Tuesday, November 1, 2011

The signal from MF Global bankruptcy

Everyone is trying to beat inflation and the majority will fail. MF Global low risk business model (see chart) was destroyed by practically zero short term rates.

Governments are transferring wealth big time to shore up the financial system. If you don't belong to 'Too Big To Fail' you will be forced to help the institutions deemed necessary to keep the world together! MF Global wasn't such an institution.

You can try to get better deals for yourself to improve your yield, but most likely you would be taking on a lot of risk without knowing. In Jon Corzine's case, he had no choice. If he didn't do it, it would be as good as he didn't want the job.

In finance, even at the personal level you must always think of relative returns first before figuring out how to achieve absolute positive return. The prior exercise is where you begin to understand your risk.

At this time it is a herculean effort to beat negative real interest rates without being in special position. For the investing masses with no time or understanding, they are better off managing their exposure by protecting their capital as much as possible.

The investing masses can only hope to invest in the broadest trends. If that is not going up but down, most people will suffer losses no matter what they do. Trying to do better could end up with more losses because it is a 'rigged' system.

Resistance is futile.

1 comment:

  1. Sorry, but I get riled up when I see statements like "...because it is a 'rigged' system."

    Which system is it and who is rigging it? Please be specific, otherwise, you're just spinning another conspiracy theory with some vague 'villains' who are responsible for everything bad that's happening. Boo-hoo.