Jamesian Philosophy Refreshed

  I wrote a post here in March about the bankrupty proceedings in regard to WeWork, a company that had attempted to arbitrage the commercial lease market. It leased temporary office space, used for example by companies in the midst of a transition, whose new digs aren't quite ready yet.  It leased such space long term from the owners of suitable properties, and subleased them short term, counting on the fact that you can get more money on a per-day basis leasing short term. As I indicated when I wrote it up in late March, WeWork seemed o a knife's edge. Either it would end up liquidating OR it would end up being re-organized on a solvent basis. The issue would turn on how effectively it could stiff its own leasors, the building owners, in the bankruptcy process. The situation is an unusual one because, although most businesses do pay rent to someone, including most businesses that are cash strapped enough to seek bankruptcy court protection, in the usual case this is a humdrum...

I said a few posts back that in order to understand the assumptions behind the efficient capital markets hypothesis (ECMH), it will help us to state the case for that hypothesis with some clarity. Here we go: when there is a way for someone to make alpha, that way comes about because there is some exploitable inefficiency in the system. For example, XYZ may be listed on stock exchanges in two cities: Philadelphia and Pittsburgh. Due to some inefficiency, XYZ trades at a lower price in Philly than in Pittsburgh. We know that’s inefficiency because the equity of XYZ is worth only what it is worth; there is only one possible complete discounting of all relevant information on that matter. If Pittsburgh and Philadelphia differ, one or both are wrong. Since listed exchange prices are themselves public information, arbitrageurs will almost instantly pickup on this, and will quickly start buying XYZ at the lower price in Philadelphia and then selling it for a risk-free profit for a hi...