patrick.net

Peter P, did your Puts get filled?

Yep. :)

How goes the 10 sigma event?

Do you mean the October event?

Just to clarify: I did expect a small bounce today. However, I significantly underestimated the size of the rally. Byt hey, the market is quite random, right? ;)

Byt hey, the market is quite random, right? ;)

In fact, it is a random walk.

Head of FNM is a hybrid believer: High end will burst, mid and low will appreciate but at slower pace.

Hybrids are hot nowadays, in light of high gas prices.

More price compression? One day, a low end home will cost twice as much as a high end home.

In fact, it is a random walk.

You did not expect me to believe this, did you?

Random walk theory is as good as natural order and financial astrology.

The truth is somewhere in between.

October started yesterday?

Did I explicitly say the FNM drop yesterday was the 10 sigma event?

That’s the inverted curve you guys warn about?

Right. 2M shitboxes in East San Jose and 1M houses in the Marina.

Interesting article today in WSJ about Banks tightening leanding standards…effects of flat yeild curve starting to show

Good observation. The reflexivity between tightening standards and cooling prices will soon turn the market and reinforce a new trend.

So true that media in general is merely an advert. vehicle, while people ironically turn to them for objective info (or at least what they want to hear). Isn’t it a good thing how the Web provides the public with alternate sources of information?

I really think the internet has been a great influence on the media. It's a lot harder to force-feed the public canned news items when there are other avenues of information availiable. I think the days of having news anchors like Cronkite set the agenda are over.

I also think it's a good thing the public is aware that a lot of news outlets have agenda's that might conflict with reporting the news accurately. Ratings play a part as does advertising. But a lot of the news outlets are owned by larger corporations that have financial interests in all kinds of business, and they will try their hardest to keep a story out of the news if it impacts them financially. Personally I think big business affects accuracy more often than politics.

I really think the internet has been a great influence on the media.

Yes, we are part of the media now, as a blog. SactoQt, you have returned to journalism without knowing it.

Yes, we are part of the media now, as a blog. SactoQt, you have returned to journalism without knowing it.

It wasn't my original intention, but it is similar in that we are exchanging news via articles on other sites and newspapers. Also, the exchange of opinions is a lot like an op-ed page. Personally I have become a fan of the internet just because it is hard to bury stories when there are so many avenues for information to be shared. Just keep in mind that info on the net has the same danger of being inaccurate as everything else.

t a lot of the news outlets are owned by larger corporations that have financial interests in all kinds of business, and they will try their hardest to keep a story out of the news if it impacts them financially.

I'm positive many media groups (and their parent companies) are heavily invested in RE presently. This sector has seen the most growth. So they parade out the RE pundits to keep it going as long as possible.

I’m positive many media groups (and their parent companies) are heavily invested in RE presently. This sector has seen the most growth. So they parade out the RE pundits to keep it going as long as possible.

Very possble. Who knows, they may be heavily invested in mortgage/RE and any number of related fields. Another thing, these media outlets can find any number of "experts" who'll say whatever they want them to. Kind of like the legal "experts" brought into a trial to testify that the ax muderer on trial for murder 1 is not a danger to society anymore.

I think big business affects accuracy more because the company that owns the media outlet will try to silence a story that will affect them financially. A political story may be affected if the news writer has a particular bias, but the news outlet won't be as inclined to stop the story in it's tracks.

Very possble. Who knows, they may be heavily invested in mortgage/RE and any number of related fields.

Sure...sorta going by "gut feelings" and articles detailing corporate growth based soley on RE interests. Personally, I think we'll be shocked (in retrospect) at how much money was thrown at residential RE.

Since this is an FNM thread, how might reporting favorably about FNM (in spite of its troubles) benefit the media outlet, for example?

It probably has to do with where the media outlet has their money tied up. I have seen news stories about large corporations where the anchor "discloses" that the corporation is owned by the parent company of the news outlet. I am sure that they only report on misdeeds by the company when it is no longer possible to keep it under wraps; and then you can be sure that the story is kept as non-descript as possible.

As far as cronyism goes, I'm thinking it's probably a case of "you scratch my back, I'll scratch yours." I'm positive that there are publicists that work with most politicians who try to "leak" stories of various spins. Political reporters probably learn early that staying on the good side of most politicians will allow them to get a juicy tidbit from time to time.

Duh, I forgot about the leak scenario. I guess if you have THE story, you get the ratings……Thanks for a jounalist’s perspective!

I think I am more of a cynic than a journalist these days. ;)
I did learn a lot from my brief time in the industry though. It's unfortunate but working in the media takes away a lot of a person's idealism. Funny don't you think? An industry that should be about honesty and objectivity is one of the most cynical, calculating businesses I have ever worked in.

An industry that should be about honesty and objectivity is one of the most cynical, calculating businesses I have ever worked in.

Which industry still has honesty and objectivity? Hmm...

How about the RE appraisal industry? ;)

Which industry still has honesty and objectivity? Hmm…

Ummmm.......That'll take some thought.

Other than truths and lies, we still have spins.

big business is the absence of regulation.

Or... big business is too much favorable regulation

Truth: when your house floats, chances of getting a HELOC are gone. Spin: he doesn’t make them aware that they won’t be able to sell that home to pay the loan off.

Truth: after we get your business in refinancing, we do not care if you can never pay back. Our mandatory credit counseling unit and bankruptcy legal service unit may be able to help.

Well, straying OT from the other OT topics, here's a nicely written article, with a smattering of data, regarding current mortgage situation & possible future ramifications:
http://www.inman.com/inmannews.aspx?ID=48166

Here's a tidbit:
"Three years ago, interest-only mortgages comprised about 2 percent of the market, Don Bisenius, senior vice president, credit risk management, Freddie Mac, has told Inman News.
Today, this once-fringe financing vehicle – originally meant for high-net-worth clients desiring investment liquidity – is up to 15 percent (in some high-priced areas, like California, that number is reported to be 50 percent)."

15% of the national mortgage market seems high...looks like everyone's following California's "progressive" lead.

Ramifications? I suggest we as a society to take a step back from blindly promoting homeownership. It is seriously overrated. (Jack, even great things can be overrated, so forgive me.)

Random walk theory is as good as natural order and financial astrology.

The trouble is the theory is well supported emperically. It only applies to day-to-day price changes. But, I assure you daily price changes abide by the properties of Brownian Motion.

Ramifications? I suggest we as a society to take a step back from blindly promoting homeownership. It is seriously overrated.

Are you implicating general owernship of private property? I'm not so sure asset ownership is all that overrated, homes included.

Are you implicating general owernship of private property? I’m not so sure asset ownership is all that overrated, homes included.

Not general ownership of private property, but debt-financed homeownership for the sake of homeownership itself.

The trouble is the theory is well supported emperically. It only applies to day-to-day price changes. But, I assure you daily price changes abide by the properties of Brownian Motion.

True enough. Was it emperically determined using daily price information?

But, I assure you daily price changes abide by the properties of Brownian Motion.

Except when there is a 10-sigma event. ;)

I call it home debtorship.

Exactly. It should not be promoted with such emotional fervor at the government level.

looking into overseas work opportunities

I am sure there are lots.

Is it October yet?

Just wait, will you.

11-sigma event in November and 12-sigma event in December. Calm and peaceful in January.

Except when there is a 10-sigma event. ;)

First, high sigma events are not precluded by Brownian Motion or random-walk theory; they are just rare.

Second, don't rely on high sigma events for prediction too heavily. Very few high sigma events hold up after careful analysis because (a) variance measurements depend upon the central tendency being properly determined. This relies upon the thoroughness of accounting for all the variables...often in post-event analysis new variables are discovered. (b) central tendency requires that the phenomena has been studied long enough to account for the true "likelihoods" of "unlikely" events. Sometimes we just don't know how common the uncommon is until it happens. Weather and earthquakes fall in this category.

Second, don’t rely on high sigma events for prediction too heavily.

It is worse to rely on ignoring high sigma events for risk management, isn't it? ;)

Well I will be having to buy three more houses in the next 4 to 8 years for my three daughters, so I hope you fellas are right about this crash thing so that the kids can be housed in the manner in which they have become acustom.

No wonder they say daughters are expensive. ;)

Well, if prices do not come down I am sure you are wealthy enough to handle three more houses.

what in friggen hell is a sigma event

I am not a finance person but a sigma refers to one standard deviation away from the norm. If an event with many sigma is very rare because it is way deviated from the norm.

I believe sigma comes from statistics.

Randy, you can explain better than me.

Sadly, where I (and surferx) live housing costs are far beyond the vast majority of young people. I’ll be happy to keep them close.

How about a triplex for all three?

How old are your daughters? Maybe we can work something out. :)

I won't worry about anything beyond 3 sigmas. If a 10-sigma event happens, well, all I can say is, shit happens.

Standard Deviation (or "sigma", the greek letter that is used by statisticians to denote std dev):

For a normal distribution ("normal" is the key word here; the mound shaped "bell curve"):
68% of all observations of a sample with an underlying normal distribution will occur within 1-sigma;
95% of all obs within 2sigma
99.7% of all obs within 3sigma

a 10sigma event should occur about 1:1x10^alot

This is called the "Emperical Rule"

By the way, this is all statistics, not finance. Often in basic finance classes they'll use a normal distribution to APPROXIMATE an underlying population of events, like stock prices.

In intermediate courses these assumptions are changed and the asset prices are assumed to be log-normal, which means the Emperical Rule has a different interpretation.

In advanced courses the underlying distributions are assumed to be min/max-extreme, beta, or exotic (a newer area of study). Exotic distributions are basically multiple distribution types merged into a larger distribution. For example, prices may be beta or lognormal, but at the thresholds become exponential, log, or worse.

There is emerging controversy about the use of statistical methods for financial analysis, although it is generally accepted as useful and accurate for "normal" (no pun) times. But at the margins, either for an individual asset or for aggregates, statistical methods tend to not work as well. These are the "gut feel" or behavioral finance variable(s).

**disclaimer, I know a quite a bit of stats, but I theoretically consider the discipline a bit of black magik. When applied to real-world decisions about finance, it is very useful for everyday stuff, but pretty useless for marginal event prediction

ok finance people. what in friggen hell is a sigma event?

If these guys want anybody else to understand, much less contribute to these threads, they could provide some form of glossary for all these terms....no?

glossary for all these terms

Trog afraid of book, book bad.