Google is providing real-time stock prices now...no page refresh necessary. So you can, for instance, watch Apple's stock price drop after Jobs' keynote. Now I know how daytraders feel...I can't take my eyes off of the screen.
Yay! Today is sub-prime mortgage day on kottke.org, I guess. The collapse of the sub-prime mortgage market took everyone on Wall Street by surprise...except Goldman Sachs, which earned $11.6 billion in 2007 when everyone else lost money. How'd they do it? Michael Lewis says that Goldman went against the flow in shorting sub-prime mortgages by assuming that the entire rest of the industry, including their own expert and extremely well-paid traders, were, as Lewis puts it, "a bunch of idiots".
Update: Here's the WSJ article mentioned by Lewis in the above piece. (thx, andy)
n+1 magazine has a fascinating Interview with a Hedge Fund Manager. Topics of conversation include the sub-prime mortgage crisis. I gotta admit that I didn't understand some of this, but most of it was pretty interesting. (via snarkmarket)
Can You Explain How To Get Rich Quick?
Hedge fund manager John Paulson and investor Jeff Greene both became insanely wealthy over the subprime mortgage crisis. But how? (Parsing the Wall Street Journal is hard!) So Paulson "had to think up a technical way to bet against the housing and mortgage markets." His guys bought up "collateralized debt obligation" slices, which are repackaged mortgage securities. (Kind of lost already!) His firm also bought up "credit-default swaps." Paulson then opened a hedge fund shop, taking $150-million in mostly European money to back his scheme. Then he hung on. Now "he tells investors 'it's still not too late' to bet on economic troubles." Neat! Paulson's ex-friend Greene did much the same thing, getting an investment bank's participation for assets for the swap. Then... something happened and he bought three jets and a 145-foot yacht. Finance for idiots explanations eagerly sought! (And is there any small-scale way to do such things? Or do the abilities of regular people to make money on a crisis stop at short-selling and investing in Halliburton?)
The logic of catastrophe is very different: either no one is affected or vast numbers of people are. After an earthquake flattens Tokyo, a Japanese earthquake insurer is in deep trouble: millions of customers file claims. If there were a great number of rich cities scattered across the planet that might plausibly be destroyed by an earthquake, the insurer could spread its exposure to the losses by selling earthquake insurance to all of them. The losses it suffered in Tokyo would be offset by the gains it made from the cities not destroyed by an earthquake. But the financial risk from earthquakes -- and hurricanes -- is highly concentrated in a few places. There were insurance problems that were beyond the insurance industry's means. Yet insurers continued to cover them, sometimes unenthusiastically, sometimes recklessly.
James Simons, hedge fund manager, earned $1.7 billion last year. $1.7 fucking billion! His company charges fees of 5% of assets and 44% of profits while the fund grossed 84% this year. Can one person add $1.7 billion of value to the economy? Something is wrong here.
A record-breaking year for Goldman Sachs; they're setting aside $16.5 billion for salaries, benefits, and bonuses. That's $622,000 (!!!!!!) for each employee. Instead of the typical business puff piece telling us about what these i-bankers are going to do with their money (cars, houses, expensive dinners!), how about investigating where all this money is coming from and what, exactly, Goldman does that's so beneficial to the economy to earn such incredible profits.
You know those spams you get touting penny stocks? It turns out they actually work. "The team found that a spammer who bought shares the day before starting an e-mail campaign and then sold them the day after could make a return on his or her investment of 4.9%. If he or she were to be a particularly effective spammer, returns to this strategy would be roughly 6%."
Update: NPR report on the spam stocks study. (thx, jeff)
Daniel Gross on why the financial markets reacted to the London bombings as they did. Stocks dropped (but not too much), oil fell sharply, and transportation and insurance stocks took a bigger hit than most.
Money Magazine on the 50 smartest things you can do with your money. Also includes a list of 15 dumb things to avoid.
The Neiman Marcus Paradox: How dumb rich people end up in debt. "14 percent of people with more than $5 million in assets have credit-card balances [which is] mystifying since credit-card cash is perhaps the most expensive form of money legally available."
