Friday, October 2, 2009

Spirits Stirred and Confidence Shaken

(Game theorists have modeled behavior under negative externalities where choosing the same action creates a cost rather than a benefit. The generic term for this class of game is anti-coordination game. The best-known example of a 2-player anti-coordination game is the game of Chicken.

This game of Chicken is with ourselves.

At the end of the day Bernanke will monetize cows to increase the price of milk.

The Nancy Capitalist crowd, always eager for a serving, fears that the milk will be sour. -AM)

via FT Alphaville

RBC Capital Markets and the Economist Intelligence Unit, polled hedge funds, institutional investors and bankers on what the future holds for the capital markets generally....

Skepticism about Government, Doubts about Fundamental Beliefs

Little confidence in government’s ability to manage the crisis. While some have applauded government officials for their actions during the past year, many executives are worried about government’s ability to manage the continuing credit crisis. Only one in four hedge fund executives (27%) think that policymakers will succeed in formulating an effective response to the crisis over the next two years.

(Shorting the custodes trade ... on! -AM)

Government: More threat than saviour? Hedge fund managers are split on whether the actions of the U.S. government itself are the single biggest source of systemic risk, with 38 per cent agreeing and 40 per cent disagreeing.

(Worse problems have lead to worse solutions. -AM)

Fed seen losing independence. Few are exempt from a cynical view of leadership: A majority of fund managers (54%) think the Federal Reserve — long known for its autonomy from the political process — is becoming less independent.

(Premise wrong, conclusion foregone. -AM)

Executives question long-held beliefs about markets. Shaken by the volatility and market declines of the past year, executives are rethinking some of their most cherished beliefs. More than half (56%) now have doubts about such tenets of modern finance as efficient markets hypothesis, the capital asset pricing model and portfolio theory; only one in four (27%) accept these concepts unquestioningly. More than half of fund managers (53%) question the value of diversification in mitigating portfolio risk. While the basic theory seems sound, there is uncertainty about how to apply it as assets become more closely correlated.

(Spirits stirred and confidence shaken. Socialized guts will lead to diminished glories. -AM)

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