how (un)real is this? see last linehttp://www.bloomberg.com/apps/news?pid=2060108 ... refer=home

You can't really go back to a pre-quant dark ages! Instruments will get simpler for a while, and the business (and hence job numbers) will contract, again for a while. If banks had any sense they'd spend the next year or two getting their people better educated, so that they don't just implement the stupid models (see our Name and Shame results). And I don't count Masters programmes as a good education, as you probably know!But people have very short memories. Remember when VIX was 10% and people were asking whether volatility was dead forever? Now VIX at 80% feels almost normal. So people will forget. Maybe even CDOs will come back (in a slightly different form cunningly reinvented by clever quants, lawyers and accountants so as not to frighten the horses!). The question is what regulations will be put in place during this short window while people are all in a fluster? Will there be regulations about transparency, compensation or diversification? I hope so. Or will lawmakers take so long getting their acts together that nothing happens, people's minds wander to the next crisis, war, global warming, John Sergeant, and banking returns to business as usual.P

Isn't complexity monotonically increasing? Unless we enter a serious new Dark Ages, civilization won't forget how to make cement or CDOs. The volume of production of complex products may drop, but the latent knowledge of quanting will remain and people will find ways to use it. Yes, the focus will shift in subtle ways -- e.g., less quanting-for-leverage and more quanting-for-restructuring -- but the underlying need for structuring and evaluating a pattern of contractual or contingent cash events in a complex environment will remain.There's also the spillovers that may lead to new and interesting new ventures. In recent years, an excess supply of graduate physics labor spilled over into finance (for better or for worse!) to create a boom in high-end quanting. Now, an excess supply of quant labor will spillover into something else, probably a myriad of something elses. For example, our local power company just installed "smart" meters and wants homes to connect their central air conditioning systems into these meters. The idea is that during a local demand spike, the power company could regulate the on/off cycles of millions of air conditioners so they don't all turn on at the same time. Modeling and managing all that is not unlike statistical arbitrage (or perhaps we should call it electrical arbitrage).

Everybody is in the mood at the moment for seeing bad news in everything. Back in July Oil got to USD147. There were articles in 'The Economist' on peak oil and Goldman Sachs (whatever happened to them!) were predicting that oil would reach USD250 per barrel. Last night the BBC 10 o'clock news opening item was on the gloomy outlook for the economy because oil had dropped below USD50 per barrel.Hold on..... Hold on.... Hold on. What's good for the economy, oil that only the super-rich can buy or oil that anyone can buy.Cheap oil is good for the economy. Admittedly, the exchequer's tax revenues from oil companies will drop but cheap oil will boost the economy and provide revenues from other industries.As for talk of the great depression and the second world war. I grew up in the 1970s when the UK was plagued by power cuts, 3 day weeks and the dead lying unburied in mortuaries. During the period many punters claimed we were going back to the depression of the 30s. My dear old late grandmother, who lived through the depression used to get really angry because despite how grim things were in the 1970s they were nothing as to how bad things were in the 30s. I can tell you no matter how bad things get now, it will not be the same as the 1970s, let alone the thirties.The problem is that we live in a 24x7 news society where there are acres of column inches and broadcast time which has to be filled with reportage. And 90% of it is just noise. The noise is so deafening that it is virtually impossible to detect the signal.Yes, things are bad and they will almost certainly get worse next year. However, we have had financial crisis before and we will have them again. Yes, the need for Financial Engineers will decline as will the need for everyone else involved in any industry. But in a couple of years it will be 'Turn Again Dick Whittington, thrice Lord Mayor of London' and the banking industry will start to expand again.Back in the eighties there was a product called the 'Junk Bond' and they ended up causing a lot of problems. Admittedly, not as big as we are seeing at the moment but then the economy is far bigger and far more global now.

I think the article is non-sense. Times are tough but there is absolutely no shortage of work to do, and the market volatility has vastly increased the amount of work that has had to have been done by mathematical types.

What's funny is that people are always looking for a reason that the world is ending. When oil was $150, this was a very bad thing that was the end of the world. Now oil is $50, this is a very bad thing that is the end of the world. Never mind the 1930's, so far there hasn't been nearly the sort of global economic damage that has resulted from the Asian crisis.

I think phil451 makes some valid points ..... the 24/7 Sky/Fox News is just ridiculous but unfortunately media coverage has been stoking the fire for the last 5-6 years. If we went back to the daily paper and one news show when you get home after work I would suspect there would be far less hysteria out there. This is not to lessen the impact of leverage, risk and the free credit that was around but I think people would be more rational and less afraid if there was not 24/7 dooms-day type sh*t out there

QuoteOriginally posted by: CompPDEThis is not to lessen the impact of leverage, risk and the free credit that was around but I think people would be more rational and less afraid if there was not 24/7 dooms-day type sh*t out thereWhat's really ironic is that the media is really quiet when things really are about to fall apart. I remember the night that Lehman fell. I was watching Fox News (because I couldn't get CNN), and they spent five minutes talking about Lehman before they went to talk about the dog in Arizona that saved his owners life by calling 911.When things really were falling apart in September, the media was saying nothing. Now that the financial system has hit bottom, the media is screaming about how things are falling apart.Banks are laying off people new, because it's evaluation time, and this is a good time to figure out who you want to throw out of the plane. However, you will note that people have been posting on this group asking for interview advice, which tells you something.

QuoteOriginally posted by: twofishWhat's funny is that people are always looking for a reason that the world is ending. When oil was $150, this was a very bad thing that was the end of the world. Now oil is $50, this is a very bad thing that is the end of the world. Never mind the 1930's, so far there hasn't been nearly the sort of global economic damage that has resulted from the Asian crisis.I think the reason for $50 per barrell of oil being scary is that the price fell so much not because we've found so much new oil, but because of the (expected) drop in the economical activity in the world.

QuoteOriginally posted by: katastrofaQuoteOriginally posted by: twofishWhat's funny is that people are always looking for a reason that the world is ending. When oil was $150, this was a very bad thing that was the end of the world. Now oil is $50, this is a very bad thing that is the end of the world. Never mind the 1930's, so far there hasn't been nearly the sort of global economic damage that has resulted from the Asian crisis.I think the reason for $50 per barrell of oil being scary is that the price fell so much not because we've found so much new oil, but because of the (expected) drop in the economical activity in the world.Yes, the price drop is an indicator of future declines in demand.Moreover, the gyrations can be as damaging as the levels. Every time oil jumps 10%, someone loses money. And every time oil slumps 10%, someone loses money. And sometimes the same company (e.g. United Airlines) loses money both on the upswing and the downswing. Even if a company uses hedging, they still face competitive disadvantages relative to other companies with other hedging strategies.Price instabilities induce shocks that drive firms into bankruptcy and inhibit investment in long-term projects. The result means reduced efficiency of capital deployment, higher unemployment, and reduced GDP growth. That's why so many central bankers have a "price stability" mandate.

Maybe the drop in oil is partially due to investment firms unloading commodities positions? When the oil was rising like crazy everyone jumped in to get their share. Now that margins have to be maintained, everyone's unloading everything, including oil. So you really think a drop from 150 to 50 mostly reflects the expected drop in oil consumption? That would imply that production would decrease dramatically in the major industrial countries which is hard to believe. People speculated, now people are pulling out. These big swings are not just due to economic factors....

Oil is inelastic -- it takes a large change in price to induce a small change demand/supply (in the shortterm). This also implies that small changes in supply or demand induce large changes in price. The numbers I've seen suggest a short-term elasticity of about -0.061 to -0.08. This suggests that a 1% change in supply or demand induces a 12-16% change in price. (Look at what happened in the US: gasoline prices more than doubled and gasoline consumption dropped only a few %) Given the rate of growth of world energy consumption, unimpressive reservoir replacement ratios, and the various geopolitical gyrations with oil (plus the occasional hurricane), it's not hard to see how a shortage or perception of a future shortage would induce extreme price moves.Perhaps speculation intensified the movement, but the data suggest that inelasticity of both supply and demand play a major role. In fact, if prices were more elastic, the market would never support such speculation -- with a more elastic commodity, growing supply and falling demand would have damped exuberant price increases.

Oh wow, I didnt know about the elasticity. You have a good point.

QuoteOil is inelastic -- it takes a large change in price to induce a small change demand/supply (in the shortterm). This also implies that small changes in supply or demand induce large changes in price. The numbers I've seen suggest a short-term elasticity of about -0.061 to -0.08. This suggests that a 1% change in supply or demand induces a 12-16% change in price. (Look at what happened in the US: gasoline prices more than doubled and gasoline consumption dropped only a few %) Given the rate of growth of world energy consumption, unimpressive reservoir replacement ratios, and the various geopolitical gyrations with oil (plus the occasional hurricane), it's not hard to see how a shortage or perception of a future shortage would induce extreme price moves.I would expect a large variance on these elasticity figures, and the figure quoted will be variable on the time period considered, i.e. over the last year or 6 mts etc... So it can only really be used as a rough guide.SG

QuoteOriginally posted by: StatGuyQuoteOil is inelastic -- it takes a large change in price to induce a small change demand/supply (in the shortterm). This also implies that small changes in supply or demand induce large changes in price. The numbers I've seen suggest a short-term elasticity of about -0.061 to -0.08. This suggests that a 1% change in supply or demand induces a 12-16% change in price. (Look at what happened in the US: gasoline prices more than doubled and gasoline consumption dropped only a few %) Given the rate of growth of world energy consumption, unimpressive reservoir replacement ratios, and the various geopolitical gyrations with oil (plus the occasional hurricane), it's not hard to see how a shortage or perception of a future shortage would induce extreme price moves.I would expect a large variance on these elasticity figures, and the figure quoted will be variable on the time period considered, i.e. over the last year or 6 mts etc... So it can only really be used as a rough guide.SGAbsolutely! I'd expect that oil would be less elastic these days. Some of those elasticity figures rely on data going back to the 70s. But now the U.S. GDP per barrel of oil is about 3X higher which makes the U.S. economy far less sensitive to oil prices than it was in the 70s. Elasticity is a linear approximation to a nonlinear system -- people can trim those extra trips to the mall, but still have to drive to work everyday (i.e. oil might become increasingly inelastic in the short-term). And if credit is curtailed, then people can't readily replace gas guzzling SUVs with smaller fuel-efficient cars."Your Mileage May Vary" seems to be an especially appropriate phrase for this situation.