Thu 1 Jun 2006

Big Three Getting What They Deserve

Posted by Jose L. Velez under Business, Daily News
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I have to take a few minutes from my studying to comment on the recent news about the big three automakers’ sales numbers.

GM, Ford, and Chrysler have all posted significant declines in last month’s sales compared to last year because of higher fuel prices AND higher interest rates. For those of you who do not understand what this means, higher fuel prices mean that consumers want MORE EFFICIENT cars and higher interest rates means that consumers want CHEAPER cars because the more you borrow at higher interest rates, the more is costs you. (more…)

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Tue 9 May 2006

Conditional Probability and Arbitrage

Posted by Jose L. Velez under Arbitrage
1 Comment

The relationship between arbitrage opportunity and conditional probability appears to be so straightforward that it may seem dull to dig any deeper; but I consider it interesting and quite revealing.

What is arbitrage? The concept of arbitrage is very simple: profit from buying something at one price and selling it simultaneously at a different price. The key is that you are capitalizing on a price differential. This profit is sometimes called a free lunch or risk-less profit. We see arbitrage every day and probably never even recognize it.

What is conditional probability? It sounds intimidating but it is actually simple and straightforward. Probability is simply the chances of a given event occurring out of a possible set of outcomes. Note that possible is an important word here. If I flip a coin, I know that the only two possible outcomes are head or tails. Conditional probability means that the chances of one event occurring depend on the chances of a prior event happening. For example, if I have a deck of cards and pull two face cards out, then I know that the chances of me pulling another face card have changed.

Going back to the relationship, think about it. It is just something to ponder. Arbitrage is the act of using information that the market has not yet adjusted for and profiting from it. If people are buying King Kong DVDs on EBay for $25 and I know that I can buy them at Wal-Mart for $15, then I will exploit that arbitrage opportunity and make a risk-less profit of $10 per DVD. Not bad. Probability, as does arbitrage, relies on the availability of information. The probability of an outcome occurring, as is the ability to make an arbitrage profit, is dependent upon what we know. As information changes, so does the probability.

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Sun 23 Apr 2006

Gordon Growth Model: Relationship between k and g

Posted by Jose L. Velez under Business, Corporate Finance
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[Gordon Growth Model]: Relationship between k and g

Here it is! For all those times when you were just itching to know about k and g’s relationship, I have taken the time to provide the formulas and a simple mathematical sample. (more…)

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Sun 5 Feb 2006

Customer Stupidity, Lawsuits and iPods

Posted by Jose L. Velez under Daily News, Law, Politics, Society, Statistics
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CNN reports that a man in California is putting together a lawsuit against Apple. The lawsuit is claiming that Apple’s iPods are capable of causing hearing loss to those that use it. (more…)

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Sun 5 Feb 2006

Join the UAW and get paid $26 an hour to do crossword puzzles!

Posted by Jose L. Velez under Business, Corporate Finance, Daily News, Stocks
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crossword puzzleIf you want to know why Ford and GM are having tough times right now, you can start by looking at their Jobs Bank program. The program was started back in the 80′s to ‘protect’ workers from layoffs.

Now, there are thousands of workers literally hanging out in rooms doing everything from sleeping, doing crossword puzzles, and offering community service and getting full time pay and benefits. This program is costing GM alone more than $400 million a year! (more…)

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Wed 1 Feb 2006

State of The Union Address – 2006

Posted by Jose L. Velez under Business, Daily News, Economics, Politics, Real Estate, Society, Stocks
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I was impressed with Bush’s presentation – well done; but I am not moved. He continues to polarize and aggitate. He continues to call anyone who disagrees with him a defeatist, isolationist (incorrectly), or a protectionist.

America is a great nation, but I think it should be more humble; and that includes refraining from saying things like ‘we are the envy of nations’.

He mentioned lots of new initiatives as well as the effects of previous ones. Again, I am not moved. Why he would mention the succes of the No Child Left Behind Act when he has continued to stifle it by not funding it adequately, I can only guess. He says that our economy is doing well… well, I am not a doomsdayer, but I think the jury is still out on that one.  Hold off for a little longer Mr. President.

You see, while you mention GDP I think about higher interest rates and how that will affect spending (the engine of choice in our current economy) as well as how higher short term interest rates will affect the housing market in the long run. I am also deeply concerned about stagnant wage growth and the increasing gap between the rich and poor.

Instead of giving the nation a real state of the union address, he gave us a sugar coated pep talk. When I buy shares of stock in public companies, I listen to the quarterly conference calls made by the top level executives. I, as well as most other prudent investors, tend to respect and give credibility to those executives that highlight their mistakes and problem areas and how they will be addressed. Those executives that simply walk up to the podium and say, “everythings going great guys” deserve that much more scrutiny.

After all, didn’t Kenneth Lay and Jeffrey Skilling say that everything was ok?

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Fri 27 Jan 2006

Letter to Pete Sessions – Support Integrity, follow McCain and Coburn’s lead

Posted by Jose L. Velez under Politics
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I sent this letter to Congressman Pete Sessions today.

December 1, 2005

Congressman Pete Sessions
Park Central VII
12750 Merit Drive, Suite 1434
Dallas, Texas 75251

Congressman Sessions,

As one of your constituents, I am writing you to express my deep concern for the corruption, dishonesty, and questionable dealings that appear to be going on in our government. I do not take comfort in having to pick up the newspaper, only to see yet another article about another politician or lobbyist or other government worker doing something that is unethical and dishonest.

I am equally frustrated with, what seems to be a growing trend, efforts to undermine or circumvent checks and balances as well as processes set up to maximize transparency in our government. Instead of placing a proposal or project out onto the table for debate, politicians are getting creative with ‘earmarks’ and such to pass items that are more than likely representing narrow interests.

That said, I am asking you follow on the initiative some politicians have taken, like that of Senators McCain and Coburn, to stop this rampant abuse of public trust and begin representing the true interest of Americans. I am tired of hearing ‘sound bites’ and insincere public statements. I want to see politicians, regardless of political affiliation, who stand for integrity.

I sincerely thank you for taking the time to read my letter.

Respectfully,

Jose Lionel Velez

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Tue 10 Jan 2006

Why I did NOT buy GM

Posted by Jose L. Velez under Business, Daily News, Stocks
No Comments

I am a dividend yield lover. When I saw GM’s 10% yield earlier this month I was foaming at the mouth. BUT, when I did the math (hmm, $19 stock paying $2 a year in dividends) and considered the fact that this company is in dire straights, I realized that this was a stock to watch, not buy.

I knew that the dividend payout was not sustainable and in fact, any serious investor would agree that to turn this ailing behemoth around, it would need to cut that dividend payout. Yes, saving up to $1 billion a year in dividend payouts would be a start to a more competitive and profitable road for GM.

I only wonder why someone like Krikorian, who is probably GM’s largest shareholder, took so long to ask for this.

Here is the related article.

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Wed 1 Dec 2004

Mancur Olson, The Logic of Collective Action

Posted by Jose L. Velez under Book Reviews, Economics, Human Resources, Labor, Politics, Society, Sociology
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The Logic of Collective Action, written by Mancur Olson, is an in depth discussion of groups and the dynamics involved in their formation, ability to attract members and ability to provide any benefit. He takes a very logical approach to analyzing groups. Step by step he puts the main components of a group together to give a clear understanding of the purpose and function of groups. His thoughtful review and subsequent dismissal of both traditional and orthodox group theories is more than adequately bolstered with strong arguments and compelling evidence. (more…)

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