client how long his assets will be sufficient to maintain his actual standard of living. Given you invest about 200'000 in a mutual fund which should provide you with an average yearly return of 8%. Furthermore you decide to withdraw about 21'000 a year. Due to the high return your assets are exhausted after 20 year instead of 9.5 year.

The truth is shown by picture number 2.

Conclusion of our little quiz

2009-08-19T17:18:00.002+02:00

Well, the answer is: You have to switch doors.

My first thought was as well that chances are similar but in fact they aren't. If you have chosen door 1 there are three possible outcomes:

The car is behind door 1: If you stay you win / If you change the goat is yours.
The car is behind door 2: If you stay you get the goar / If you choose to change you win the car.
The car is behind door 3: The host had opened door 2 instead of door 3.

As you see the probability for you brand new car are 50% if you choose to change, wheareas they are 33% in the case that you stay with your first choice.

To put some maths in this conclusion one can read into the bayesian conditional probability. Well if you like to you are probably unique, once was enough for me :).

MPT vs. Behavioural Finance

2009-08-06T19:40:00.003+02:00

As you may recognized i wasn't as active as i supposed to be within the last month. Looking forward I am willing to change this and deliver you some insights of my lastly buyed book. It concerns about behavioural finance in private banking and is written by swiss professor Thorsten Hens and Kremena Bachmann.

There are many concerns about the validity of MPT because of problem with measuring risk with volatility and investors irrational behaviour. I will provide you with some insights inside the whole story and tell you about some experiments i consider interesting. One of these experiments goes as followed:

Experiment #1: car or goat

You have the possibility in a game show to choose between door 1, 2 or door number 3. Whereas you could win a car behind one door, there is a goat behind the two others. So your probability without haven chosen a door is 1/3. Easy maths so fare. After you have chosen door number 1 to get you a new car, the host let door number 3 open behind which there is a goat. Now you are asked to choose to either stay with your choice or to switch from door 1 to door number 2. How do you decide?

As you may know the same questions was a part of the movie "21" in which students counted card to beat las vegas's casinos. I consider it to be more exciting to wait with the conclusion. The only hint I would like to give you is that the chance after the host has opened door number 3 are not equal.

Well, have fun with it :)

EUR/CHF Analyse und Anlageempfehlung

2009-05-14T12:04:00.006+02:00

Heute möchte ich mich mit einer Analyse befassen, welche Charttechnik, Payoff-Theorie und Fundamentaldaten vereinigt.

Fundamental

Die Schweizer Nationalbank hat in einem Statement gesagt, sie wolle mögliche Aufwertungen des CHF so gut wie möglich verhindern. Das Interventionsniveau wird allgemein bei 1.50 gesetzt und seit der Ankündigung stagniert das Währungspaar leicht oberhalb von diesem Niveau. Zusätzlich scheint der CHF aktuell eher überbewertet zu sein und eine Abwertung des CHF wirkt wahrscheinlicher als eine Aufwertung.

Charttechnik

Aktuell befindet sich das Währungspaar nahe der oberen Trendlinie, wobei diese jedoch als starker Widerstand betrachtet werden kann. Die Bollinger Bänder laufen aufeinander zu, was die aktuell tiefe Volatilität wiederspiegelt. Gleichzeit befindet sich das Währungspaar in einem trendlosen Raum was durch einen tiefen ADX verdeutlicht wird.

Volatilität

Wie bereits angesprochen, befindet sich die aktuelle implizite Volatilität nahe Tiefststand. Beiliegende Grafik der UBS Investment Bank verdeutlicht diese Tatsache.

Evaluation des möglichen Payoffs

Die Wahrscheinlichkeit, dass EUR/CHF steigt ist aufgrund der oben erwähnten Tatsachen grösser. Der mögliche Payoff zeigt jedoch ein anderes Bild. Sollte das aktuelle Niveau von EUR/CHF 1.50 unterschritten werden, können Zweifel daran laut werden, ob die CH Nationalbank die Inverventionen wie angekündigt durchzieht. Sofern eine Reaktion ausbleibt, wäre mit einer starken Abwertung des Euros und einem hochschiessen der impliziten Volatilität zu rechnen.

Auf der anderen Seite ist die Situation schwieriger einschätzbar, sofern eine Intervention erfolgt wird sich der Wechselkurs zumindest stabil halten und dürfte mittelfristig wohl eher laufend leicht ansteigen.

Zusammenfassung

Wahrscheinlichkeit mit Sicht 1 Monat / Abwertung EUR: 15%
Wahrscheinlichkeit mit Sitcht 1 Monat / Aufwertung EUR: 85%

Auswirkung Abwertung EUR: -5%
Auswirkung Aufwertung EUR: +1%

Payoff Abwertung EUR: -6%*15% = -0.75%
Payoff Aufwertung EUR: +1*85% = +0.85

Handlungsempfehlung

1. Mit einem Investment muss versucht werden das Down-Side Risk zu beschränken. Entweder durch einen Stop-Loss oder eine entsprechende Struktur.
2. Der Kauf von Volatilität macht aufgrund der tiefen impliziten Volatilität aktuell viel mehr Sinn als ein Verkauf einer Option.
3. Die Grundtendenz aufgrund des Payoffs spricht für ein Anlageinstrument, das auf eine Aufwertung des EUR setzt.

Anlageideen

Die am wenigsten erfolgsversprechendste Anlageform, die man aktuell wählen kann, wäre ein Discount Zertifikat. Dabei wird das Potential eines Aufstieges limitiert wobei man das komplette Abwärtspotential trägt.

Eine simple und einfache Call-Option auf dieses Währungspaar vereint meiner Ansicht nach alle 3 Handlungsempfehlungen und ist daher aktuell die attraktivste Anlagevariante in diesem Bereich.

Psychological Commitment to another major fall in equity markets

2009-05-13T14:14:00.007+02:00

Recently I read the Jeremy Grantham's investment letter about the current situation. A very interesting piece, which you may download at:

http://www.gmo.com/America/MyHome/default.htm

He especially made an interesting point about the current predictions of many professionals, who see a pull-back coming. By sure there is a possibility for the market to leave these elevated levels and decline towards the march lows, but under a psychological aspect it could be mere wishing of some specialists.

"Investors have missed some great investment opportunities, and now
they have a psychological commitment to another major fall to add to any
intellectual reasons you may have had. There is a chance it will do so, but if it
does not and it continues to rise, extended praying may not make you as much
money as you would like. "

Today banking stocks are down by nearly 10% and have by now erased all profits of the last two weeks. Many people in my office scream about the beginning of the next downward wave. I rather think about to higher my stake in some financial stocks regarding a prolonged "sucker" rally in the stock markets.

USD/JPY sell signal

2009-04-26T10:20:00.003+02:00

Actually i am running a long position on the USD against the JPY. This decision was mostly fundamentally based, according to divergences in some economic indicators. The technical view on this currency pair looks more freithening. This is the reason why I will close this position during the next week as soon as we leave the actual oversold level.

A practical example

2009-04-26T09:42:00.004+02:00

These days i discussed with a friend, who works as a risk manager a really interesting topic. I would like to share our findings with you. The solution is related to the following previous article:

http://chillinrecommendations.blogspot.com/2009/03/bullish-or-bearish.html

The problem

The bank, where he works face a common problem. The low interest rates lead many people to strike a bargain, a long term fixed rate mortgage. Actually a nice thing for these clients and in this very moment as well a nice thing for the bank. However, the bank may find itself in a challenging situation because the sensitivity of the equity towards rising interest rates is quite high. Actually management relies on analyst expectations that interest rates won't rise within the next years, so they tend more to higher some alert levels than to really solve the problem.

Analysts track record may not be the best. Even if they were, it is a misdecision to not hedge this risk. Let's look at two scenarios:

Analysis

- As Analysts expect, there will be no inflationary pressure on interest rates. In this scenario, the question is how deep interest rates can fall. Actually i suppose a maximal decrease of 1%, because they fluctuate already on distressed level. The possibility for this scenario lies at 30%.

=> Therefore the payoff for scenario 1 is -0.3.

- Against Analysts forecasts, the massive monetary intervention will lead to inflationary pressure. The markets realize this really fast and interest rates soar to elevated levels. Even with an increase of 2% we stay beyond 5%, which doesnt really represent an environment of inflationary pressure. So i suppose interest rates to rise 3% in this scenario, with a 20% possibility.

=> This leads to a payoff for scenario 2 of +0.6

- The third scenario is the most possible one. Interest rates tend to remain stable over a year or two. The last 50% possiblity are dedicated to this scenario.

=> The payoff equals zero.

Conclusion

If you count all three scenarios together, and you believe analysts expectation. You find yourself in an payoff of +0.3. If you don't care about analysts expectation, which should be my preffered position, the payoff would be +0.66.

Therefore i can hardly recommend everyone who face a similar decision to hedge their risk within a portfolio or to reduce equity sensitivity of a bank.

Big Mac

2009-04-13T16:19:00.002+02:00

According to the economists "Big Mac index" the CHF ist the most overvalued currencies in the list. Have a brief look at this link:

http://www.economist.com/markets/indicators/displaystory.cfm?story_id=13055650

Another picture about monetary policies or actions

2009-04-13T14:28:00.000+02:00

a silent muuuuh

2009-04-13T13:26:00.000+02:00

Crisis = Opportunity

2009-04-07T21:35:00.002+02:00

In nearly every presentation in the last few months, some speakers stated the point about crisis and opportunity in the chinese language.

Quite amazing how a untrue fact can move around the world whith such a speed:

http://www.czyslansky.net/?p=848

I guess it is right to state, that humans believe to much in what they hear instead of believing in what is true :) For further information you can have a look at my post about the conventional wisdom.

Galenica - a potential victim in the next down move

2009-04-07T20:32:00.004+02:00

Despite good news, Galenica suffered since the 18 march 2009, when the results of the last fiscal year were published.

Kauf Long Put

Einstieg: CHF 305.-

Kursziel: CHF 225.- (+26.2%)

Stop-Loss: CHF 325.- (-6.55%)

It is up to you to choose an attractive option to profit from this scenario.

Macroeconomical view by Nouriel Roubini.

2009-04-06T20:37:00.000+02:00

Are we driven by emotions or rationality?

2009-03-31T21:09:00.008+02:00

As Nassim Nicholas Taleb states: "One cannot make a decision without emotion"

Think about a totally rational person, who takes every alternative outcome into its decision. Think about the US President Obama who should decide between saving GM or let it fail. There are several reasons, which favours a bankruptcy and several reasons, which speak against it. Emotions serves as a lubricant of reason.

Out of this insight, another question arises. Which decisions are favoured by our emotions?

John K. Galbraith suggests: The decisions, which cover the conventional wisdom. Audiences of all kinds most applaud what they like best. Who should like to hear shocking facts even if they are deemed to be true, they will be heard to late. The conventional wisdom in 2007 wasn't even a recession, nowadays we talk about the avoidance of a depression. Humans do not really care if decisions are true, they only need to satisfy the following three criterias:

We associate truth with convenience.
We find highly acceptable what contributes most to self-esteem.
And most imporant we approve most of what we best understand.

Conclusion

An adaptive environment is to complex to decide with rationality. We are led by emotion to simplify the consequences of our decisions. The consequences are simplyfied to those we best understand and those we find highly acceptable because of the reasons mentioned above.

Option strategies

2009-03-31T19:38:00.002+02:00

In the last days I prepared myself for a client appointment. In order to introduce a new possibility to acquire new clients i developed an excel-file to simulate different option strategies. You may have a look at it and share your thoughts or improvment advise:

Just click on the green arrow:

http://www.file-upload.net/download-1561178/Kopie-von-Optionsstrategien.xls.html

Schweizer Immobilienmarkt - Belehnung von Liegenschaften

2009-03-22T10:09:00.009+01:00

Ein hedonisches Verfahren bestimmt in der Schweiz den Wert einer Liegenschaft, welchen die Banken in der Theorie mit maximal 80% belehnen. Diese Fixierung auf vergangene Daten stellt ein nicht unerhebliches Risiko dar. Weitere Gründe sprechen zusätzlich dafür, dass wir in der Schweiz aktuell die Grundlagen für eine Immobilienblase legen.

Gerne möchte ich die Grundlagen für eine Immobilienblase auflisten und jeweils die aktuelle Situation in der CH bezüglich dieser Kriterien betrachten.

Grundlagen:

Eine expansive Geldpolitik führt zu einer höheren Nachfrage nach günstigem Wohneigentum.
Die Preise von Wohneigentum werden als stabil betrachtet. „Grundstücke (Immobilien) sind eine gute Anlagemöglichkeit, deren Preis steigt immer“.
Das Angebot wird stark ausgeweitet.
Die Finanzierungsrichtlinien werden gelockert oder es bestehen im Nachhinein betrachtet idiotische Bewertungsmethoden.
Inlfationäre Entwicklungen können anfänglich zu einer höheren Nachfrage nach Sachwerten (Wohneigentum) und einer höheren Nachfrage nach Fremdfinanzierung (Hypotheken) führen.

1. Eine expansive Geldpolitik führt zu einer höheren Nachfrage nach günstigem Wohneigentum.

Diese Geldpolitik besteht in der Schweiz bereits seit dem Platzen der letzten Blase am Immobilienmarkt in den 90er Jahren. Die Zinsen sind im Schnitt auf ein unhaltbares Mittel gesunken. Aktuell kann eine 10 jährige Festhypothek zu ca. 3.3% abgeschlossen werden. Die angefügte Grafik stimmt mit bedenklich bezüglich der Nachhaltigkeit der Nachfrage nach EFH und MFH in der Schweiz.

Die Zinsen von Festhypotheken sind von 2006 an bis Mitte 2008 gestiegen, jedoch nur auf ein Niveau, welches unter dem langjährigen Durchschnitt liegt. Nichts desto trotz sind die Bewilligungen für MFH stagniert und die Bewilligungen für EFH seither rückläufig. Die Frage die sich mir dabei stellt: Wie sieht die Situation aus, wenn urplötzlich hohe Hypothekarzinsen anfallen, sprich Zinsen von 5-10%.

2. Die Preise von Wohneigentum werden als stabil betrachtet. „Grundstücke (Immobilien) sind eine gute Anlagemöglichkeit, deren Preis steigt immer“.

Gerade gestern hat mich ein Kollege darauf angesprochen, dass er aktuell eine Liegenschaft sucht aufgrund der tiefen Finanzierungskosten und da dadurch die Preise ja stabil bleiben würden. Diese Idee von stabilen Preisen ist bereits einigermassen verbreitet jedoch nie so stark ausgeprägt wie in den USA. Eine Ursache für die schwächere Ausprügung ist sicherlich die Immobilienkrise, welche die Schweiz anfangs der 90er Jahre erlebt hat. In den USA ist die letzte Krise auf dem Wohungsmarkt ca. 10 Jahre älter.

3. Das Angebot wird stark ausgeweitet.

Aufgrund der erwarteten steigenden Prognosen wird das Angebot so stark wie möglich ausgeweitet. Diese Ausweitung erfolgt nicht im gleichen Moment der höheren Nachrfrage. Der Wohnungsbestand in der Schweiz nimmt um jährlich ca. 40'000 zu. Dies ist noch keine extreme Zunahme jedoch bereits ein hoher Wert, vor allem wenn man bedenkt dass der Boom der 90er Jahre 92/93 vor allem durch staatliche Unterstützung zu Stande kam.

4. Die Finanzierungsrichtlinien werden gelockert oder es bestehen im Nachhinein betrachtet idiotische Bewertungsmethoden.

Die Finanzierungsrichtlinien der schweizer Banken sind im internationalen Vergleich relativ robust. Eine Lockerung kann jedoch nicht ausgeschlossen werden, da Banken zur Zeit alles versuchen um Kundenabflüsse zu verhindern oder neue Kunden anzulocken. Sollte es zu einem Platzen und zum vorgängigen Entstehen eienr Immobilienblase in der Schweiz kommen wird die hedonische Bewertungsmethode im Nachhinein als Hauptursache betrachtet oder zumindest für den Konkurs von verschiedenen Regionalbanken verantwortlich gemacht. Wie kann man einen Häuserpreis aufgrund bezahlter Werte rechtfertigen? Die Folge dieses Verfahren ist, dass die Preise laufend steigen werden bis zu einem Zeitpunkt an dem alles in sich zusammenfällt.

Zusätzlich wird auch die Tragbarkeit zu einem Prblem werden. Man rechnet hierbei mit einem Durschnittssatz von 5% seit 1990. Seit 1990 gabe es aber keine Inflation. Wie sehen wohl die durchschnittlichen Zinssätze für Hypotheken während einer Inflation aus? Zusätzlich ist es ein Unding hierbei mit Durchschnittwerten zu berechnen, da der jeweilige Hypothekarnehmer nicht diese bezahlt sondern je nachdem auch die Extremwerte.

5. Inlfationäre Entwicklungen können anfänglich zu einer höheren Nachfrage nach Sachwerten (Wohneigentum) und einer höheren Nachfrage nach Fremdfinanzierung (Hypotheken) führen.

Aktuell spricht alle Welt von Deflation, die neuste Massnahme der US Notenbank verdeutlicht dies eindeutig. Bei einer Normalisierung des Geldmengenmultiplikators (siehe Grafik) könnte sich diese Entwicklung jedoch umkehren. Marc Faber hat beispielsweise erst kürzlich von einer Hyperinflation gewarnt. Bei einer Inflation profitieren Sachwerte und Fremdfinanzierungen. Während diese beiden Kriterien anfänglich zu einer höheren Nachfrage nach Wohneigentum sowie einer höheren Nachfrage nach Hypotheken führen, kann sich dieser Trend mit der Zeit stark umkehren. Folgend möchte ich die Folgen einer höheren Inflation chronologisch aufführen:

Eine höhere Inflationserwartung führt zu einer stabilen Nachfrage nach Wohneigentum obwohl die Zinsen zwangsläufig ebenfalls steigen (Diese Entwicklung haben wir bei den Gesuchen nach MFH gesehen).
Die neuen Eigentümer versuchen eine möglichst hohe Hypothek zu beanspruchen und bestehende schlechte Schuldner Ihre Hypotheken zu erhöhen um die steigenden Zinsen zu finanzieren.
Ab einem gewissen Level der Zinssätze, welche durch die höhere Inflation extrem hohe Werte erreicht, können die schlechtesten Schuldner ihre Hypotheken nicht mehr erhöhen und werden zwangsläufig die Wohnung verlassen müssen. Dieses höhere Angebot führt zu sinkenden Preisen, sofern die Neunachfrage bereits nachgelassen hat.
Die sinkenden Preise führen, dazu dass immer mehr Schuldner zahlungsausfällig werden und die Banken Ihre Kriterien verschärfen. Da durch die hedonische Bewertung ständig die inflationierten Bewertungen als angemessen betrachtet werden, haben die Banken immense Probleme in Ihrer Bilanz aufgebaut.

Schlussfolgerung

Sollte es aktuell zu keinen sinkenden Preisen auf dem Schweizer Immobilienmarkt kommen, wird sich die CH Wirtschaft ein grosses Problem in der Zukunft aufbauen. Die Grundlagen einer Blase bestehen in der Schweiz bereits sind jedoch noch nicht so stark ausgeprägt um aktuell von einer Blase sprechen zu können. Das Entstehen der Blase ist jedoch meiner Meinung nach unvermeidbar. Entweder erfolgt dies glimpflich in dem bereits früh auf eine ansteigende Inflation reagiert wird oder es endet fatal in dem inflationäre Entwicklungen die Blase verstärken wie unter Punkt 5 aufgeführt.

Ich hoffe ich konnte einige Leute mit diesem Beitrag zum Nachdenken bewegen. Durch die richtigen Entscheide und Vorgehensweise könnten diese Entwicklungen gemildert werden und ich hoffe, dass dies der Fall sein wird.

The Notorious A.I.G

2009-03-18T17:37:00.001+01:00

The Daily Show With Jon StewartM - Th 11p / 10c

The Notorious AIG

Daily Show Full Episodes
Important Things w/ Demetri Martin

Political Humor
Jim Cramer

Reminder to myself - Possibilities without the FED and the SNB

2009-03-17T00:19:00.003+01:00

Today I attended an event of the "Liberales Institut" in Zürich about "the financial crisis and money: the need of a new monetary system." -> http://www.libinst.ch/

The need of central banks

1. Has central banks any positive sense or are they only here to prevent the world from the mistakes and bubbles they built?
2. Could banks find other income sources than the cheap money lent by the central banks (Fee for advisory time etc.)?
3. Has really every (expect one) hyper inflation occured after 1907, so after the creating of the FED?

Some points to really think about. As exemple why does banks need to gain over products and not over sold knowledge like a doctor or a lawyer. This very reason leads to a production of expensive financial products, not the need of clients. This was pointed out by Alfons Cortes, columnist for FuW, if i am remebering correct.

Bullish or bearish?

2009-03-16T23:55:00.004+01:00

I can absolutely recommend you the book of Nassim Nicholas Taleb - Fooled by Randomness. The author who got know with his so called black swan.

I have to reformulate the citation of Galbraith. There is a possibility how economic forecasts can be used in trading.

Probability is not enough to decide

Have you ever been asked by someone if you are bullish or bearish? Well let's assume that you suggest the market to go up in the next week more likely than it goes down? Are you now bullish? Actually you are, but does it means that you are buying calls or puts? Well, you can do both!!! The magic word is the expected payoff of your investment.

1. scenario: Market moves up: 70% probability
2. scenario: Market goes down: 30% probability

Normally you should buy calls now, but not if you look at the individual payoffs.

1. scenario: Outcome: 3% rise in stock prices
2. scenario: Outcome: 10% decline in stock prices and higher volatility

Whereas the expectd payoff in scenario 1 is 70% * 3% = 2.1%, it is 30% * 10% = 3% in scenario 2 with a higher volatility which leads automatically to an even higher payoff of your investment.

To conclude

Every economic forecast, which don't show some alternative scenarios is useless. An exact forecast in this adaptiv dynamic system isn't possible. With possibiliteis of developments and possible outcomes or payoffs you can build a trading strategy on economic forecasting. Last i would like to remind myself and you as a reader to make the different between market direction and investment direction and to not answer a simple bullish / bearish question.

John K. Galbraith

2009-03-16T00:56:00.002+01:00

The economist John Kenneth Galbraith once said, “The only function of economic forecasting is to make astrology look respectable.”

Has the economy hit bottom yet? An interessting NYT Article:

http://www.nytimes.com/2009/03/15/weekinreview/15vikas.html?_r=1

Cramer / Stewart Fight

2009-03-12T19:40:00.000+01:00

The Daily Show With Jon StewartM - Th 11p / 10c

In Cramer We Trust

Daily Show Full Episodes
Important Things With Demetri Martin

Political Humor
Economic Crisis

It's good we have experts to manage the crisis...

2009-03-05T20:01:00.002+01:00

The Daily Show With Jon StewartM - Th 11p / 10c

CNBC Gives Financial Advice

Daily Show Full Episodes
Important Things With Demetri Martin

Political Humor
Joke of the Day

John Maynard Keynes once said:

2009-03-05T00:55:00.001+01:00

“The market can stay irrational, longer than you can stay solvent”

Chinas difficulties concerning an aging society

2009-02-26T22:54:00.002+01:00

These days China has a median age of 33 years, which is expected to rise to 45 years by 2050, according to George Magnus - UBS senior economist. I don't have to mention that this development provides some difficulties. Firstly we'll have a look at a policy which mainly created these circumstances.

One-child policy

Introduced in 1980 it was believed that the chinese population was growing at an unsustainable rate. The policy created an extreme ratio of about 120 boys for every 100 girls. Furthermore the steep rise in old age groups can be ascribed to this policy. In 2007 the National Population and Family Planning Commission (wtf? :P) stated the policy got defused. Likewise parents who are single children can get more than one child. Even if there is some development it is still like that, that couples with one child get a certificate, which entitles them to benefits such as cash bonuses, longer maternity leave and so on...

Main problems

From 2015 on the working age population is expected to decrease by an overall of 140 million by 2050.
Cheap labor is mostly provided by young women and men growing up in rural regions. These labor forces are dedicated to fall in the next years. Alone in the last 3 years wages payed to rural migrant rose by more than 12 percent a year which could lead to a significant rise in inflation numbers.
This development worsen the impacts of the aging population and therefore China's growth rate may not sustain at recent elevated levels.

Summarising China will be one of the countries who really need to spend a thought about demographical developments, such as like the absolut abandon of the one-child policy.

What is exactly happening with Citigroup?

2009-02-25T00:31:00.009+01:00

I found an interessting article about preffered and common stocks. Have a look by yourself:

http://baselinescenario.com/2009/02/24/tangible-common-equity-for-beginners/#more-2683

sit back, read and relax: Some support by this music link

Demographic issues

2009-02-20T19:38:00.003+01:00

Recently i have started reading a book called "The Age of Aging" by George Magnus. He states some interessting facts about human developments in various areas of the world.

The main problem

The main problem is that the working-age population is decreasing heavily especially in developed countries. The problem can be reduced by the following possibilities:

increase in the official age of retirement
higher participation from older generations and women
higher immigration rates.

These three possibilities need to work together because the effect of a single one may not be enough. As an example, to stop the declining working-age population in Japan the retirement age should need to rise by 10 to 12 years from actually 64. Well that would be 76 and we would be higher then back in 1920 in the US when the retirement age was 72, compared to an average life expectancy of 58 years in the same year. This isn't really what one should call progress.

Women to work

An interessting point about the female participation rate is, that it is not negatively correlated with the fertility rate. Whereas the female participation rate is really low in Russia, Japan, Eastern Europe, Italy it is really high in the scandinavian countries as well as in the United States and in Ireland.

Normally you would think that the more women goes to work, the less women have children. By looking at the high fertility rates in the Scandinavian countries, Ireland and the United States this assumption proves to be wrong.

Possible solutions

Two possible solutions to get more women to work were presented by Michaela Meier of PWC in the FuW 18.02.09.

Spending on childcare should be offered for free. Nowadays in some regions you can deduct childcare from your taxable income, this is also a solution but it mostly favour the richer part of the society.
The second thought of her is even more interessting. Providing a tax free period of 2 years after a birth if the women will return to work after her maternity leave.

Well... please share your thoughts about this possibilities

First conclusion

2008-06-19T16:41:00.004+02:00

After 4 trade recommendations there is now time for a conclusion:

#1: EUR/CHF reccomendation was stopped out at 1.6260. A minus of: -0.7%
#2: Crude: There I did nearly exactly at the top reccomend to sell: Right now a plus of: +2.8%
#3: EUR/HUF: i reccomend to close this position right now with a plus of: +3.1%
#4: Bad Dow reccomendation :) you cannot always win so i was a bit too enthusiastic on this one, closed with a minus of: -1.1%

In total the portfolio performance right now is: +1.025%

Dow before big support

2008-06-17T18:00:00.006+02:00

Hej. Right now the Dow is around a big support, made by the midterm uptrend since January 2008. In the next day the Dow Jones will either hold the trend or create a new one. In my opinion the support will be strong enough.

Trade Recommendation:
Go Long in the Dow Jones
Buy right now at about: 12210
Stop-Loss: 12075

some piano hiphop stuff for you to listen to: http://www.youtube.com/watch?v=YQ6zdmfxEco&feature=related

EUR-HUF, much more creative

2008-06-06T21:20:00.008+02:00

According to a friend an anlysis of crude oil is to less creative. Good how about EUR-HUF. Due to Trichet the EUR has strenghten against the Forinth in the past days. Right now the upmove is facing a ressistance by a down-trend since march 2006.

Trade recommendation
Sell EUR/HUF
Stop-Loss: 250.20

MUSIC recommendation by my friend *tired*: http://www.youtube.com/watch?v=xwwbCCiPLNs

Oil before big ressistance

2008-06-06T20:53:00.005+02:00

Have a look at the key ressistance at about 138.45, its evaluated by the 161,8 fibonacci reatracement of the second uptrend since August 2007 when the oil rally begun.

Trade recommendation:
Sell Crude Oil
Stop-Loss: 139.50
Take-Profit: Open

Music to relax to: http://www.youtube.com/watch?v=J8sNfLq-Zaw

EUR/CHF

2008-05-26T22:00:00.007+02:00

During august i will enjoy holiday in Spain. These holiday need to be paid in EUR, this is the reason why i was interested how the EUR/CHF exchange rate will move within the next weeks. Firstly it seems as EUR/CHF has changed from a up-trend into a medium term down trend. Whats more the short term up-trend since mid march 2008 broke 2 days ago. In addition the PPP of EUR/CHF is way lower at something more than 1.40, so also fundamentally the EUR seems too expensive. The following Chart leaded me to the enclosed stop levels.

Recommendation: Sell EUR/CHF.
Stop Loss: 1.6260
Take Profit: 1.5933

MUSIC Recommendation: http://www.youtube.com/watch?v=Koz13IZMTMU