The Financial Crisis Set to Song

A reader sent this in - The Financial Crisis Set To Song. Enjoy.

Econbrowser on Hedge Fund Risk

James Hamilton at Econbrowser gives a good example of "tail risk" from a Financial Analyst's Journal article by MIT's Andrew Lo:

1992-1999 was a good time to be in stocks-- a strategy of buying and holding the S&P 500 would have earned you a 16% annual return, with $100 million invested in 1992 growing to $367 million by 1999. As nice as this was, it pales in comparison to CDP's strategy, which would have turned $100 million into $2.7 billion, a 41% annual compounded return, with a positive return in every single year.

Want to learn more? CDP stands for "Capital Decimation Partners", a hypothetical fund created by Professor Lo in order to illustrate the potential difficulty in evaluating a fund's risk if all you had to go on was a decade of stellar returns. The strategy whereby CDP would have amassed a hypothetical fortune was amazingly simple-- it simply sold put options on the S&P 500 stock index (SPX).

Read the whole post here

And if you want to see another study on the returns of put-writing strategies, here's an older post. It documents what Lo (and Hamilton) discuss - consistently good returns in the overwhelming majority of periods along with rare massive losses.

PETA, Sea Kittens, and Steak

Some of you might not have heard about PETA's latest half-baked attempt (pun intended) to dissuade people from eating fish. Their "logic":

1. People eat less of creatures that they think are cute
2. Fish aren't cute
3. Kittens are cute

So, the solution? Just rename fish "sea kittens", and people will think they're cuter, and eat less fish. Riiiiiiight.

Luckily, someone had already registered the site Seakittens.com. When you go to the site, the PETA site www.peta.org/Sea_Kittens shows in the lower frame. What's in the upper frame? An ad for Omaha Steaks.

Making money off a far-left whacky group? Priceless.

If I ever have a PETA sticker on my car, it will be People for the Eating of Tasty Animals, and it will have the phrase "All God's Creatures Have Their Place - Right Next To the Mashed Potatos"

HT: Wall Street Journal's Best Of The Web