I made an allocation switch from DJP (commodity futures) to IPE. IPE, also known as SPDR Barclays Capital TIPS, is an inflation protecting product that is likely to be a more attractive choice to investors as worries of a stagflating (a economy in recession and inflation) economy hits the streets. Previously only available as relatively non-liquid securities from the US treasury, Treasury Inflation-Protected Securities, or TIPS, are essentially medium to long term bonds indexed to an inflation index such as the Consumer Price Index.

In fact, TIPS can even be global - a newly released ETF called the SPDR DB International Government Inflation-Protected Bond ETF (Symbol: WIP) is the first global ETF to launch in the states. I went with IPE instead because of its rock bottom expense ratio (0.19%) and my already significant international diversification - for such a low-yielding product, expense ratios are key. WIP, meanwhile, weighs in at a reasonable 0.50%, but it could be lower. If you're looking to add some negative beta to your portfolio … you can't go wrong with TIPS.

Whenever I run a blog, this happens. I don't get it updated on time.

Anyways, to start off, here's a presentation from JP Morgan about the "strategic rationales" for acquiring Bear Stearns. Questions obviously arise as to the motive of this acquisition: was it just a bail-out, or was it JPM looking to gain at least some human resources from Bear?

Some "almost-facts":

• Discounting the cost of infrastructure, Bear is essentially PAYING 1 billion for a bailout by JPM. It's obvious that the acquisition was not done of a purely profit motive.
• The Fed allowing security companies to borrow at a discount rate is motivated by JPM's acquisition.
• The market is really looking forward to a 100 bps cut soon .. in fact, its already probably priced in, barring that we don't decline further.

More on this later.

A study done by Daniel E. Goldstein, We Don't Quite Know What We are Talking About When We Talk About Volatility, show that humans beings, even financial professionals, habitually underestimate standard deviation when given absolute (mean) deviations, on an average of about 25%. CXO Advisory elaborates that:

• Only 3 of 87 respondents provide the correct value for the standard deviation.
• The ratio of too-low answers to too-high answers is 6.5:1, with the typical response 25% below the actual standard deviation.
• Real-life asset returns generally do not have normal distributions, and extrapolating the reasoning used by most respondents to some "fat tailed" asset returns would result in underestimation of the standard deviation by 90%. Confusion regarding measures of market variability is therefore consequential for decision making.

This is obviously detrimental to decision making, and is partially the reason that people simply aren't rational when it comes to even a coarse estimate of volatility -> risk. But the 3rd point brings up an important issue with this view - perhaps for the stock market at least, standard deviations are simply unsuitable for describing distributions with significant (positive) kurtosis?

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Cool.

Following up on the current Shanghai bubble-mania is an interesting study done by Eric Savitz at seekingalpha. It seems that as far as bubbles go — well, investors simply don't have patience. One market's loss is another market's gain, or something like that: