You too can now relax

People have stopped worrying about covered interest parity.

This worry has expired along with the cross-currency basis. Here’s Matt Klein at Alphaville explaining that for much of 2016, it was much cheaper to borrow dollars in the U.S. and hedge them into yen than it was to borrow yen in Japan, creating an obvious arbitrage that nonetheless didn’t go away. But then it did, due to declining dollar strength or the full phasing-in of money-market-fund reform or changes in Federal Reserve balance-sheet policy. I look forward to other recurring Money Stuff worries being so fully and satisfactorily resolved.

That is from the “no one else could do what he does” Matt Levine at Bloomberg.  And Matt points out that Stephen Curry is reading Ray Dalio’s Principles.


Levine is great. And a rarity. Someone who actually understands finance from the inside out and who writes well enough to explain it to others. Also, someone with a Wall Street background with the courage, financial independence and realism -- cynicism? -- to call out the world of finance when it is due. And it is due a lot.

But to say "no one else could do what he does" is an exaggeration. The prototype for Levine is Michael Lewis, who also knows whereof he writes and who is even more impressive because his range is broader. Moneyball was brilliant. In fact, the entire idea and audacity of Moneyball -- to write about the paper-dry subject of advanced statistics in baseball and make it fascinating -- is brilliant.

Really great, information dense, columns every time. Not for slackers.

"to write about the paper-dry subject of advanced statistics in baseball "

The statistics are more interesting than baseball!

Except when the Cubs or Cardinals are in the series.

But, unlike Bill James, he never even covered the statistics in Moneyball. Instead, he covered the PROCESS of unearthing and using the statistics, in a clear analogy to fundamental security analysis and the identification of undervalued assets. And he covered the resistance of the rest of the baseball world to this new way of viewing value.

When you wrote "Cardinals," I am sure you meant "Tigers." Slip of the pen/keyboard.

Michael Lewis is a (slightly) more compelling writer than Matt, but Matt Levine's understanding of finance is massively superior to any other finance journalist. Even outside of journalism, there are precious few individuals in finance with Matt's breadth and depth of understanding.

Agreed. He covers both debt and equity, and derivatives, well. Also, he understands the finance and the law, along with the accounting.

He -- along with Tyler, Megan McArdle and (occasionally) Justin Fox/Leonid Bershidsky -- are the only reasons ever to check BloombergView.

And the comments section, don't forget that, vastly underrated, people like me and even you Roger Barris.

An awful lot of chaff to the get to the wheat in the comments section of most anything (with MR being a notable exception). Generally not worth the effort to read or write. My contributions are purely cathartic.

Okay, we get it, it's a fool's errand to try and beat the market. Of course, that's easy to say when the market goes in one direction, up, for the simple reason (though not a particularly reasonable reason) that more people believe the market will go up than believe it will go down. Be positive and all will be well. Be negative and line the pockets of Ray Dalio, Steve Cohen, and other snake oil salesmen. Ignore the worries of Richard Thaler: don't worry, be happy.

Matt Levine is a treasure.

Negative opinions develop in an instant, while positive opinions my take months (or years) to develop. I've commented that negative is the natural (default) state or human condition, while positive requires effort (and time). Many of Cowen's recent blog posts have been about negative, including this one. It's difficult to tell if Cowen, like Thaler, is worried (i.e., negative), or is ridiculing those who are (negative). President Trump is the most negative president in my lifetime (threatening war, political adversaries and political friends, allies, journalists, television networks), yet markets continue to be positive. Or seem to be. My interpretation is that all the negative has conditioned the public to ignore the negative. After all, nothing really terrible has happened (as Cowen often reminds readers). On the other hand, almost everyone was positive in 2007. And in an instant, everyone was negative; and it took years for positive to replace negative. Cowen is worried about "complacency". As Cowen uses the term, are people complacent when they are positive or when they are negative? After the 2016 election but before the publication of Cowen' book, I commented several times that Cowen's book was obviously mistimed: how complacent could Americans be having elected an ignoramus, a highly negative ignoramus at that, as president. The positive news is that opinions can turn from negative to positive for no apparent reason other than the passage of time. It's true that people have short attention spans, but in my opinion not short enough when it comes to turning negative back to positive.

The secret might be that Tyler realizes that he is not the whole internet, and doesn't have to be.

Heck, MR isn't even the whole Tyler.

I had trouble following many of the explanations for why the (apparent?) arbitrage was persisting. As I understood it, the Yen futures were expensive relative to the apparent spread between Yen and USD interest rates, so that the arbitrage trade was to (1) short Yen futures and (2) borrow USD at USD rates, convert USD to Yen, and earn Yen interest rates. Explanations for why the arbitrage persisted presumably amount to saying that (2) was difficult or that people were unwilling to do it. But, is that just equivalent to saying that the "true" USD-Yen interest rate spread --- once one accounts for liquidity, transaction costs, etc. --- was not the same as the reported interest rate spread used in the arbitrage calculation? If so, then was there really an arbitrage or just a difference between "true" interest rates and reported interest rates?

Lamont, Owen, A., and Richard H. Thaler. 2003. "Anomalies: The Law of One Price in Financial Markets." Journal of Economic Perspectives, 17(4): 191-202. DOI: 10.1257/089533003772034952

Dovetails with the post by Matt Klein noted by TC. Note the dateline (2003).

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