Wednesday, July 15, 2015

Silly Wall Street Interns Need to Realize That Market Perfection Has Been Achieved

July 14, 2015
This is the new brag among Wall Street interns

Another noted that while some schools offer courses on things such as financial derivatives, students don't learn anything beyond basic pricing models that would work only in a perfect market.

You just gotta laugh at the things some naive interns worry about.

1. Over the past 6 years, does the stock market not always go up?

2. Over the past 6 years, have short-term interest rates gone up?

3. Over the past 6 years, have there been any failures of the banks that are too big to fail?

4. Over the past 6 years, has the unemployment rate ever gone up?

5. Over the past 6 years, has the Fed ever allowed a recession?

6. If we simply extrapolate this rich and extensive history well into the distant future, can we not see that the markets are perfect and always will be?

In summary, we now have six long years of historical "proof" that the markets are perfect. The stock market can only go up, short-term rates will never rise, our banking system is permanently stable, unemployment can only fall, and the Fed has permanently put an end to all future recessions.

So why worry about how derivatives will behave in imperfect markets? It's like worrying about Shingles just because you've had Chicken Pox. Currently have Shingles? Didn't think so! Like mine, your body is the perfect temple and no harm can ever come to it.

Granted, I had Chicken Pox when I was a kid and then had Shingles during our (economic) recovery. Oh, the irony. Didn't see me worry about it one bit beforehand though. The worrying didn't really kick in until I was working through the third Vicadin prescription. I was like, "Holy f^*k! What is happening to my perfect body!"

I was thinking like an intern though. There wasn't one bit of rational thought. It was panic mostly. I just got caught up in all the negativity. It's no way to live. Once sanity prevailed, I once again realized that I was immortal. No harm could ever permanently come to my perfect body. Well, once I drop a few pounds and start eating better anyway.

If you pretend to be good, the world takes you very seriously. If you pretend to be bad, it doesn't. Such is the astounding stupidity of optimism. - Oscar Wilde

One need only listen to a few presidential candidates to realize that Oscar Wilde was an idiot. These people aren't pretending to be good. They are good, which is why I take them very seriously, especially that Trump guy. If anyone can protect my perfect body, it's him. He's got my back.

Look, all I'm saying is that if it was just him, me, a billion dollars, and a knife on a deserted island, then no harm would probably come to me. That's assuming we do a deal where I stay away from the money and the knife, refer to our shared location as Trump Island, build a wall around it, and stay just outside that wall, presumably on a small make-shift raft anchored in the island's cove. That's all.

Like the perfect market and the perfect body, it would be the perfect island paradise.

Too much sarcasm? Seems excessive again.

10 comments:

Troy said...

http://quotes.wsj.com/JP/XTKS/8301

Now that's a funny entity to have stock trading for it.

http://climateerinvest.blogspot.com/2013/01/the-bank-of-japan-is-weirdest-central.html

I would not want to get in a printing fight with the BOJ.

https://research.stlouisfed.org/fred2/graph/?g=1sb7

^ oops, too late

Stagflationary Mark said...

Troy,

Thanks for "scarring" the bejesus out of me!

The FIRE economy giveth, and the FIRE economy giveth some more. There is no taketh away, lol. Sigh.

Troy said...

on the real, per working-age person basis we've still got a flood of gov't spending hitting the economy:

https://research.stlouisfed.org/fred2/graph/?g=1sxZ

that's a lot of cheese, and the median boomer is hitting 60 now* so health and retirement spending is going to blow up from here.

The Fallacy of the Broken Window is true as far as it goes, but hard money economies are silly in the end analysis, what is needed is what Jeb! said, get people into the workforce producing wealth, even if it is just wealth preservation, the added wages is what the paycheck economy needs to not do that decline thing.

The larger macro picture is simply that a given economy must export wealth in balance with what it imports. I don't know how and if our current free ride in this department is going to last, or how and if the bill on past trade deficits is going to be presented, but we're in a weird state and I don't see when it will stop or get saner.

Speaking of which,

https://rti9.wordpress.com/2011/01/03/shinryaku-ika-musume-advanced-daisenryaku/ cracked me up today, as I was searching for inspiration on google image

* this month, actually

Stagflationary Mark said...

get people into the workforce producing wealth, even if it is just wealth preservation

Could not agree more. This economy will go nowhere over the long-term without jobs.

Stagflationary Mark said...

P.S. Your gaming link brought a smile. :)

Troy said...

Apple's got some super-great API now for iOS gaming, better than DirectX ever was.

But no TV console to run it on . . . yet.

Like 2008 and the original AppStore gold rush, I'm in the position to throw as much time and energy as I want into a new title.

You know what I want to do. Just gotta do it. It'd also be great if I pre-coded ahead of the announcement, such that when it comes I'm not so far from shipping . . .

Troy said...

I've been studying the German "Lage Ost" maps here:

http://www.wwii-photos-maps.com/home_page_019.htm

and man do they give one a pretty good picture of the old time Operational Art.

Sep 12, 1941 was the crux of the Battle of Kiev:

http://i.imgur.com/XNd9LJE.jpg

shows Guderian in the upper right (Pz Gr 2) with his divisions crashing through the russians, Gen Model leading his 3 Pz units from the front, waiting for Kleist to come up from the S.

2nd Armee under Freiherr v Weichs was bashing in the flank defending Kiev (KIJEW in German) preventing their escape. There wasn't much to the East to save the Kiev position, but Guderian's tanks were moving hundreds of miles away from their final goals of 1941, Moscow.

Stagflationary Mark said...

What I wouldn't give for a good turn-based strategy game for my iPhone that has not been dumbed down.

They want $13.99 for Final Fantasy Tactics so, at least so far, I wouldn't give $13.99. At least not yet, lol. Sigh.

Troy said...

Here's Kleist on that same day:

http://i.imgur.com/Fccz2dz.jpg

finally breaking out of the Dnieper bridgehead and closing the trap on 600,000 Red Army troops, plus millions of Ukrainians I guess.

I like how in their maps they clearly differentiate between mobile and infantry divisions.

And show trains when they're tactically/operationally important.

Train lines are an underutilized skeleton to hang the war-game on IMO.

Anyway, a year later the 16th Pz would find itself first on the Volga:

http://i.imgur.com/bQpISEO.jpg

Waiting for the rest of the 6th Army to catch up with it. Its armored regiment was commanded by Der Panzergraf:

http://www.achtungpanzer.com/gen11.htm

Stagflationary Mark said...

Troy,

I too thought trains would be a good thing to add to a strategy war game.

1. They are unique, have their own advantages and disadvantages.

2. As a kid, who didn't like playing with trains? Heck, even as an adult for that matter, given enough train switches. ;)

One of the puzzle games in a game I was lead software engineer on was called Train of Thought. The programmer on that one did a great job.