…the next low (read: the next support level) is 1222 of June 13th, 2006. (!!!) We appear to have bounced back off that level, but that support level is not holding strongly. Don’t be suprised if it falls over. Countrywide is all but gone. That is the last of the non-bank lenders. What is even (more…)

On CNBC Europe there was this guy from Saxobank who talked about how the models of today are illustrating that computers will yet again fail. He was saying how good traders will save the day.

Today on CNBC American Squawk box I heard one of the most straight talking individuals I have listened to in a long while. The panel was Steve Forbes, and a woman called Janet Tavakoli, and they were talking about Quant funds and their models. Janet’s comment regarding quant model’s was, and I quote: Model Masturbation (more…)

Many, including myself are wondering who is responsible for this mess. Many point at Greenspan, but I think it is not so black and white.

One problem that we have is that people don’t understand the mathematics and dynamics of mortgages. I even get the feeling that mortgage lenders are pretty clueless. In particular I would like to quote the following from Housing Bubble.

“One was a waitress who made decent money at a high end restaurant, but couldn’t prove it because so much of her pay was in cash tips. Another was a young lawyer, making nearly $200,000 in the city but who didn’t have the money saved for the down payment on a $800,000 Manhattan condo.”

The market is in turmoil and BNP is complaining about liquidity issues. I went back to look at an interview from Scholes (author of Black-Scholes pricing) for an opinion on the situation.

As a result, “decision time becomes elongated” and speculators hold back their capital just when their services are most in demand. The lack of liquidity itself then becomes a factor in asset pricing, leading to swift, sharp drops in values.

At iTulip they had an interesting posting regarding the currency markets.

“We are fast reaching a stage at which elegant quantitative models won’t determine who survives, in fact, those that tend to rely on models in this environment may be most likely to be shining shoes sooner rather than later.”

Really, you mean you CAN’T PREDICT? Who would have thought? Seriously, I have been talking about this time and time again (1,2,3). I might be a newbie at this, and I might not have all the credentials of a full time quant. BUT, after a year of doing algorithmic trading I have learned that you cannot and should not predict the market.

I was puzzling and thinking if I were Bernake what would I do? Many are crying raise the darn interest rates. Many are saying lower to give the companies a break. Bernake though does not strike me as an individual that leaves a statement. He strikes me as an individual that tries to do the right thing.

So if I were Bernake and his personality here is what I would do:

1. Drop interest rates. Yes you read that right drop interest rates. He wants to do the right thing and give home owners a break. But he is not dumb.
2. Tighten liquidity quite a bit. Let LBO’s and the likes squirm and struggle.