What would Wilmott buy?

By Felix Salmon
September 3, 2009

A fantastic catch from Nemo after Paul Wilmott appeared on CNBC this morning to make a very good point: that there’s still a huge amount of model risk in the system, that the sheer size of financial institutions still poses a massive potential systemic risk, and that high-frequency trading, in particular, does a bad job of efficiently allocating long-term capital, which is the primary purpose of the markets.

Larry Kudlow then proceeded to respond in the the only way he knows how:

Is there an asset class that looks cheap to you from a pricing standpoint?

Let’s look at gold, energy, commodities. Let’s look at stocks, let’s look at bonds, for example… I’m just asking you, off the top of your head, what looks rich and what looks cheap now?

Let me rephrase it. Is there an asset class that looks cheap to you right now?

Your judgment. Somebody gives you a billion dollars. What looks cheap? What would you buy?

Poor Paul eventually gets bullied into some semblance of an answer: essentially he says “buy options”, since there’s a significant chance of a huge move, one way or the other. Which of course garners the only possible response, from Trish Regan: “I, I, I don’t understand…”

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Comments
12 comments so far

Testable predictions would have been nice. Given what he said it would be difficult to disprove his claim.

Beautifully rendered. Trish gives mannequins a bad name.

Posted by vachon | Report as abusive

Felix, what would be the best way to allocate long term capital efficiently? Buy and hold seems more like a prayer than an efficient way of allocating capital.

Posted by Dogma | Report as abusive

It’s hard for me to understand why we listen to people like Larry and Trish at all. The irony is completely lost on them, and — dare I say it — on their viewers. Wilmott is talking about how markets move as herds, without attention to the underlying value of the assets traded, and the only rejoinder Larry and Trish can provide is “Yeah, but how do we make money off of it? What can we–and the millions of folks watching–do to move in a herd so that we can make a quick buck?” CNBC –> financial meltdowns.

Posted by Law Guy | Report as abusive

Given Bartiromo’s stellar “debate” with Weiner on medicare, I don’t think we should expect too much from CNBC.

Posted by schooner | Report as abusive

Who is it that watches these morons day-in and day-out? These people make sportscasters look like geniuses.Is there anyone on CNBC who has the IQ of a turtle?

Posted by Bob_in_MA | Report as abusive

I thought Wilmott hung in there well … not going well Kudlow wante him to. And why would Kudlow reveal profitable ideas on a widely viewed show like this? At least Kudlow wasn’t screaming over the others like he usually does.

Posted by KJR | Report as abusive

Sorry, I’m lost as to the purpose of this clip? Is one of these people supposed to have a credible perspective here?And WTF has high frequency trading got to do with asset/capital allocation? It’s a freaking execution tool.

Posted by jonners | Report as abusive

it is always funny to me when the blogosphere mocks how cnbc anchors ask people what they would buy.wilmot was pretty clear here (after prodding) about buying straddles or strangles.a similar interview earlier in the year was done on cnbc with taleb. krugman put up the video and mocked it. taleb eventually said he was short. the market plummeted.you could have made good money listening to taleb and i suspect you can make good money over the next year with straddles/strangles in options

Posted by jimbob | Report as abusive

Wilmott did a good job of offering an informed opinion when Kudlow wanted simply a tip. Jonners thinks that high-frequency trading is an execution tool? Thats an inability to see the wood for the trees. HFT is HFT. The current fashion for HFT has nothing to do with execution and everything to do with fashion.

Posted by pete | Report as abusive

this guy, who is in an apparent conflict of interest on all stuff he does not educate people about as his primary business, should finally be cut from giving all the ‘opinions’ in media in the first place.It is like letting a car company CEO talk about auto market

Posted by Marian | Report as abusive

ok, who wants to buy a binary put on CNBC surviving more than 24 months? Foxbusiness has already jumped the shark with Don Imus comign on board and CNBC is getting ever more desperate for someone to care about them. With only a few hundred thousand viewers and many of those just TV in brokers empty waiting rooms, you’ve got to ask how much longer. Using Gott’s Theorom I would guess 60% change gone within 24 months…any takers?

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