The Stingy News Weekly (10/28/2012)
The guide to trading candy
"Everything you need to know to get ahead in candy trading."
Merton vs. Low Vol
"Low volatility investing is becoming more popular, but the question is perhaps it could be better captured via a more inclusive metric of volatility. The Merton model of default popularized by Moody's KMV is basically a function of two inputs: volatility and leverage. If this model is correct, then a probability of firm failure is better captured than mere volatility alone, and perhaps it also captures the true, fundamental volatility that is driving the low vol effect."
The flaws of finance
"The problems inherent in VaR are further amplified by the use of short runs of data to estimate the inputs. This creates an even more pro-cyclical element, adding to the problems of VaR. If the immediate past is a period of tranquillity, then the future is held to be the same. If a risky asset, let's say a CDO, happens to have been less volatile than U.S. treasuries over the last couple of years, the model says (with a straight face) that the CDO is less risky than treasuries!"
21 reasons why you should never date an economist
"7. On average they are pretty mean."
Taxes, inflation, default
"Buffett is uncomfortable with the idea that the Fed can expand its balance sheet indefinitely. He doesn't know why it won't work, but he knows that there are no free lunches, and wonders what might happen as a result."
Buffett on CNBC: Summary
"Buffett was on CNBC this morning. Who has time to sit in front of the TV from 7:00 - 9:00 am? Only hardcore Buffett-heads would click through and watch all the videos or read the full transcript. So here are some notes."
Warren Buffett on CNBC
"Warren talks about many topics over multiple segments. Topics include: cancer, housing, QE3, Europe, Asia, etc."
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