Friday, May 8, 2009

Ayn Rand - I praise thee

This particular ideology first crept up after reading Ayn Rand's work. Sufferers are sympathised with and the victorious are lambasted. Inferiors are supported and Superiors are whisked away.
I read an article wherein is described how - plausibly - Morgan Stanley had bought a CDS against a Kazakh bank for a value more than the value it lent to that bank. To cut a long story short. It would prosper if the bank would fail - and by demanding a repayment of its loan it could in effect cripple the Kazakh bank - thereby gaining on the CDS and losing on the loan. Net Gain.

Now - predictably, voices are raised against MS, opinions bellowed, calling for a reform and an oversight of the CDS market. In effect saying how financial powerhouses could use such instruments to their advantage. I agree. But is it correct to blast MS?

If MS is smart and if the Kazakh bank is so dumb, as to enter a contract with MS without understanding potential effects of a loan repayment - I believe the smart is entitles to the gain and the stupid needs to bear the consequences.
Again, I do say that it was 'unethical' but - it was entirely legal and purely capitalist.

If you want to make hay when the sun shines - fine. Do not plan a haystack and think of hay prematurely while the sun is shining - ignoring the effects of darkness.

A similar situation is noted when FIIs left EMs - and all investors were agitated at how they had been duped. So let me say this.
EMs were in a bull market from 2003 - 2007 - 5 years - and not once did they cry.
Not once did they questions 20 and 30 P/Es
Not once did they look at the accumulated debt
And when the market fell - all they remember is the year 2008 and a 50% plus drop.
What about the YoY gains for the preceding 5 years.

If you have the stomach for such mind blowing gains - be prepared for great losses.

If you want to trade in futures - then dont cry when there is a margin call. Dont call the broker a liar. If you were dumb enough to leverage beyond your means, it is not your broker's fault.

As Buffett said, " When I was at that meeting for AIG, AIG knew that had this nice black box - but then they realised that the black box had a big black hole. They just did not understand the risks they were taking."
I agree - AIG acting blindly. But are you not blind to trust AIG?
Invest where you understand where your money will be. If you want to be ignorant - continue the ignorance into your losses.

Suzy Orman Show - " We took a loan against home equity of $100000 and invested it in 1 stock. Now this is worth $7394. What do we do? "
I was speechless.
Need I say more?

I believe that understanding human behaviour and human psychology is of great importance in understanding economics. Not through texts but through collection of random instances. Through interpretations of conversations and reading between the lines.

"Hey - - you know what happened in Satyam; I toh always told you!!! IT is shit. "
It makes me laugh.

No comments:

Post a Comment