Misery Business

Back when I passed Level I there was a joke thrown out in a video lecture. Went something like this:

"I hope wherever you are right now accounting is your date on Friday night. You can't go to a movie, you can't go to a bar. The more miserable you are, the more likely you are going to pass the exam."

There may be some truth to that. Right now I am owning up to my responsibilities and being a good candidate, though my social life is mostly non existent. But on the whole, I'm at peace. That is a key difference from Level II last year. Last year I was pissed for about 12 months after I got dumped the day after the exam by a girlfriend of three years. I was also under a lot of pressure to close on a house in time to complete a 1031 exchange. Those two factors sucked away the desire to study. It made LII impossible following a Dec 07 LI passing exam, and two weeks before the exam I felt so burnt.

Though I'm content with my dedication, there seems to be so much information behind me that I am afraid I will forget. There seems to be so much more between now and the exam I still need to learn. But I think back to LI and 3 weeks before the exam it wasn't clicking yet on the practice exams, and then I was able to turn it up. So I need to stick to the game plan, stay on pace in this marathon with enough juice to kick through the finish line sprinting with all I have.

Sure, passing an exam like this can absolutely suck sometimes. But just like everything, this experience has so much opportunity. Sacrifice is rewarded. Self respect is earned through self discipline. The lessons in dedication this experience offers are transferable and will allow me to see into myself and discover what I have in me. This is an opportunity to grow. The dedication to goal and purpose shown in this exam should reflect in all things I do, and all things I do should reflect in my dedication to this single goal.

Thematic Framework: Passion

I should not be content to have passive interests in anything. Interest should be directed toward passion and activity. In order to achieve success in the things that are important to me I need to be gravely serious in pursuing my goals each day. I need to prove myself everyday at work, in the gym, in how I eat, and in my preparation for the CFA Exam. To achieve the future I seek, I need to pursue the present I have.

how did you meet? ...oh we met through friends

you hear this conversation all of the time. a happy couple says they met "through friends." this should tell you one of two things:

a) they met in a bar when they went out with their friends. but they won't tell you that because they want to believe "you don't meet special people in bars" when that is the only reason to go somewhere and pay for overpriced drinks with your friends when you could all gather at home and get more drunk, and not worry about driving.

b) one of them was dating the other's friends before the attraction was "too strong" or they "grew closer" when mr. assed-out was away at school, the military, or work. most likely this mutual friend no longer exists in their lives. sometimes it's less of a home wrecking situation and your friend breaks up with someone and you go in for the kill.

anyway, i'm going to a bar tonight. here is my pick up line this evening:

"hi i'm chris balster."

92 days

The exam is in 92 days. The history that takes place everyday in the markets is a huge distraction. I work 11 hour days without a second thought these days, and do something social afterward for a few hours to feel better about this lifestyle. The 11 hour days are broken by the occassional 13-14 hour day with no social activities. When do I study? Weekends.

Money and possessions

Somehow John Mayer's "I'm Yours" is still #5 in the country though it must have been released as a single when I was still in college. In the song he says "There's no need to complicate." That line came up today while driving. I do a lot of thinking when I'm driving. Hearing this line on the road reminded me that money and possessions have the ability to complicate, moreso possessions; money is just the catalyst. As I've become immersed in my studies in the last week I feel like I've come into a feeling of clarity. With a huge test on the horizon and immense curriculum to learn, my responsibilities are fairly simple. Work, study, and take a break every now and then to not burn out. I don't have to sit around anymore wondering what to do, the clarity is there, I should be studying. Clarity brings focus. Clarity makes things simple.

Along those lines, during my drive today I thought a little about some advice I received yesterday to "Change the way you think." I think I need to simplify things where less is more (I acknowledge that in some instances less is, simply, less). One of these things is possessions. I have way too much crap. I own four pairs of jeans. There are only two days a week I even have the opportunity to wear jeans. I can think of lots of examples such as this where I have too much. It's a waste of time. I could expand more on this subject but I think this is sufficient. Less is more here. See what I did there?

The answer's in the question, I should have known that all along

The fact that I go one month without an entry and then follow up with entries on consecutive days transcends the inconsistency in my life. If life were a final exam you would see me constantly switching writing utensils while skipping all over the Scantron. Tie that off with the fact that there is an emerging "question" motif to the entry titles. I swear to you that was not planned, as you might deduce below, as these entries are not related.

I came to a bit of a realization this evening while driving in the car. I spend a lot of time searching for answers. Trying to find solutions. I think I've come to find this mindless toiling is wasted when a critical step is missed. As important as solving problems and finding answers is, it's critical to also be asking the right questions. So that's where I'm focused right now. I'm focused on making sure I am asking myself the right questions so that I work for the right answers and solutions. I need to work to answer the questions where the answer is clear, and there is no mystery, where it's all laid out for me and I just have to be willing to walk down that path.

Too emo? probably.

I question myself

At this point my lack of motivation makes me question myself. I ask myself how bad I want this. Because right now my actions have not shown that I am willing to make the sacrifices necessary to obtain the CFA Charter. Maybe in the last week I have become a bit more dedicated. And maybe I have been putting in a lot of time in the office. But flat out, successful people make time to achieve their goals, and they are cognizant of the limits of their bodies and the energy they have. It kind of sucks to say this but I have been having too much fun lately. Going out too much, hanging out too much, and wasting too much time. Too much time spent on Facebook and too many late nights in bars. I can't go completely into a shell to get the job done, but I need to be more selective about my outings. Bars do not align at all with my career or personal goals. Maybe I should plan my acceptable distractions:

LOG meetings
LOG select outings
Running/Fitness
Movies/Dinners

I know I want this. And I do not want to not pass this test. I know I will be a Charterholder someday, but I'd rather it sooner than later. Class starts this week. The time is now. Amen.

I cannot become complacent!!!

I am finding it difficult to really dive deeply into my studies. I've been hitting the material here and there, but this type of work ethic will ensure I fail Level II should I not step it up. Why is it so hard to get motivated? Is it because the test is so far away still? Is it because I am busy at work and I also enjoy my job? Part of the reason is that my social life is just so awesome right now. It's never been this fun before to be me. I hate to complain about that, but I really need to pull myself away from all my friends just a little bit so I can focus more. I have to stay focused on the big picture, and doing that means day by day dedicating myself to this exam. That is all.

upDate

whew that was a stretch without a blog.

looking at my last blog, everything came through, except the fight which is next week.

life is good. i am really enjoying life. i've never been happier.

the new kanye album is out. man i really love this album. i'm hanging on every word of every song telling myself me and kanye are so alike. talk to me personally if you'd like me to map out all the parallels.

got the spiderman dunk SBs.

i have officially started studying. feels good to be back in the mix of mean regression and time series analysis.

i have yet to take the studying to the next level. i am not immersed yet. let's work on that.

Things I wanna do soon

There's a lot to do. I am getting back to studying this month but there's a lot going on that I want to do.

November 15 UCC Park Day
November 21 Associate Team Building Activity in Anaheim
November 21 Benefit Concert
November 22 Fashion Island Tree Lighting Ceremony
November 23 Share the Harvest
Novemeber 27 Balster Thanksgiving at my house
December 6 Pacquiao Fight/Holiday Party

I also really want to go to the Getty. I've never been there and it sounds/looks awesome. I can't wait to deck the halls of my house for Christmas. I'm getting a tree before my Holiday Party.

My mind wanders

I have had a lot of random thoughts in the last hour. Hopefully they don't escape me as I try to blog them all down.

We had a company golf tournament today. I left work before lunch, barely worked 3 hours before hitting the links. Sounds great right? It so happens to be the first business day of November and I communicate a lot of info to clients on the first business day of the month usually. I don't think the golf tournament is a worthy excuse to fall short of our goals in servicing our clients...so after the tournament I showered up and headed back into the office at 7pm, wrapped up around 9:30pm, went jogging in Newport Beach, and here I am showered up again. I am consciously going the extra mile at work. It says something when clients receive emails from you at 9pm.
I am driven and inspired to work super hard. My mom is one of the hardest working people I know. So is my older sister. I was really inspired when I went to the Philippines and saw the house my mom and her family grew up in. It was poverty by US standards, but maybe not by Philippines standards. I can't really say my mom came from nothing, but she definitely didn't come from privilege, and she had some very lean times during her upbringing where food was scarce, but there are people in the Philippines who are much worse off and never are given opportunities. My mom had opportunities, and she went after them. She was blessed and she gave thanks by lifting it up. She came from so little and has created so much. She raised my siblings and me. She has given us opportunities. We could have still been living in the small house in the Philippines but the family worked their way out, no easy task. Indeed, the people next door when I visited were my mom's former neighbors over 30 years ago. That could have been us. But since my mom was blessed with opportunities, she was able to create more opportunity for us. And so I have been given opportunities and incurred some luck, and I am obligated to work hard. It is almost a matter of family pride. This is what drive me.

A lot of people probably think I am a money hungry SOB. Admittedly, compensation and recognition are important to me. But I think the main thing is that someday I want to provide for my family. I don't want money to be an issue. It is an issue for so many families and it takes away from time spend just enjoying each other.


I have a few more random thoughts, but more brief than the essay I just wrote.

I love music. Sometimes I close my eyes, listen, and feel moved. If I can experience this, why am I such a bad dancer and an even worse singer? Shouldn't the passion rub off a little into a glimmer of ability?

Tomorrow is election day. Why do people aspire to be President? I would rather go to the dentist everyday for two years than be on the campaign trail for two years.

What drives other people to work hard? I know what drives me. I spoke to a guy today who said in his previous job he did nothing for three years ("You're kidding?" I said. "No seriously," he said).

I flew on a plane over the weekend to San Jose...on Halloween...in a banana suit.

I am excited about Christmas because I get to deck my own halls. I want to buy a Santa suit.

I have had some pretty great luck. Life is coincidental.

People are doing all this grassroots campaigning on Facebook, getting the word out about where they stand on political issues. Which is great, how it should be...but I wonder if it's all hype because our age group sucks at turning out to vote on election day...we shall see. I am ready to vote tomorrow.

how you feel

sometimes you feel a certain way about someone and it's difficult to tell them. at some point though, you should just say it, at some point you have to. once you say it, it's out there, and it's on them.

be bold.

you can have whatever you like...

maybe you've heard this song on the radio. i think it's one of the nicer hip hop songs to women out there, even though it's mostly about pleasing women with sex and material things, at least it's about pleasing them and not as terrible as the normal pimp-and-ho talk.

I am happy

Things are a little more normalized in work and life. The markets are taking a breather.

I had an absolutely beautiful weekend. To recap:

I went straight from work to Old World in HB for Oktoberfest. It was fun and new. I didn't get too wasted but plenty of people did and it was fun to watch.

On Saturday I went to Home Depot and bought a bunch of bushes and flowers. There's something nice about planting flowers, you feel me? It was relaxing but I was sweating it up too. Afterwards I laid down some Miracle Grow and the whole yard smelled like shit the rest of the weekend, but it's getting better now.

I met my buddy Josh and some of his friends at the District where I watched Brandon Vera lose in a decision in UFC. That was a bummer because he is half filipino and reps it with the Philippine flag TAP OUT trunks. I heard he has a huge fan base in RP even though he is basically a middle of the pack UFC fighter. I also heard because of this UFC will have a fight in the PI. That is going to be ridiculous. We finished off the night with some dancing at Woodys, some Newport antics and good conversation.

I woke up on Sunday and went and saw a matine movie, "Nick and Norah's Infinite Playlist." This was a really cool flick. It was funny and quirky and hilarious. This was probably the highlight of my weekend. I also just watched "Forgetting Sarah Marshall." These break up movie comedies are so funny. On a more serious level, it's amazing how down you can get on a break up and how universal it is. These movies speak to the universalness of it. People are ridiculous during break ups. It's just part of the human condition. A friend of mine was kind enough to offer some insight: you cannot experience deep sadness if you have not experienced the relative exuberant happiness. So when you feel down, you have to realize that it is because you have experienced joy and happiness previously.

I went to church Sunday night and also read a bunch of chapters in Nassim Taleb's Fooled by Randomness before I went to bed. A great read.

And that, my readers, is what a great weekend entails. I found myself smiling today for no reason at my desk at work.

Tough night

Everyone has nights like these when you work in the investment business. It is nearing 8pm and I arrived at work around 5:30am. Today wasn't as bad as yesterday though. Right now I am sitting at work blogging, waiting for a phone call from a manager that may or may not come. My eyes slightly sting and I feel loopy and tired. Did I take the bus to camp kill yourself this morning? I enjoy work but right now I am not enjoying not working and waiting for this phone call. I am leaving if it doesn't ring soon.

Overnight Libor

Overnight LIBOR is a part of the investment universe similar to the plumbing in the upstairs bathroom of your house. You never want to think or hear about it. While you think a lot of interior decorating, accent walls, and the color of your carpet or the stone counters in your kitchen, you only think about the plumbing when you have a problem, and water from the upstairs bathroom seeping into the second floor and threw the first floor ceiling can compromise the entire structure. It ruins the carpet, rots the walls, and can cause problems for years to come.

Overnight LIBOR is the rate at which banks charge each other for overnight loans. When we are talking LIBOR, we are talking about the biggest banks in the world. We are talking about the world's highest credit in any type of borrower. All lending, your car, student, home, and home equity loan, the financing on an exercise machine or a queen mattress are benchmarked off of LIBOR. The riskier the borrower, the higher the add on is to the LIBOR rate.

LIBOR is the foundation of lending, and the shortest loan is a one night loan. There is little to no risk when the world's highest credited borrower is taking out a one night loan right? Right now the annual rate on overnight LIBOR is 5.38%. FIVE POINT THREE EIGHT PERCENT annual interest to borrow money for one night. Two key elements of a loan determine how much interest you pay on a loan. These factors indicate the riskiness of a loan. Number one is the credit of the borrower. In overnight LIBOR the borrower doesn't get any more credit worthy. Number two is the length of the loan. The longer the term the more risk. Case in point, overnight LIBOR is one the least riskiest loans. 5.38% is absolutely shockingly high. The world cannot continue to function in a normal manner with LIBOR at this rate. We would like to see a 30 year fixed mortage in the low 6% range, but we are not going to get there on a 30 year loan to an individual American when overnight loans to the world's biggest banks are 5.38%. Think about the implications! Without reasonable financing home ownership will become even more out of reach, existing inventories of homes for sale nationwide will continue to rise, and prices will continue to tumble. Significant wealth destruction is occurring on Main St in the asset where Americans hold the largest component of their wealth...home equity.

I should mention a few asides. Overnight LIBOR is uncollateralized which slightly increases the risk, but the risk spread for that overnight is tiny. On the flip side, LIBOR is self reported by the banks so they are probably fudging a little on the low side. Case in point, you should round up that 5.38% to 6%.

If life with LIBOR at this rate continue, things will get very ugly very quickly in the world. With every HUGE government program introduced the market is able to bring back exceedingly shocking data to prompt more response. Ad hoc responses though of considerable size will no longer help alleviate the problem. The Fed cut rates by 50bps today to 1.5%, a 25% discount in the Fed Funds target rate, and LIBOR blew out to a new record!! That is unworldly and scary. That is some serious gloom in doom. I haven't looked at swap spreads but I heard they tightened which is some good news. I could get into swaps but I am waking up at 4:40am to go to work. After all, what am I going to tell my grandchildren about this? That I worked a normal day, 9-5? No, I'm gonna tell them I worked 14 hour days trying to figure out what the solution was.

Where's my life?

These past 4-5 weeks have blown by. I am working 70 hours a week. I went in on Sunday for 4 hours. Yesterday I went in at 5:30 am, worked until 7pm, played basketball for an hour and a half, went home, showered up, then logged on and worked from home until 11pm. I came in again today at 5:30am. By 5pm I was toast. Absolutely donezo. If you count Sunday, I have worked 31 hours this week and it's only Tuesday! I'm not complaining though, it's good to have a job and my work is incredibly interesting and exciting right now. Each day is bringing new and exciting challenges. There is an element of excitement in the markets for me right now. The markets are in unprecedented space and everything is new, the economy is being redefined.

Last week my friend Ace spoke at the first Liwanag meeting of the UCI academic year about the importance of LOG in his life. He did a really good job and stimulated some self reflection for myself. I realized how amazing it is that my life somehow feels balanced right now despite the long hours and lack of sleep. An hour at Mass on Sunday and a couple hours at a LOG meeting on Tuesday night are so powerful for me because they balance out a 70 hour work week. I am generally in a good mood every single day and am really trying to push myself. After all it's in the thick of the battle that you prove yourself. I feel like I've been given strength. Yo LOG thanks for the love and support!

To top off my ridiculous career commitments, CFA studying will soon be getting underway. Hopefully I can form a support group of others studying for exams and we can push each other. I will pass Level II. By the first Saturday in June, the hard work will have finished. I am getting eager.

On the topic of the markets today I thought about how delevering is unambiguously swallowing up every nook of the financial landscape (stocks, widening credit spreads, Oil!). I started to think about how all of the solutions to the financial crisis vis-a-vis TARP and other policy responses effectively are efforts to re-lever the financial system. Lending and credit is a levered business model and that is what is broken. I need to brush up on my econ to evaluate this response. Over reaching leverage caused this problem, but I need to research the negative effects of deleveraging to 0. I suppose this would create severe deflation. This last paragraph has done a good job of creating a framework in my mind to see that real economic growth is to some degree dependent on ample leverage. So in the brave newly landscaped financial world, the goal of massive policy interventions into market space should be a comfortably levered financial system with regulatory measures to prevent over reaching leverage on the high side to prevent future needs for delevering circuit breakers on the down side when excessive leverage creates houses of cards that all blow away from the same gusts of wind.

Completely unrelated, there are some cats on my street with a banging social life. They are always messing around in the middle of the street. I think there's three of them and they are always playing out in the open. I like it, they are fun.

9/28/09 Dow -778 points, SPX down almost 9%

there has been talk amongst market participants about an umbrella you want to be under. steve leisman spoke of it as a club you want to be in. either you're in or you're out. this club or umbrella if you will is the umbrella of the US government which hovers over institutions that are "too big to fail," or "too big to let fail." the name of the game at this point is trying to figure out who is closest to the handle with both hands firmly clinging to the shaft. if that's not you, you're gonna get wet.

i disagree. when the weather's bad enough the umbrella isn't much help. in a hurricane it rains hard, but getting wet is the least of your problems and an umbrella is worthless. you better be worried about getting swept away. so far we are seeing this is true. whether you fail or are bailed out, investors of these entities are getting wiped out.

if there is a fed umbrella for a select few, the TARP addresses the problem on a much larger scale. the tarp is a disaster shelter. the market needs this, and it may not be enough. i can say with great confidence that if the TARP doesn't pass it will take a loooong time for investors to recover to previous levels. i'm tired of this being called a Wall St bailout. There will be plenty of pain on the Street long after the TARP is put into action. people don't know what's best for them. Main St doesn't know and shouldn't be expected to know how LIBOR effects them. That is a shortcoming of our education system. But Congress has no clue either. That's shameful.

there's also a human side of this. it's gonna get even more human if the TARP doesn't pass. jobs will be lossed, homes will be lossed. i'm working 14 hour days. i don't experience the outdoors during daylight hours. i am going to church tomorrow.

Neighborhood on Fire

If Fannie Mae and Freddie Mac were a house of cards, it's safe to say a week later the whole neighborhood is up in flames and everyone is taking some damage. This is the Chicago fire equivalent in our current financial markets. It is truly incredible. Work isn't supposed to be personal, but this is pretty frightening.

AIG just got rescued by the Federal Government. Probably necessary to maintain order but also necessary from a policy standpoint, which is also a political standpoint. If you let Lehman fail, who loses? Lehman employees, investors, people Main Street doesn't feel connected to enough to save. But with AIG it is a different story. The general public is at risk. Picture the headline of someone losing their house in Texas to hurricane Ike and two weeks later not getting an insurance settlement because they did their insurance through AIG. The government doesn't want that on their hands. In my opinion, that is why the government stepped in. They say AIG is more connected but I don't know about that. Bigger balance sheet yet. But larger counterparty exposure risk? Suspect to me...Lehman was THE bond house.

Again, work is just off the wall right now. Weekends, late nights, hours that are not only long but very intense. The whole world is trying to figure out where and how they are exposed to AIG, Lehman, Merrill, Bank of America, Washington Mutual, etc. It is one of those times you really have to put the rest of your life on hold. I'm going in at 5:30am tomorrow morning to be around for clients. I'll be in early the rest of the week. Some people have been coming in at 4am and leaving at night. I admire my colleagues continued commitment. Pride. These are the times we need to push ourselves and make a difference in the world. I try to encourage the discouraged employees to see the big picture.

I'm sure others are experiencing this right now, but I just can't sleep though I really want to because I have an EARLY morning tomorrow. There's a lot on my mind keeping me up at night, namely systemic risk. One of our Managing Directors said it best last week, "You don't make up at 2 in the morning worrying about the fat right tail." Guess he's right, this is the left tail, and in contrast to FNM and FRE's government bailout, this is truly a black swan.

The unthinkable has become reality.

In other news, the Fed held rates today. We are of the opinion the statement is way off the mark with concern to inflation. The Fed can't use the word deflation, but that's the real problem. Not sure I understand how cutting rates would help that, but I definitely agree the statement was way detached from reality.

I got a new phone. Blackberry. It's nice.

House of cards

I just read this article. After passing Level I in December and sitting for Level II unsuccessfully in June, I have some perspective on the accounting methods used by Fannie and Freddie. I'm almost tempted to crack open the Schweser notes and look up the accounting warning signs.
First of all, let me just say this. Perhaps my naivete is an asset here; because this just sounds ridiculous to me having only been in the industry two years, but to others I guess they must have been so used to it. I can't believe how levered the balance sheet was. The Bloomberg article I attached talks about the firms capital. See, when banks or lenders like Fannie and Freddie operate, they make money by borrowing at one interest rate and lending at a slightly higher rate. This is called the "spread" they earn. Also, banks and lenders need to have sufficient capital. That means that any bank has to have a certain amount of money in deposits at all times to comply with law. This prevents panic if people start going nuts withdrawing money. This is A and B of Banking ABCs. A) Borrow short term, lend long term, earn the spread and B) have sufficient capital. Well, FNM and FRE's capital got pretty low because they started losing mad money on all the mortgages people are walking away from. Then people started getting worried. Thus, the market ceased giving the agencies favorable rates. This compressed the spread they earned. When you can't borrow at a low interest rate, the business model is kaputz. And things collapse like a house of cards.

Now here is the kicker, if you have hopefully read this far. Fannie most recently stated $47BB in capital. $20.6BB of this was in DEFERRED TAX ASSETS. Are you kidding me? Is this new information? DFAs are tax credits and you can treat them as an asset because you will reduce your taxes in the future. But when your business model is broken, you don't make money, and when you have no income you don't pay income tax so nearly 50% of their capital was in assets that could more than likely be taken off the balance sheet. At $47BB, they were about $9.5BB above the requirement, but as it turns out when the Feds starting looking at the books, $20.6BB was in deferred tax assets. So for some time up to this point, best accounting practices would have calculated both companies as severely undercapitalized. This just blows my mind. I have a lot of questions. Who audited their financials? How was this acceptable in the past?

That's the macro blog.
Here's the micro blog.

Today was crazy at work. Our Investment Committee worked through the entire weekend. I went into a meeting at 7:30am with the client servicing group and we got debriefed on the situation. We are lucky to be so well positioned across most of our portfolios. That makes our job easier for sure, but I really admire how our firm has been able to focus and concentrate on understanding the recent developments in FNM and FRE so we can properly convey it to our clients. I was just stacked with work all day but I felt fulfilled by my job today. I'm really glad I believe in what we do at our firm and I think we do good work for the world.

I'm also worried about the banking system. The government took the companies into conservatorship, and in the process the common shareholders get nearly wiped out, the bond holders and mortgage holders get made whole (get their money back), and the preferred shareholders unfortunately, like the common holders, don't get made whole. I think this could change. Here's why. A lot of banks hold this preferred paper. It's trading down over 50% from where most owners got in at. A lot of banks hold this in huge quantities. I saw some reports that this is over 20% of some bank's capital. That's not good. The Treasury might have to step in and prop up the preferreds to.

That's all I have for tonight. Again I can't emphasize how impressed I am by my colleagues. Some groups worked all weekend to brief us this morning on the situation. Other groups came in at 5am to prepare for a volatile trading day. I was in the office today for 11 hours getting information out to clients. These are exciting and turbulent times in the bond market. So much has changed from start to now in my two years of working.