Monday, October 09, 2006


Well, if the blog profile didn't scare you off already, welcome! Fuzzynumbers is where my discussions about emerging market models and related economic and technology aspects are thrown out for a little areopagitica (truth and falsehood beating each other over the head).

If you're a follower of financial markets, you may be aware of Omaha resident Warren Buffett and his firm Berkshire Hathaway. Warren's company has a unique "User's Manual" (which is required reading for those who invest in individual company stocks!). I'll present you with the highly condenced FuzzyNumbers version of that manual to kick things off around here:

1. What can you expect from FuzzyNumbers?

FuzzyNumbers is my forum for putting out ideas developed internally as well as observed externally and deserving of some attention, usually relating to capital markets, economics and related technological aspects. If you're interested in emerging markets, exchange traded funds, and really the whole gammit of the types of risk that tend to cause emerging markets catastrophies, FuzzyNumbers might be worth your time.

A lot of my focus is in risk management models for emerging equity markets. I closely follow Central Europe and India in analyst mode and attempt to appropriately cover the gammit of other emerging markets, albeit at a higher level. However, I hopefully won't bore you with excessive analyst detail and will keep things clear enough that it's useful to a general reader interested in the topic but not necessarily possessing the same expertise.

Better yet, I've found that coverage of market catastrophies tends to provide better entertainment value than the dry stuff finance and economics is usually known for - sort of like watching Amazing Sports Disasters videos. As I encourage my kids to learn from others misfortunes, the astute FuzzyNumbers reader will hopefully gain a similar return.

2. What's your bias?

As emerging market catastrophies are quite an interest that will be encountered here, I should profess a bit of bias in my approach to why these things tend to happen more frequently than some say they should. I'm quite partial to the endengenous model, which suggests that failure and catastrophy are built into the system rather than caused exclusively by external events (exogenous model).

Consider the recent plight of the hedge fund firm Amaranth in its multi-billion dollar natural gas market, or the exceptional collapse of Long-Term Capital Management. While some point to the absence of an active hurricane season causing Amaranth's leveraged position to become problematic, or the international currency devaluations that tripped up LTCM, a more careful analysis of these episodes indicates that much of the catastrophic risk was built into the market and the firms approach to it. How curious is it that the lack of a natural catastrophy e.g. hurricane caused a real one for Amaranth?

Thought of from an endegenous perspective, risk is inherent within the process (and is often magnified by our interaction with it, as LTCM and Amaranth can attest). The bad news is that this suggests we're unable to build perfect, risk-free models. The good news is that it provides for constant opportunity (as risk usually requires return), and hopefully if we recognize risk is inherent, we might take positions that expect and mitigate it.

3. What's the credibility of the information here?

My perspective is probably atypical to the extent of really classifying as an outlier in many respects to emerging markets analysis. I spent over 15-years of my career directly in the dot-com market, seeing aspects of capital formation and business operation that would probably violate most business theories tought. Responsible for starting the very first dot-com in the north-central United States (a Commercial Internet Exchange peering backbone Internet provider), I experienced an interesting world that ranged from predatory venture capital to penny stock scams. From raising capital in Geneva and Stockholm to dealing with Inacom executives with ulterior motives, I can certainly associate with the expression "swimming with sharks."

Following that adventure, worked with a business that developed a consumer electronics digital merchandising technology that was developed for use at Berkshire Hathaway-owned retailers. I moved from that adventure to overseeing a multinational voice and data network in emerging markets (Latin America, Spain and the Middle East) which helped kick off my expanded interest in emerging markets. The past few years, I've worked as an enterprise and information systems risk manager and analyst in the commercial bank industry the past few years and have to obligatory CISA and CISSP certifications.

4. What's my expected return out of this effort?

After too many years of living in an exceptionally wide standard deviation environment, I've migrated to a more focused finance and economics approach. Call it the self-discovery of high volatility and diminishing realized financial returns! While the education has been invaluable, the experience has certainly taught me that one who ignores risk is almost certain to fail.

FuzzyNumbers is my opportunity to share analysis and perspectives on risk, especially when it appears the firm or market has approached it in an unorthodox way (whether that's positive or not). The utility of this information to you (whether for informational or amusement purposes) and the process of attaining feedback and unique perspective on the analysis and models presented here is the return I'm seeking.

5. What do I expect of you?

If you find a discussion of interest or profoundly disagree, I'd really value your comments on the thread. If you're a fellow traveler in emerging market risk analysis, I'd very mcch like to hear from you as well.

6. What conflicts and disclaimers should be made?

I'll do my best to clearly disclose if I have any financial interest in any security or entity discussed here. I do not discuss issues respective to clients I work with, either through the information risk management firm I do consulting work through or my enterprise and financial risk management consulting firm, unless expressly released in writing by the client or represent in abstract forms that does not reveal the client.

With all that said, welcome and enjoy.


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