"I don't know" is an acceptable response

Tonight at the Conrad Tokyo, I dined at Cerise, a French restaurant. Cerise is a Gordon Ramsey restaurant, and had the same extensive wine list (at least a dozen pages) and, surprisingly, served the same desert as part of the 6-course tasting menu as Ramsey did. As a side note, up until this vacation in Japan I had ordered a 5+ course tasting menu perhaps twice in my life. This vacation, I've had the Ramsey "Prestige" dinner (7 courses), the China Blue "Michelin Celebration" 7-course meal, and today's Cerise "Taste of Summer" menu. The Ramsey menu was by far the best.

But I digress. After having a Chateauneuf du Pape at Ramsey and an excellent Rhone in the Executive Lounge for the past three nights, I wanted a cocktail. I ordered an Old-Fashioned. The old-fashioned has been my "test drink" for every new bar I've visited. It's a classic cocktail, but few bartenders seem to know the recipe by heart. My preferred old fashioned is a fresh slice of orange muddled with about a teaspoon of sugar and three or four shakes of Angostura bitters, topped off with Bakers or Bookers (or even Knob Creek for a very sweet drink) and served on the rocks in a lowball glass.

Tonight I was served something that looked like the result of an unholy union between some kind of island cocktail and English tea. At the bottom of a lowball glass of scotch on the rocks (at least they got that part right) sat an undissolved sugar cube. Garnishing the glass was one slice of orange, one slice of lemon, and one slice of lime. Conspicuously missing from the mixture was the muddled orange and bitters.

Saying "I don't know how to make an Old-Fashioned" is acceptable. Serving a proper old-fashioned is acceptable. Trying to pass off a half-assed version of a classic cocktail is not in any way acceptable.

I wish you could see this

Ah, Jesus! I wish you could see this. The light's coming up. I've never seen a painting that captures the beauty of the ocean at a moment like this. I'm gonna make you rich, Bud Fox. Yeah. Rich enough that you can afford a girl like Darien. This is your wake-up call, pal. Go to work.

I'm sitting in the lounge of the Conrad Tokyo, looking out onto the Tokyo harbor, sipping an iced tea lightly sweetened with simple syrup. Twenty-six floors below me, slightly to the right, is a shrine in the middle of a small pond that's fed by the harbor waters. Two bridges connect the shrine to the surrounding grounds. Its roof is the pale green of matcha tea in a white cup. Out in the harbor, vessels ranging from small yachts to giant shipping boats trundle through the harbor waters or sit docked with the waves rippling around them like the combed sand of the rock garden at Ryoan-ji.

The boats and shrine provide a sharp temporal contrast to the skyscrapers behind them, which in turn echo the slanted roof of the shrine in their architectural curves of steel and glass. Farther out, red and white-striped cranes, their details slightly fuzzed by the humidity, construct the next generation of homes and workplaces.

I promise myself that next time I visit, I will bring a camera.

Dateline: Narita, Japan

When I arrived at the Narita airport baggage claim, I noticed something strange: An airport employee was patiently adjusting the position of each bag as it came down onto the rotating carousel. She laid the bags flat, or turned them vertically, choosing a position for each bag seemingly arbitrarily.

For the life of me, I cannot figure out what value this woman added. Who pays for her? (Probably us passengers, indirectly). This same pattern has been repeated at the hotel and at the currency exchange -- "extra" employees whose function seems to be nothing more than to give the appearance of a high level of service.

There are undoubtedly factors here that I don't yet recognize, but this entire country seems to need to undergo a business process rationalization effort.

Can't help but reminisce back when it was us

A common question from students who are interested in a career in banking, especially career switchers at the MBA level, is "How can I develop a view on the market?" Developing a view, and more generally being able to speak intelligently about the market, is an absolute requirement for succeeded in the banking recruiting process.

The good news is that developing a view is easy, even for career switchers. The way to develop a view is simple: First, read a lot. Then, read some more. Here's what you should be reading:

Every day:

• Wall Street Journal - This should go without saying. Read the front page, the markets section, and anything else you find interesting.
• Abnormal Returns - A daily linkfest of the most timely and interesting financial topics. Go through it every day and read the stories that look the most interesting to you. If there are a number of stories on one topic, read at least one of them
• Deal Breaker - When people talk about rumormongering, this is the what they're talking about. Deal Breaker, which relies largely on tips from people working on the street, tends to report rumors and scandals before anyone else. It also gives you a taste of the attitude and culture that you can expect on Wall Street.
• Barrons - Barrons is technically a weekly magazine, but their website is updated daily. I personally find the Barrons roundtables and interviews articles the most useful and entertaining.

Weekly:

• The Economist - This is another one that goes without saying. Read at least the finance and business sections.
  
• Wall Street Journal, again - The weekend editions of WSJ typically carry more in-depth coverage of major news events that occured during the week.

As-needed:

• Investopedia.com and Wikipedia can explain any terms or concepts that you come across during your reading that you're not sure about. Whether it's how a credit default swap works or how to calculate CAGR, these sites are the first places to visit. I also recommend signing up for Investopedia's "term of the day" email.
• If you can get to a Bloomberg terminal, "TOP" and "READ" will show you the top and most-read news stories for the day.
  

Everywhere that I go, I got people I know, who got people they know

The Daily Options Report ran a story about a study that indicated that stock movements and news stories are essentially independent from one another. That is, news doesn't move stocks. This is naturally somewhat surprising.

Although they don't link to it, I assume the actual study is here.

The problem is that only the sentationalistic conclusion (i.e., news doesn't move stocks) is being reported. The authors themselves though suggest an alternative explanation:

...most news [stories] are either expected (through rumors and leakage) or deemed insignificant by the market

Given my time spent on the trading floor at a bulge bracket bank this summer, I would say that this explanation is more likely than "news doesn't move stocks." Let's look at one example: The hiring freeze at Merrill Lynch.

The hiring freeze was first reported on the web by DealBreaker on August 13, 10:22am. Then news then "broke" again at DealBook, a New York Times blog, on August 14, 5:29pm. It hit the Reuters wire on August 14, 5:51pm. Now it's not unlikely that the Merrill employee that tipped off DealBreaker called his friends at other banks first. So you're looking at what's probably a 36-hour gap between when traders know about news, and when the news hits the wires. It should come as no surprise that there is no relation between stock movements and news as reported by the major wire services.

A prime example of an inefficient market

Everyone's heard the old saw:
An economics professor and a grad student are walking along the sidewalk, and the grad student spots a twenty dollar bill on the sidewalk. He says, “Hey professor, look, a twenty dollar bill.” The professor says, “Nonsense. If there were a twenty dollar bill on the street, someone would have picked it up already.”

I found an honest-to-god, non-metaphorical twenty dollar bill on the ground today. I picked it up.

You can change, but that's just the top layer

Some people look at numbers and try to figure out the meaning behind them by thinking through how the numbers were generated. What does it mean for a company's future that EBITDA declined by 14% sequentially but rose 5% year-over-year?

My first instinct when I see numbers is to try to find mathematical patterns in them, and then try to decode economic implications from those patterns rather than the raw numbers. Maybe this is why I'm not enjoying my five weeks as a research analyst at a bulge-bracket bank. I want to run regressions; they want me to read and report on 10-Qs and 10-Ks. You can only write the sentence "[Accounting metric] [grew/declined] by [X%] sequentially from [A] in [quarter Q] to [B] in [quarter Q+1], but [declined/grew] by [Y%] year-over-year from [C] in [quarter Q-4]." in so many ways.

Naturally I agree that the financials are invaluable. It's just that I'd rather split my time into 90% analysis and 10% reporting, rather than 10% analysis and 90% reporting.

Regulators, mount up

I came across an interesting tidbit today. Apparently, although Walmart is very strongly anti-union, it tends to support minimum wage laws and minimum wage increases. The theory is that Walmart competes on the fact that it has a better supply chain and better negotiating power than smaller competitors. Since wages make up a smaller part of Walmart's costs, higher employee salaries would hurt smaller shops more. So, Walmart lobbies for higher minimum wages in areas where it faces competition from smaller retailers.

I think this is an example of how even an otherwise well-functioning market can incentivize participants to break it. Can we really expect rational politicians to resist passing a law that both appeases the interest of large corporate donors and makes them look good to populist voters? How do you fix a situation in a capitalist democracy where everyone thinks it's a good idea to break the system, even though the average citizen will be worse off afterward?

Where are the important charts?

wikiInvest.com looks like a great site. It has lots of relatively well thought-out investing content, and, like many other sites (e.g., Google Finance) has stock charts that you can embed in your own web site. It also takes the concept a step further by allowing people to annotate the charts to try to explain price movements.

But why are there no embeddable charts for the really big markets? I'm talking about the $25 trillion dollar U.S. bond market for example - or the even the credit markets in general. Where's the yield curve I can put on my Google homepage, or the CDS spread widget that shows me how likely companies are to go bankrupt? These are huge markets, and even if they're not as sexy as equities, they have just as large of an impact on individuals' financial well-being.

MARB

Bloomberg is really an amazing piece of software. I have always been interested in learning about risk arbitrage, but Bloomberg's Merger Arbitrage screen ("MARB") makes it easy to narrow down my focus. Over the next few months, I'm going to try to run a test portfolio (portfauxlio?) focusing on the smaller deals that hopefully aren't as appealing to professional merger arb analysts.

Related reading: http://www.focusinvestor.com/MergerArb.pdf