Current Affairs

03/24/2014

Yellen’s 2.25% Target for 2016 May Be a Huge Mistake

Janet Yellen surprised almost everyone on March 19 by speaking off-script and providing forward policy guidance that can undermine the Fed’s credibility, at best, or cause another crisis, at worst. If the economic data comes in weak by the end of tapering and the markets swoon, the Fed will have no choice but to implicitly admit it was wrong and keep interest rates close to zero indefinitely. However, if the Fed continues with its plan to raise rates in the face of a weaker economy and declining market, the actions may cause another violent crash.

Zero short-term rates and the first round of QE were essential to avoid a complete financial meltdown. Subsequent rounds did little for the real economy yet unintentionally produced high leverage and asset bubbles in various places by providing cheap financing for companies, investors, and speculators alike. The policy also resulted in a massive transfer of wealth from labor to asset owners leading to the largest wealth and income inequality in recent history.

Continue reading "Yellen’s 2.25% Target for 2016 May Be a Huge Mistake" »

03/10/2014

Can We Escape Bank Regulation by Lawsuit?

When I worked at JPMorgan in the 80s and 90s, even in the context of deregulation, the concept of “self-regulation” in the financial industry was discussed with a straight face. 

Last week, Better Markets, a sophisticated civil society non-profit organization, run by former Skadden attorney Dennis Kelleher and committed to protecting the public interest in the government’s regulatory response to the financial crisis, filed a lawsuit against the Justice Department and Attorney General Eric Holder.  The suit seeks to block what Better Markets calls an “unlawful” $13 billion settlement with JPMorgan Chase & Co. over bad mortgage loans sold to investors leading up to the crisis.  We now have lawyers suing the United States Attorney General on the public’s behalf for failing to properly prosecute a record $13 billion settlement on the nation’s most powerful and flagrant abuser of the self-regulation ethic.

Continue reading "Can We Escape Bank Regulation by Lawsuit?" »

12/16/2013

Harvard and Brown Fail Moral Leadership Exam

At a time when institutions of business and government continue to fail society, two of our leading academic institutions missed the opportunity to provide essential moral leadership on the most pressing challenge ever faced in the history of human civilization.

Harvard President Drew Faust issued her October statement first: She and her colleagues on the Board do not believe “that university divestment from the fossil fuel industry is warranted or wise.”

Brown President Christina Paxson followed three weeks later with her own statement: “Our consideration of divestment [from coal] is over.”

Continue reading "Harvard and Brown Fail Moral Leadership Exam" »

12/02/2013

Will the Fed Need a Bailout? Nonsense!

“As stimulus tab rises for Fed, worries grow it may require a bailout” is the title of an article published in Los Angeles Times and blogged in CFA Institute's "Future of Finance."

I'll say it bluntly: This is nonsense. The logic goes that as interest rates rise, the value of the bonds on the Fed's balance sheet lose value and the central bank will be bankrupt—requiring the taxpayers to bail it out. This is wrong on many different levels.

Continue reading "Will the Fed Need a Bailout? Nonsense!" »

11/12/2013

Book Review: The Federal Reserve and the Financial Crisis

The-Federal-Reserve-and-the-Financial-Crisis

Adapted from four lectures given by Ben Bernanke in March 2012, this book is a good primer on the workings of the central bank throughout its history, including its role in the recent financial crisis.

It is fitting that The Federal Reserve and the Financial Crisis should be published in the centennial year of the institution. Adapted from a series of four lectures given by Ben Bernanke at George Washington University in March 2012, the book is a good primer on the workings of the central bank throughout its history, including its role in the recent financial crisis. Concepts are introduced with clarity, and the prose is straightforward. The book is appropriate for students of central banking, and experienced readers will find it a worthwhile account of the historical record for what it both does and does not reveal.

Continue reading "Book Review: The Federal Reserve and the Financial Crisis" »

10/21/2013

NYSSA's First Annual Global Infrastructure Conference

Infrastructure is very much on the mind of the American and global investment community at large.  The International Finance Corporation’s Asset Management Company recently completed $1.2 billion in financing (exceeding a $1 billion target) with commitments from 11 investors, including sovereign wealth funds from Singapore and sovereign and pension fund investors from across the globe.  In a recent editorial for Bloomberg law, Jay Tannon, a partner at Patton Boggs LLP, suggested a national infrastructure authority in the US to oversee much-needed improvements across the country.  A recent statement by Liberian President Ellen Johnson Sirleaf that the Dallas Cowboy’s new football stadium uses more electricity than the total capacity of her country prompted detailed responses from sources as diverse as The Wall Street Journal and the Brookings Institution. 

Continue reading "NYSSA's First Annual Global Infrastructure Conference" »

09/30/2013

Are We Not All Jasmines Now?

What is it about a Woody Allen film that leaves us always with a discomforting feeling of identification with its most abysmal character? This is certainly true with his latest film “Blue Jasmine,” which initially disappointed me, Kate Blanchett’s hauntingly brilliant performance notwithstanding. But given a little more time and reflection, its deeply disquieting meaning slowly seeped in.

I began to realize that it was more than an overdone cliché about a greedy Wall Street huckster who lavishes “everything one could want” on his attractive and well-kept wife “Jasmine,” who never asks or wants to know the true source of all that “success.” Easier to shop and party on Park Avenue and in the Hamptons as a socialite dripping platitudes about responsibility for “helping poor people.” Her husband “Hal” is a younger and flashier Bernie Madoff, higher up the Wall Street food chain perhaps, but nothing more than a sociopathic shyster, serially cheating on his complicit wife whom we cannot help but associate with Ruth Madoff.

Continue reading "Are We Not All Jasmines Now?" »

09/09/2013

Book Review: After the Music Stopped

After-the-Music-Stopped

Throughout this long and multifaceted work on the recent financial crisis and its aftermath, Professor Blinder demonstrates that he is the rare academic economist who writes clearly about a complicated topic, clarifying complex issues for readers who remain confused about what happened. Some readers may find his proposed remedies problematic.

If writing the second draft of history is supposed to involve both fact telling and interpretation, Alan Blinder’s After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead certainly qualifies. But if books written several years after the worst financial crisis since the Great Depression are supposed to reflect a deeper understanding than those written in the throes of the emergency, this one falls short. Moreover, as the subtitle indicates, the author attempts to combine work of adescriptive nature and work of a prescriptive nature into a single, large, and far-reaching undertaking.

Continue reading "Book Review: After the Music Stopped" »

04/22/2013

The Global Access to Nutrition Index

The global Access to Nutrition Index (ATNI)—launched in March 2013—is a groundbreaking initiative designed to address two of the world’s most pressing public health challenges: obesity and undernutrition. As such, they pose a set of risks and opportunities to food and beverage manufacturers. The ATNI Global Index benchmarks 25 of the world’s largest food and beverage manufacturers’ performance on addressing obesity and undernutrition, highlighting how well positioned these companies are commercially to respond to these challenges. Recognizing the relevance of nutrition issues to this sector, 40 investment organizations from around the world, that collectively manage more than USD$2.6 trillion in assets, have signed up to ATNI’s Investor Statement.

Continue reading "The Global Access to Nutrition Index " »

02/20/2013

Recent Research: Highlights from February 2013

"Volatility, Correlation, and Diversification in a Multi-Factor World"
The Journal of Portfolio Management (Winter 2013)
Richard Roll

In a multi-factor world, diversification benefits do not generally depend on correlation. Investors can restructure portfolios to align factor sensitivities. This implies that diversification benefits depend only on the idiosyncratic volatility that remains after restructuring. Similarly, the risk reduction that follows adding an asset to an existing portfolio does not depend on the asset’s correlation with the portfolio. These implications evince the fundamental importance of measuring the underlying factors and estimating factor sensitivities for every asset. Other researchers have investigated several methods for measuring factors. An easy-to-implement general method involves specifying a group of heterogeneous indexes or traded portfolios. Exchange-traded funds (ETFs) could be well suited to this purpose.

Continue reading "Recent Research: Highlights from February 2013" »

02/11/2013

What JPMorgan's Recently Released Internal Reports Unintentionally Say

After apologizing at Davos—but only to his shareholders—according to William Cohan on the Bloomberg View, the JPMorgan Chairman and CEO hastened to add about 2012, “We did have record profits. Life goes on.”

It is true; JPMorgan reported a strong financial performance in 2012, “London Whale” trading fiasco notwithstanding. I must admit that despite my 18 years inside the firm (when it had a meager $300 billion balance sheet), I struggle to comprehend $100 billion of revenues, and a $2.3 trillion balance sheet, with an “off-balance sheet” managed by a few handfuls of mostly male, mostly 30-something traders that is many orders of magnitude larger. Maybe I’m a dinosaur. Life goes on.

Not so fast.

Continue reading "What JPMorgan's Recently Released Internal Reports Unintentionally Say" »

02/07/2013

Of Guns, Whales, Freedom, and Justice

After visiting an awe-inspiring women’s empowerment program at work in several rural villages north of Delhi, our host at the Ashram, scanning his Blackberry, related the news: a horrific shooting…assault rifle…children slaughtered…in a school…in Connecticut (my son’s school is in the state)…and then after what seemed like an endless pause as I grew more anxious…Newtown.

Continue reading "Of Guns, Whales, Freedom, and Justice" »

01/21/2013

Limericks Économiques: Punitive Measures


Limericks Économiques

A six-billion loss dealt a blow
To the name of a bank's CEO.
To atone for this trade,
He merely was paid
A paltry ten million or so.

Continue reading "Limericks Économiques: Punitive Measures" »

12/19/2012

Three Questions with Joseph Longino

With the Securities and Exchange Commission’s (SEC) decision on the possible incorporation of International Financial Reporting Standards (IFRS) into the US system still outstanding, many are wondering about the implications for their work and organizations.

In anticipation of the potential upcoming changes, IASeminars and NYSSA will host the 18th Annual NYSSA International Financial Reporting Conference & Workshops January 8-10, 2013. In the following interview, we spoke with Joseph Longino, principal of Sandler O'Neill + Partners, L.P., and a primary resource to the firm’s clients on supervisory, regulatory, and accounting matters. Longino is also a member of the Financial Accounting Standards Advisory Council (FASAC), a diverse group of senior accounting experts who advise the Financial Accounting Standards Board (FASB) on a broad range of matters affecting financial accounting and reporting standards in the private sector, and co-chair of the US chapter of the Corporate Reporting Users’ Forum (CRUF), an international discussion forum committed to engaging the FASB and IASB as they set accounting standards.

Continue reading "Three Questions with Joseph Longino" »

12/12/2012

Four Questions with Pinto Suri

With the Securities and Exchange Commission’s (SEC) decision on the possible incorporation of International Financial Reporting Standards (IFRS) into the US system still outstanding, many are wondering about the implications for their work and organizations. In anticipation of the potential upcoming changes, IASeminars and NYSSA will host the 18th Annual NYSSA International Financial Reporting Conference & Workshops January 8-10, 2013.

Here, we spoke with Pinto Suri, a principal of Prudential Fixed Income’s Credit Research Group where he covers the insurance sector. Suri has been an active member of the Corporate Reporting Users Forum, a global organization formed to enable professional investors and analysts to engage in the debate on current and future corporate reporting issues. Prudential Fixed Income, a business of Prudential Financial, Inc., is one of the largest fixed income asset managers in the US with $348 billion in assets under management as of June 30, 2012.

Continue reading "Four Questions with Pinto Suri" »

12/03/2012

Wall Street Survives One Storm but Now Faces Another

Now that Wall Street’s huge bet on presidential candidate Mitt Romney has failed, banks face four more years of a less than sympathetic ear in the Oval Office.

The world’s major capital market banks are in bad shape. They are trading well below book value, were recently downgraded and the majority of them have failed for more than two years to earn a return on equity greater than its cost.

Seven of the top 10 banks have had chief executive changes since 2009, three of these being made “effective immediately.”

Continue reading "Wall Street Survives One Storm but Now Faces Another" »

11/28/2012

Will Sandy Trigger Our Great Transformation?

We are now a couple of weeks into the aftermath of Super Storm Sandy, and no one has yet improved upon the analysis of Bloomberg Businessweek’s November 1 cover story: “It’s Global Warming, STUPID.”

In 1944, the famous political economist Karl Polanyi explained the root cause of WW II when he wrote in The Great Transformation, “The true nature of the international (economic) system under which we were living was not realized until it failed.” Similarly, mainstream economists and finance theorists still do not get the vital interconnection between the true nature of the (economic) system under which we are living, and healthy ecosystem function. What will it take?

Continue reading "Will Sandy Trigger Our Great Transformation? " »

11/19/2012

No Security in Book Value

Limericks Économiques

Said a banker: "The Crisis revealed,
In investments we carried for yield,
How extreme fluctuations Affect valuations,
So better to keep them concealed."

Said investors: "It's better to trust
In the price you could fetch if you must,
And the equity value
Which, hopefully, now you'll,
Accordingly, have to adjust."

Continue reading "No Security in Book Value" »

10/31/2012

Book Review: Red Ink

Red-InkThe federal budget is one of the key focal points for the presidential election. The candidates have their proposals to reduce the budget deficit, however, political claims seem to make the subject more confusing than clear. In addition, there are increasing worries about the "fiscal cliff, " the tax increases and automatic spending cut coming in January if Congress fails to act. Moody's has just threatened to downgrade the US triple-A rating if Congress doesn't come up with a budget deal. The opposing political parties have indicated little, if any, inclination to compromise. For those seeking an objective picture of the federal budget, David Wessel's new book will be welcome.

Continue reading "Book Review: Red Ink" »

10/23/2012

The Social Impact Bond: A Private Sector Funding Mechanism to Address Social Ills

Cash-strapped municipal and state governments across the country are increasingly looking for novel ways to access private capital to finance what were once taxpayer funded initiatives, including those that address intractable social ills. One such innovation, the social impact bond (SIB), is structured to transfer the risk of investing in a given preventative social program from taxpayers to private investors through its “pay for success” feature. SIBs will potentially provide funding for exemplary social services programs that might not otherwise be implemented. It is hoped that they will also create more rigor in the measurement of program outcomes. Yet some critics worry that SIBs may have other, more problematic unintended outcomes, if they result in the transfer of the responsibility for addressing social ills from the public and not-for-profit, to the for-profit sector.

Continue reading "The Social Impact Bond: A Private Sector Funding Mechanism to Address Social Ills" »

10/16/2012

More than the Mainstream: Mish’s Global

More than the Mainstream

Last month, the Dow, S&P 500, and Russell 2000 were all up 4-6%. After that round of QE, everyone in the financial markets and mainstream media seemingly cheered.

“It’s clear that the global leaders are doing all they can to combat the slow economy…we look forward to a strong year-end rally,” Ryan Detrick, chief technical strategist at Schaeffer’s Investment Research said on CNBC.

Continue reading "More than the Mainstream: Mish’s Global" »

09/12/2012

What's Going to Happen to the Euro?

The Eurozone has changed; it’s very apparent. In the last year or so, the playing field has been tipped with mountainous debt problems that Greece, and now Spain and Italy, are experiencing. Of course, all of Europe will experience a huge knock-on effect from the problems in Greece and Spain—but the question is, by how much? If the Euro fails, will all hell break loose? This article outlines some of the possible outcomes of the current Euro crisis.

Continue reading "What's Going to Happen to the Euro?" »

09/11/2012

Limericks Économiques: Watch That Denominator

Limericks Économiques

A fall in the joblessness rate
Would normally seem to be great,
Excepting, of course,
When there's less labor force,
Deflating the weight of that rate.

Continue reading "Limericks Économiques: Watch That Denominator" »

08/29/2012

Video: Regulatory Insights from Eliot Spitzer

Former New York Governor Eliot Spitzer recently joined NYSSA for an interview with Bloomberg Television anchor, Pimm Fox. Spitzer gave his observations and opinions about the top regulators of the current economic recovery effort—Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke.

On Ben Bernanke:

  • Bernanke is "the last man standing." He is the only one who has been willing to make the hard economic decisions as policymakers have remained in gridlock.
  • He has used monetary policy to the fullest extent, but now there is little more that he can do.

On Timothy Geithner:

  • Geithner did not have an adequate understanding of the structural failures that existed in the financial services sector.
  • After the financial crisis of 2008, Geithner did not request enough from the banks in return for being bailed out. He simply did not comprehend how much reform was actually needed.


Virtual-Membership-468px

08/27/2012

Podcast: Why Zombie Banks Remain Undead

Author Series Podcast

Zombie Banks author Yalman Onaran spoke with NYSSA about the aftermath of the 2008 financial crisis and the barriers blocking the road to recovery. Onaran's book asserts the inconvenient, but rational, view that recovery efforts are actually postponing the problem rather than addressing it—creating "zombie banks." Zombie banks are banks that should have died, but are being artificially preserved by government capital.

Continue reading "Podcast: Why Zombie Banks Remain Undead" »

08/22/2012

Limericks Économiques: Swing States

Limericks Économiques

It's an axiom proven and tested
By candidates besting and bested:
If you're looking to win,
Mind the jobless rate in
All the states where the outcome's contested.

Continue reading "Limericks Économiques: Swing States" »

08/07/2012

Off-Grid Financing

The ramifications of the Libor scandal—what Warren Buffett glibly called a can of worms that affects the whole world—grow by the day. Criminal indictments of individuals, even if firms are too big to indict, appear to be in the making as the tsunami’s shock waves are about to spread to many of the usual suspects. One can only imagine the trial lawyers licking their chops. Has there ever been a class action lawsuit on behalf of the whole world?

Central bankers and regulators, understandably panicked at the height of the crisis, may have been complicit in some of the distortions in an effort to create the pretense of financial system stability. However, like the so-called “war on terror,” we find the war on financial system collapse is filled with ends-justifying-the-means moral and legal questions.

Continue reading "Off-Grid Financing" »

07/26/2012

Black Swan Events: No Longer a Rarity

Vinny Catalano, president and global investment strategist with Blue Marble Capital Management, is on a mission to heighten investment professionals’ awareness of the impact that black swan events and other hard-to-quantify and predict “big picture” phenomena are likely to have on market behavior in the 21st century. He reports investment analysts need to get comfortable navigating the uncharted waters where the black swan lurks. Catalano will be moderating NYSSA’s upcoming Market Forecast™: Are We There Yet? conference on August 9.

Continue reading "Black Swan Events: No Longer a Rarity" »

07/23/2012

Limericks Économiques: Day of LIBOR Reckoning

Limericks Économiques

Though collusion on rate executions
Was the norm in finance institutions,
When the tide quickly turned
Many bank traders learned
They would naturally face prosecutions.

Continue reading "Limericks Économiques: Day of LIBOR Reckoning" »

07/09/2012

Is Jamie Dimon’s Business First Class?

JPMorgan CEO Jamie Dimon went before congress again a few weeks ago to make the case for why a $2 billion trading loss was a stupid mistake, not a willful breach of at least the intent of Dodd-Frank. And again our representatives who wrote the law didn't hold him to the standards set by JPMorgan’s own Code of Conduct: following the spirit and intent, not just the letter, of the law.

When Mr. Dimon’s predecessor J.P. Morgan Jr. was called before the Senate in 1933, he spoke humbly of a banker as a member of a long-standing profession for which there had grown a code of ethics and customs, “on the observance of which depend his reputation, his fortune, and his usefulness to the community in which he works.”

Continue reading "Is Jamie Dimon’s Business First Class?" »

06/26/2012

Limericks Économiques: Unqualified Interest

Limericks Économiques

As a primary task of the Fed, it
Should cheapen the cost of our credit,
Which would help a lot more
If the mean credit score
Would qualify many to get it.

Continue reading "Limericks Économiques: Unqualified Interest" »

06/21/2012

Book Review: A Decade of Debt

A-Decade-of-Debt

In the wake of the global financial crisis, mainstream economists have begun to realize that financial markets need to be incorporated into their theoretical frameworks. The traditional view holds that asset prices ultimately reflect underlying economic activity. But it turns out that economic activity is, in turn, directly affected by asset prices, which is why the pathbreaking work of Carmen M. Reinhart and Kenneth S. Rogoff, economics professors at the University of Maryland and Harvard University, respectively, is so valuable. Their research offers a wealth of empirical data concerning the impact of debt on macroeconomic activity, as well as an analysis of the data. Because their analysis tends to be in the form of narration rather than econometric equations, it is highly accessible, even to nonspecialists.

A sequel of sorts to their acclaimed best-seller, This Time Is Different: Eight Centuries of Financial Folly (Princeton University Press, 2009), A Decade of Debt (Policy Analyses in International Economics) is shorter and summarizes some of the authors’ research that has appeared in academic journals since the publication of This Time Is Different.

In A Decade of Debt, Reinhart and Rogoff document that the public and private debts of industrialized nations have grown to unprecedented levels relative to their GDPs. Historically, high public debt levels have been reduced not through higher macroeconomic growth but, rather, through a combination of austerity measures and default. Default can occur through repudiation and restructuring, which is how debt incurred during World War I and the Great Depression was typically unwound. Default can also occur through what has been called financial repression, which refers to such government-imposed measures as ceilings on interest rates, regulatory requirements that effectively create captive audiences that extend credit to the government, and direct governmental influence on the ownership or management of financial institutions.

Financial repression is how governments of advanced nations dealt with the debt they ran up during World War II. It is likely also—Reinhart and Rogoff hypothesize—how they will deal with the debt incurred in the effort to support national banking sectors during the recent financial crisis. Because historical episodes of delevering have tended to last as long as seven years, the authors suggest that we are currently in the middle of “a decade of debt,” extending from 2008 to 2017.

Continue Reading "A Decade of Debt" >>

06/14/2012

Will the JOBS Act Create Any Jobs in the Hedge Fund Industry?

EfinancialCareers

The Jumpstart Our Business Startups Act, which is better known as the JOBS Act, is expected to create thousands of jobs and some of them, say industry insiders, are going to be created in the “startup” center of a financial services sector, the hedge fund industry.

The bulk of these jobs will be in marketing, investor relations, and client relations, and we can expect additional jobs to be created at vendor companies that either offer these services or will likely spring up as a result of the JOBS Act. Don’t expect an avalanche of new positions, but there should be an uptick.

That’s the opinion of several industry observers.

Continue reading "Will the JOBS Act Create Any Jobs in the Hedge Fund Industry?" »

06/06/2012

Flawed, Ignorant, and Dangerous: A Bain Capital Partner’s Worldview

“At base, having a small elite with vast wealth is good for the poor and the middle class.”

This is how Adam Davidson’s piece in the New York Times Magazine summarized the frustrated former Bain Capital partner Edward Conard’s worldview, as expressed in his forthcoming book, Unintended Consequences: Why Everything You've Been Told About the Economy Is Wrong.

The article reveals the logic of what we might call the “extreme compete” elite investment class, as expressed by one of its highly “successful” participants—Conard ran the New York office for Bain Capital.

Continue reading "Flawed, Ignorant, and Dangerous: A Bain Capital Partner’s Worldview" »

05/31/2012

Video: How the Economy Will Effect the P/C Insurance Industry in 2012

NYSSA's 16th Annual Insurance Conference featured presentations from a number of leaders in the insurance industry. Dr. Robert Hartwig, PhD, CPCU, President and Economist, Insurance Information Institute, gives an overview of how the current economic climate will affect the insurance industry. Hartwig's overall perspective is optimistic.

Predictions for 2012:

  • Although exposures are at their highest since 2004, they will not be restored until mid-decade.
  • No traditional hard market will emerge this year.
  • Increasing private sector hiring will drive payrolls/WC exposures.
  • Demand for commercial insurance will accelerate.
  • Auto insurers will see growth with a recovery in auto sales.
  • New home construction will continue to see very little growth.

05/17/2012

Emerging Markets Warrant an Overweight Position in Investor Portfolios, Says David Hale

CFA Institute

Economist David Hale told delegates at the 65th CFA Institute Annual Conference that steady increases in exports and capital spending, combined with favorable demographics, will allow emerging market countries to continue to grow their economies at rates superior to those found in the more developed economies of “old industrial countries.” Given the comparatively strong growth outlook, he argued, emerging markets warrant an overweight position in investor portfolios.

In building his case, Hale noted that emerging markets have doubled their collective share of global GDP, exports, and capital spending over the past two decades, with China playing a key role in this growth. China displaced Germany two years ago as the world’s largest exporter of tradeable goods, amassing foreign exchange reserves of $3.3 trillion today (versus $3.4 trillion for all developed countries combined).

Continue reading "Emerging Markets Warrant an Overweight Position in Investor Portfolios, Says David Hale" »

05/16/2012

The Covered Bond: A Vehicle for the Shift to a Low-Carbon Economy?

In our first two articles focused on the emerging climate bond market, we spoke with Nick Robins, Director of HSBC’s Climate Change Center for Excellence, and to Sean Kidney, Cofounder and Chairman of the Climate Bonds Initiative. Here, we look at how the covered bond might be adapted as an investment vehicle to catalyze the funding of the critical transition to a low-carbon economy.

The International Energy Authority now estimates that $1 trillion will be required in annual “low-carbon” project funding out to 2050 if the global economy is to avoid the most catastrophic impacts of climate change. Meanwhile, the fallout from the global financial crisis has left both governments and the capital markets severely constrained in their ability to support those funding needs.

Continue reading "The Covered Bond: A Vehicle for the Shift to a Low-Carbon Economy?" »

05/15/2012

Time for Regulatory Change?

The shocking news out of JP Morgan this week about a $2 billion trading loss is a stark reminder that even Jamie Dimon, the CEO of such a major firm, can be completely in the dark about what's happening inside the very firm he runs. Dimon has said publicly that this surprised him.

Nonetheless, the timing is perfect for the politicians and regulators to pile on with their solutions to fix the banking industry. There are several regulations that will be referred to in the media and blogosphere during the next few weeks in relation to the JP Morgan trading losses.

Thankfully, you don't have to go to Washington, DC, or Wall Street for the debate. The New York Society of Security Analysts (NYSSA) is hosting a program called "Regulatory Changes as an Opportunity" this September. The speakers for the event will be Jim Allen, CFA, Head of the Capital Markets Policy Group for CFA Institute; and Kim Olson, a principal with Deloitte & Touche LLP.

Continue reading "Time for Regulatory Change?" »

05/10/2012

Recent Research: Highlights from May 2012

"The Death of Diversification Has Been Greatly Exaggerated"
The Journal of Portfolio Management (Spring 2012)
Antti Ilmanen and Jared Kizer

Diversification is famously referred to as the only “free lunch” in investing, but it has been under assault since the 2007–2009 global financial crisis, when virtually all longonly asset classes moved down together. Ilmanen and Kizer argue that the attacks are undeserved. Most investors were never as diversified as they thought they were, and there is ample room for improvement by shifting the focus from asset class diversification to factor diversification. They show that diversification into and across factors has been much more effective in reducing portfolio volatility and market directionality than asset class diversification. The benefits are greatest for long–short investing, which requires shorting and leverage but are also meaningful in a long-only context.

Continue reading "Recent Research: Highlights from May 2012" »

04/17/2012

Regulators Walk the Line on the Volcker Rule

Regulators are on the horns of a dilemma as they attempt to balance the conflicting concerns raised by their proposed rule for the implementation of the Volcker Rule, a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act banning FDIC-insured financial institutions from proprietary trading. Those concerns will be the topic of a discussion moderated by Martin Fridson, Global Credit Strategist for BNP Paribas Asset Management, at NYSSA’s upcoming 22nd Annual High Yield Bond Conference.

The Securities and Exchange Commission, the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency released their joint implementation proposal in October 2011, and their request for comment resulted in over 14,000 letters. The Agencies’ proposal states the upfront challenge: that the delineation of what constitutes a prohibited or permitted activity under the Volcker Rule “often involves subtle distinctions that are difficult both to describe comprehensively within regulation and to evaluate in practice.” It goes on to say that the Agencies’ proposed rule was crafted to “not unduly constrain banking entities” in their business to provide “client-oriented financial services including underwriting, market making, and traditional asset management services,” but, at the same time, not to conflict with “clear, robust, and effective implementation of the statute’s prohibitions and restrictions.”

Not surprisingly, the Agencies’ best efforts to navigate these contentious waters appear to have satisfied few. On the one hand, industry lobbyists claim the Agencies’ rule places complex and onerous requirements on banks to prove that they are not engaged in propriety trading. They contend that the proposed rule will seriously compromise their market making function, raise the cost of capital, and result in knock-on effects for the economy, employment, and the banking industry’s global competitiveness.

Public interest advocacy groups, on the other hand, are clamoring just as energetically for a “bright line” interpretation of the Volcker rule that ensures banks have no room to circumvent its original intent. The latter claim it is the banking industry’s own success at lobbying to create exceptions to the Volcker Rule prohibitions on proprietary trading that led to the complexity of the Agencies’ current ruling. Many on both sides of the fence now argue that the proposed regulations will be unenforceable and should be simplified or scrapped and entirely rewritten.

A study by Oliver Wyman commissioned by the Securities Industry and Financial Markets Association illustrates the industry’s broad case against what it calls a “restrictive interpretation of the Volcker Rule. It warns of the huge liquidity impacts that would arise, including higher corporate funding costs, a reduction in household wealth due to compromised functioning of securities markets, reduced access to credit for small businesses, reduced ability for investors to exit investments, higher trading costs and lower returns for pension and mutual funds, and reduced ability for companies to transfer risks resulting in a “reduction in overall efficiency of the broad economy.”

Perhaps one of the most closely reasoned responses to industry’s criticisms of the Volcker Rule has been advanced by Wallace Turbeville, a former Goldman Sachs investment banker who testified in January 2012 before the House Committee on Financial Services on behalf of Americans for Financial Reform. In his testimony he pointed out that industry analyses of liquidity impacts have downplayed or largely ignored the reality that the Volcker Rule could not be interpreted in any way as a prohibition against proprietary trading. These activities, Turbeville, says, will instead migrate to non-taxpayer protected institutions. The Volcker Rule, he notes, merely “prohibits institutions that enjoy the benefits of a federal safety net from engaging in the risky businesses of proprietary trading and hedge fund sponsorship and ownership.” In his opinion, it will be a good thing if the rule does result in “the unavailability of cheap capital (subsidized by the public) that induces financially unsound trades.”


NYSSA HYB Conference


Turbeville also describes another positive outcome of the Volcker Rule if properly enforced—a reduction in covered banks’ capital bases. “The massive growth of [covered bank’s] assets and the capital to hold them dates from about 1980 when they started a race to compete with each other in the increasingly de-regulated trading markets,” he reports. “Every day until the Volcker Rule is implemented, the American people bear the risk associated with de facto guaranteeing these bloated capital bases.”

Turbeville acknowledges that the rule will have impacts on block trading but he maintains that is also all to the good. “Large market participants, such as mutual funds, can direct massive flows of trading activity to banks and commonly take advantage of this market power,” he notes. “In the post-Volcker Rule environment a given block trade may have to be transacted in smaller units. This is because the non-bank institution will be more sensitive to risk, and because the capital charge will reflect reality, not public subsidy.”

Turbevile reports that as the current July deadline for conformance to the rule approaches, the conversation around what it means to make a market has gotten more detailed and more focused. “There has been an informal sharing of thoughts that has been highly constructive,” he notes. What has emerged, says Turbeville, is a line in the sand. On the one side of that line are those who contend that covered banks must not under any circumstances enter into a transaction unless it has information from a market source about what the outcome of that transaction will be. On the other side are those who would say there should be exceptions to that rule. Whether the Agencies’ final ruling will reflect one or the other interpretation, or will remain in something like its present problematic state remains to be seen.

“We are analyzing the comments and determining a prudent way forward in close consultation with the banking agencies and the CFTC,” says David Blass, Chief Counsel and Associate Director for the SEC’s Division of Trading and Markets. “It is a challenge given the quality and quantify of comments—there are 14,000–15,000 responses in form letters alone.”

The bulk of comments have come from industry groups—not just from covered banks but from an array of institutions on both the buy side and sell side, including mutual and pension funds, hedge funds, and sovereign debt and municipal securities issuers. “I can say we are taking to heart the volume and the diversity of the messages from the comments that have come in,” says Blass. “But we know at the end of the day it is our responsibility to look to what the Volcker Rule was intended to do and not just to listen to interest groups.”

“We have to work through the comments and this goes with every rule, the Volcker Rule is not unique,” Blass reports. “But an added complexity here is that other agencies are involved in the process and we need to coordinate with them. I cannot predict at this time what will happen between now and July 21, though commenters have called for the Fed to extend the conformance period for the statutory provision past July 21, the date the statutory provision otherwise takes effect.”

–Susan Arterian Chang

Susan Arterian Chang is a contributing writer to The Finance Professionals’ Post and Director of Capital Institute’s Field Guide to Investing in a Resilient Economy

04/16/2012

Update on Brazil: March 2012

When Worldview last addressed Brazil in the autumn of 2010, the country was on the eve of presidential elections and had been enjoying a year and a half of outstanding post-crisis investment returns and celebrations in the press. The world had rediscovered Brazil and concluded it was a haven from the economic carnage that had ripped through developed world economies. Even among emerging markets, Brazil’s economic and financial performance looked spectacular.

Our piece suggested that while the long-term dynamic in Brazil still looked good, asset prices had likely gotten ahead of themselves and were no longer as attractive as before. The risks we identified had to do with the then presidential candidates lacking charisma, the temptation to over-rely on Petrobras “pre-salt” rents, euphoric animal spirits that could lead to imprudent fixed investments, and a rush of financial capital back to the developed world once signs of a recovery began to look stronger. Some of these risks have diminished, others have taken place, and still others remain.

Continue reading "Update on Brazil: March 2012" »

03/12/2012

A Look at Why So Many Merrill Financial Advisors Are Running from the Bull

EfinancialCareersMerrill Lynch seems to be hemorrhaging top financial advisors.

The announcement this week that a Merrill private banking team managing more than $1.4 billion for dozens of families, foundations, endowments, unions, and pension plans had joined advisor-owned HighTower was just the latest in a series of recent breakaways.

Continue reading "A Look at Why So Many Merrill Financial Advisors Are Running from the Bull" »

03/08/2012

Recent Research: Highlights from March 2012

"Topics in Applied Investment Management: From a Bayesian Viewpoint"
The Journal of Investing (Spring 2012)
Harry M. Markowitz

When John Guerard, the special editor for this issue, was assembling the articles to be published, he asked Harry Markowitz to write the introduction. By the author’s own words, once he had completed that task he could see that his remarks were more like discussant comments than an introduction and could equally well be read after reading the articles.

Continue reading "Recent Research: Highlights from March 2012" »

03/07/2012

Too Big to Fail or Too Small to Save? Dodd-Frank and the Ripple Effect on Big and Small Banks

Over the past decade, the United States has legislated huge responses to national crises. Shortly after 9/11, the Patriot Act was passed by Congress. In the wake of Enron and other accounting scandals, Sarbanes-Oxley was introduced. Troubled Asset Relief Program (TARP) was released to address the mortgage crisis of 2008 and, as a result of the bailout and other issues prevalent throughout the financial industry, the Dodd-Frank Wall Street Reform and Consumer Protection Act was legislated in 2010.

Dodd-Frank aims to “promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘too big to fail’, to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.”1 2

Continue reading "Too Big to Fail or Too Small to Save? Dodd-Frank and the Ripple Effect on Big and Small Banks" »

03/06/2012

Video: US Financial Sectors and Europe

Glenn Reynolds, CEO of credit research firm, CreditSights, Inc., presents his outlook on US economic and financial sectors. Despite the general discourse, US banks and  the corporate field are in relatively good shape compared to previous projections. Rather than lack of ability, uncertainty is the main barrier to progress. Continued growth is unfortunately heavily dependent on the unstable economic situation in Europe. Overall, Reynolds believes US markets should be able to survive any hurdles that lie ahead.

02/23/2012

Setting the Standards for Investing in the Solutions to Climate Change

The news around climate change grows more ominous every day, with reports of rising sea levels, droughts, severe weather, and mounting scientific evidence that the Earth’s temperature could well rise between 2 and 7 degrees in the coming century due to rising levels of atmospheric carbon. The International Energy Agency estimates that US$1 trillion investment in climate change combating projects per year will be required over the next four decades to address these catastrophic risks to the planet and global economy.

It has become more and more obvious that the challenge of climate change must be met not merely through punitive, regulatory measures. Big tent solutions that focus on the opportunities in investing in a low carbon economy are expected to be far more effective. The Climate Bonds Initiative—a not-for-profit collaboration among investors, policymakers, academics, and environmental NGOs seeking to support the development of a transparent global market for bonds issued to raise funding for climate-change mitigation and adaptation—is one such ambitious, solutions-oriented project.

Last month we spoke to Nick Robins, Director of HSBC’s Climate Change Center for Excellence, about his participation as an advisor to the Initiative. This month Sean Kidney, Chair and Co-founder of the Initiative, talks about its standard setting activities and why they are critical for the development of the market.

Continue reading "Setting the Standards for Investing in the Solutions to Climate Change" »

02/16/2012

Implications of New Accounting Standards

Accounting standards are modified on a regular basis and several changes will affect your analysis of financial statements in the coming months.  To put them into perspective, you might first ask yourself some other questions:

  • How does your organization approach such changes in accounting standards?
  • What does that say about your investment process?

Continue reading "Implications of New Accounting Standards" »

02/08/2012

Who's Got G.A.M.E.?

GAMEII

Finance professionals will have the rare opportunity to attend a Who’s Who of financial industry leaders next month. On March 29, 2012, a host of notable speakers will gather to discuss and debate key issues in investments at the second annual Global Asset Management Education (G.A.M.E.) II Forum. “This is the first academia-hosted event of this magnitude in New York City,” said Dr. David Sauer, managing director and program chair, citing top names in the field such as Guy Adami (of CNBC’s “Fast Money”) and Abby Cohen (president of the Global Markets Institute and senior investment strategist at Goldman Sachs)—to name a few.

Continue reading "Who's Got G.A.M.E.?" »

02/06/2012

What's Wrong with the Debt Debate

This former banker, and now sustainability investor and humble blogger, will not offer grand predictions for 2012. Forecasting in a world of rising uncertainty suggests a lack of understanding about uncertainty. Instead, inspired by my holiday reading, Debt: The First 5,000 Years, by anthropologist David Graeber, I will take up the debate about the debt, and offer an uncomfortable third view: jubilee (in some form) is inevitable.

Continue reading "What's Wrong with the Debt Debate" »

02/01/2012

How and Where Should You Invest in Emerging Markets?

As the new year failed to ring in a solution to the debt crisis that has transfixed the eurozone, investors are left wondering whether now is the time to place their bets on potentially risky growth opportunities or to keep their assets in safe havens. Beyond Europe’s sovereign credit issues, other factors such as massive debt overhang, the threat of double-dip recessions, and ongoing money printing by central banks in the developed world call into question the traditional definition of “safe.” In this environment, some money managers are asking whether investing in emerging economies may, in fact, be safer than committing assets to developed markets.

Continue reading "How and Where Should You Invest in Emerging Markets?" »

HELPFUL RESOURCES

Kaplan Schweser

Kaplan Schweser offers resources, discounts, and scholarships to university students and faculty through their University Partnership Program.

› BUSINESS WIRE
› CAPITAL IQ
› CFA INSTITUTE
› ITAU SECURITIES
› KAPLAN
› MORNINGSTAR
› QSG
› STANDARD AND POOR'S
› TORONTO STOCK EXCHANGE



Find NYSSA on Facebook

Follow NYSSA_Feed on Twitter

Join NYSSA Group

Visit NYSSA on Google Plus



conference rentals


IE-ad
UConn

eFINANCIALCAREERS JOBS FEED

To sign up for the jobs feed, click here.


CAREER CHATS™ AND
FRIDAY CAREER COFFEES™
CAREER CHATS AND COFFEES

NYSSA Career Chat™: The Challenges Women Face on Wall Street
Wednesday, September 3, 2014

Join NYSSA to enjoy free member events and other benefits. You don't need to be a CFA charterholder to join!


CFA® EXAM PREP

CFA® Level II Weekly Review – Session A: Wednesdays
Midtown

Wednesdays, January 8–April 30, 2014
Instructor: O. Nathan Ronen, CFA

CFA® Level II Weekly Review – Session B: Mondays
Midtown

Mondays January 27–May 12, 2014
Instructor: O. Nathan Ronen, CFA

CFA® Level II 6-Week Saturday Condensed Review
Midtown

Saturdays, March 22–May 3, 2014
Instructor: O. Nathan Ronen, CFA

CFA® Level II 4-Day Boot Camp
Midtown

Thursday, May 15–Sunday, May 18, 2014
Instructor: O. Nathan Ronen, CFA

CFA® Level III Weekly Review – Session A: Tuesdays
Midtown

Tuesdays, January 7–May 6, 2014
Instructor: O. Nathan Ronen, CFA

CFA® Level III Weekly Review – Session B: Thursdays
Midtown

Thursdays, January 23–May 15, 2014
Instructor: O. Nathan Ronen, CFA

CFA® Level III 6-Week Sunday Condensed Review
Midtown

Sundays, March 16–May 4, 2014
Instructor: O. Nathan Ronen, CFA