ÖThe Devil's Derivatives DictionaryTM Last revised: 08/08/00
| A B C D E F G H I J K L M N O P Q R S T U V W X Y Z # |  |
- K -
- Kahuna, the big
- The Liberal Democratic party’s latest misguided stimulus package for "saving" the Japanese economy. (Paul Podolsky, "Markets Are Puzzled by Japan’s Stimulus Package," WSJ, 3/27/98.)
- kangaroo bond
- A Eurobond, payable in Australian dollars.
- karoshi
- A Japanese term for death from overwork.
- A regrettable, but honorable fate for Salaryman
(q.v.). "A typical tale: 'For 10
years, I never came home before midnight. I had
no weekend, almost no vacation, and no family
life. I was lucky I didn't become a karoshi
statistic.' " (Robert
Juhl)
Another example: "A judge in central Japan's Okayama Prefecture ordered Kawasaki Steel Corp to pay 52 million yen ($403,000) in compensation to the family of Junichi Watanabe, ruling that unreasonable working hours without rest led him to take his life.
…
" Watanabe, 41, jumped to his death from the sixth-floor of a building in June 1991, after working for six months straight with only two days off, NHK said."
– Tokyo, 2/23/98 (Reuters) - A stereotype of Japanese behavior – a "yellow peril" – that German and other employers have used to scare their workers out of lethargy. "During a recent strike in Germany, the management admonished its workers with a poster reading 'Die Konkurrenz im Osten laechelt' (your competition in the Far East is smiling)." (Robert Juhl)
- A relatively rare phenomenon (32 karoshi deaths in 1993, 76 in 1994 with an expanded definition) that has become an urban legend in the West, and which misrepresents normal behavior in the Japanese workplace. With more karoshi and less tobashi (q.v.) and sokaiya (q.v.), perhaps Yamaichi Securities might have survived another 100 years.
- A regrettable, but honorable fate for Salaryman
(q.v.). "A typical tale: 'For 10
years, I never came home before midnight. I had
no weekend, almost no vacation, and no family
life. I was lucky I didn't become a karoshi
statistic.' " (Robert
Juhl)
- keiretsu
- In Japan, a conglomerate or industrial group, such as Mitsubishi, Mitsui, and Sumitomo, that many accuse of trading with itself as much as possible, with other keiretsu to a lesser degree, and with U.S. companies as little as possible. Blaming them – rather than the powerful lure of investment opportunities in the U.S. – for the U.S. current account deficit is a popular pastime. The postwar keiretsu are the direct and only slightly weakened descendants of the prewar zaibatsu, proof that even a couple of atomic bombs and military occupation can't change some bad habits.
- kinyu biggu ban
- Japan's purported "finance big bang", which is well on its way to being a "little fizzle". The name alludes to the "big bang" in the U.S. in 1975 – and later in the U.K. – when the monopolies and cartels that controlled the securities industry in each of those countries lost much of their strength. Increased competition allowed explosive growth and creativity in the U.S. and U.K. securities industries.
- If the MOF stops propping up the cartels in the banking and securities industries and allows new – foreign – bankers and brokers to compete on a level playing field, the newcomers will crush hundreds of domestic banks and brokers and create a new financial order. Along the way $11 trillion will find new management. Encouraging signs: The government allowed Yamaichi and Sanyo Securities (#4 and #7 brokerages) and Hokkaido Tokushoku (#11 bank) to fail in late 1997, which suggests a "hands off" policy. Fixed commissions are supposed to end by the year 2000. Goldman, Sachs management of Japanese mutual funds aimed at local investors has gone from zero dollars to $6 billion since June 1996.
- However, if the MOF merely pretends to let banks and brokers battle it out, Japanese financial markets will remain stodgy and inefficient. Discouraging signs: The MOF does not appear to have broken up the gosoendan (its "convoy" of banks). Japan has a history of refusing to let gaijin firms compete fairly for local business or gaijin managers compete fairly for top jobs in its firms. The antiquated tax code is unfair. Big bang doesn't even attempt to reform Japan's toothless securities laws.
- Prognosis: The Japanese government won't let the gaijin invaders crush the homeboys. Big bang will fizzle.
- (R. Taggart Murphy, "Don't Be Fooled by Japan's Big Bang," Fortune, 12/29/97.)
- kiss
- 1. An unexpected plus in a merger or acquisition: "What a kiss – the buyer just doubled his offer!" (Fortune, 7/6/98.)
- 2. In 1964 at the Tokyo Olympics, Valery Brumel won the gold medal in the high jump and Tamara Press won the gold medal in the women's shot put. The Russian coach kissed Valery Brumel on the lips – as was the customer – but he shook Tamara Press’s hand.
- kiting
- Definition: Pulling one's bank balance up by its bootstraps. Financial legerdemain that consists of moving money so rapidly from checking account to checking account that the banking system starts sees double or even triple.
- Comment: Practitioners may look upon kiting as an unauthorized, private, nonbank attempt to create "float" in the banking system, expand the M-1 money supply and spendable credit, and thus stimulate the economy without troubling the Fed's Mr. Greenspan, whose plate is always rather full, anyway. Bankers, particularly central bankers, tend to see kiting as a dangerous, private usurpation of a sacred, public responsibility. What can we say about the morality of kiting? As Milton Friedman said asked our "Money and Banking" class, rhetorically, "Lives there a man so honest that he's never kited a check?"
- kiwi bond
- A Eurobond, payable in New Zealand’s currency.
- Korea, Inc.
- Proof that in the global economy, as in the family, abused children often pick up the bad habits of their abusers. After a brutal Japanese occupation from 1905 to 1945 (the "First National Disgrace") , the Koreans embraced the Japanese model for economic development. Thus, in Korea the chaebols (q.v.) are to the ruling New Korea Party (NKP) – also known as the "Chaebol Party" – as in Japan the keiretsu (q.v.) are to the ruling Liberal Democratic Party (LDP). Decades of severe misallocation of resources culminated in "National Humiliation Day", 12/3/97, when the IMF pressured Korea to agree (the "Second National Disgrace") to stop squandering its wealth, start reorganizing its economy, and – the cruelest – accept tens of billions of dollars of loans. (See Nicholas D. Kristof, "Many Proud South Koreans Resent Bailout From Abroad," New York Times, 12/11/97.)
- kurtosis
- A measure of the size of one's tail, if one is a probability distribution.
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- L -
- leptokurtosis
- Having a fat tail. Said of a probability distribution, not an obese person.
- levered flyout
- "When a consultant gets a client to pay for a trip so that he or she can visit another pet project that's not as well funded." ("Jargon Watch," Wired, April 1998.)
- lie
- 1. Something that George Washington said he could not tell and Bill Clinton said he did not ask anyone else to tell – ever!
- 2. What George and Bill told when making the statements in #1.
- Limit Order
- The financial market's "kick me" sign.
- literati
- In 1498, those who knew how to read. In 1998, those who know what to read.
- loan program
- A device by which a nervous corporate management can try to lift its own share price by its own bootstraps. A way to "paint the tape" (q.v.).
- The corporation lends executives money to buy shares in the corporation, perhaps guaranteeing the loans or forgiving them, later, thus protecting the executives from the consequences of a subsequent fall in share price. The buyers report their inside purchases promptly, but the corporations reveal the details of the loan programs slowly – if at all. Naive, outside investors – but I repeat myself – may falsely interpret the insider purchases as a vote of confidence in the corporation. (Gretchen Morgenson, "Insider Buying: Beyond The Spin," New York Times, 11/15/98.)
- locked market
- A market run by tooth fairies, where the bid equals the ask.
In a locked market the bid equals the ask, which is a difficult position to maintain. In both theory and practice, dealers don't maintain it. Nor is a prolongued locked market required to make money. Instead, a dealer locks the market for an instant to set a spurious underlying price and a confederate takes the profits in an ill-designed derivatives market. (Leslie Eaton, "Nasdaq Fines Morgan Stanley $1 Million, NYT, 4/14/98. "NASD Fines Morgan Stanley $1 Million For Allegedly Manipulating Stock Prices," WSJ, 4/14/98.)- lockup
- Definition: 1. Trick handcuffs for IPO
insiders. The lockup makes it appear that shareholders and insiders are
bound together, like Tony Curtis and Sidney Poitier, as white and black
escapees from a chain gang, in Stanley Kramer's The Defiant Ones
(1958). In reality they are bound together more like the conmen that Paul
Newman and Robert Redford play in George Roy Hill's The Sting
(1973). 2. An agreement between the issuer and underwriter that
prohibits insiders from selling their holdings in the company during the
"lockup period" of 180 days, or less.
Comment: The key to the trick handcuffs is the "piggyback" deal (q.v.), which is a public offering of shares, soon after the IPO and including some of the insider shares.
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- M -
- market maker
- A finance professional who makes his living by robbing Peter (the liquidity trader) to pay Paul (the information trader).
- market neutral strategy
- An ingenious plan, involving both long and short positions in a given market, that can lock in a serious, even fatal loss, regardless of whether the market goes up, down, or sideways.
- megabite
- A million-dollar hit to P&L. Cf. Megabyte, Gigabite.
- Megabyte
- "Abbreviated as MB. A unit of memory equal to one million bytes." "Jargon Watch,"
- Technology Buyer's Guide, Winter 1998, p. 12. Cf. Megabite.
- Michael Jordan effect
- What happens when an enormous talent in one field decides
at an advanced age that he'd really rather stand out in
another field, as basketball superstar Michael Jordan
found out when he decided that he really wanted to be a
baseball star.
Derivatives Application: What happened to General Electric when it decided to buy a troubled investment bank (Kidder, Peabody) and put a perfectly fine nonfinancial manager in charge of a team of skilled professionals whose core business was putting things over on perfectly fine nonfinancial managers. Considering that while GE was "in control" of Kidder, Kidder lost about a quarter of a billion dollars doing "arbitrage" in strips and recons, GE's lucky it survived the experiment.
- [The] Money Honey
- Maria Bartiromo, the CNBC anchorwoman who needs a spray gun to apply lipstick in the morning, the answer to the prayers of all those men whose devotion to financial news makes it otherwise impossible to think about sex while the markets are open.
- mooning the giant
- A suicidal act that is bound to antagonize a large, threatening entity. What Netscape did to Microsoft, including "calling Microsoft an irrelevant technology" that the Netscape browers would replace, calling Microsoft the "Death Star" and claiming that a rebel alliance would defeat it, as in Star Wars. (David B. Yoffie and Michael Cusumano, "A Deal That’s Good for the Internet …," Wall Street Journal, 11/25/98.)
- moral hazard
- The insurance industry’s name for fact that a good product leads to bad behavior. For example, a person who buys an insurance policy takes fewer precautions against the insured risk.
- Mr. Five Percent
- Living proof that size isn't everything. He allegedly owned five percent of the world's copper supply, his enormous trades moved the market, and he lost $2.6 billion for Sumitomo. Another nickname for Yasuo Hamanaka ("Mr. Copper"). Cf. "gigabite". (Thanks to Ann Van Mele of Lester Associates, Inc.)
- Mr. Ten Percent
- A number of men have assumed this title, including:
1. Pakistani President Benazir's Bhutto's husband, Asif Zardari, "originally known as 'Mr Ten Percent', had his name changed to 'Mr Forty Percent' after his appointment as Minister for Investments." (http://www.arab.net/arabview/articles/maeena5.html, http://ipc-dev.usc.edu:81/archives/rundown/1996/11.05.html)
2. Mexican President Carlos Salinas's brother, Raul Salinas, had the nickname "Mr. Ten Percent", at least in Mexican business and political circles. (http://www.cs.unb.ca/~alopez-o/politics/interoppenheimer.html)
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- N -
- Naive Empiricism
- Definition: "The idea that it's safe to pet a crocodile, since it hasn't moved much recently." Example: The idea that it is safe to borrow dollars at six percent and buy peso bonds paying twelve percent, since the peso has been steady, relative to the dollar.
- Source: David DeRosa.
- Applications: Value at Risk, GARCH forecasting.
- Usage: "The roots of Long Term Capital Management's collapse are anchored firmly and deeply in an extreme form of naive empiricism."
- Naive Empiricism
- Definition: "The idea that it's safe to pet a crocodile, since it hasn't moved much recently." Example: The idea that it is safe to borrow dollars at six percent and buy peso bonds paying twelve percent, since the peso has been steady, relative to the dollar.
- Source: David DeRosa.
- Applications: Value at Risk, GARCH forecasting.
- Usage: "The roots of Long Term Capital Management's collapse are anchored firmly and deeply in an extreme form of naive empiricism."
- Naked Position
- An unhedged securities position, typically a short option position. Can be embarrassing if executed poorly or assumed at an inopportune moment, but highly pleasurable at the right time and place.
- Niederhoffer, Victor
- The author (The Education of a Speculator) and hedge fund manager most recently caught in a naked position (q.v.) and severely embarrassed. Niederhoffer's fund (RIP) was fatally attracted to short, deep out-of-the-money puts on the S&P 500 index.
Of his rise and fall to date, consider the following: "Victor Niederhoffer is a brilliant trader who has been beating the markets for the past 20 years (his $80 million fund was up 44% in '96)." (ELDER.COM Financial Trading Inc.) Unfortunately, it was also down 100% on a single day, October 27, 1997.
- [El] Nino
- Everybody’s whipping boy in 1998. Lost money on your position in orange juice futures? Blame El Nino. "The Boy Child," baby Jesus, in Spanish. Source of floods, tornadoes, forest fires, drought, avalanches, mudslides, plagues, and heat waves. Father of a billion fleas, overflowing septic tanks, a slowing in Earth’s rotation. (Cynthia Crossen, "Those Corrections On Page A2 Today Are El Nino’s Fault," WSJ, 4/17/98.)
- notional principal
- The imaginary principal sum that no one really lent and no one really borrowed, but which serves as the basis for calculating the tangible interest that the paying party pays the receiving party in one leg of a swap.
- notional principle
- The imaginary principle which a hypocrite claims to support, while pursuing his true interest elsewhere. Examples: principle of the Clinton administration is a woman's right to freedom from sexual harassment. A notional principle of the Republic Congress is campaign finance reform.
- numerati
- What the literati call anybody who knows how to count higher than 10. Cf. digerati.
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- O -
- obstruction of justice
- A crime of gross ignorance or stupidity that only an ignoramus commits, after an official investigation begins. This provides a perfect example of how education fights crime. We could eradicate the crime of obstruction of justice by providing everyone with an adequate legal education. An educated persons, namely, an attorney, avoids any hint of obstruction by covering his tracks either before the investigation begins or by means of hints, insinuations, and implications. (Leo Katz, "Subornation of Perjury: A Definition," WSJ, 3/16/98.)
- Off the Desk
- Definition: Absent from one's post at a sales and trading operation. Most likely at lunch, in the loo, taking a smoke, or just dodging the caller. Rarely, calling on customers or talking to senior management.
- Usage: "Can I take a message? He's off the desk at the moment."
- Comment: In some juvenile minds this expression evokes the highly misleading image of a chimpanzee that has temporarily scampered off the desk to pick bananas from a nearby tree.
- Off-the-run Treasury
- A Treasury security that doesn't get out much.
- 8/28/00 O'Hare spread
- Definition: An insanely large
position in a futures market, plus a cab ride to the airport. At the end
of the day, either you've made a lot of money and you hop a plane to
Hawaii, or you've lost much more than you have and you hop a plane to
someplace out of reach of U.S. justice.
Source: Ted C. Fishman, "...Almost," Worth, 1/94, 2000http://www.worth.com/articles/Z9401F04.html. - On-the-run Treasury
- The newest newborn in a family of children that will fully mature at the same age, then immediately cease to exist.
- open the kimono
- Japanese for "Let it all hang out." To disclose completely the financial and operating condition for a prospective buyer or partner. Probably originated during the 1980s, when Japanese firms acquired many U.S. firms. (Steven Greenhouse, "Braindump on the Blue Badge: A Guide to Microspeak," New York Times, 8/13/98.)
- OPM
- Definition: Other People's Money – money belong to a trader's employer or a money manager's client.
- Pronunciation: "OH-pee-um".
- Comment: In the wrong hands OPM is just as intoxicating and dangerous as opium.
- Optimist
- Definition: An ant crawling up an elephant's leg with rape on its mind.
- Examples: Optimistic investors in Hong Kong companies and real estate confidently anticipate the former colony's takeover of the world's most populous country and only remaining significant Communist kleptocracy.
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