Friday, February 15, 2013

God's Honest Truths

It's the God's honest financial truth that....

...central banks know exactly what they are doing
...Stock Beta's are stable
...SAC doesn't tolerate trading on material non-public information
..."Expert networks" do not violate insider trading boundaries
..."Chinese walls" are effective in protecting the sanctity of information
...Wall St. sell-side research is far more accurate than flipping a coin
...I can't wait to fund the HF launch or yet another recently-minted-MBA with a couple of years at OZM or similar.
...VAR is the most useful of risk measure (and it cures traders' hemorrhoids too!)
...A HF Compliance Department's role is make sure rules and regulations are followed
...Fed bond buying is not distorting the long end of credit markets
...Brokers never front-run large customer orders
...Volatility is a good indicator of risk.
...Tail Risk Funds are a good way to protect against downside risk in equities
...Securities firms are typically innocent when they settle a claim but "neither admit nor deny guilt"
...FX Bucket shops place high priority on their customers' interests
...There is no relationship between campaign finance and political influence
...HFT is inherently good for markets
...Risk-parity strategies are long-gamma and will not prove systemically destabilizing
...Hedge Funds represent good value for investors
...Monster success in the investment business is 95% skill and 5% luck.
...Price momentum makes perfect economic sense.
...Hedge Fund Managers receive fair compensation for their work
...When I want level-headed analysis of financial markets I go to Zerohedge
...The CPI accurately represents the median household's experienced rate of inflation
...Public Sector Defined Benefit Pension & Healthcare promises are inviolable
...Former AIG CEO Hank Greenberg is not bitter
...Fragmentation of equity trading venues has been boon for investors
...Golden Sachs is a fun place to work
...There is a cabal of puppet-masters who conspire to manipulate the Gold and Silver markets down, in their spare time they manipulate the US Equity market higher.
...US Military spending is justified by global security threats
...Things would be much better if the world were on a Gold Standard. Oh and BTW fiat money also causes rickets.
...SAC pays the highest commissions for the good NCAA chit-chat and the friendly service
...2&20 is the best way to align investors' interests with their agents
...No public interest is the best public interest
...A GPs carried interest, without doubt, should remain capital gains and not income
...What goes up must come down
...Insider Trading should be legalized.
...PE's use of high interest expense to transfer profits to offshore affiliates doesn't damage the public interest.
...The majority of retail FX traders don't blow up
..."Privatizing profits and socializing losses" makes an excellent foundation  for US healthcare policy
...Tax rates and revenues in the US are historically high, ergo, it is expenditure that needs to be cut
...Cutting Govt spending in a downturn in order to cut budget deficits narrows fiscal shortfalls
...Investment Managers always tell the truth when explaining their "process"
...Oligopolists rarely collude
...Wall St. security analysts are adept at avoiding hackneyed metaphors in their research reports

Wednesday, February 13, 2013

Sharp Ratio Redefined

A Fund tear sheet came across my desk yesterday that caught my attention. It was from the bluest of blue-chip shops - a household name in the HF world touting a multi-system trend-following offering. What caught my eye was their incredible Sharp Ratio (TM by me). In case you think I've made an error, read on. Putting aside the five years of of impressive pro-forma modeled returns juxtaposed against their four years of less-than-pedestrian actual returns, yielding an actual Sharpe Ratio that was within a pubic-hair of zero, and a negative Sortino, with returns that would be challenged to best CP rates over the period of actual investment, their Sharp Ratio remained one of the best I've ever encountered. What then precisely IS the Sharp Ratio? The Sharp (sans "e" of the Nobel laureate) is the ratio of legalistic dross, explanatory footnotes, disclaimers etc. for every imaginable global jurisdiction prepared by razored lawyers and marketing minions in relation to the actual financially descriptive information contained in the tear-sheet. By this estimation, this Global Trading Fund's offering boasted a Sharp of 9. Yes, nine pages of unintelligible floatsam supporting a page detailing ostensibly undesirable returns with heightened risk! Oh, how the mighty have fallen, and and my condolences to the sods whose dead money remains in that kafka-esque eddy. When does one simply pull the plug rather than spend the resources to increase the Sharp Ratio?