The Aleph Blog's profile

Dynamic hedging only has the potential of working on deep markets.Arbitrage pricing can reveal proper prices in smaller less liquid markets if there are larger, more liquid markets to compare against. The process cannot work in reverse, except by accident.The recent case of JP Morgan’s hedging activities bring to light an observation that should be clear to all but isn’t. Hedging only works when you are small relative to the markets in which you hedge.Let’s consider tranched credit index default swaps. We can create models where the prices of each tranche can be...

(yesterday)

The Aleph Blog wrote a new blog post titled 23,401 Auctions

I’m fascinated at the degree of hatred for high frequency trading [HFT] among my fellow portfolio managers, particularly those that live in the Baltimore area. I have my own techniques for dealing with them: discretionary reserve orders, and not trading much. If you are a longer-term investor, the games that exist in buying and selling in the short-run don’t matter much. In my opinion, HFT milks short-term traders the most.But I have my own solution to high frequency trading: revamp all markets such that there is one auction per second in the trading day. Auctions happen at...

(2 days ago)

The Aleph Blog wrote a new blog post titled High Profits

Dr. Jeff Miller wrote an interesting question the other day:“Why does a Shiller disciple care about profit margins?“Now, I am not a disciple of Dr. Shiller, I disagree with him on many issues, Trills for an example. When Shiller talks, odds are 50-50 that I agree, which makes him interesting to me, unlike Bernanke and Krugman who I almost always disagree with, and James Grant and Caroline Baum, who I almost always agree with. Someone who agrees with me and disagrees with me equally is interesting, because he makes me think harder.And with his cyclically-adjusted price-earnings...

(3 days ago)

About:

David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately.

From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies.

Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm.

From 2003-2007, I was a leading commentator at the investment website RealMoney.com. Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that.

Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life.

My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog.

I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.

Blog Objectives

My objectives in this blog are relatively simple:

To further flesh out my thoughts from RealMoney, and provide for a greater degree of interaction with readers there.

To interact more broadly with the blogosphere, adding my own distinct ideas to the mix.

To develop an investment management shop. Initially, this would be institutional money management on a “long only” and hedged basis. Eventually, I would create a mutual fund so that smaller retail investors can invest with me. I would try to buy up a failed mutual fund shell, allowing a way in that is cheaper, and providing tax-sheltered gains to early investors. But all of this is a dream that might not be realized. Until then, I can tell you about managers who manage money in a way similar to mine.

All of these goals rely on the help of Jesus Christ and my readers. I thank you for taking the time to read what I write.

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