What would Wilmott buy?

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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