ECONOMICS: illiquid assets should be “marked to market” of zero!

Caution Is The Better Part Of Valor… Again
by Tyler Durden
Friday, Mar 24, 2023 – 02:25 PM

Authored by Peter Tchir via Academy Securities

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I did not like what happened on Wednesday and reiterated that view as stocks were popping yesterday morning. Today, a relatively calm overnight session got spooked as European bank CDS (particularly contracts linked to sub debt) spiked. That continued into the U.S. session until headlines that Treasury Secretary Yellen had convened a FSOC meeting. Maybe something comes out of that meeting, but here are issues that I think resurface once that meeting is done, unless something surprisingly aggressive is done (I don’t expect that).

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The “Unrealized” Mark to Market Losses

I remain dumbfounded by some of the duration risk that was obviously taken at, at least, one bank. The sense that I get, from talking to people is more time is being spent on what other issues could be out there?

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One of the Managing Directors, that I respected from my days on Wall Street, was a real hard ass as a risk manager. I remember hearing many profound and LOUD screaming matches with traders and portfolio managers about “mark to market”.  As an IT guy I had heard the term, but didn’t grok (gestalt) it, until I heard some of his rants. (It was hard NOT to hear them screaming.)

His rule was, if someone said something was worth X and he didn’t think so  — especially if it was illiquid or had no active market, then he’d offer to put it in their personal portfolio at that value.  Otherwise, it was “marked to market” at ZERO.  (I really had to laugh when the eventually ended with “why would I want that junk in my personal portfolio?” Followed by the final nail in the coffin: “Why would the Firm want it in theirs at that price?”  I think those disagreements could have had tickets to watch that rival WWE matches.)

So, everyone should “market to market” all their assets as if you were a risk manager.  And, don’t think that your job is a risk-free asset. 


Note: A good post for April Fool’s Day!

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