The recent arrest of Raj Rajaratnam, the founder of Galleon Group , a hedge fund, on charges of insider trading has generated responses from across the spectrum. At the one end, it is evoking the usual breast beating about insider trading and how unfair it is to the rest of us "non-inside" investors.http://www.businessinsider.com/henry-blodget-moral-of-galleon-insider-trading-bust-only-fools-try-to-beat-the-street-2009-10At the other, there are some who are pointing out that this case illustrates how ineffective insider trading laws are and that they should perhaps be abandoned.http://online.wsj.com/article/SB10001424052748704224004574489324091790350.htmlIt...
Equity Risk Premiums: An Update
As many of you are probably aware, I am fixated on equity risk premiums. To me they are at the center of almost every debate about equity markets - whether stocks are too low or too high, whether current market conditions are the norm or an aberration, and whether equity investors truly understand the risk associated with investing in equities.I had a few posts during the crisis, where I noted that the implied equity risk premium for the S&P 500 had climbed at a rate never seen before in history during the twelve weeks between September 12, 2008 and late November. In fact, I reported an implied...
Bond Ratings: Why, how and what next?
In the aftermath of the bond market calamities (for investors and issuing companies), the ratings agencies (S&P, Moody's and Fitch) have come under assault from all sides. Legislators and regulators have accused them of being too close to the companies that they rate, with the implication that companies/bonds are being over rated. Academics have piled on, arguing that there is little information in bond ratings and that ratings agencies offer poor and delayed assessments of default risk. Finally, a few former employees have come forward with claims that bond ratings, at least in some cases,...
Crisis Lessons: Presentation...
A few posts ago, I mentioned that I was working on a presentation reflecting the lessons that I learned from the crisis. I had also promised to post the presentation when it was ready. You can get it be clicking on the link below:Market Revelations: Lessons learned, unlearned and relearned from the CrisisWhile you can read about the specific lessons that I have taken away from the last year in the presentation, here are the general points I want to make:1. These are the lessons that I have learned. In other words, this is my personal odyssey and I do not expect everyone to have learned these lessons,...
Leveraged Buyouts
Yesterday's New York Times had a story (a sad one) on the troubles at Simmons, a mattress company with a long and illustrious history in the United States.http://www.nytimes.com/2009/10/05/business/economy/05simmons.htmlIn short, the company was targeted for a leveraged buyout by Thomas H. Lee Partners, a private equity firm, in a transaction that went awry, partly because of miscalculations by the investors and partly because of the market crisis. The article is clear about who the "bad guys" in this story are and it is the private equity investors, who profited while a good company and its employees...
