from Lyle Fass!
A year and a half ago I borrowed 100 grand against my house to buy about 40 cases of 06 Bordeaux futures, which looked totally awesome. But then, I started to think that that was a lot of money, and I should probably be a little more cautious. So, I sold promissory notes on 20 cases to a guy I know in order to buy 35 cases of 03 barolo, which seemed really really underpriced in the market at that particular point in time. And, of course, the wine was set for release any day. Anyway, then I started to feel like the whole thing was a little riskier than it should be, so I sold a couple more promissory notes on the Bordeaux in order to buy an insurance policy which basically said that if the value of a composite index was to fall below a certain value, I would be compensated. The index was to be calculated as a weighted average of the Parker-Tanzer-Robinson final scores for the Bordeaux wines, with payouts pegged to the value of the index x certain currency exchange rates. (I forget the exact formulas.) I felt really good about this move, until it occurred to me that I was relying too heavily on too few palates. So, I decided to hedge this policy with another one that was designed to have a payout scale based on the inverse of the index, albeit with nonlinearities in certain ranges. Of course, this counter-policy didn’t have the exchange rate corrections, and I didn’t have any insurance on the barolo—but what the hell, a little risk is the spice of life. Or at least, that’s what I thought until I came across this blog a couple of months later that said that the insurance company might go out of business. So, I figured I better insure against that eventuality. I raised some funds by using the wine futures as collateral, and then got a policy from someone else in which the failure of the company would yield an amount tied to the value of the index x -1 x the value a random variable exhibiting a Couchy distribution. (Or some shit like that. To be honest, the guy who sold it to me had a lot of cool graphs about things like “kurtosis” that made a lot of sense at the time, but which I can’t quite recall right now.) However, the new insurance company insisted on inserting a bunch of subsidiary clauses into the policy. For example, one of them said that if the Red Sox play the Yankees for the American league pennant in either 2008, 2009, or 2010, the value of the contract will immediately go to 0, on the grounds that people in Boston or New York will inevitably buy a ton of wine if their team wins. Having lived in both of these cities at one point or another in my life, I can vouch that this is the TRUTH. So, the subsidiary clauses seemed reasonable, and I signed.
Anyway, I’m having a little trouble figuring out where I stand at the moment. By my calculations, I might actually be ahead $47 on this deal. But I might also be down $30,000. Do you think Secretary Paulson would be able to help me out?
