I suppose it should not be a surprise that today, Sports Illustrated decided to pre-release its’ annual swimsuit edition featuring 19- year- old Kate Upton on the cover.  (Her uncle is Fred Upton, the Congressman for the Sixth Congressional District of Michigan.)

(And you thought I would post Kate’s pictures here, right?  This is a family blog!)

Not to be outdone, Toronto is in the throws of “Linsanity,” as the New York Knicks gong show rolls into town.  It is Spaniard José Calderon versus Jeremy Lin – paella versus combo #2 with Amar’e now back for the Knicks.  I’ll take José over the Harvard grad any day!  Raps will put an end to Linsanity. 

And finally, the economists, like Nouriel Roubini will be sending special thoughts to their loved ones along these lines:

Source: http://fosslien.com/heart/, 2012

Happy VaLINtine’s Day

Jim McGovern

Well there you have it – Giants 1, Quants 0.  Of course the nerds might come up with a million reasons why the model broke down in time for me to invest in it but it pays to cut your losses early!  If you are a bear, just remember the last time the Pats lost a Super Bowl to the Giants, the market went down a lot!!  If you are a bull, the NFL win helps the S&P go up!

Based on fundamental research, it would appear that the real reason the Pats lost is best explained by Tom Brady’s wife – see lovely Giselle Bundchen in this You Tube post – after fans heckled her with chants of Eli!

Jim McGovern

After such a great start to the year for equity markets (S&P up 4.4% in January), the statisticians are out in full force!  When January is up, the market is up 79% of the time for the entire year (versus up 64% on the time on average).

With this good news, we can now add to our long conviction if the NFC champion Giants can win the Super Bowl – like the January effect, if the NFC wins, the S&P is up 79% of the time (by an average of +11%).  The only headwind here is that Pats are favoured by 3.  The fact that we have only had 41 Super Bowls (i.e. observations) renders this stat less meaningful in my opinion but let’s forget that for now.  I had the misfortune of attending the Giants/Pats Super Bowl in 2008 hoping I could say “I was there for the undefeated season!”  Looking back, January 2008 was -6.2%, the Giants won and the market ended down 38%!!

While the Super Bowl stat is fun, for a hedgie there is no real meaningful value. So my interest was peaked by a recent Bloomberg article (click here to read) featuring a quant shop, Analytic Investors LLC. Now only a quant could come up with this theory but here goes. They believe that many bettors tend to “overestimate” the chances of the team which rewarded them the most during the regular season – i.e. they bet on the team with the higher alpha to win the Super Bowl!  Alpha is determined by the number of wins (or surprises) versus the spread on regular season games. The Giants had big alpha this year of 32.3% given four of their wins were big upsets. The 49’ers were highest at 52.5% and the Pats were a lowly 16.1% - just a lot of beta!

Unfortunately, teams that outperformed in the regular season tend to underperform in the playoffs.  In the last 3 Super Bowls, the team with the lower regular season alpha was favoured and covered the spread.  In Vegas, money has been voting in favour of the hot Giants.  I am sticking with the hedgies and the “Moneyball” types – no emotions.  Take the Patriots – they will more than cover the spread (I hope!).

Have a great Superbowl weekend.

Jim McGovern

1. Number one son, Kim Jong Un, wins the North Korean PGA in a landslide as “All American”, gone rogue, Happy Gilmore finishes a distant second.
   
   
   
2. Mahmoud Ahmadinejad (pronounced “Ah my dinner jacket”) wins the Nobel Prize in Economics for his work on oil market price discovery.
   
   
   
3. Japan and Italy do not have an election.
   
   
4. Toronto Maple Leafs win the Stanley Cup.  George Cope (CEO of BCE – the owner of Raptors) replaces Jamaal Magloire as Raptors centre fulfilling lifelong dream.
   
   
   
   
5. Greece, the birth place of the Olympics, fails to field a team for London 2012.
   
   
   
6. Ross Perot returns with Donald Rumsfeld as his VP running mate to win the GOP and the Presidency (our answer to Saxo bank question – see earlier blog post).
   
   
   
   
7. Mayans are proven wrong and the world does not end in 2012 – holiday shopping soars after December 21st .   As a corollary, hedge fund managers move up performance fee calculations to December 20th demonstrating true risk management.
   
   
   
   
8. Sarkozy and Merkel confirm passionate affair at heart of all the “meetings”; Carla leaves for Dominique Strauss-Kahn.
   
   
   
   
   
   
   
9. Toronto Raptors rename franchise “Tropics” and acquire D. Wade and LeBron with promise of further global warming and a chance to share in “North Beach”.
   
   
   
10. A CEO of a major U.S. money centre bank goes to jail.
    
    
    

Jim McGovern