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October 31, 2018



Well, homo sapiens sapiens, ie us, has been around for about 200,000 years - though some think it's nearer 300,000 - and in all this time, we still haven't learned how to handle evidence based reasoning.

So I guess that's why everything is still a mess in human society.

Robert Mitchell

Bernanke in https://www.brookings.edu/wp-content/uploads/2018/09/BPEA_Fall2018_The-real-effects-of-the-financial-crisis.pdf advances the concept of an "external finance premium:

"The simple analysis thus far makes two basic
predictions about the aggregate external finance premium: that it should be countercyclical,
rising in downturns when the balances sheets of lenders and borrowers deteriorate; and that it
should rise sharply during periods of financial instability."

If I buy an ETF, can I hedge it with an EFP index? If things go south for the S&P, Bernanke says the EFP will rise. Can I buy a share of the EFP?

I propose Seattle charter a public bank and create a derivative based on Bernanke's external finance premium and sell it as insurance against financial panics.


Market strategists are slow to update their strategies. I remember back in 1960s my father used to buy an interest payment by buying junk bonds that sold flat, that is, without accrued interest, then selling them after the ex-interest date. Even in the 1960s, you would imagine that the interest payment would be built into the price, but it wasn't. So, he'd get 5% for holding a bond for maybe a week. He couldn't explain it, but it worked.

This was still working into the 1980s, but fewer and fewer bonds were sold flat.


At the other place, you were asked a question to which you have not responded:

"So what did you earn on your portfolio when it was out of equities?

It strikes me that if you were charged 2% for selling, 2% for buying back and went without a 2% dividend yield, you are not materially better off for being such a clued-up investor"

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