How to test a banker

I went to a great surprise party in Jersey on the weekend, I knew no one there but took the liberty to be the only drunken aussie that did the usual, speak to everyone, dance with everyone, always have a drink in atleast one hand and sing out loud to songs you have no clue of the words to. But although a lot of the night was a bit of a blur I do recall one conversation with a well known banker on, Nationalisation.

I mentioned how citi was nationalised and he said, no american bank will get nationalised, yes I coughed in reply and like a cat stalking a lame injured bird or even better like that guy in the corner of a bar that sees a girl stumble out of the bathroom, I pounced. Nationalisation is a topic no one seems to understand, a bit like how in 2008 everyone was saying the data does not suggest we are in a recession then in December of 08 they finally say we have been in a recession for a full year, mmmm these guys are advising you on how to invest?

Well I said to the well dressed banker if your stock price goes from 50 and trickles down to 5 then the govt takes a 40pct stake in you and the stock then goes down to 1.50 I think every shareholder that owns citi would say to you if this isnt nationalisation it sure as hell feels like it, smells like it and if I could touch it.........

Just like the recession last year it felt like one but no one agreed we were in it. Same as nationalisation. You only need 25pct to have real power on a board and 40pct even more so.

So as I could tell I had somehow offended him I continued to do so as no point burning the house you may as well torch the barn too. So I asked him if a magician has 52 cards in a deck, shuffles them and the magician gets his assistant to choose one card, she remembers it and puts it back in to the deck of cards and the magician shuffles the cards again, what probability does he have off choosing the same card she did. Well the banker said 1 in 52 as he sipped his cognac and slapped his wife on the back. NO I said, he has a 100pct chance, you forgot he is a MAGICIAN.

That is why quants, PhDs, majority of hedge funds and research teams missed the housing crisis, credit crisis, commodity bubble, they fail to see whats around the numbers.

Stay short no reason yet to go long, I am always looking for a reason just cant find one yet.

GIDDY UP