Wednesday, June 29, 2016

A Bullish Theory Of Asset Liability Management...

ALM or Jackson Pollock?
Pet rocks and asset/liability management (ALM) have a great deal in common. Both make much out of not a lot, are of limited interest even when over-hyped, and retain broad import only for the narrow of mind.

The regulatory community has given little thought (some would say no thought at all) to the human "madness" for economic fads and fashionable thinking.  A serious study of this human phenomenon might be an important exercise for some modern day Darwin with little else to do.  A scholar studying our quantitative "herd hysteria" might possibly propound a new "Origin of the Specious" or formulate a new "Theory of the Survival of the Fetish".

What does make us so ready to regurgitate rubbish on which we lack a cogent grasp?  Why, like moths before a flame, are we so fascinated with the facile seduction of cookbook, cookie-cutter, quantitative solutions with recipes which so consistently prove to be half-baked 

Half-baked, half "aid"!
(…. and quite often "robustly" so!). Why is our trust in common sense and actual experience so filipendulous? 

(You just don't know how hard it is to work a word like that into a narrative!)...

Low hanging fruits?

Much of the current thinking on ALM is obviously ornamental.  The toys of ALM are bright, shiny and plentiful -  what if's, gaps, durations, shock tests, sensitivities and betas.  All fun to play with but often of highly doubtful significance and dubious merit.  Unfortunately, many regulatory practitioners use ALM much as a drunken sailor uses a light post - more for "support" than illumination.  

which way is up?
ALM, in reality, is much like a compass.  Yes, all courses and directions can be displayed; but folks, a compass can neither tell you where you are, nor where you need to go (only bosses and wives can do that!)  And, it should be noted that a compass is little more than a convenience for those truly familiar with the motion of the sun and stars, with the message in moss on trees, and with the underlying logic of the natural order of life - all transparently obvious to an in-tune, real-world practitioner.

In business as in life, true understanding is the most marvelous of directional tools and experience is the heart and soul of understanding.

Brexit B.S., 
Contributing Cap/Mark Consultant

And as we see, yet once again, you can bet your "Brexit" that quants don't know bull !

[... at least not when it counts!]

1 comment:

William Brooks said...

Filipendulous! Mary Poppins would be proud of you for use of such a clever word!

What is really amazing is that ALM has never prevented a failure! Piss poor management and fraud are the leading causes of failure.