Volatility; QTM; Quantum; PRIS

On September 9, 2011, I wrote:  "For now, my view seems to hold:  the markets will be hit by repeated and volatile shocks up and down as the very real bad news is countered by the not so real attempts by policy makers to prop them up."  Seems I'm ok on that prediction since then.  One of my favorites, Quantum, is again riding the elevator up and down.  Unless the company is worthless though, it's current price seems awfully low.  I also picked up PRIS -- Spanish multimedia conglomerate at around $4 per ADR (representing 4 ordinary shares).  This stock has traded as high as $13 per share in the last year.  Somehow, I don't think it's worth that much less now but is, instead, a victim of the flight from Europe (which is, incidentally, not unwarranted).  Plus, it has a low stock price -- an absolute requirement for me these days.

Quantum How Do I Love Thee, Let Me Count the Ways

Yes, I got into Quantum again at $1.76 on 9/6/11 and exited on a stop at $1.89 on 9/8/11.  I have now bought and sold Quantum three times since April of this year for a total 37% return.  If I'd bought and held my original purchase at $2.79, I would now be very deeply in the hole.  Nevertheless, I remain a believer in buy and hold -- sometimes and if you buy after the market has been decimated.  For now, my view seems to hold:  the markets will be hit by repeated and volatile shocks up and down as the very real bad news is countered by the not so real attempts by policy makers to prop them up.  My suspicion about "things being too easy" makes me want to short Quantum now but I think the company is actually fairly valued given its risk and notice that even in the market massacre today, it is holding up.  A good sign.

Edward Thorp on Beating the Biggest Dealer of All: the Markets

See below for a link to an interview with Edward Thorp, famed investor and card-counting expert:

 http://www.edwardothorp.com/sitebuildercontent/sitebuilderfiles/Interview_with_The_Journal_of_Investment_Consulting_2011.pdf


Thorp's interview makes clear that his "quant" strategies enjoyed early success but their advantages were ultimately chipped away by other sophisticated market participants.  Interestingly, he claims to have enjoyed an advantage by employing an early version of the Black Scholes formula.  This makes me wonder if his advantage was truly quantitative or whether he had simply recognized that options were mispriced based on prevailing risk.  So often it seems that economists and academics want to quantify insights which do not necessarily benefit from further quantification.  In any event, far be it from me to question Thorp, who above all is a first class mind. 
    Most interestingly, he claims to now be focused on the question of whether a basket of treasury bills, a stock options index, and options on the index can be used to improve the portfolio's performance against the same basket without the options.  I'm going to give some thought to this myself and report back.

Bank of America; Wells Fargo; Chase; Citi: A Potential Legal Settlement To Watch

For some time now, the largest lenders have been in negotiations with the Attorneys General of all 50 states to reach a settlement regarding the banks' handling of foreclosures, including robo-signing and other practices.  According to press reports, there are only a few holdouts among the AG's and the federal government and the banks are pushing hard to finalize the agreement.  The banks want the settlement because it will insulate them from further liability (or at least so they think) for frankly turning the servicing of mortgages into complete chaos.  The banks' liability to borrowers for their practices is significant.  This is evident from the banks' eagerness to enter into what's been reported as a $20 billion settlement.  If this settlement happens, the market may react by boosting bank stocks.  Keep a lookout for this -- I will.