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pages: 337 words: 89,075

Understanding Asset Allocation: An Intuitive Approach to Maximizing Your Portfolio by Victor A. Canto

accounting loophole / creative accounting, airline deregulation, Alan Greenspan, Andrei Shleifer, asset allocation, Bretton Woods, business cycle, buy and hold, buy low sell high, California energy crisis, capital asset pricing model, commodity trading advisor, corporate governance, discounted cash flows, diversification, diversified portfolio, equity risk premium, financial engineering, fixed income, frictionless, global macro, high net worth, index fund, inflation targeting, invisible hand, John Meriwether, junk bonds, law of one price, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low cost airline, low interest rates, market bubble, merger arbitrage, money market fund, new economy, passive investing, Paul Samuelson, Performance of Mutual Funds in the Period, Phillips curve, price mechanism, purchasing power parity, risk free rate, risk tolerance, risk-adjusted returns, risk/return, rolling blackouts, Ronald Reagan, Savings and loan crisis, selection bias, seminal paper, shareholder value, Sharpe ratio, short selling, statistical arbitrage, stocks for the long run, survivorship bias, systematic bias, Tax Reform Act of 1986, the market place, transaction costs, Y2K, yield curve, zero-sum game

All an investor has to do is choose the fund, or combination of funds, matching the point in time for which he is saving. Each fund is managed to give an investor a broad and diversified asset allocation. Following is an array of five different lifecycle options: a capital preservation fund invested solely in fixed-income instruments, a 2010 fund (40/60 equities to fixed income), a 2020 fund (60/40 equities to fixed income), a 2030 fund (70/30 equities to fixed income), and a 2040 fund (85/15 equities to fixed income). The asset allocations in these funds automatically adjust over time so portfolios remain appropriate for investment horizons. Figure 8.2 shows a graphical representation of the lifecycle allocation. 152 UNDERSTANDING ASSET ALLOCATION Chapter 8 The Cyclical Asset Allocation Strategy’s Versatility International 2040 2030 2020 2010 Capital Preservation International 20% 17% 14% 10% 8% 6% 20% 20.4% 13.6% 16.8% 14.4% 13.2% 9.6% 13.6% 7.2% 14.4% Value Value Equities Large 85% 60% 50% Growth Growth 50% 20.4% 9.4% 16.8% 1.6% 13.2% 9.4% 9.6% 1.6% 7.2% Mid 20% 50% 6.8% 5.6% 3.6% 0.0% 4.4% 3.6% 3.2% 0.0% 2.4% 6.8% 5.6% 8.4% 4.4% 0.0% 8.4% 3.2% 0.0% 2.4% Value Small World 100% 20% 50% Fixed Income 15% 6.8% 5.6% 3.6% 0.0% 4.4% 3.6% 3.2% 2.4% 0.0% 6.8% 8.4% 5.6% 0.0% 4.4% 8.4% 3.2% 0.0% 2.4% 5% 5% 5% 5% 7% 0.0% U.S. 80% 10% 25% 40% 55% 63% 10% T-Bonds Figure 8.2 Small World 0.0% 100% 0.0% T-Bills T-Bonds 67% Mid 0.0% 0.0% Growth T-Bills 33% 0.0% Value Growth 50% 20% 100% 10% Growth Growth 50% Equities Large Value Value U.S. 80% 90% 90% Strategic allocation—lifecycle rebalancing.

(In principle, the allocation to international stocks could be further subdivided by country, size, and style, but we ignore this subdivision for the time being.) Conventional wisdom and approximate market values suggest 10 percent is a good proxy for the short-term fixed-income share of the total fixed-income market value. Given our portfolio’s 40 percent allocation to fixed income, it follows we allocate 4 percent to short-term instruments and 36 percent to longer-maturity instruments. (We could further disaggregate the longer-term fixed-income instruments into a global allocation, but for this exercise, we stay domestic.) Figure 6.3 illustrates the SAA produced by my interpretation of the various asset classes’ market weights.

Chapter 15 Putting It All Together: Value Timing 267 Asia Benchmark Weight Region 30% 9% International Europe 50% 30% 15% Emerging Markets 6% 20% Asset Type Style Equities 60% Size Value Large 50% 70% Growth 50% 10.5% 10.5% Value Domestic Middle 50% 50% 20% Growth World 50% 3% 3% Value 100% Small 50% 10% 1.5% Growth Curve 50% 1.5% T-Bills Domestic 20% 50% 80% 40% Fixed Income 4% T-Bonds 16% Asia 30% International 6% Europe 50% 50% 10% Emerging Markets 20% Figure 15.1 4% Strategic asset allocation. The fixed-income allocation of our global portfolio is 40 percent of total assets. Different indices can give a slightly different allocation to the different countries, but (on average) most major global indices would put the U.S. fixed-income share around 50 percent. This means 20 percent of the overall portfolio is allocated to U.S. fixed-income instruments. Within the U.S., a 20/80 split between short- and long-term bonds seems reasonable.


All About Asset Allocation, Second Edition by Richard Ferri

activist fund / activist shareholder / activist investor, Alan Greenspan, asset allocation, asset-backed security, barriers to entry, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, book value, buy and hold, capital controls, commoditize, commodity trading advisor, correlation coefficient, currency risk, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, equity premium, equity risk premium, estate planning, financial independence, fixed income, full employment, high net worth, Home mortgage interest deduction, implied volatility, index fund, intangible asset, inverted yield curve, John Bogle, junk bonds, Long Term Capital Management, low interest rates, managed futures, Mason jar, money market fund, mortgage tax deduction, passive income, pattern recognition, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, selection bias, Sharpe ratio, stock buybacks, stocks for the long run, survivorship bias, too big to fail, transaction costs, Vanguard fund, yield curve

VWEHX Actively managed B–BB grade IGOV Japan is 25% of the fund EMB BB rated bonds VWITX VMLTX Actively managed, 6–12 years Actively managed, 2–6 years Fixed-Income Investments 169 CHAPTER SUMMARY A well-diversified portfolio contains both fixed-income and equity investments. To obtain maximum benefit, the fixed-income portion of the portfolio should also be broadly diversified into several different fixed-income categories and rebalanced annually. Asset allocation of fixed-income investments leads to higher overall returns with little increase in portfolio risk. There is no lack of diversification potential in the bond market. Fixed-income asset subclasses include government bonds, corporate bonds, home mortgage pools, asset-backed bonds such as those backed by credit card receivables, and foreign developed and emerging markets.

I believe it will, since investors should be rewarded for taking the added risks of high yield and disinflation. Accordingly, investors who take the time to learn about fixedincome asset allocation will be happy that they did. Fixed-Income Investments 167 T A B L E 8-4 Fixed-Income Allocation Using Taxable Bonds Fixed-Income Allocation Fixed-Income Category 60% 20% 20% Barclays Capital Aggregate Bond Index Treasury Inflation-Protected Bonds or iBonds High-Yield Corporate Bonds FIGURE 8-11 Cumulative Returns of a Diversified Fixed-Income Portfolio and the Aggregate Index $250 60% Barclays Capital Aggregate Bond, 20% TIPS, and 20% high yield $225 $210.44 100% Barclays Capital Aggregate Bond $200 $199.16 $175 $150 $125 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 $75 1998 $100 Please keep in mind that the portfolio in Table 8-4 is an example.

Here is a summary of the asset classes, categories, and styles that are covered: Chapter 6: U.S. Equity Investments Total U.S. stock market construction Size analysis (large and small) Style analysis (growth and value) Chapter 7: International Equity Investments Developed markets Emerging markets Size and style indexes Chapter 8: Fixed-Income Investments U.S. investment-grade fixed income U.S. non-investment-grade fixed income International fixed income Chapter 9: Real Estate Investments Home ownership as an investment Rental property as an investment Real estate investment trusts (REITs) Chapter 10: Alternative Investments Collectibles as investments Commodities and commodity exchange-traded funds (ETFs) Hedge funds, venture capital funds, and ETFs that follow these strategies 100 CHAPTER 5 A list of potential mutual funds and ETFs is provided at the end of each chapter.


pages: 317 words: 106,130

The New Science of Asset Allocation: Risk Management in a Multi-Asset World by Thomas Schneeweis, Garry B. Crowder, Hossein Kazemi

asset allocation, backtesting, Bear Stearns, behavioural economics, Bernie Madoff, Black Swan, book value, business cycle, buy and hold, capital asset pricing model, collateralized debt obligation, commodity trading advisor, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, diversification, diversified portfolio, financial engineering, fixed income, global macro, high net worth, implied volatility, index fund, interest rate swap, invisible hand, managed futures, market microstructure, merger arbitrage, moral hazard, Myron Scholes, passive investing, Richard Feynman, Richard Feynman: Challenger O-ring, risk free rate, risk tolerance, risk-adjusted returns, risk/return, search costs, selection bias, Sharpe ratio, short selling, statistical model, stocks for the long run, survivorship bias, systematic trading, technology bubble, the market place, Thomas Kuhn: the structure of scientific revolutions, transaction costs, value at risk, yield curve, zero-sum game

Exhibit 4.13 indicates that when returns are ranked on the S&P 500, (1) equity sensitive investments (stock and private equity) perform poorly in the worst 72 months of the S&P 500; (2) high-yield corporate bonds, hedge funds, and real estate also reported moderate negative returns in the worst 72 months of the S&P 500; and (3) commodities, non-credit sensitive fixed income, and CTAs had small negative to positive returns. Results reversed in the best 72 S&P 500 months; that is, equity sensitive assets performed well while less equity sensitive assets had less positive returns. In contrast, results in Exhibit 4.14, when returns are ranked on the BarCap U.S. Aggregate Bond Index, fixed income based securities did poorly in down fixed income markets while most equity based investments as well as modern alternatives reported positive returns. Portfolio returns reflect these individual investment results.

For small cap funds the difference is 4.1%. Similar results are obtained for fixed income funds and international equity funds. These results indicate that it does not pay to waste time, money, and effort on finding alpha or top managers in the area of traditional equity and fixed income investments. Not only do most managers fail to beat their benchmarks, even when an investor gets lucky and finds a “good” manager, he fails to outperform other managers by a significant amount. While the return differential between top and bottom quartile equity and fixed income managers is relatively small, the same cannot be said for alternative investment managers.

Exhibit 8.11 emphasizes the relationships between noninvestable CISDM hedge fund indices and the investable Hedge Fund Research (HFRX) 186 EXHIBIT 8.10 THE NEW SCIENCE OF ASSET ALLOCATION Performance of Alternative Hedge Fund Indices (2001–2008) Barclays Hedge Fund Index CISDM Equal Weighted Hedge Fund Index CSFB/Tremont Hedge Fund Index HFRI Fund Weighted Composite Index Barclays Equity Market Neutral CISDM Equity Market Neutral CSFB/Tremont Equity Market Neutral HFRI Equity Market Neutral Barclays Fixed Income Arbitrage CISDM Fixed Income Arbitrage CSFB/Tremont Fixed Income Arbitrage Barclays Hedge Convertible Arbitrage CISDM Convertible Arbitrage CSFB/Tremont Convertible Arbitrage HFRI Convertible Arbitrage Barclays Event Driven CISDM Event Driven Multi-Strategy CSFB/Tremont Event Driven HFRI Event Driven Barclays Merger Arbitrage CISDM Merger Arbitrage CSFB/Tremont Risk Arbitrage HFRI Merger Arbitrage Barclays Distressed Securities CISDM Distressed Securities CSFB/Tremont Distressed HFRI Distressed Securities Barclays Equity Long Short CISDM Equity Long/Short CSFB/Tremont Long/Short Equity HFRI Equity Hedge Barclays Global Macro CISDM Global Macro CSFB/Tremont Global Macro HFRI Macro Barclays Emerging Markets CISDM Emerging Markets CSFB/Tremont Emerging Markets Annualized Return Standard Deviation 5.1% 5.6% 5.4% 5.0% 4.1% 5.6% 0.4% 3.3% 1.3% 3.6% 0.8% 1.7% 3.3% 1.2% 0.7% 6.6% 5.6% 7.6% 6.0% 5.7% 4.8% 4.1% 4.3% 6.6% 7.6% 8.5% 7.7% 4.8% 4.4% 4.5% 2.8% 7.7% 6.4% 11.6% 8.8% 9.7% 7.9% 8.7% 6.6% 6.6% 5.6% 6.4% 3.1% 2.0% 14.7% 2.9% 6.4% 4.8% 7.1% 7.5% 6.2% 7.9% 8.2% 6.3% 6.3% 5.6% 7.1% 3.8% 3.4% 3.9% 3.7% 7.3% 6.0% 6.1% 6.6% 5.4% 6.0% 7.2% 8.2% 5.2% 3.3% 5.5% 5.1% 12.6% 10.5% 10.3% Return and Risk Differences among Similar Asset Class Benchmarks 187 Correlation Information Ratio Maximum Drawdown 0.78 0.84 0.97 0.78 1.34 2.84 0.03 1.16 0.20 0.74 0.11 0.23 0.53 0.15 0.08 1.05 0.90 1.36 0.85 1.50 1.43 1.04 1.16 0.91 1.26 1.40 1.18 0.89 0.73 0.62 0.34 1.47 1.93 2.10 1.71 0.77 0.75 0.84 −23.1% −21.1% −19.7% −20.5% −6.1% −2.8% −42.7% −8.3% −28.6% −19.3% −29.0% −31.5% −22.5% −32.9% −35.3% −19.6% −20.2% −18.9% −23.9% −7.2% −5.7% −8.2% −8.1% −34.3% −21.2% −21.5% −26.9% −14.0% −17.0% −21.6% −28.5% −6.4% −2.6% −14.9% −4.9% −40.1% −35.3% −30.9% S&P 500 BarCap US Aggregate CISDM HF Strategy Index 0.78 0.79 0.62 0.80 −0.13 0.44 0.21 0.02 0.50 0.56 0.44 0.48 0.46 0.45 0.49 0.72 0.76 0.62 0.77 0.62 0.66 0.56 0.66 0.58 0.65 0.58 0.58 0.77 0.77 0.68 0.81 0.30 0.30 0.21 0.13 0.75 0.69 0.69 0.01 0.00 0.05 −0.03 −0.03 0.00 −0.22 −0.07 0.11 0.11 0.19 0.25 0.32 0.21 0.26 −0.08 0.00 −0.04 −0.04 0.06 0.05 0.14 0.06 −0.02 0.10 −0.07 −0.01 −0.11 −0.10 0.04 −0.07 0.12 0.11 0.30 0.12 0.05 0.09 0.10 0.99 1.00 0.91 0.99 0.57 1.00 0.07 0.59 0.85 1.00 0.89 0.97 1.00 0.93 0.97 0.94 1.00 0.92 0.96 0.86 1.00 0.67 0.90 0.87 1.00 0.83 0.91 0.98 1.00 0.91 0.96 0.81 1.00 0.45 0.76 0.98 1.00 0.95 188 CISDM Equal Weighted Hedge Fund Index HFRX Equal Weighted Strategies Index CISDM Equity Market Neutral HFRX Equity Market Neutral CISDM Convertible Arbitrage HFRX Convertible Arbitrage CISDM Distressed Securities HFRX Distressed Securities CISDM Event Driven Multi-Strategy HFRX Event Driven CISDM Merger Arbitrage HFRX Merger Arbitrage CISDM Equity Long/Short HFRX Equity Hedge 7.2% 6.6% 2.2% 3.4% 7.4% 18.2% 6.8% 8.2% 6.9% 7.3% 3.8% 3.8% 6.3% 8.6% −1.7% .3% 1.4% −0.9% −15.7% 4.2% −2.7% 3.3% −0.2% 5.4% 5.1% 4.1% −2.2% Standard Deviation 3.8% Annualized Return 0.48 (0.03) 1.43 1.35 0.65 (0.26) 0.62 (0.33) (0.86) (0.12) 0.42 2.45 (0.25) 0.53 Information Ratio 0.29 −6.0% 0.88 1.00 0.80 1.00 0.96 1.00 0.83 1.00 0.91 −60.4% −21.2% −31.8% −20.2% −25.8% −5.7% −3.4% −17.0% −28.5% 1.00 1.00 −2.8% −22.5% 0.93 1.00 CISDM Strategy Index −23.6% −21.1% Maximum Drawdown Comparison on Noninvestable and Investable Indices (2004−2008) Performance and Correlations 2004–2008 EXHIBIT 8.11 0.87 0.86 0.77 0.55 0.77 0.83 0.82 0.61 0.75 0.69 0.05 0.49 0.80 0.82 S&P 500 0.05 0.04 0.10 0.28 0.03 0.06 0.11 −0.11 0.19 0.37 −0.24 0.06 0.12 0.12 BarCap US Aggregate Correlation 0.76 0.71 0.63 0.47 0.60 0.70 0.81 0.54 0.80 0.80 −0.11 0.37 0.75 0.74 BarCap US Corporate High-Yield Return and Risk Differences among Similar Asset Class Benchmarks 189 indices over the period 2004 to 2008.1 The HFRX indices are based on a set of managers that provide daily transparency and follow a set of selection rules (e.g., size, years since inception) that are typically demanded by large institutional investors.


pages: 504 words: 139,137

Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined by Lasse Heje Pedersen

activist fund / activist shareholder / activist investor, Alan Greenspan, algorithmic trading, Andrei Shleifer, asset allocation, backtesting, bank run, banking crisis, barriers to entry, Bear Stearns, behavioural economics, Black-Scholes formula, book value, Brownian motion, business cycle, buy and hold, buy low sell high, buy the rumour, sell the news, capital asset pricing model, commodity trading advisor, conceptual framework, corporate governance, credit crunch, Credit Default Swap, currency peg, currency risk, David Ricardo: comparative advantage, declining real wages, discounted cash flows, diversification, diversified portfolio, Emanuel Derman, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, financial engineering, fixed income, Flash crash, floating exchange rates, frictionless, frictionless market, global macro, Gordon Gekko, implied volatility, index arbitrage, index fund, interest rate swap, junk bonds, late capitalism, law of one price, Long Term Capital Management, low interest rates, managed futures, margin call, market clearing, market design, market friction, Market Wizards by Jack D. Schwager, merger arbitrage, money market fund, mortgage debt, Myron Scholes, New Journalism, paper trading, passive investing, Phillips curve, price discovery process, price stability, proprietary trading, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, random walk, Reminiscences of a Stock Operator, Renaissance Technologies, Richard Thaler, risk free rate, risk-adjusted returns, risk/return, Robert Shiller, selection bias, shareholder value, Sharpe ratio, short selling, short squeeze, SoftBank, sovereign wealth fund, statistical arbitrage, statistical model, stocks for the long run, stocks for the long term, survivorship bias, systematic trading, tail risk, technology bubble, time dilation, time value of money, total factor productivity, transaction costs, two and twenty, value at risk, Vanguard fund, yield curve, zero-coupon bond

(The Nobel Prize is not given posthumously, and Black passed away in 1995.) 5 Bollen and Whaley (2004) find evidence that option demand moves option prices and Gârleanu, Pedersen, and Poteshman (2009) present a model of demand-based option pricing with consistent evidence. CHAPTER 14 Fixed-Income Arbitrage Trading on fixed-income arbitrage is like picking up nickels in front of a steamroller. —Saying among traders The global fixed-income markets are vast in terms of the value of outstanding bonds, the turnover of these bonds, and the size of the related derivatives markets. The most important fixed-income market is the government bond market, followed by the markets for corporate bonds and mortgage bonds. The key derivatives markets include bond futures, interest-rate swaps, credit default swaps, options, and swaptions, which give the option to enter into an interest-rate swap.

Almost all bond prices depend heavily on the risk-free interest rate, so there is significant co-movement among bond yields and bond returns. Therefore, fixed-income arbitrage traders often trade on the relative value among fixed-income securities to exploit price differences among closely related securities. The close connection between the securities means that a lot of the risk is hedged away by going long and short. However, the limited risk and the competition among fixed-income arbitrageurs imply that the relative price discrepancies between bonds are usually small in an efficiently inefficient market. Hence, to achieve high returns, fixed-income arbitrage traders often need to use a significant amount of leverage.

When managed futures investors lose money, it is often because the trend is switching direction and, in this case, they flip their position and get ready to ride the new trend. Arbitrage Strategies Turning to arbitrage strategies, these consist of fixed-income arbitrage, convertible bond arbitrage, and event-driven investment. Fixed-income arbitrage is based on a number of so-called convergence trades. In a convergence trade, you look for similar securities with different prices; then you buy low, sell high, and hope for convergence. Since fixed-income securities usually have a finite maturity, convergence must eventually happen, but the sooner it happens, the more profitable the trade. The biggest risk in convergence trades is that the trader is forced to unwind the trade when the price gap widens and the trade loses money.


pages: 224 words: 13,238

Electronic and Algorithmic Trading Technology: The Complete Guide by Kendall Kim

algorithmic trading, automated trading system, backtesting, Bear Stearns, business logic, commoditize, computerized trading, corporate governance, Credit Default Swap, diversification, en.wikipedia.org, family office, financial engineering, financial innovation, fixed income, index arbitrage, index fund, interest rate swap, linked data, market fragmentation, money market fund, natural language processing, proprietary trading, quantitative trading / quantitative finance, random walk, risk tolerance, risk-adjusted returns, short selling, statistical arbitrage, Steven Levy, transaction costs, yield curve

News-reading technologies should have reached the market by the end of 2006. 6.7 Black Box Trading for Fixed-Income Instruments The feasibility of utilizing an algorithm for fixed-income instruments seems theoretical for the time being. Most electronic trades are executed via a request for quote (RFQ) venue where customers or other dealers retain the ability to refuse a trade request. Fixed-income instruments are also primarily a dealer market. Most algorithms rely on a constant stream of market data, which is not currently available for fixed income markets. Few transactions are posted through a black box because there are few bond trading platforms that provide the necessary liquidity.

The equities markets will execute trades using some sort of algorithmic model, but the same will most likely be true for other products such as futures, options, and foreign exchange. Fixed income will be one of the last to move along because it is predominantly a dealer market, but when it does, the first asset class will most likely be the most liquid sectors such as the U.S. Treasury market. The later arrival of electronic trading in fixed-income markets compared to equities reflects distinct differences between the two. Fixed-income products are far less homogenous, with many more separate and individually less liquid issues than equities. This makes it technically difficult and more expensive to introduce automated systems. There are millions of Fixed-income instruments on issue in the United States alone (see Exhibit 11.1) with different coupon rates, maturities, with varying frequency of interest payments, etc., compared to a few thousand listed shares.

Currently, the focus on client-to-dealer market trading has turned to credit markets as Thomson’s TradeWeb forces its way into corporate bond markets to compete directly with MarketAxess. TradeWeb is the current market leader in liquid fixed-income products such as treasuries, but MarketAxess is the dominant player in illiquid markets. Fixed-income platforms are also moving into derivatives with most of the attention focused on interest rate swaps and credit derivatives (see Exhibit 11.7). Other trading venues such as algorithmic trading are still immature in market penetration for fixed-income instruments, with a growing number of firms looking to gain access to historical transaction data for analysis. Liquid fixed-income markets should benefit greatly from this opportunity.


pages: 289 words: 113,211

A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation by Richard Bookstaber

affirmative action, Albert Einstein, asset allocation, backtesting, beat the dealer, behavioural economics, Black Swan, Black-Scholes formula, Bonfire of the Vanities, book value, butterfly effect, commoditize, commodity trading advisor, computer age, computerized trading, disintermediation, diversification, double entry bookkeeping, Edward Lorenz: Chaos theory, Edward Thorp, family office, financial engineering, financial innovation, fixed income, frictionless, frictionless market, Future Shock, George Akerlof, global macro, implied volatility, index arbitrage, intangible asset, Jeff Bezos, Jim Simons, John Meriwether, junk bonds, London Interbank Offered Rate, Long Term Capital Management, loose coupling, managed futures, margin call, market bubble, market design, Mary Meeker, merger arbitrage, Mexican peso crisis / tequila crisis, moral hazard, Myron Scholes, new economy, Nick Leeson, oil shock, Paul Samuelson, Pierre-Simon Laplace, proprietary trading, quantitative trading / quantitative finance, random walk, Renaissance Technologies, risk tolerance, risk/return, Robert Shiller, Robert Solow, rolodex, Saturday Night Live, selection bias, shareholder value, short selling, Silicon Valley, statistical arbitrage, tail risk, The Market for Lemons, time value of money, too big to fail, transaction costs, tulip mania, uranium enrichment, UUNET, William Langewiesche, yield curve, zero-coupon bond, zero-sum game

It would seem there is a demon unleashed, haunting the market and casting our efforts awry: a demon of our own design. 6 ccc_demon_007-032_ch02.qxd 2/13/07 1:44 PM Page 7 CHAPTER 2 THE DEMONS OF ’87 W hen I got there in the summer of 1984, Morgan Stanley was still the exclusive partnership it had been since its inception in 1935. The firm’s investment bankers lorded over that sexy part of the business, but I was headed for the fixed income division—bonds. You couldn’t get less glamorous than fixed income—unless, of course, you worked in fixed income research (FIR), which is exactly where I would spend my first years on Wall Street. Bob Platt wanted to change all that. A former midlevel insurance executive, he had been snatched from obscurity to run Morgan Stanley’s fixed income research division. Obscurity in this case was the giant institutional machine called the Equitable Life Insurance Company, headquartered at 52nd Street and Seventh Avenue, not far from Morgan Stanley’s offices at 50th Street and Sixth.

Marty Leibowitz at Salomon had built a strong team that was at the top of the heap for fixed income portfolio strategy and yield-curve trading. This group would provide the raw material for Salomon’s gold rush into proprietary fixed income trading a few years later. At Morgan Stanley, Platt wanted to use fixed income research to scale another mountain. An opera aficionado who fancied himself a Brahmin intellectual, he was uncomfortable in the ranks of the meat-and-potatoes bonds crowd. His vision for fixed income research was to slide it away from backwater trader support and propel it into an investment banking role, where the prestige was.

THE PROBLEM WITH STOCKS Profitability in equity trading requires a more complex business structure than is required for fixed income. In the fixed income markets substantial profits can be made simply through the bid/offer spread. For the higherrisk and less liquid bonds such as junk bonds and emerging market bonds, the spread can be as wide as one or two points. Similarly, while the agency instruments in the mortgage market trade with eighth- and sixteenth-of-apoint spreads, the derivative instruments—collateralized mortgage obligations (CMOs), IOs, and POs—can have spreads that are multiples of those. In contrast to the fixed income market, where a firm takes a principal position, transacts in large volume, and extracts a spread for the inventory and market making service it provides, equity trades generally move through the conduit of an exchange that takes over these functions.


pages: 701 words: 199,010

The Crisis of Crowding: Quant Copycats, Ugly Models, and the New Crash Normal by Ludwig B. Chincarini

affirmative action, Alan Greenspan, asset-backed security, automated trading system, bank run, banking crisis, Basel III, Bear Stearns, Bernie Madoff, Black-Scholes formula, Bob Litterman, business cycle, buttonwood tree, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, corporate governance, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, delta neutral, discounted cash flows, diversification, diversified portfolio, family office, financial engineering, financial innovation, financial intermediation, fixed income, Flash crash, full employment, Gini coefficient, Glass-Steagall Act, global macro, high net worth, hindsight bias, housing crisis, implied volatility, income inequality, interest rate derivative, interest rate swap, John Meriwether, Kickstarter, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low interest rates, low skilled workers, managed futures, margin call, market design, market fundamentalism, merger arbitrage, Mexican peso crisis / tequila crisis, Mitch Kapor, money market fund, moral hazard, mortgage debt, Myron Scholes, National best bid and offer, negative equity, Northern Rock, Occupy movement, oil shock, price stability, proprietary trading, quantitative easing, quantitative hedge fund, quantitative trading / quantitative finance, Ralph Waldo Emerson, regulatory arbitrage, Renaissance Technologies, risk free rate, risk tolerance, risk-adjusted returns, Robert Shiller, Ronald Reagan, Sam Peltzman, Savings and loan crisis, Sharpe ratio, short selling, sovereign wealth fund, speech recognition, statistical arbitrage, statistical model, survivorship bias, systematic trading, tail risk, The Great Moderation, too big to fail, transaction costs, value at risk, yield curve, zero-coupon bond

Lehman Brothers believed that its presence in the global capital markets; its access to advanced information technology, in-depth market research, proprietary risk management, and its general assessment experience under rapidly changing market conditions gave it a comparative advantage in finding profitable trading opportunities. Fixed Income Fixed income is another large part of the capital markets division. Fixed income was particularly important at Lehman Brothers, which was known as one of the leading fixed-income specialists in investment banking. Fixed-income instruments pay a fixed, known stream of future income—hence the term “fixed income.” Bonds are the most common example. Buy a stock, and you have no idea what the future returns will be. The stock could go up or down by any amount, making the income from it variable, not fixed. Bonds and other fixed-income instruments, by contrast, commit to paying a known payment on specified future dates.5 As a broker, Lehman helped investors trade fixed-income instruments, 24 hours a day and around the world.

Myron Scholes, a PhD from the University of Chicago and a professor at MIT and Chicago, became a managing director of Salomon in 1991, as well as co-head of the fixed-income sales and trading department. Finally Robert Merton, a PhD from MIT and a Harvard professor, arrived in 1988 as a senior advisor to Salomon Brothers. The whole quantitative team worked in fixed income, but focused on slightly different areas. Haghani was a bond arbitrage trader, Hawkins worked in bond arbitrage and mortgages, Hilibrand worked in bond arbitrage, Hufschmid worked on the UK fixed-income arbitrage desk and then moved permanently to the FX trading desk, Krasker worked in fixed-income arbitrage, Krisnamacher worked on the derivatives trading desk, Leahy was head of mortgage trading, and Rosenfeld was the co-head of the bond arbitrage group.

Even when Drexel collapsed in the late 1980s and Refco failed in 2005, regulators preserved their trading books to unwind or transfer positions to another institution.3 Lehman was involved in all sorts of dealer trading, including commodities, real estate, equities, and fixed income. Many of its positions were OTC deals, rather than exchange-cleared deals. This created a web of interdependencies, as with LTCM in 1998. Because Lehman was relatively more involved in fixed-income trading and was generally known as one of the world’s premier fixed-income intermediaries, its bankruptcy had the potential to disrupt fixed-income markets. The International Swaps and Derivatives Association (ISDA) stipulates that counterparties have the option to terminate positions with a bankrupt firm at the closing prices on the day of the bankruptcy filing.


pages: 490 words: 117,629

Unconventional Success: A Fundamental Approach to Personal Investment by David F. Swensen

asset allocation, asset-backed security, Benchmark Capital, book value, buy and hold, capital controls, classic study, cognitive dissonance, corporate governance, deal flow, diversification, diversified portfolio, equity risk premium, financial engineering, fixed income, index fund, junk bonds, law of one price, Long Term Capital Management, low interest rates, market bubble, market clearing, market fundamentalism, money market fund, passive investing, Paul Samuelson, pez dispenser, price mechanism, profit maximization, profit motive, risk tolerance, risk-adjusted returns, Robert Shiller, Savings and loan crisis, shareholder value, Silicon Valley, Steve Ballmer, stocks for the long run, survivorship bias, technology bubble, the market place, transaction costs, Vanguard fund, yield curve, zero-sum game

The answer to the asymmetry no doubt lies in the superior sophistication of issuers of debt relative to the limited market savvy of purchasers of debt. In point of fact, fixed-income markets attract analysts several notches below the quality and sophistication of equity analysts, even though the complexity of the task facing the fixed-income analyst arguably exceeds the difficulty of the equity analyst’s job. Corporate bond investors need familiarity not only with the complexities of fixed-income markets, but also with the full range of issues involved in equity valuation. Since understanding the cushion provided by a company’s equity proves essential in evaluating a corporation’s ability to service debt, bond analysts require a full assessment of a company’s stock price.

Since after-tax returns for taxable and tax-exempt bonds tend to fall in the same neighborhood, the primary benefit to owning tax-exempt debt lies in freeing capacity in an investor’s tax-deferred accounts for non-fixed-income assets. While investors gain clear short-term economic benefits from employing tax-deferred accounts for non-fixed-income assets, the short-run gains come at the expense of long-run portfolio characteristics. Investors who substitute tax-exempt debt for core holdings of Treasury bonds dilute the value of fixed income’s diversifying power by introducing call risk and credit risk to the bond portfolio. Table 4.2 Vanguard’s Taxable Money-Market Investors Miss an Opportunity Source: Vanguard.

Optionality proves even more difficult to assess than credit risk. In the case of fixed-income instruments with credit risk, sensible investors look at bond yields with skepticism, knowing that part of the return may be lost to corporate downgrades or defaults. In the case of fixed-income instruments with high degrees of optionality, everyday investors hold no clue as to the appropriate amount by which to discount stated yields to adjust for the possible costs of the options. In fact, many professionals fail to understand the difficult dynamics of fixed-income options. Piper Capital’s Worth Bruntjen In a celebrated case of the early 1990s, Worth Bruntjen, a fixed-income specialist at Piper Capital in Minneapolis, built an enormous reputation as a manager of mortgage-backed securities portfolios.


pages: 385 words: 128,358

Inside the House of Money: Top Hedge Fund Traders on Profiting in a Global Market by Steven Drobny

Abraham Maslow, Alan Greenspan, Albert Einstein, asset allocation, Berlin Wall, Bonfire of the Vanities, Bretton Woods, business cycle, buy and hold, buy low sell high, capital controls, central bank independence, commoditize, commodity trading advisor, corporate governance, correlation coefficient, Credit Default Swap, currency risk, diversification, diversified portfolio, family office, financial engineering, fixed income, glass ceiling, Glass-Steagall Act, global macro, Greenspan put, high batting average, implied volatility, index fund, inflation targeting, interest rate derivative, inventory management, inverted yield curve, John Meriwether, junk bonds, land bank, Long Term Capital Management, low interest rates, managed futures, margin call, market bubble, Market Wizards by Jack D. Schwager, Maui Hawaii, Mexican peso crisis / tequila crisis, moral hazard, Myron Scholes, new economy, Nick Leeson, Nixon triggered the end of the Bretton Woods system, oil shale / tar sands, oil shock, out of africa, panic early, paper trading, Paul Samuelson, Peter Thiel, price anchoring, proprietary trading, purchasing power parity, Reminiscences of a Stock Operator, reserve currency, risk free rate, risk tolerance, risk-adjusted returns, risk/return, rolodex, Sharpe ratio, short selling, Silicon Valley, tail risk, The Wisdom of Crowds, too big to fail, transaction costs, value at risk, Vision Fund, yield curve, zero-coupon bond, zero-sum game

Why don’t you have some South American fixed income, something in Asia, some diversification?” My reply was, “When the Fed is in an aggressive rate-cutting mode I want to be long Eurodollars because it’s the most obvious trade in the most liquid market in the world. I don’t want to be long South American fixed income or anything else when there is a clear trend in a liquid market.” (See Figure 5.4.) Over your trading career, have you made more money in fixed income from the long or short side? Long, and again that makes perfect sense when you look at how markets trade. Bear markets in fixed income are very short with powerful rallies.

The next big asset category where we can be systematic, earn risk premia, and control our downside is fixed income. In Triumph of the Optimist (by Elroy Dimson, Paul Marsh, and Mike Staunton), a book about risk premia around the world, there is a whole section on bonds. Because bonds, on average, have paid a positive risk premium over time, you are supposed to be long fixed income. They don’t pay the same as equities, but they shouldn’t because they aren’t as risky as equities. But that’s the beauty of 62 INSIDE THE HOUSE OF MONEY being able to take on leverage.When we allocate 20 percent of our risk to fixed income, it doesn’t mean we only put 20 percent of our assets into fixed income.There are all kinds of interesting things you can do in fixed income with leverage and still only utilize 20 percent of your capital.

But that’s the beauty of 62 INSIDE THE HOUSE OF MONEY being able to take on leverage.When we allocate 20 percent of our risk to fixed income, it doesn’t mean we only put 20 percent of our assets into fixed income.There are all kinds of interesting things you can do in fixed income with leverage and still only utilize 20 percent of your capital. For example, you could put 40 percent of your capital into shorterduration bonds.When using leverage, you want the highest Sharpe ratio because you’re borrowing money against your investment, and the best Sharpe ratios are found in the two years and under the sector of fixed income. On an absolute return basis, two years and under bonds are not going to pay as much as a 10-year bond because the yields are usually lower. But the risk-to-return ratio is also very different.You could be five times levered in the two-year and get a higher payout with the same risk as a 10-year bond because of duration.


pages: 620 words: 214,639

House of Cards: A Tale of Hubris and Wretched Excess on Wall Street by William D. Cohan

Alan Greenspan, asset-backed security, Bear Stearns, book value, call centre, collateralized debt obligation, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, deal flow, Deng Xiaoping, diversification, Financial Instability Hypothesis, fixed income, Glass-Steagall Act, Hyman Minsky, Irwin Jacobs, Jim Simons, John Meriwether, junk bonds, Long Term Capital Management, low interest rates, margin call, merger arbitrage, Michael Milken, money market fund, moral hazard, mortgage debt, mutually assured destruction, Myron Scholes, New Journalism, Northern Rock, proprietary trading, Renaissance Technologies, Rod Stewart played at Stephen Schwarzman birthday party, Savings and loan crisis, savings glut, shareholder value, sovereign wealth fund, stock buybacks, too big to fail, traveling salesman, uptick rule, vertical integration, Y2K, yield curve

The performance of every one of the firm's major divisions— investment banking, clearing, asset management, and institutional equities—was down meaningfully from the third quarter of the year before, with one exception: fixed income. Net revenues for fixed income were $416.1 million, up 78.4 percent from $233.3 million in the previous year's third quarter. “Although down from last quarter's record results, fixed income revenues remained strong year-over-year, with solid performances in the mortgage-backed securities, high yield and credit derivatives areas,” the firm announced. In short order, Bear Stearns's fixed-income division accounted for one-third of the firm's revenues in the first nine months of 2001, up from 18 percent in the first nine months of 2000.

“Mortgage-backed securities revenues increased significantly as residential mortgage refinancing activity reached record levels during the year, driving record new issue activity, and demand for high-quality fixed income investments continued.” The firm did not break out separately the profitability of Spector's fixed-income division, but the overall grouping of investment banking (Schwartz's bailiwick), institutional equities, and fixed income had increased its pretax income to $2 billion in 2004, from $1.3 billion in 2002, and it would be safe to say that much of the increase in the pretax income came from the growth in the fixed-income division. Slowly but surely the market and the press began to naturally assume that Spector was Cayne's heir apparent, since he ran such a substantial portion of the firm's businesses.

He contemplated buying a partnership stake in a Gulfstream jet and was the executive producer of the 2006 independent film Just Like My Son, starring Rosie Perez. CAYNE CAPS SPECTOR y 2004, there was no question that the businesses at the firm that reported to Warren Spector—fixed income, institutional equities, and asset management—were driving the growth of the firm. Particularly important was the exponential growth of the fixed-income business, which was without question Spector's fiefdom. Fixed-income revenue in 2004 was $3.1 billion—nearly 45 percent of the firm's overall revenue of $6.8 billion—and had increased some 63 percent, from $1.9 billion in revenues, since 2002. “These businesses benefited from the low level of interest rates, a steep yield curve and narrowing of corporate credit spreads,” the firm reported in its SEC filings.


pages: 313 words: 101,403

My Life as a Quant: Reflections on Physics and Finance by Emanuel Derman

Bear Stearns, Berlin Wall, bioinformatics, Black-Scholes formula, book value, Brownian motion, buy and hold, capital asset pricing model, Claude Shannon: information theory, Dennis Ritchie, Donald Knuth, Emanuel Derman, financial engineering, fixed income, Gödel, Escher, Bach, haute couture, hiring and firing, implied volatility, interest rate derivative, Jeff Bezos, John Meriwether, John von Neumann, Ken Thompson, law of one price, linked data, Long Term Capital Management, moral hazard, Murray Gell-Mann, Myron Scholes, PalmPilot, Paul Samuelson, pre–internet, proprietary trading, publish or perish, quantitative trading / quantitative finance, Sharpe ratio, statistical arbitrage, statistical model, Stephen Hawking, Steve Jobs, stochastic volatility, technology bubble, the new new thing, transaction costs, volatility smile, Y2K, yield curve, zero-coupon bond, zero-sum game

Although options theory originated in the world of stocks, it is exploited more widely in the fixed-income universe. Stocks (at least at first glance) lack mathematical detail-if you own a share of stock you are guaranteed nothing; all you really know is that its price may go up or down. In contrast, fixed-income securities such as bonds are ornate mechanisms that promise to spin off future periodic payments of interest and a final return of principal. This specification of detail makes fixed income a much more numerate business than equities, and one much more amenable to mathematical analysis. Every fixed-income securitybonds, mortgages, convertible bonds, and swaps, to name only a few-has a value that it depends on, and is therefore conveniently viewed as a derivative of the market's underlying interest rates.

There, most investors are concerned with which stock to buy, a problem on which the advanced mathematics of derivatives can shed little light. Fixed income and equities have fundamentally different foci. When you walk around a frenetic fixed-income trading floor, you hear people shouting out numbers-yields and spreads-over the hoot-andholler; on a busy equities floor, you mostly hear people shouting company names. Fixed-income trading requires a better grasp of technology and quantitative methods than equities trading. A trader friend of mine summed it up succinctly when, after I commented to him that the fixed-income traders I knew seemed smarter than the equity traders, he replied that "that's because there's no competitive edge to being smart in the equities business" I don't mean to suggest that all quants work on the Black-Scholes model.

A year or so after joining O'Connor, he departed together with two software engineers he had met there to start a company to produce fixed-income risk management software. They based themselves in Chicago and called their firm RMS, an evocative name that I greatly admired.' David's plan to build a commercial fixed-income risk management system was an inspired one, several years ahead of its time. Although many trading firms and investment banks, including Goldman, wrote their own risk-management software, at that time no one had yet marketed that type of product commercially. Stan Diller at Bear Stearns was pushing in that direction; as head of FAST, their fixed-income research group, he was building a system called AutoBond, which was intended to first be used by the trading desks and then, once polished and debugged, to be sold to clients.


pages: 367 words: 97,136

Beyond Diversification: What Every Investor Needs to Know About Asset Allocation by Sebastien Page

Andrei Shleifer, asset allocation, backtesting, Bernie Madoff, bitcoin, Black Swan, Bob Litterman, book value, business cycle, buy and hold, Cal Newport, capital asset pricing model, commodity super cycle, coronavirus, corporate governance, COVID-19, cryptocurrency, currency risk, discounted cash flows, diversification, diversified portfolio, en.wikipedia.org, equity risk premium, Eugene Fama: efficient market hypothesis, fixed income, future of work, Future Shock, G4S, global macro, implied volatility, index fund, information asymmetry, iterative process, loss aversion, low interest rates, market friction, mental accounting, merger arbitrage, oil shock, passive investing, prediction markets, publication bias, quantitative easing, quantitative trading / quantitative finance, random walk, reserve currency, Richard Feynman, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, robo advisor, seminal paper, shareholder value, Sharpe ratio, sovereign wealth fund, stochastic process, stochastic volatility, stocks for the long run, systematic bias, systematic trading, tail risk, transaction costs, TSMC, value at risk, yield curve, zero-coupon bond, zero-sum game

EM DEBT (USD) ATTRACTIVE ON VALUATION “In fixed income markets, there’s strong mean reversion (barring defaults). Unlike in equities, you get your money back—the terminal value is known!” said one committee member. Our dashboards in the AAC book support this statement: our strongest valuation signals are the relative YTMs on various fixed income asset classes. The terminology I often heard at my previous employer was that when the bonds are “money-good,” you have “stored alpha.” The fixed income team has issued a high conviction rating on EM debt, on valuation. Relative to other risk assets in fixed income, EM debt looks cheap.

Some comprehensive models also include sector and country factors. But fixed income portfolio managers have long decomposed portfolios into risk factors as well, probably even before equity investors did so. Almost all fixed income risk models are factor-based. Duration is a risk factor (or to be more precise, the interest rate is the risk factor, and duration is the exposure to it, or beta). Over time, many fixed income investors have expanded their factor-based approach to multi-asset portfolio management. To do so, they have connected two separate sets of factors (equity and fixed income), typically housed in two separate systems.

I prepared the data for Rob, using the same universe of asset classes and the same data sources as for the other similar analyses I’ve mentioned so far in this book. The dataset covers 33 data series: 20 asset classes (10 equity and 10 fixed income asset classes) and 12 relative bets (6 equity bets and 6 fixed income bets), as well as the stocks versus bonds relative bet. The list of equity asset classes and relative bets is on page 53, and the list for fixed income is on page 75. The start date for the daily and weekly dataset is August 30, 2000, and the end date is September 5, 2018. Monthly data start on February 28, 1993, and end on August 31, 2018.


pages: 258 words: 71,880

Street Fighters: The Last 72 Hours of Bear Stearns, the Toughest Firm on Wall Street by Kate Kelly

Alan Greenspan, bank run, Bear Stearns, book value, buy and hold, collateralized debt obligation, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Donald Trump, eat what you kill, fixed income, housing crisis, index arbitrage, Long Term Capital Management, margin call, moral hazard, proprietary trading, quantitative hedge fund, Renaissance Technologies, risk-adjusted returns, shareholder value, technology bubble, too big to fail, traveling salesman

http://us.penguingroup.com To the 14,000 people who worked at Bear Stearns CAST OF CHARACTERS At The Bear Stearns Companies Alan Schwartz, chief executive Sam Molinaro, chief financial officer Bob Upton, treasurer Tom Marano, head of mortgages Paul Friedman, chief operating officer of the fixed-income division Jimmy Cayne, chairman Alan “Ace” Greenberg, director and former CEO Vincent Tese, lead director Richie Metrick, investment banker Carl Glickman, director Tim Greene, cohead of the fixed-income funding desk Steve Meyer, cochief of the equities division Pat Lewis, deputy treasurer Jeff Mayer, cohead of the fixed-income division David Kim, internal lawyer Steve Begleiter, head of corporate strategy At JPMorgan Chase & Co. Jamie Dimon, chairman and CEO Steve Black, cochief of the investment bank Bill Winters, cochief of the investment bank Matt Zames, head of foreign-exchange and interest-rate product trading Steve Cutler, general counsel Doug Braunstein, head of corporate finance At the Federal Reserve Tim Geithner, president of Federal Reserve Bank of New York Ben Bernanke, chairman of the Federal Reserve Board Kevin Warsh, governor of the Federal Reserve Board At the U.S.

With a leverage, or debt-to-cash ratio, of 30 to 1—meaning that for every $1 it actually held in cash, Bear had borrowed $30 from other parties—the firm had one of the heaviest debt loads of any firm on the Street. That made it more vulnerable than other firms when repo lenders faced a crisis of confidence. To streamline the daily lending process, Bear operated financing desks in the fixed-income and equities units staffed by people whose job it was to “roll,” or renew, expiring loan agreements on a nightly, weekly, or monthly basis. Eyes turned now to Tim Greene, one of the two heads of Bear’s fixed-income financing desk. Greene, a West Point graduate with a soldier’s sense of loyalty, had been working at Bear for twenty-four years, rising through the ranks to help run the bond unit’s repo desk, which handled about $160 billion of funding at any given point—about half of Bear’s entire balance sheet.

SATURDAY March 15, 2008 Midnight While two of Bear’s managers had lapsed into a drug-induced sleep, others couldn’t get their minds off the company’s worsening situation. Peter Bainlardi, who ran one of the fixed-income division’s trading desks, fired off an e-mail at 12:26 A.M. Saturday morning that summed up how most of Bear’s senior traders and managers were feeling. “Plan to Save Bear Stearns—Important—Please Read” was addressed to Schwartz, Marano, Mayer, and other top players in the fixed-income division. Written on Bainlardi’s laptop at his downtown Manhattan apartment, it was a long and heartfelt meditation on the bind Bear found itself in and what might be done to extricate the firm.


Capital Ideas Evolving by Peter L. Bernstein

Albert Einstein, algorithmic trading, Andrei Shleifer, asset allocation, behavioural economics, Black Monday: stock market crash in 1987, Bob Litterman, book value, business cycle, buy and hold, buy low sell high, capital asset pricing model, commodity trading advisor, computerized trading, creative destruction, currency risk, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, diversification, diversified portfolio, endowment effect, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, fixed income, high net worth, hiring and firing, index fund, invisible hand, Isaac Newton, John Meriwether, John von Neumann, Joseph Schumpeter, Kenneth Arrow, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, market bubble, mental accounting, money market fund, Myron Scholes, paper trading, passive investing, Paul Samuelson, Performance of Mutual Funds in the Period, price anchoring, price stability, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, seminal paper, Sharpe ratio, short selling, short squeeze, Silicon Valley, South Sea Bubble, statistical model, survivorship bias, systematic trading, tail risk, technology bubble, The Wealth of Nations by Adam Smith, transaction costs, yield curve, Yogi Berra, zero-sum game

Hord explains that the Index Investor would still be guaranteed the return on the international index fund, and that guarantee would be collateralized by $200 million transferred to the Asset Trust from the foundation’s fixed-income assets. For safety’s sake, the fixed-income allocation would be converted from BGI’s active management to the BGI fixed-income index fund, but the fixed-income return would continue to accrue to the foundation. All earnings on all assets involved would be reinvested. Let us review what has happened. The Index Investor’s holding in the BGI international equity fund has been liquidated, with the proceeds transferred to the foundation’s outside active international equity manager.

The problem of how optimizers misbehave first came to the attention of the quantitative analysts at Goldman Sachs in 1989, not long bern_c15.qxd 3/23/07 226 9:12 AM Page 226 THE PRACTITIONERS after Litterman had become head of fixed-income research. The head of fixed-income management in Goldman’s Tokyo office had asked Litterman to develop a model for building global fixed-income portfolios that would be appropriate for Japanese investors. The task soon expanded to building a global model for composing fixed-income portfolios for Goldman’s clients all over the world. Litterman was uncertain as to how should he begin this assignment, and decided to consult Black. Black was interested in the challenge, but it was not his habit to think of models in terms of the real world.

This leaves a net profit of $44 million on the foundation’s account plus the performance on the fixed-income fund within the Trust. Thus, the alpha of $44 million was “ported” from the active international manager to the foundation’s fixed-income fund that collateralized the deal. The story is not necessarily destined to have such a happy ending. Suppose the returns were reversed, with the index fund earning 12 percent a year and the active manager stumbling behind at 9 percent. Now the foundation would have accumulated only $308 million, while the Index Investor would have accumulated a claim of $352 million. The foundation would have to liquidate $44 million from its fixed-income portfolio in order to make good on its guarantee to the Index Investor.


pages: 345 words: 86,394

Frequently Asked Questions in Quantitative Finance by Paul Wilmott

Abraham Wald, Albert Einstein, asset allocation, beat the dealer, Black-Scholes formula, Brownian motion, butterfly effect, buy and hold, capital asset pricing model, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, delta neutral, discrete time, diversified portfolio, Edward Thorp, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial engineering, fixed income, fudge factor, implied volatility, incomplete markets, interest rate derivative, interest rate swap, iterative process, lateral thinking, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, margin call, market bubble, martingale, Myron Scholes, Norbert Wiener, Paul Samuelson, power law, quantitative trading / quantitative finance, random walk, regulatory arbitrage, risk free rate, risk/return, Sharpe ratio, statistical arbitrage, statistical model, stochastic process, stochastic volatility, transaction costs, urban planning, value at risk, volatility arbitrage, volatility smile, Wiener process, yield curve, zero-coupon bond

If the logarithm of J is Normally distributed with standard deviation σ′ then the price of a European non-path-dependent option can be written as where and and VBS is the Black-Scholes formula for the option value in the absence of jumps. Fixed Income In the following we use the continuously compounded interest convention. So that one dollar put in the bank at a constant rate of interest r would grow exponentially, ert. This is the convention used outside the fixed-income world. In the fixed-income world where interest is paid discretely, the convention is that money grows according to(1 + r′τ)n, where n is the number of interest payments, τ is the time interval between payments (here assumed constant) and r′ is the annualized interest rate.

In 1976 Fischer Black introduced the idea of treating bonds as underlying assets so as to use the Black-Scholes equity option formulæ for fixed-income instruments. This is also not entirely satisfactory since there can be contradictions in this approach. On one hand bond prices are random, yet on the other hand interest rates used for discounting from expiration to the present are deterministic. An internally consistent stochastic rates approach was needed. The first step on the stochastic interest rate path used a very short-term interest rate, the spot rate, as the random factor driving the entire yield curve. The mathematics of these spot-rate models was identical to that for equity models, and the fixed-income derivatives satisfied similar equations as equity derivatives.

In all of the spot rate models below we havedr = u(r,t)dt + w(r,t)dX as the real process for the spot interest rate. The risk-neutral process which governs the value of fixed-income instruments isdr = (u − λw)dt + w dX where λ is the market price of interest rate risk. In each case the stochastic differential equation we describe is for the risk-neutral spot rate process, not the real. The differential equation governing the value of non-path-dependent contracts is The value of fixed-income derivatives can also be interpreted as [Present value of cashflows], where the expectation is with respect to the risk-neutral process Vasicek In this model the risk-neutral process isdr = (a − br )dt + c dX, with a, b and c being constant.


pages: 192 words: 75,440

Getting a Job in Hedge Funds: An Inside Look at How Funds Hire by Adam Zoia, Aaron Finkel

backtesting, barriers to entry, Bear Stearns, collateralized debt obligation, commodity trading advisor, Credit Default Swap, credit default swaps / collateralized debt obligations, deal flow, discounted cash flows, family office, financial engineering, fixed income, global macro, high net worth, interest rate derivative, interest rate swap, Long Term Capital Management, managed futures, merger arbitrage, offshore financial centre, proprietary trading, random walk, Renaissance Technologies, risk-adjusted returns, rolodex, short selling, side project, statistical arbitrage, stock buybacks, stocks for the long run, systematic trading, two and twenty, unpaid internship, value at risk, yield curve, yield management

Note: This is primarily an equity-based style. Fixed Income Strategies There are many different fixed income funds that invest in various types of debt instruments, including mortgage-backed securities (MBS), collateralized debt obligations (CDOs), collateralized loan obligations (CLOs), convertible bonds, high-yield bonds, municipal bonds, corporate bonds, and different types of global securities. There are diversified funds that may invest in a combination of these securities and also arbitrage funds that seek to profit by exploiting pricing inefficiencies between related fixed income securities while neutralizing exposure to interest rate risk.

c01.indd 5 1/10/08 11:00:55 AM 6 Getting a Job in Hedge Funds Table 1.3 Instruments and Styles COMMONLY USED INSTRUMENTS HEDGE FUND STYLES Public Equities Long/Short Quantitative Fixed Income Long Bias Event-Driven/Special Situations Currencies Short Only Value Commodities Arbitrage Trading Oriented Derivatives/Futures Market Neutral Global Macro Private Equity Industry Focus Multi-strategy Convertible Bonds Distressed Geographic Focus Arbitrage Strategies There are various types of arbitrage strategies, and all seek to exploit imbalances between different financial markets such as currencies, commodities, and debt. Some of the more popular hedge fund arbitrage strategies are convertible fixed income, risk, and statistical arbitrage.

Convertible Arbitrage This strategy is identified by hedge investing in the convertible securities of a company. To do this, a hedge fund manager would buy the convertible bonds of a company while at the same time selling (or shorting) the company’s common stock. Positions are designed to generate profits from the fixed income security as well as the short sale of stock, while protecting principal from market moves. Fixed Income Arbitrage A fund that follows this strategy aims to profit from price anomalies between related interest rate securities. Most managers trade globally with a goal of generating steady returns with low volatility. This category includes interest rate swap arbitrage, U.S. and non-U.S. government bond arbitrage, forward yield curve arbitrage, and mortgage-backed securities (MBS) arbitrage.


Stocks for the Long Run, 4th Edition: The Definitive Guide to Financial Market Returns & Long Term Investment Strategies by Jeremy J. Siegel

addicted to oil, Alan Greenspan, asset allocation, backtesting, behavioural economics, Black-Scholes formula, book value, Bretton Woods, business cycle, buy and hold, buy low sell high, California gold rush, capital asset pricing model, cognitive dissonance, compound rate of return, correlation coefficient, currency risk, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, dividend-yielding stocks, dogs of the Dow, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, Everybody Ought to Be Rich, fixed income, German hyperinflation, implied volatility, index arbitrage, index fund, Isaac Newton, it's over 9,000, John Bogle, joint-stock company, Long Term Capital Management, loss aversion, machine readable, market bubble, mental accounting, Money creation, Myron Scholes, new economy, oil shock, passive investing, Paul Samuelson, popular capitalism, prediction markets, price anchoring, price stability, proprietary trading, purchasing power parity, random walk, Richard Thaler, risk free rate, risk tolerance, risk/return, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, stock buybacks, stocks for the long run, subprime mortgage crisis, survivorship bias, technology bubble, The Great Moderation, The Wisdom of Crowds, transaction costs, tulip mania, uptick rule, Vanguard fund, vertical integration

From 1880, the real return on long-term bonds over every 30year period has never reached 4 percent, and it has exceeded 3 percent during only 22 such periods. CHAPTER 1 Stock and Bond Returns Since 1802 TABLE 15 1–2 Fixed-Income Returns, 1802 through December 2006 You have to go back more than 11⁄2 centuries to the period from 1831 through 1861 to find any 30-year period during which the return on either long- or short-term bonds exceeded that on equities. The dominance of stocks over fixed-income securities is overwhelming for investors with long horizons. THE FALL IN FIXED-INCOME RETURNS Although the returns on equities have fully compensated stock investors for the increased inflation since World War II, the returns on fixedincome securities have not.

For more information about this title, click here C O N T E N T S Foreword xv Preface xvii Acknowledgments xxi PART 1 THE VERDICT OF HISTORY Chapter 1 Stock and Bond Returns Since 1802 3 “Everybody Ought to Be Rich” 3 Financial Market Returns from 1802 5 The Long-Term Performance of Bonds 7 The End of the Gold Standard and Price Stability 9 Total Real Returns 11 Interpretation of Returns 12 Long-Term Returns 12 Short-Term Returns and Volatility 14 Real Returns on Fixed-Income Assets 14 The Fall in Fixed-Income Returns 15 The Equity Premium 16 Worldwide Equity and Bond Returns: Global Stocks for the Long Run 18 Conclusion: Stocks for the Long Run 20 Appendix 1: Stocks from 1802 to 1870 21 Appendix 2: Arithmetic and Geometric Returns 22 v vi Chapter 2 Risk, Return, and Portfolio Allocation: Why Stocks Are Less Risky Than Bonds in the Long Run 23 Measuring Risk and Return 23 Risk and Holding Period 24 Investor Returns from Market Peaks 27 Standard Measures of Risk 28 Varying Correlation between Stock and Bond Returns 30 Efficient Frontiers 32 Recommended Portfolio Allocations 34 Inflation-Indexed Bonds 35 Conclusion 36 Chapter 3 Stock Indexes: Proxies for the Market 37 Market Averages 37 The Dow Jones Averages 38 Computation of the Dow Index 39 Long-Term Trends in the Dow Jones 40 Beware the Use of Trend Lines to Predict Future Returns 41 Value-Weighted Indexes 42 Standard & Poor’s Index 42 Nasdaq Index 43 Other Stock Indexes: The Center for Research in Security Prices (CRSP) 45 Return Biases in Stock Indexes 46 Appendix: What Happened to the Original 12 Dow Industrials?

The shortterm fluctuations in the stock market, which loom so large to investors when they occur, are insignificant when compared to the upward movement of equity values over time. In contrast to the remarkable stability of stock returns, real returns on fixed-income assets have declined markedly over time. In the first and even second subperiods, the annual returns on bonds and bills, although less than those on equities, were significantly positive. But since 1926, and especially since World War II, fixed-income assets have returned little after inflation. INTERPRETATION OF RETURNS Long-Term Returns The annual returns on U.S. stocks over the past two centuries are summarized in Table 1-1.15 The shaded column represents the real after-inflation, compound annual rate of return on stocks.


pages: 537 words: 144,318

The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes, and Real Money by Steven Drobny

Albert Einstein, AOL-Time Warner, Asian financial crisis, asset allocation, asset-backed security, backtesting, banking crisis, Bear Stearns, Bernie Madoff, Black Swan, bond market vigilante , book value, Bretton Woods, BRICs, British Empire, business cycle, business process, buy and hold, capital asset pricing model, capital controls, central bank independence, collateralized debt obligation, commoditize, commodity super cycle, commodity trading advisor, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, diversification, diversified portfolio, equity premium, equity risk premium, family office, fiat currency, fixed income, follow your passion, full employment, George Santayana, global macro, Greenspan put, Hyman Minsky, implied volatility, index fund, inflation targeting, interest rate swap, inventory management, inverted yield curve, invisible hand, junk bonds, Kickstarter, London Interbank Offered Rate, Long Term Capital Management, low interest rates, market bubble, market fundamentalism, market microstructure, Minsky moment, moral hazard, Myron Scholes, North Sea oil, open economy, peak oil, pension reform, Ponzi scheme, prediction markets, price discovery process, price stability, private sector deleveraging, profit motive, proprietary trading, purchasing power parity, quantitative easing, random walk, Reminiscences of a Stock Operator, reserve currency, risk free rate, risk tolerance, risk-adjusted returns, risk/return, savings glut, selection bias, Sharpe ratio, short selling, SoftBank, sovereign wealth fund, special drawing rights, statistical arbitrage, stochastic volatility, stocks for the long run, stocks for the long term, survivorship bias, tail risk, The Great Moderation, Thomas Bayes, time value of money, too big to fail, Tragedy of the Commons, transaction costs, two and twenty, unbiased observer, value at risk, Vanguard fund, yield curve, zero-sum game

From there I moved into fixed income back in Minneapolis, where I again started at the bottom of the desk: rolling fixed income positions for the financial division (repo and reverse repo), concomitantly trading fixed income and currency exposures. I view these housekeeping trading roles—rolling currency positions, repo/reverse repo, stock borrow/lend, and futures rolls—as integral to the process of learning the pulse of any market. My next position took me to Australia, where I managed our branch office in Melbourne, a position that entailed overseeing portfolios in currency, fixed income, and equities markets, as well as responsibility for accounting functions.

See European Central Bank Economic crash (2008) banks, problems foresight Economic cycle, driver (location) Economic entity, presence Economic leverage, accounting leverage (contrast) Economy, double dip (hypothesis) Efficient frontier leverage, relationship Efficient markets, disbelief Electorate-adjusted El-Erian, Mohamed Emerging markets bearish markets bubble collapse corporate bonds, usage decoupling equities, selection Employee pension scheme, capital allocation End of the Line, The (Lynn) Endowment Model flaws invalidation orientation portfolio resemblance Endowments cash level Commodity Hedger process decrease in-house trading staff, absence problems Energy, usage Equities bubble/overvaluation performance risk, commodity risk (contrast) risk premium, faith risky assets Equity assets, U.S. public/private pension ownership Equity bubble, conditions Equity-centric portfolio, endorsement (Swensen) Equity concentration risk, awareness Equity index futures, usage Equity-like instruments, usage Equity multiples (1980-2000) Equity-oriented portfolios, decrease Equity returns, Harvard/Yale endowments (contrast) Equity Trader, The adaptability call blow-ups, avoidance business entry CalPERS operation core positions trading, indices/options (usage) discipline, lessons environment differentiation focus fundamentals, understanding future adaptability hedge fund operation, worries outlook interview investor meetings lessons manager, investor base (impact) market environment identification momentum trades, options (usage) performance, randomness P&L, trading portfolio construction positioning, understanding private deals, execution profit-taking process real money fund management research team, usage risk framework transition rules, discovery socialism, concern sovereign wealth fund operation stockholder understanding stocks, shorting/ownership (contrast) taxes, hedge traders competition hiring criteria trades ideas, origination quality risk/reward, change trading accounts, problems decisions, policy makers (impact) disaster preplanning sharpness style, implementation worldview Euro, two-year Euro interest rates European Central Bank (ECB) inflation targeting European Currency Unit (ECU) basket European Exchange Rate (ERM) European Monetary Unit (EMU) European Union, breakage (potential) Excess demand, control Excess return, valuation Exchange rate valuation, P/E multiples (relationship) Exchange-traded funds (ETFs) allowance usage Export land model Extreme scenarios, protection (purchase) Faber, Mark Family office manager Fat-tail events Favorite Trade concept format, Plasticine Macro Trader disapproval Federal Reserve Funds, target rate (2008) independence, cessation Feedback, impact Ferguson, Niall Fiat currencies, impact Fiat money, cessation Filipino Diaspora Finance, diversification (impact) Financial bubble, risk Financial instruments, usage Financials, future Financial stocks (2007-2008) Financing problems Firm-level risk management Fiscal policy easing role, impact underestimation Fiscal stimulus China impact Fixed income trading, focus Fixed income volatility trade Flexibility, value (example) Fordham Law School, support Forecast combinations, improvement Forecasting model parameters, estimation Foreign currency diversification, usage Foreign Direct Investment (FDI) Forward fixed income Forward price, spot price (contrast) Forward-starting volatility Friedman, Milton Front contracts, physical commodities Fundamental investing/research, time frames (matching) Fundamentals, understanding Fund management, skill Fund performance, indicator Future benefit obligations, earnings Future correlations, usage FX forwards G3/G7 liquid rate, arbitrage opportunity (absence) G7 demand G7 economies, problems G10 policy General Theory of Employment, Interest, and Money, The (Keynes) German Schatz contracts Global adjustment period Global dollar carry trade Global economy, weakness Global equities decrease markets, decline Global fund management industry Global governments, financial system (backstopping) Globalization, meaning Global macro approach Global macro funds, factors Global macro hedge fund managers Global warming, carbon dioxide (impact) Gold (1979-1980) (1999) (2000-2009) (2004-2009) pension fund base currency safety Good leverage, classification Government bonds bull market (1985-2009) leverage, change LIBOR positions, leverage safety Government debt, funding Government default risk Government stimulus, payment Grantham, Jeremy Great Britain, ERM absence Great Depression spending, decrease taxes, increase Great Macro Experiment.

In 1949, public and private pension assets in the United States were $15.7 billion. The asset mix was roughly half in government bonds, and half in other fixed income and insurance company fixed annuity investment products. There was minimal exposure to equities. Figure 1.2 Growth of US Public and Private Pension Fund Assets, 1950-2008 SOURCE: Federal Reserve Flow of Funds. Along Came Inflation By 1970, public and corporate pension fund assets in the United States reached $211.7 billion, the majority of which was concentrated in fixed income. Beginning with the 1973-1974 oil embargo, wave after wave of commodity price-induced inflation roiled fixed interest portfolios through the remainder of the decade.


pages: 517 words: 139,477

Stocks for the Long Run 5/E: the Definitive Guide to Financial Market Returns & Long-Term Investment Strategies by Jeremy Siegel

Alan Greenspan, AOL-Time Warner, Asian financial crisis, asset allocation, backtesting, banking crisis, Bear Stearns, behavioural economics, Black Monday: stock market crash in 1987, Black-Scholes formula, book value, break the buck, Bretton Woods, business cycle, buy and hold, buy low sell high, California gold rush, capital asset pricing model, carried interest, central bank independence, cognitive dissonance, compound rate of return, computer age, computerized trading, corporate governance, correlation coefficient, Credit Default Swap, currency risk, Daniel Kahneman / Amos Tversky, Deng Xiaoping, discounted cash flows, diversification, diversified portfolio, dividend-yielding stocks, dogs of the Dow, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, Financial Instability Hypothesis, fixed income, Flash crash, forward guidance, fundamental attribution error, Glass-Steagall Act, housing crisis, Hyman Minsky, implied volatility, income inequality, index arbitrage, index fund, indoor plumbing, inflation targeting, invention of the printing press, Isaac Newton, it's over 9,000, John Bogle, joint-stock company, London Interbank Offered Rate, Long Term Capital Management, loss aversion, machine readable, market bubble, mental accounting, Minsky moment, Money creation, money market fund, mortgage debt, Myron Scholes, new economy, Northern Rock, oil shock, passive investing, Paul Samuelson, Peter Thiel, Ponzi scheme, prediction markets, price anchoring, price stability, proprietary trading, purchasing power parity, quantitative easing, random walk, Richard Thaler, risk free rate, risk tolerance, risk/return, Robert Gordon, Robert Shiller, Ronald Reagan, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, stocks for the long run, survivorship bias, technology bubble, The Great Moderation, the payments system, The Wisdom of Crowds, transaction costs, tulip mania, Tyler Cowen, Tyler Cowen: Great Stagnation, uptick rule, Vanguard fund

The Realities We Face The Age Wave Rising Life Expectancy Falling Retirement Age The Retirement Age Must Rise World Demographics and the Age Wave Fundamental Question Emerging Economies Can Fill the Gap Can Productivity Growth Keep Pace? Conclusion PART II THE VERDICT OF HISTORY Chapter 5 Stock and Bond Returns Since 1802 Financial Market Data from 1802 to the Present Total Asset Returns The Long-Term Performance of Bonds Gold, the Dollar, and Inflation Total Real Returns Real Returns on Fixed-Income Assets The Continuing Decline in Fixed-Income Returns The Equity Premium Worldwide Equity and Bond Returns Conclusion: Stocks for the Long Run Appendix 1: Stocks from 1802 to 1870 Chapter 6 Risk, Return, and Portfolio Allocation Why Stocks Are Less Risky Than Bonds in the Long Run Measuring Risk and Return Risk and Holding Period Standard Measures of Risk Varying Correlation Between Stock and Bond Returns Efficient Frontiers Conclusion Chapter 7 Stock Indexes Proxies for the Market Market Averages The Dow Jones Averages Computation of the Dow Index Long-Term Trends in the Dow Jones Industrial Average Beware the Use of Trendlines to Predict Future Returns Value-Weighted Indexes Standard & Poor’s Index Nasdaq Index Other Stock Indexes: The Center for Research in Security Prices Return Biases in Stock Indexes Appendix: What Happened to the Original 12 Dow Industrials?

Nevertheless, this great bull market carried stocks too high, and the valuation of the market reached record levels, which in turn led to the poor returns of the following decade. The subsequent bear market and financial crisis plunged stocks once again well below trend as real stock returns have fallen to a mere +0.3 percent in the 12 years following the bull market peak of 2000. REAL RETURNS ON FIXED-INCOME ASSETS As stable as the long-term real returns have been for equities, the same cannot be said of fixed-income assets. As Table 5-2 indicates, the real return on Treasury bills has dropped precipitously from 5.1 percent in the early part of the nineteenth century to a bare 0.6 percent since 1926, a return only slightly above inflation. TABLE 5-2 Real Returns on Bonds and Inflation 1802–2012 The real return on long-term bonds has shown a similar, but more moderate, decline.

When security markets do not obey random walks, that conclusion cannot be maintained.6 CONCLUSION No one denies that, in the short run, stocks are riskier than fixed-income assets. But in the long run, history has shown that stocks are actually safer than bonds for long-term investors whose goal is to preserve the purchasing power of their wealth. The inflation uncertainty that is inherent in a paper money standard means that “fixed income” and “fixed purchasing power” are not the same thing, just as Irving Fisher conjectured a century ago. Despite the dramatic slowing in the rate of inflation over the past decade, there is much uncertainty about what a dollar will be worth in the future, especially given the large government deficits and easy monetary policy followed by the world’s central banks.


pages: 1,202 words: 424,886

Stigum's Money Market, 4E by Marcia Stigum, Anthony Crescenzi

accounting loophole / creative accounting, Alan Greenspan, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Bear Stearns, Black-Scholes formula, book value, Brownian motion, business climate, buy and hold, capital controls, central bank independence, centralized clearinghouse, corporate governance, credit crunch, Credit Default Swap, cross-border payments, currency manipulation / currency intervention, currency risk, David Ricardo: comparative advantage, disintermediation, distributed generation, diversification, diversified portfolio, Dutch auction, financial innovation, financial intermediation, fixed income, flag carrier, foreign exchange controls, full employment, Glass-Steagall Act, Goodhart's law, Greenspan put, guns versus butter model, high net worth, implied volatility, income per capita, intangible asset, interest rate derivative, interest rate swap, inverted yield curve, junk bonds, land bank, large denomination, locking in a profit, London Interbank Offered Rate, low interest rates, margin call, market bubble, market clearing, market fundamentalism, Money creation, money market fund, mortgage debt, Myron Scholes, offshore financial centre, paper trading, pension reform, Phillips curve, Ponzi scheme, price mechanism, price stability, profit motive, proprietary trading, prudent man rule, Real Time Gross Settlement, reserve currency, risk free rate, risk tolerance, risk/return, Savings and loan crisis, seigniorage, shareholder value, short selling, short squeeze, tail risk, technology bubble, the payments system, too big to fail, transaction costs, two-sided market, value at risk, volatility smile, yield curve, zero-coupon bond, zero-sum game

For example, in a rising interest-rate environment, Treasuries tend to be preferred over other securities, mostly because when rates rise, so do concerns about the economy, which can impair the ability of various types of borrowers (homeowners, corporations, etc.) to repay their debts. These concerns about the economy are hence manifested in the performance of “spread products,” or any fixed-income security that trades at a yield spread over Treasuries (all fixed-income securities). In recent years, banks have shown that they recognize the variations that can occur in the relative performance of fixed-income securities under different types of economic and interest-rate settings. Like most fixed-income investors, banks have shown an inclination to reach for as much yield as possible. This is evident in the current mix of securities held by the banking industry, which in June 2006 was skewed much more toward agencies and mortgage securities than toward Treasuries.19 Portfolio Management Active portfolio management by a bank—a willingness to make judgments about interest-rates trends and adjust maturities accordingly—can significantly increase the return earned by the bank on its portfolio.

THE PARAMETERS A liquidity portfolio is always managed within certain investment parameters that establish limits with respect to: (1) the types of instruments the portfolio may buy; (2) the percentage of the portfolio that may be invested in any one of these instruments (in T-bills the limit might be 100%, whereas in BAs or secondary loans, which are less liquid, it might be much lower); (3) the kind of exposure to names and credit risk the portfolio may assume (which banks’ paper and which issuers’ commercial paper it may buy and how much of each name it may buy, for example); (4) whether the portfolio may invest in international securities; (5) how far out on the maturity spectrum the portfolio may extend; (6) whether the portfolio may short securities or repo securities; (7) whether the portfolio may use futures, options, or other derivatives; and (8) whether the portfolio may take foreign-exchange risk or must always hedge. To assist in judging whether a portfolio is meeting these parameters, most large fixed-income portfolios compare their portfolios to that of a major fixed-income index such as the Lehman U.S. Aggregate Index. Indeed, Lehman claims that over 90% of U.S. investors use one or more of its fixed-income benchmarks to assist in analyzing their portfolios. Fixed-income managers use the indices largely to compare how their portfolios are constructed and to compare performance. The indices are an important resource for portfolio managers that help them in sticking to the parameters that are supposed to guide their investment decisions.

It is intended for people working in banks, in dealerships, and in other financial institutions; for people running liquidity portfolios; and for accountants, lawyers, students, and others who have an interest in the markets discussed. The book begins with an introduction to what goes on in fixed-income financial markets—financial intermediation and money creation—plus an introduction to how fixed-income securities work, including various concepts of yield, the meaning and importance of the yield curve and the messages embedded in it, and the concepts and calculation of duration and convexity. Next, the book analyzes the operations (domestic and Eurodollar) of money center banks, of money market dealers and brokers, of the Federal Reserve, and of managers of liquidity portfolios.


High-Frequency Trading by David Easley, Marcos López de Prado, Maureen O'Hara

algorithmic trading, asset allocation, backtesting, Bear Stearns, Brownian motion, capital asset pricing model, computer vision, continuous double auction, dark matter, discrete time, finite state, fixed income, Flash crash, High speed trading, index arbitrage, information asymmetry, interest rate swap, Large Hadron Collider, latency arbitrage, margin call, market design, market fragmentation, market fundamentalism, market microstructure, martingale, National best bid and offer, natural language processing, offshore financial centre, pattern recognition, power law, price discovery process, price discrimination, price stability, proprietary trading, quantitative trading / quantitative finance, random walk, Sharpe ratio, statistical arbitrage, statistical model, stochastic process, Tobin tax, transaction costs, two-sided market, yield curve

This change in matching algorithm has dramatic effects on the dynamics of the order book and optimal submission strategies. FIXED INCOME PRODUCTS The fixed-income universe is large and varied, from corporate bonds to municipal debt, mortgage-backed products and sovereign debt instruments, and includes various derived products such as swaps. Some of these products are traded only by dealers, and for some of them there is not even a central record of transactions. We shall focus on the subset of fixed-income products that are denoted “interest rate products”, that is, products for which default 44 i i i i i i “Easley” — 2013/10/8 — 11:31 — page 45 — #65 i i EXECUTION STRATEGIES IN FIXED INCOME MARKETS risk is negligible and market risk only comes from changes in the underlying interest rate.

URL: http://www.sec.gov/ news/speech/2013/spch021913ebw.htm. 230 i i i i i i “Easley” — 2013/10/8 — 11:31 — page 231 — #251 i i Index (page numbers in italic type relate to tables or figures) A B algorithmic execution: and leaking of information, 159–83, 160, 162, 163, 165, 167, 168, 169, 171, 172, 174, 176–7, 178–9; see also AlphaMax; BadMax BadMax approach and data sample, 166–8, 168 and BadMax and gross and net alpha, 168–70 and clustering analysis, 170–4, 171, 172, 174 definition, 160–4 and GSET, 174–5, 176–7 and high alpha of large clusters, 170–4 and trading algorithms, 70–1 algorithms: generations of, 23–7 predatory, 8 tactical liquidity provision 10–11 trading: and algorithmic decision-making, 71–2 and algorithmic execution, 70–1 evolution of, 22–8 generations, 23–7; see also trading algorithms, evolution of and indicator zoology, 27–8 and transaction cost, 28–31 AlphaMax, 160–6 passim see also BadMax; information leakage alternative limit order book, 80–6 agent-based model, 83–5, 86 results and conclusion, 85 and spread/price–time priority, 82–3 BadMax 159–83 passim, 169, 178–9, 180–2 and data sample, 166–8 and gross and net alpha, 168–70 profitability grid, 180–2 see also algorithmic execution: and leaking information; AlphaMax; information leakage Black Wednesday, 8 C clustering analysis, and high alpha of large clusters, 170–4 CME, Nasdaq’s joint project with, xvi cointegration, 44, 53–9 Consolidated Audit Tape (CAT), 216 construction of trading signals, 31–8 and order book imbalance, 36–8 and timescales and weights, 31–3, 33 and trade sign autocorrelations, 34–6 cumulative distribution function, 130–1 D dark pools, smart order routing in, 115–22 E equity markets: execution strategies in, 21–41, 25, 29, 30, 33, 35, 37, 38, 40 and fair value and order protection, 38–41, 40 i i i i i i “Easley” — 2013/10/8 — 11:31 — page 232 — #252 i i HIGH-FREQUENCY TRADING and trading signals, construction of, 31–8; see also trading signals and types of client or market agent, 22 European Exchange Rate Mechanism (ERM), sterling joins, 8 execution shortfall, and information leakage, 164–6, 165; see also information leakage execution strategies: in equity markets, 21–41, 25, 29, 30, 33, 35, 37, 38, 40 and fair value and order protection, 38–41, 40 and trading signals, construction of, 31–8; see also trading signals in fixed-income markets, 43–62, 47, 48, 49, 50, 51, 52, 54, 55, 57, 58, 61 and cointegration, 44, 53–9 and information events, 44, 46–53 and pro rata matching, 44, 59–62 and fixed-income products, 44–6 experimental evaluation, 133–40 F fair value and order protection, 38–41, 40 fixed-income markets: execution strategies in, 43–62, 47, 48, 49, 50, 51, 52, 54, 55, 57, 58, 61 and cointegration, 44, 53–9 and information events, 44, 46–53 and pro rata matching, 44, 59–62 and short-term interest rates, 45–6 and Treasury futures, 46 fixed-income products, 44–6 and short-term interest rates, 45–6 and Treasury futures, 46, 47, 48, 51, 52, 55 see also fixed-income markets flash crash, 2, 77–8, 207, 209–10, 210, 218 see also market stress foreign-exchange markets: and the currency market, 65–73 trading algorithms, 69–72 and trading frequencies, 65–73, 72, 73 venues, 66–9 high-frequency trading in, 65–88, 66, 72, 73, 86 academic literature, 74–80 and alternative limit order book, 80–6; see also main entry Foresight Project, 215, 217, 224 futures markets: microstructural volatility in, 125–41, 133, 134, 136, 137, 138–9 experimental evaluation, 133–40 HDF5 file format, 127 maximum intermediate return, 131–2 parallelisation, 132–3 test data, 126–7 and volume-synchronised probability of informed trading, 128–31 G Goldman Sachs Electronic Trading (GSET), 159, 160, 161, 163, 166–80 passim, 167, 168, 169, 174–5 H HDF5 file format, 127 high-frequency trading (HFT): and “cheetah traders”, 1, 13 232 i i i i i i “Easley” — 2013/10/8 — 11:31 — page 233 — #253 i i INDEX and event-based time paradigm, 15 in FX markets 65–88, 66, 72, 73, 86; see also foreign-exchange markets, 74–80 and alternative limit order book, 80–6; see also main entry and the currency market, 65–73 and trading frequencies, 65–73, 72, 73 legislative changes enable, 2 machine learning for, 91–123, 100, 101, 103, 104, 107, 108–9, 111, 117, 121 and high-frequency data, 94–6 and optimised execution in dark pools via censored exploration, 93 and optimised trade execution via reinforcement learning, 92 and predicting price movement from order book state, 92–3 and price movement from order book state, predicting, 104–15 and reinforcement learning for optimised trade execution, 96–104 and smart order routing in dark pools, 115–22 in market stress, 76–80 central bank interventions, 79–80 flash crash (2010), 77–8 yen appreciation (2007), 77 yen appreciation (2011), 78–9 markets’ operation and dynamic interaction changed by, xv and matching engine, 3, 4 and more than speed, 7–12 new paradigm in, 2–4 paradigm of, insights into, 1–17, 7, 10–11, 14 regulatory challenge of, 207–9, 210, 212, 214 good and bad news concerning, 208–14 and greater surveillance and coordination, proposals for, 215–18 and market rules, proposals to change, 218–25 and proposals to curtail HFT, 225–8 solutions, 214–28 statistics to monitor, developing, 15 and time, meaning of, 5–7 and volatility, heightening of, 12 see also low-frequency trading I implementation shortfall: approach to, illustrated, 192–203 daily estimation, 195–9 intra-day estimation, 199–203 shortfall calculations, 193–5 discussed, 186–9 with transitory price effects, 185–206, 196, 197, 198, 199, 200, 202, 203 implementation details, 204–5 and observed and efficient prices and pricing errors, 189–92 indicator zoology, 27–8 information events, 44, 46–53 and event microscope, 50–3 information leakage: and algorithmic execution, 159–83, 176–7, 178–9 BadMax approach and data sample, 166–8, 168 233 i i i i i i “Easley” — 2013/10/8 — 11:31 — page 234 — #254 i i HIGH-FREQUENCY TRADING and BadMax and gross and net alpha, 168–70 and clustering analysis, 170–4, 171, 172, 174 and GSET, 174–5, 176–7 and high alpha of large clusters, 170–4 defining, 160–4 and execution shortfall, 164–6, 165 see also AlphaMax; BadMax L large clusters, high alpha of, 170–4 Large Hadron Collider, 125–41 latency arbitrage, 9 leakage of information: and algorithmic execution, 159–83, 176–7, 178–9 BadMax approach and data sample, 166–8, 168 and BadMax and gross and net alpha, 168–70 and clustering analysis, 170–4, 171, 172, 174 and GSET, 174–5, 176–7 and high alpha of large clusters, 170–4 defining, 160–4 and execution shortfall, 164–6, 165 see also AlphaMax; BadMax liquidity squeezers, 9 liquidity and toxicity contagion, 143–56, 144, 145, 147, 148, 151, 153, 154 empirical analysis, 151–5 order-flow toxicity contagion model, 146–51 low-frequency trading: choices needed for survival of, 15 and event-based time paradigm, 15 joining the herd, 15 and monitoring of HFT activity, 15 and order-flow toxicity, monitoring, 16 and seasonal effects, avoiding, 16 and smart brokers, 16 see also high-frequency trading M machine learning: for high-frequency trading (HFT) and market microstructure, 91–123, 100, 101, 103, 104, 107, 108–9, 111, 117, 121 and high-frequency data, 94–6 and optimised execution in dark pools via censored exploration, 93 and optimised trade execution via reinforcement learning, 92 and predicting price movement from order book state, 92–3 and price movement from order book state, predicting, 104–15 and reinforcement learning for optimised trade execution, 96–104 and smart order routing in dark pools, 115–22 Market Information Data Analytics System (MIDAS), 215–16 market microstructure: machine learning for, 91–123, 100, 101, 103, 104, 107, 108–9, 111, 117, 121 and high-frequency data, 94–6 and optimised execution in dark pools via censored exploration, 93 and optimised trade execution via reinforcement learning, 92 234 i i i i i i “Easley” — 2013/10/8 — 11:31 — page 235 — #255 i i INDEX and predicting price movement from order book state, 92–3 and price movement from order book state, predicting, 104–15 and reinforcement learning for optimised trade execution, 96–104 and smart order routing in dark pools, 115–22 market stress: and central bank interventions, 79–80 and flash crash (2010), 77–8; see also flash crash and yen appreciation (2007), 77 and yen appreciation (2011), 78–9 Markets in Financial Instruments Directive (MiFID), 2, 21, 143, 216 microstructural volatility: in futures markets, 125–41, 133, 134, 136, 137, 138–9 experimental evaluation, 133–40 HDF5 file format, 127 maximum intermediate return, 131–2 parallelisation, 132–3 test data, 126–7 and volume-synchronised probability of informed trading, 128–31 MIDAS, see Market Information Data Analytics System N Nasdaq, CME’s joint project with, xvi O optimised trade execution, reinforcement learning for, 96–104 order book imbalance, 36–8 order-flow toxicity contagion model, 146–51 see also liquidity and toxicity contagion order protection and fair value, 38–41, 40 P pack hunters, 9 parallelisation, 132–3 price movement from order book state, predicting, 104–15 pro rata matching, 44, 59–62 probability of informed trading (PIN), 7 Project Hiberni, xvi Q quote danglers, 9 quote stuffers, 9 R regulation and high-frequency markets, 81, 207–9, 210, 212, 214 good and bad news concerning, 208–14 solutions, 214–28 and greater surveillance and coordination, proposals for, 215–18 and market rules, proposals to change, 218–25 and proposals to curtail HFT, 225–8 Regulation National Market System (Reg NMS), 2, 21, 143, 219 Regulation SCI, 216 reinforcement learning for optimised trade execution, 96–104 Rothschild, Nathan Mayer, 1 S smart order routing in dark pools, 115–22 spread/price–time priority, 82–3 235 i i i i i i “Easley” — 2013/10/8 — 11:31 — page 236 — #256 i i HIGH-FREQUENCY TRADING T time, meaning of, and high-frequency trading, 5–7, 7 Tobin tax, 17, 81, 87 Tradeworx, 215 trading algorithms, 69–72 and algorithmic decision-making, 71–2 and algorithmic execution, 70–1 evolution of, 22–8 generations, 23–7 and indicator zoology, 27–8 see also algorithms trading frequencies, in currency market, 65–73, 72, 73; see also foreign-exchange markets trading signals: construction of, 31–8 and order book imbalance, 36–8 and timescales and weights, 31–3, 33 and trade sign autocorrelations, 34–6 transaction cost, and algorithms, 28–31 transitory price effects: approach to, illustrated, 192–203 daily estimation, 195–9 implementation shortfall calculations, 193–5 intra-day estimation, 199–203 and information shortfall, 185–206, 196, 197, 198, 199, 200, 202, 203 discussed, 186–9 implementation details, 204–5 and observed and efficient prices and pricing errors, 189–92 Treasury futures, 46, 47, 48, 51, 52, 55 V volume clock, 1–17, 7 and time, meaning of, 5–7 volume-synchronised probability of informed trading, 128–31 bars, 128 buckets, 129–30 cumulative distribution function, 130–1 volume classification, 128–9 W Walter, Elisse, 216 Waterloo, Battle of, 1 Y yen appreciation: 2007, 77 2011, 78–9 see also market stress 236 i i i i

Sotiropoulos also discusses how incorporating order protection strategies into adaptive algorithms can minimise transaction costs for low-frequency traders. In Chapter 3 Robert Almgren examines the distinctive features of trading futures on interest rate products. Fixed-income trading algorithms must have special defensive features built in to protect the trader from the shocks arising from public information events xvii i i i i i i “Easley” — 2013/10/8 — 11:31 — page xviii — #18 i i HIGH-FREQUENCY TRADING such as Treasury auction results or scheduled government data releases. Moreover, fixed-income futures are cointegrated, meaning that individual contracts are not independent of other contracts due to linkages with the term structure, varying maturities, and the like.


pages: 1,073 words: 302,361

Money and Power: How Goldman Sachs Came to Rule the World by William D. Cohan

"Friedman doctrine" OR "shareholder theory", "RICO laws" OR "Racketeer Influenced and Corrupt Organizations", Alan Greenspan, asset-backed security, Bear Stearns, Bernie Madoff, Bob Litterman, book value, business cycle, buttonwood tree, buy and hold, collateralized debt obligation, Cornelius Vanderbilt, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, deal flow, diversified portfolio, do well by doing good, fear of failure, financial engineering, financial innovation, fixed income, Ford paid five dollars a day, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Gordon Gekko, high net worth, hiring and firing, hive mind, Hyman Minsky, interest rate swap, John Meriwether, junk bonds, Kenneth Arrow, London Interbank Offered Rate, Long Term Capital Management, managed futures, margin call, market bubble, mega-rich, merger arbitrage, Michael Milken, moral hazard, mortgage debt, Myron Scholes, paper trading, passive investing, Paul Samuelson, Ponzi scheme, price stability, profit maximization, proprietary trading, risk tolerance, Ronald Reagan, Saturday Night Live, short squeeze, South Sea Bubble, tail risk, time value of money, too big to fail, traveling salesman, two and twenty, value at risk, work culture , yield curve, Yogi Berra, zero-sum game

Aron about who should run the firm’s fixed-income business. “The three senior people from J. Aron got into a disagreement with the people at Goldman’s fixed-income group about whether J. Aron should have its own fixed-income department or they should use the Goldman Sachs fixed-income department, which is what I thought they should do,” Rubin explained. “I didn’t really want two competing fixed-income departments. It would be chaotic. But it actually was a long dispute, with Weinberg and Whitehead having different views, which is what made it complicated. Ultimately, we decided to have one fixed-income department. In any event, the three guys running J.

Aside from why Friedman had seemingly botched his departure, the other lingering question that remained among many of the Goldman partners was how Corzine could have emerged as the firm’s leader when he was leading the very division—fixed-income—that had lost hundreds of millions of dollars in 1994. “He’s the only one who understood how to get out of it,” explained a fixed-income trader. “You have to have someone who knew how to get out of it.” Paulson tried to explain how this could have happened. “Fixed-income trading had grown to be a big part of the firm and its profits,” he said, “so effectively there wasn’t a choice. There had to be someone from the fixed-income side overseeing that business because that’s where the problems were.” Added another partner, about Corzine, “He is charming.

Friedman and Rubin set about changing the gestalt of the fixed-income group by taking a most un-Goldman-like step: they hired a group of senior traders from Salomon Brothers—the fixed-income leader—to perform an extreme makeover. First, Goldman hired Thomas Pura, thirty-two, who chose to go to Harvard instead of signing up with the Kansas City Royals after high school. He regularly participated in Ironman triathlons and brought to the department “a new intensity and a risky style of trading that was bolder and more aggressive than anything Goldman Sachs fixed-income had ever seen,” according to Lisa Endlich in Goldman Sachs: The Culture of Success.


pages: 457 words: 143,967

The Bank That Lived a Little: Barclays in the Age of the Very Free Market by Philip Augar

"Friedman doctrine" OR "shareholder theory", activist fund / activist shareholder / activist investor, Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, Bear Stearns, Big bang: deregulation of the City of London, Black Monday: stock market crash in 1987, Bonfire of the Vanities, bonus culture, book value, break the buck, business logic, call centre, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, family office, financial deregulation, financial innovation, fixed income, foreign exchange controls, Glass-Steagall Act, high net worth, hiring and firing, index card, index fund, interest rate derivative, light touch regulation, loadsamoney, Long Term Capital Management, long term incentive plan, low interest rates, Martin Wolf, money market fund, moral hazard, Nick Leeson, Northern Rock, offshore financial centre, old-boy network, out of africa, prediction markets, proprietary trading, quantitative easing, risk free rate, Ronald Reagan, shareholder value, short selling, Sloane Ranger, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, too big to fail, vertical integration, wikimedia commons, yield curve

Over by the window, Bycroft began one of the most important hours of his year. He had managed to get a meeting with Taylor the previous December and used it to float an idea. Wall Street’s fixed income departments – those buying and selling parcels of debt issued by companies and governments, also known as bond trading – were booming in 1995 but BZW’s were not, and Bycroft had noticed. ‘Are you convinced,’ he had asked Taylor, ‘that the existing management team in fixed income is up to the job and if not can I help out?’ Taylor had seen for himself, when American investment banks such as Goldman Sachs, J. P. Morgan and Morgan Stanley pitched business propositions to him, that the top US firms had a greater depth and quality of management than he saw at BZW.

Morgan and Morgan Stanley pitched business propositions to him, that the top US firms had a greater depth and quality of management than he saw at BZW. The current head of fixed income, Sam Marrone, a former US Marine who had served in Vietnam prior to working on Wall Street, was no slouch. But was he, Taylor pondered, one of the really top people that could transform the business? He thanked Bycroft for the idea, promising to think about it, and a few days later attended Band’s away-day in Essex. After reflecting over the Christmas break, Taylor called Bycroft: ‘There is no retainer on this and no formal mandate. It is no win, no fee. But you can have the usual terms if you find us a new head of fixed income.’ Bycroft did not like fishing trips but the usual terms were a third of the first year’s compensation.

He felt that Barclays was a great bank that needed a capital markets arm if it was to remain great. It had a famous brand name and a strong credit rating, but the merchant bank’s fixed income model was that of a pre-Big Bang broker dealer making no money outside the UK and focused on old products. He believed that a modern European investment bank should be global and integrated, whereas BZW was domestic and fragmented. Would Taylor give him the freedom to redesign BZW’s fixed income division along modern lines? It was worth a try. After discussing with Jennifer whether the time was right to move their family to London again, in May 1996 he called Taylor: ‘I’ll come.’


pages: 368 words: 145,841

Financial Independence by John J. Vento

Affordable Care Act / Obamacare, Albert Einstein, asset allocation, diversification, diversified portfolio, estate planning, financial independence, fixed income, high net worth, Home mortgage interest deduction, low interest rates, money market fund, mortgage debt, mortgage tax deduction, oil shock, Own Your Own Home, passive income, retail therapy, risk tolerance, the rule of 72, time value of money, transaction costs, young professional, zero day

c09.indd 237 26/02/13 2:51 PM 238 Financial Independence (Getting to Point X ) Exhibit 9.4 Seven Sample Asset Allocation Models (1 = Most risk-adverse investor; 7 = Most aggressive investor) 1 Conservative Bond Income 100% Fixed Income 15% Fixed Income: High Yield 50% Fixed Income: Short Term and Money Market 35% Fixed Income: Investment Grade 2 Conservative Income 80% Fixed Income & 20% Equity 2% Equity: International 2% Equity: Mid Cap 16% Equity: Large Cap 30% Fixed Income: Short Term and Money Market 20% Fixed Income: High Yield 30% Fixed Income: Investment Grade 3 Income 70% Fixed Income & 30% Equity 2% Equity: Small Cap 3% Equity: International 4% Equity: Mid Cap 20% Fixed Income: Short Term and Money Market 21% Equity: Large Cap 30% Fixed Income: Investment Grade 20% Fixed Income: High Yield c09.indd 238 26/02/13 2:51 PM Managing Your Investments 239 4 Conservative Growth 55% Fixed Income + 43% Equity + 2% Commodities + 2% Real Estate 2% Commodities 4% Equity: International 2% Real Estate 15% Fixed Income: Short Term and Money Market 3% Equity: Small Cap 5% Equity: Mid Cap 25% Fixed Income: Investment Grade 29% Equity: Large Cap 15% Fixed Income: High Yield 5 Growth 40% Fixed Income + 52% Equity + 4% Commodities + 4% Real Estate 7% Equity: International 4% Commodities 4% Real Estate 4% Equity: Small Cap 2% Fixed Income: Short Term and Money Market 25% Fixed Income: Investment Grade 13% Fixed Income: High Yield 35% Equity: Large Cap 6% Equity: Mid Cap (Continued ) c09.indd 239 26/02/13 2:51 PM 240 Financial Independence (Getting to Point X ) Exhibit 9.4 (Continued ) 6 Maximum Growth 20% Fixed Income + 70% Equity + 5% Commodities + 5% Real Estate 2% Fixed Income: Short Term and Money Market 5% Real Estate 5% Commodities 13% Fixed Income: Investment Grade 10% Equity: International 5% Fixed Income: High Yield 6% Equity: Small Cap 8% Equity: Mid Cap 46% Equity: Large Cap 7 Maximum Growth No Fixed Income 90% Equity + 5% Commodities + 5% Real Estate 5% Real Estate 5% Commodities 15% Equity: International 58% Equity: Large Cap 7% Equity: Small Cap 10% Equity: Mid Cap Depending on your risk tolerance and time horizon, you can select anywhere from model 1 to model 7; for example: • If you will need money in the near future, you should consider a model that involves less risk, such as model 1, 2, or 3. • If you are saving for retirement and have 10 or more years until you will need access to these funds, you may be able to take on more risk and would like to increase your potential for growth.

c09.indd 237 26/02/13 2:51 PM 238 Financial Independence (Getting to Point X ) Exhibit 9.4 Seven Sample Asset Allocation Models (1 = Most risk-adverse investor; 7 = Most aggressive investor) 1 Conservative Bond Income 100% Fixed Income 15% Fixed Income: High Yield 50% Fixed Income: Short Term and Money Market 35% Fixed Income: Investment Grade 2 Conservative Income 80% Fixed Income & 20% Equity 2% Equity: International 2% Equity: Mid Cap 16% Equity: Large Cap 30% Fixed Income: Short Term and Money Market 20% Fixed Income: High Yield 30% Fixed Income: Investment Grade 3 Income 70% Fixed Income & 30% Equity 2% Equity: Small Cap 3% Equity: International 4% Equity: Mid Cap 20% Fixed Income: Short Term and Money Market 21% Equity: Large Cap 30% Fixed Income: Investment Grade 20% Fixed Income: High Yield c09.indd 238 26/02/13 2:51 PM Managing Your Investments 239 4 Conservative Growth 55% Fixed Income + 43% Equity + 2% Commodities + 2% Real Estate 2% Commodities 4% Equity: International 2% Real Estate 15% Fixed Income: Short Term and Money Market 3% Equity: Small Cap 5% Equity: Mid Cap 25% Fixed Income: Investment Grade 29% Equity: Large Cap 15% Fixed Income: High Yield 5 Growth 40% Fixed Income + 52% Equity + 4% Commodities + 4% Real Estate 7% Equity: International 4% Commodities 4% Real Estate 4% Equity: Small Cap 2% Fixed Income: Short Term and Money Market 25% Fixed Income: Investment Grade 13% Fixed Income: High Yield 35% Equity: Large Cap 6% Equity: Mid Cap (Continued ) c09.indd 239 26/02/13 2:51 PM 240 Financial Independence (Getting to Point X ) Exhibit 9.4 (Continued ) 6 Maximum Growth 20% Fixed Income + 70% Equity + 5% Commodities + 5% Real Estate 2% Fixed Income: Short Term and Money Market 5% Real Estate 5% Commodities 13% Fixed Income: Investment Grade 10% Equity: International 5% Fixed Income: High Yield 6% Equity: Small Cap 8% Equity: Mid Cap 46% Equity: Large Cap 7 Maximum Growth No Fixed Income 90% Equity + 5% Commodities + 5% Real Estate 5% Real Estate 5% Commodities 15% Equity: International 58% Equity: Large Cap 7% Equity: Small Cap 10% Equity: Mid Cap Depending on your risk tolerance and time horizon, you can select anywhere from model 1 to model 7; for example: • If you will need money in the near future, you should consider a model that involves less risk, such as model 1, 2, or 3. • If you are saving for retirement and have 10 or more years until you will need access to these funds, you may be able to take on more risk and would like to increase your potential for growth.

c09.indd 237 26/02/13 2:51 PM 238 Financial Independence (Getting to Point X ) Exhibit 9.4 Seven Sample Asset Allocation Models (1 = Most risk-adverse investor; 7 = Most aggressive investor) 1 Conservative Bond Income 100% Fixed Income 15% Fixed Income: High Yield 50% Fixed Income: Short Term and Money Market 35% Fixed Income: Investment Grade 2 Conservative Income 80% Fixed Income & 20% Equity 2% Equity: International 2% Equity: Mid Cap 16% Equity: Large Cap 30% Fixed Income: Short Term and Money Market 20% Fixed Income: High Yield 30% Fixed Income: Investment Grade 3 Income 70% Fixed Income & 30% Equity 2% Equity: Small Cap 3% Equity: International 4% Equity: Mid Cap 20% Fixed Income: Short Term and Money Market 21% Equity: Large Cap 30% Fixed Income: Investment Grade 20% Fixed Income: High Yield c09.indd 238 26/02/13 2:51 PM Managing Your Investments 239 4 Conservative Growth 55% Fixed Income + 43% Equity + 2% Commodities + 2% Real Estate 2% Commodities 4% Equity: International 2% Real Estate 15% Fixed Income: Short Term and Money Market 3% Equity: Small Cap 5% Equity: Mid Cap 25% Fixed Income: Investment Grade 29% Equity: Large Cap 15% Fixed Income: High Yield 5 Growth 40% Fixed Income + 52% Equity + 4% Commodities + 4% Real Estate 7% Equity: International 4% Commodities 4% Real Estate 4% Equity: Small Cap 2% Fixed Income: Short Term and Money Market 25% Fixed Income: Investment Grade 13% Fixed Income: High Yield 35% Equity: Large Cap 6% Equity: Mid Cap (Continued ) c09.indd 239 26/02/13 2:51 PM 240 Financial Independence (Getting to Point X ) Exhibit 9.4 (Continued ) 6 Maximum Growth 20% Fixed Income + 70% Equity + 5% Commodities + 5% Real Estate 2% Fixed Income: Short Term and Money Market 5% Real Estate 5% Commodities 13% Fixed Income: Investment Grade 10% Equity: International 5% Fixed Income: High Yield 6% Equity: Small Cap 8% Equity: Mid Cap 46% Equity: Large Cap 7 Maximum Growth No Fixed Income 90% Equity + 5% Commodities + 5% Real Estate 5% Real Estate 5% Commodities 15% Equity: International 58% Equity: Large Cap 7% Equity: Small Cap 10% Equity: Mid Cap Depending on your risk tolerance and time horizon, you can select anywhere from model 1 to model 7; for example: • If you will need money in the near future, you should consider a model that involves less risk, such as model 1, 2, or 3. • If you are saving for retirement and have 10 or more years until you will need access to these funds, you may be able to take on more risk and would like to increase your potential for growth.


pages: 1,088 words: 228,743

Expected Returns: An Investor's Guide to Harvesting Market Rewards by Antti Ilmanen

Alan Greenspan, Andrei Shleifer, asset allocation, asset-backed security, availability heuristic, backtesting, balance sheet recession, bank run, banking crisis, barriers to entry, behavioural economics, Bernie Madoff, Black Swan, Bob Litterman, bond market vigilante , book value, Bretton Woods, business cycle, buy and hold, buy low sell high, capital asset pricing model, capital controls, carbon credits, Carmen Reinhart, central bank independence, classic study, collateralized debt obligation, commoditize, commodity trading advisor, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, deal flow, debt deflation, deglobalization, delta neutral, demand response, discounted cash flows, disintermediation, diversification, diversified portfolio, dividend-yielding stocks, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, fiat currency, financial deregulation, financial innovation, financial intermediation, fixed income, Flash crash, framing effect, frictionless, frictionless market, G4S, George Akerlof, global macro, global reserve currency, Google Earth, high net worth, hindsight bias, Hyman Minsky, implied volatility, income inequality, incomplete markets, index fund, inflation targeting, information asymmetry, interest rate swap, inverted yield curve, invisible hand, John Bogle, junk bonds, Kenneth Rogoff, laissez-faire capitalism, law of one price, London Interbank Offered Rate, Long Term Capital Management, loss aversion, low interest rates, managed futures, margin call, market bubble, market clearing, market friction, market fundamentalism, market microstructure, mental accounting, merger arbitrage, mittelstand, moral hazard, Myron Scholes, negative equity, New Journalism, oil shock, p-value, passive investing, Paul Samuelson, pension time bomb, performance metric, Phillips curve, Ponzi scheme, prediction markets, price anchoring, price stability, principal–agent problem, private sector deleveraging, proprietary trading, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, random walk, reserve currency, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Robert Shiller, savings glut, search costs, selection bias, seminal paper, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, stochastic volatility, stock buybacks, stocks for the long run, survivorship bias, systematic trading, tail risk, The Great Moderation, The Myth of the Rational Market, too big to fail, transaction costs, tulip mania, value at risk, volatility arbitrage, volatility smile, working-age population, Y2K, yield curve, zero-coupon bond, zero-sum game

Ilmanen, Antti (1996), “Market rate expectations and forward rates,” Journal of Fixed Income 6(2), 8–22 (originally published as part of a Salomon Brothers research paper series titled “Understanding the Yield Curve”). Ilmanen, Antti (1997), “Forecasting U.S. bond returns,” Journal of Fixed Income 7(1), 22–37 (originally published as part of a Salomon Brothers research paper series titled “Understanding the Yield Curve”). Ilmanen, Antti (2003a), “Expected returns on stocks and bonds,” Journal of Portfolio Management 29(2), 7–27. Ilmanen, Antti (2003b), “Stock–bond correlations,” Journal of Fixed Income 13(2), 55–66. Ilmanen, Antti; and Rory Byrne (2003), “Pronounced momentum patterns ahead of major events,” Journal of Fixed Income 12(4), 73-80.

Ilmanen, Antti; and Rory Byrne (2003), “Pronounced momentum patterns ahead of major events,” Journal of Fixed Income 12(4), 73-80. Ilmanen, Antti; Rory Byrne; Heinz Gunasekera; and Robert Minikin (2003), “Which risks have been best rewarded?” Journal of Portfolio Management 30(2), 53–57. Ilmanen, Antti; and Roberto Fumagalli (2003), “Consistency of carry strategies in Europe,” in Professional Perspectives on Fixed Income Portfolio Management, Volume 4 (Frank J. Fabozzi, Ed.), Hoboken, NJ: John Wiley & Sons, Inc. Ilmanen, Antti; and Rafey Sayood (2002), “Quantitative forecasting models and active diversification for international bonds,” Journal of Fixed Income 12(3), 40–51. International Monetary Fund (IMF) (2009), “Statistical appendix,” Global Financial Stability Report (September).

Developed market equities enjoyed persistent rallies in 1993–2000 and 2003–2007 but lost about half of their value in 2000–2003 and again in 2008. Partly due to the Japan drag, the asset class ended up underperforming emerging markets, fixed income, and real estate. Emerging market equities gave investors a characteristically bumpy ride but delivered the highest returns. Fixed income returns were most stable, while real estate (in the U.S.) was the best-performing asset class between the mid-1990s and 2007 but then busted. 2.3 FORWARD-LOOKING RETURN INDICATORS All historical return data may be beside the point if expected returns vary over time.


pages: 526 words: 158,913

Crash of the Titans: Greed, Hubris, the Fall of Merrill Lynch, and the Near-Collapse of Bank of America by Greg Farrell

"World Economic Forum" Davos, Airbus A320, Apple's 1984 Super Bowl advert, bank run, banking crisis, Bear Stearns, Black Monday: stock market crash in 1987, bonus culture, call centre, Captain Sullenberger Hudson, collapse of Lehman Brothers, collateralized debt obligation, compensation consultant, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, financial engineering, financial innovation, fixed income, glass ceiling, Glass-Steagall Act, high net worth, junk bonds, Ken Thompson, Long Term Capital Management, mass affluent, Mexican peso crisis / tequila crisis, Michael Milken, Nelson Mandela, plutocrats, Ronald Reagan, six sigma, sovereign wealth fund, technology bubble, too big to fail, US Airways Flight 1549, yield curve

Osman Semerci, a rising star at Merrill Lynch, would make this presentation and walk the board of directors through Merrill Lynch’s fixed-income exposures. Just nine months earlier, O’Neal had encouraged the selection of Semerci, a thirty-eight-year-old native of Turkey, to be head of Merrill Lynch’s fixed-income, commodities, and currencies business, an area known on Wall Street as “FICC.” The term “fixed income” had grown more important on Wall Street over the previous decade because of the proliferation of products that, like bonds, provided a steady stream of payments to the owner. When he was stationed in Tokyo and then in London, Semerci had established himself as a master in the art of selling fixed-income products to other banks and investors.

In 2003, Dow Kim, a forty-year-old Korean, had been put in charge of all sales and trading operations. But by 2006, the fixed-income division was generating so much revenue every quarter (much of which came from Semerci, who was based in London), that Stan O’Neal felt the unit should have a full-time manager for the position. Kim had come under increasing pressure from O’Neal to boost Merrill’s FICC revenues up to the levels of Goldman Sachs, the industry leader in the category. Kim’s first choice for the job was an internal candidate, Jeff Kronthal, one of the top fixed-income people on Wall Street, who had a deep understanding of risk. But neither O’Neal nor Fakahany was enamored of the fifty-one-year-old Kronthal, who had recently become cautious about trades involving the real estate market.

The ouster of two highly regarded fixtures of the trading floor—on the same day that several board members were taking a tour of the trading desks—made for unusual theater. When Semerci arrived a few days later and was introduced to everyone by Dow Kim as the new FICC leader, fixed-income traders gathered on the seventh floor to take the measure of the new boss. Semerci made a few introductory remarks, talking about what he had been doing in Europe, then addressed the topic at hand: “I think the U.S. is very important,” he said. “I don’t know much about U.S. fixed income, but I’m excited to learn.” Most of the veteran traders, who had relied on the decades of expertise that Kronthal and his crew had brought to the game, listened in disbelief.


pages: 363 words: 28,546

Portfolio Design: A Modern Approach to Asset Allocation by R. Marston

asset allocation, Bob Litterman, book value, Bretton Woods, business cycle, capital asset pricing model, capital controls, carried interest, commodity trading advisor, correlation coefficient, currency risk, diversification, diversified portfolio, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, family office, financial engineering, financial innovation, fixed income, German hyperinflation, global macro, high net worth, hiring and firing, housing crisis, income per capita, index fund, inventory management, junk bonds, Long Term Capital Management, low interest rates, managed futures, mortgage debt, Nixon triggered the end of the Bretton Woods system, passive investing, purchasing power parity, risk free rate, risk-adjusted returns, Robert Shiller, Ronald Reagan, Sharpe ratio, Silicon Valley, stocks for the long run, superstar cities, survivorship bias, transaction costs, Vanguard fund

Chapters 5 and 6 will examine these investments and will show how they help to diversify U.S. portfolios. Fixed income investments have evolved even more than stock investments. Forty years ago, Treasury and corporate bonds were dominant in fixed income portfolios (along with municipals for taxable investors). There were high yield bonds, but those were typically “fallen angels” rather than newly issued bonds. Mortgage-backed bonds didn’t exist because securitization of mortgages was just beginning. Today, Treasuries represent less than 16 percent of the U.S. bond market and corporate bonds another 20 percent. Chapter 7 examines this modern fixed income market in detail. In Chapter 8, all of these traditional assets are combined in what we call a strategic asset allocation, a long-run portfolio allocation based on long-run returns.

The returns on bonds have varied widely over the last few decades, so the chapter will investigate the main determinants of bond returns. Bonds are often favored by investors because they provide fixed income in contrast to the variable returns offered by equities and by most other assets. A stream of fixed income payments is often viewed as essential to retirees as well as many institutional investors because of their need for continual income. Investors focusing only on yields, however, are too often disappointed by the overall performance of their investments. Bond yields represent part of the total return to fixed income assets, but the variation in yields over time leads to capital gains and losses that sometimes dominate the total return from holding bonds.

In the Merrill Lynch-Cap Gemini World Wealth Report (2008), for example, ultra HNW investors are those who have at least $30 million in financial assets excluding collectibles, consumer durables, and primary residences. 10. Recall that the private equity return measures buyout investments primarily. 11. Yale’s allocation to fixed income was as much as 22 percent in the early 1990s, but that is still below the allocation to fixed income in most institutional portfolios. 12. The figures quoted are compound (geometric) averages. The arithmetic average returns were 15.0 percent for the Yale Endowment, 10.4 percent for the Russell 3000, and 10.7 percent for the S&P 500, the latter two indexes measured like the Endowment for the 12 months ending in June of each year. 13.


pages: 353 words: 88,376

The Investopedia Guide to Wall Speak: The Terms You Need to Know to Talk Like Cramer, Think Like Soros, and Buy Like Buffett by Jack (edited By) Guinan

Albert Einstein, asset allocation, asset-backed security, book value, Brownian motion, business cycle, business process, buy and hold, capital asset pricing model, clean water, collateralized debt obligation, computerized markets, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, discounted cash flows, diversification, diversified portfolio, dividend-yielding stocks, dogs of the Dow, equity premium, equity risk premium, fear index, financial engineering, fixed income, Glass-Steagall Act, implied volatility, index fund, intangible asset, interest rate swap, inventory management, inverted yield curve, junk bonds, London Interbank Offered Rate, low interest rates, margin call, money market fund, mortgage debt, Myron Scholes, passive investing, performance metric, risk free rate, risk tolerance, risk-adjusted returns, risk/return, shareholder value, Sharpe ratio, short selling, short squeeze, statistical model, time value of money, transaction costs, yield curve, zero-coupon bond

Related Terms: • Annuity • Defined-Benefit Plan • Income Statement • Individual Retirement Account—IRA • Mutual Fund Fixed-Income Security What Does Fixed-Income Security Mean? An investment that provides income in the form of fixed periodic payments and the eventual return of principal at maturity. Unlike a variable-income security, in which payments change on the basis of an underlying measure such as short-term interest rates, the payments of a fixed-income security are known in advance and do not change. Investopedia explains Fixed-Income Security An example of a fixed-income security would be a 5% fixed-rate government bond in which a $1,000 investment would result in an annual $50 payment until maturity, at which time the investor would receive the $1,000 back.

A swap designed to transfer the credit exposure of fixed-income products between parties. Investopedia explains Credit Default Swap (CDS) The buyer of a credit swap receives credit protection, whereas the seller of the swap guarantees the creditworthiness of the product. When this is done, the risk of default is transferred from the holder of the fixed-income security to the seller of the swap. For example, the buyer of a credit swap still is entitled to the par value of the bond from the seller of the swap if the bond defaults in its coupon payments. 58 The Investopedia Guide to Wall Speak Related Terms: • Bond • Fixed Income Security • Swap • Credit Derivative • Interest Rate Swap Credit Derivative What Does Credit Derivative Mean?

Related Terms: • Bear Market • Credit Crunch • Subprime Loan • Chapter 11 • Debt Basis Point (BPS) What Does Basis Point (BPS) Mean? A unit equal to 1/100 of 1%; it is used to denote a change in a financial instrument (usually a fixed-income security). The basis point is used commonly for calculating changes in interest rates, equity indexes, and the yield of a fixed-income security. 20 The Investopedia Guide to Wall Speak Investopedia explains Basis Point (BPS) Converting percentage changes in basis points is done as follows: 1% change = 100 basis points, and 0.01% = 1 basis point. Thus, a bond whose yield increases from 5% to 5.5% is said to increase by 50 basis points; when interest rates rise 1%, they have increased by 100 basis points.


pages: 243 words: 77,516

Straight to Hell: True Tales of Deviance, Debauchery, and Billion-Dollar Deals by John Lefevre

airport security, Bear Stearns, blood diamond, buy and hold, colonial rule, credit crunch, fixed income, Goldman Sachs: Vampire Squid, high net worth, income inequality, jitney, junk bonds, lateral thinking, market clearing, Occupy movement, Sloane Ranger, the market place

I had no idea where the Twitter account would take me, but I did know that I had been collecting stories (the inane and insane) over the course of my career in banking. I joined the fixed-income desk of Salomon Brothers immediately out of college. *Starting in the wake of the dot-com bubble bursting and working through the financial crisis, across three continents, I enjoyed a colorful career during a turbulent and defining period in the history of financial markets and our society in general. * I joined the fixed-income desk of Salomon Brothers immediately out of college. I say Salomon as opposed to Citigroup or Salomon Smith Barney because the legal entity that employed me was technically Salomon Brothers International, and also to reflect the fact that the culture within fixed income was still very different than the rest of the bank.

I say Salomon as opposed to Citigroup or Salomon Smith Barney because the legal entity that employed me was technically Salomon Brothers International, and also to reflect the fact that the culture within fixed income was still very different than the rest of the bank. As “one of the most prolific syndicate managers in Asia,” I saw it all. I worked intimately with investment banking and sales and trading, corporate and sovereign clients, and asset managers and hedge funds. I did deals with every bank on Wall Street—directing traffic at Wall Street’s epicenter: the bond syndicate desk. Once I left Hong Kong, I was less worried about my identity coming out.

Then, after a final-round interview superday with Bear Stearns, I inadvertently sent a thank-you email to the head of emerging markets, telling him how much I wanted to work for JPMorgan. During a Goldman Sachs interview, some asshole asked me who, living or dead, I would most like to have dinner with. I guess he wasn’t particularly impressed that I named Tupac Shakur ahead of Marcus Aurelius or Alexander Hamilton. Still, despite these hiccups, in the end, I wanted to do fixed income, and for that, there was arguably no better place to be than Salomon Brothers, with the recently added platform and balance sheet of Citigroup behind it. There’s only one slight problem: my analyst class is the largest in the history of investment banking. We were hired based on quotas set in mid-2000, before it was evident that the dot-com party was over.


pages: 245 words: 75,397

Fed Up!: Success, Excess and Crisis Through the Eyes of a Hedge Fund Macro Trader by Colin Lancaster

"World Economic Forum" Davos, Adam Neumann (WeWork), Airbnb, Alan Greenspan, always be closing, asset-backed security, beat the dealer, Ben Bernanke: helicopter money, Bernie Sanders, Big Tech, Black Monday: stock market crash in 1987, bond market vigilante , Bonfire of the Vanities, Boris Johnson, Bretton Woods, business cycle, buy the rumour, sell the news, Carmen Reinhart, Chuck Templeton: OpenTable:, collateralized debt obligation, coronavirus, COVID-19, creative destruction, credit crunch, currency manipulation / currency intervention, deal flow, Donald Trump, Edward Thorp, family office, fear index, fiat currency, fixed income, Flash crash, George Floyd, global macro, global pandemic, global supply chain, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, Growth in a Time of Debt, housing crisis, index arbitrage, inverted yield curve, Jeff Bezos, Jim Simons, junk bonds, Kenneth Rogoff, liquidity trap, lockdown, Long Term Capital Management, low interest rates, low skilled workers, margin call, market bubble, Masayoshi Son, Michael Milken, Mikhail Gorbachev, Minsky moment, Modern Monetary Theory, moral hazard, National Debt Clock, Nixon triggered the end of the Bretton Woods system, Northern Rock, oil shock, pets.com, Ponzi scheme, price stability, proprietary trading, quantitative easing, Reminiscences of a Stock Operator, reserve currency, Ronald Reagan, Ronald Reagan: Tear down this wall, Sharpe ratio, short selling, short squeeze, social distancing, SoftBank, statistical arbitrage, stock buybacks, The Great Moderation, TikTok, too big to fail, trickle-down economics, two and twenty, value at risk, Vision Fund, WeWork, yield curve, zero-sum game

The markets ripped back to the highs, and the combination saved our month. We ended up +93 bps. Not bad. A decent start to the year. But it didn’t feel good. We got lucky and something is not right. Fixed-income yields are very close to levels that were deemed totally crazy last September, and the three-month/ten-year Treasury yield curve has inverted again. The market is telling Powell that it expects more easing. The fixed income markets are screaming, “Houston, we have a problem.” A big fucking problem. I send an email and tell the team I want to de-risk. I want to flatten out and re-evaluate. What keeps you in this business is good risk management.

Investments are often made in a number of markets around the world and across different asset classes so that the various investments are, theoretically, noncorrelated. This can be both a blessing and a curse to macro investors. For any core view you have, there are many, many ways to express that view, should it be in equities, in fixed income, or in FX. One of the most frustrating moments for macro investors is when they get a view correct but have on the wrong expression and end up with zero profit and loss (PnL). You end up with style points, but no one gets paid on style points. Needless to say, the manager’s world view has to be constantly under review, and investments have to be made nimbly and flexibly.

They usually consider macro to be a diversifier against a broader portfolio of equities and other strategies that will be more correlated to overall market activity. We tend to look for the problem rather than the exciting new growth story. In any event, the strategy’s modern roots really began after the Great Depression and WWII, when the international monetary system first left the gold standard, creating more trading variables in the fixed income and currency markets. In 1944, the Bretton Woods Conference addressed the financial order following WW2 to identify a replacement to the gold standard. This all resulted in a new system of exchange rates backed by the US dollar as its reserve currency. This new system all blew up in the early ‘70s.


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A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers by Lawrence G. Mcdonald, Patrick Robinson

"World Economic Forum" Davos, Alan Greenspan, AOL-Time Warner, asset-backed security, bank run, Bear Stearns, Black Monday: stock market crash in 1987, book value, business cycle, Carl Icahn, collateralized debt obligation, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, diversification, fixed income, Glass-Steagall Act, high net worth, hiring and firing, if you build it, they will come, it's over 9,000, junk bonds, London Interbank Offered Rate, Long Term Capital Management, margin call, money market fund, moral hazard, mortgage debt, naked short selling, negative equity, new economy, Ronald Reagan, Savings and loan crisis, short selling, sovereign wealth fund, value at risk

.: chairman of the board and chief executive officer Joseph Gregory: president and chief operating officer David Goldfarb: former chief financial officer; former global head of principal investing; chief strategy officer Christopher O’Meara: chief financial officer, 2005–07; chief risk officer Erin Callan: managing director and head of hedge fund investment banking; chief financial officer, 2007–08 George Walker IV: managing director and global head of investment management Ian Lowitt: chief administrative officer; chief financial officer, 2008 Lehman Brothers (Traders, Investment Bankers, Risktakers, Salespeople) Michael Gelband: managing director and global head of fixed income; head of capital markets; member of the executive committee Alex Kirk: managing director and global head of high-yield and leveraged-loan businesses; chief operating officer of fixed income; global head of principal investing Herbert “Bart” McDade: managing director and global head of fixed income; global head of equities; president, 2008; member of the executive committee Eric Felder: managing director and head of global credit products group; global head of fixed income Dr. Madelyn Antoncic: managing director and chief risk officer; government liaison Thomas Humphrey: managing director and global head of fixed-income sales Hugh “Skip” McGee: managing director and global head of investment banking Richard Gatward: managing director and global head of convertible trading and sales Lawrence E.

Madelyn Antoncic: managing director and chief risk officer; government liaison Thomas Humphrey: managing director and global head of fixed-income sales Hugh “Skip” McGee: managing director and global head of investment banking Richard Gatward: managing director and global head of convertible trading and sales Lawrence E. McCarthy: managing director and global head of distressed-debt trading Joseph Beggans: senior vice president, distressed-debt trading Peter Schellbach: managing director, distressed-loan trading Terence Tucker: senior vice president, convertible securities sales David Gross: senior vice president, convertible securities sales Jeremiah Stafford: senior vice president, high-yield credit products trading Lawrence G.

Then it’s clear. Boy is it ever clear. And the phrase if only slams into my brain. If only they had listened—Dick Fuld and his president, Joe Gregory. Three times they were hit with the irredeemable logic of three of the cleverest financial brains on Wall Street—those of Mike Gelband, our global head of fixed income, Alex Kirk, global head of distressed trading research and sales, and Larry McCarthy, head of distressed-bond trading. Each and every one of them laid it out, from way back in 2005, that the real estate market was living on borrowed time and that Lehman Brothers was headed directly for the biggest subprime iceberg ever seen, and with the wrong men on the bridge.


pages: 354 words: 26,550

High-Frequency Trading: A Practical Guide to Algorithmic Strategies and Trading Systems by Irene Aldridge

algorithmic trading, asset allocation, asset-backed security, automated trading system, backtesting, Black Swan, Brownian motion, business cycle, business process, buy and hold, capital asset pricing model, centralized clearinghouse, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, computerized trading, diversification, equity premium, fault tolerance, financial engineering, financial intermediation, fixed income, global macro, high net worth, implied volatility, index arbitrage, information asymmetry, interest rate swap, inventory management, Jim Simons, law of one price, Long Term Capital Management, Louis Bachelier, machine readable, margin call, market friction, market microstructure, martingale, Myron Scholes, New Journalism, p-value, paper trading, performance metric, Performance of Mutual Funds in the Period, pneumatic tube, profit motive, proprietary trading, purchasing power parity, quantitative trading / quantitative finance, random walk, Renaissance Technologies, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Sharpe ratio, short selling, Small Order Execution System, statistical arbitrage, statistical model, stochastic process, stochastic volatility, systematic trading, tail risk, trade route, transaction costs, value at risk, yield curve, zero-sum game

Optimal Trading Frequency 1 Year 1 Month 1 Day Private Equity Small-Cap Equities Commodities 1 Hour Options 1 Minute 1 Second Futures Large-Cap Equities ExchangeTraded Options Fixed-Income ETFs Foreign Exchange Instrument liquidity (daily trading volume) FIGURE 4.1 Optimal trading frequency for various trading instruments, depending on the instrument’s liquidity. 40 HIGH-FREQUENCY TRADING Fixed-Income Markets The fixed-income markets include the interest rate market and the bond market. The interest rate market trades short- and long-term deposits, and the bond market trades publicly issued debt obligations. Interest rate products and bonds are similar in that they both pay fixed or prespecified income to their holders. Aside from their fixed-income quality, bonds and interest rate products exhibit little similarity.

According to research conducted by Aite Group, equities are the most algorithmically 19 Evolution of High-Frequency Trading 60% 50% Equities Futures Options FX Fixed Income 40% 30% 20% 10% 0% 2004 2005 2006 2007 2008 2009 2010 Year FIGURE 2.7 Adoption of algorithmic execution by asset class. Source: Aite Group. executed asset class, with over 50 percent of the total volume of equities expected to be handled by algorithms by 2010. As Figure 2.7 shows, equities are closely followed by futures. Advances in algorithmic execution of foreign exchange, options, and fixed income, however, have been less visible. As illustrated in Figure 2.7, the lag of fixed income instruments can be explained by the relative tardiness of electronic trading development for them, given that many of them are traded OTC and are difficult to synchronize as a result.

., 207, 274, 278 Fill and kill (FAK) orders, 69 331 Index FINalternatives survey, 21 Financial Accounting Standard (FAS) 133, 263 Financial Information eXchange (FIX) protocol, 31, 239–242 Financial markets, suitable for high-frequency trading, 37–47 fixed-income markets, 40–43 foreign exchange markets, 43–46 liquidity requirements, 37–38 technological innovation and evolution of, 7–13 Finnerty, Joseph E., 183 Fisher, Lawrence, 174 Fixed-income markets, 40–43 algorithmic trading and, 19 event arbitrage, 181–183 FIX protocol, 31, 239–242 Flannery, M.J., 181 Fleming, Michael J., 182 Forecasting methodologies, event arbitrage, 168–173 Foreign currency exchange, 43–46 algorithmic trading and, 19 event arbitrage, 175–178 fundamental analysis and, 14 liquidity and, 38 statistical arbitrage, 189–191 transparent costs, 287 Foster, F., 158 Foucault, T., 66–67, 68, 122–123, 139, 142, 163, 274 Frankfurter, G.M., 209 Franklin, Benjamin, 288 Fransolet, L., 59 French, Kenneth R., 194–195 Frenkel, Jacob, 167 Froot, K., 87 Fuller, W.A., 98 Fundamental analysis, 14–15, 23 Fung, W., 57, 58 Futures: algorithmic trading, 19 commodity markets, 46–47 event arbitrage, 183 fixed-income markets, 40–42 foreign exchange markets, 43–46 liquidity, 38 statistical arbitrage, 197–198 Galai, D., 130 Gambler’s Ruin Problem, 135–137, 268 Garlappi, L., 210 Garman, M.B., 107, 135–137 Gatev, Evan, 188 Generalized autoregressive conditional heteroscedasticity (GARCH) process, 106–107, 123 George, T., 147 Getmansky, M., 59 Gini curve, 222, 228–229 Glantz, Morton, 284–285, 292–293, 298, 299 Globex, 9 Glosten, Lawrence R., 131, 147, 151, 156 Goal-setting, risk management and, 252–253 Goettler, R., 67, 163 Goetzmann, William N., 59, 188 Goldman Sachs, 25 Good for the day (GFD) orders, 68 Good for the extended day (GFE) orders, 68 Goodhart, Charles, 8, 89, 168 Good till canceled (GTC) orders, 68 Good till date (GTD) orders, 68 Good till time (GTT) orders, 68 Gorton, G., 184 Government regulation, 26 Graham, Benjamin, 14 Granger, C., 89, 101, 109 Granger causality specification, 197 Grauer, R.R., 209 Gravitational pull, of quotes, 130 Green, T.C., 182 Gregoriou, G.N., 56 Grilli, Vittorio, 167 Gueyie, J.


pages: 543 words: 157,991

All the Devils Are Here by Bethany McLean

Alan Greenspan, Asian financial crisis, asset-backed security, bank run, Bear Stearns, behavioural economics, Black-Scholes formula, Blythe Masters, break the buck, buy and hold, call centre, Carl Icahn, collateralized debt obligation, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, diversification, Dr. Strangelove, Exxon Valdez, fear of failure, financial innovation, fixed income, Glass-Steagall Act, high net worth, Home mortgage interest deduction, interest rate swap, junk bonds, Ken Thompson, laissez-faire capitalism, Long Term Capital Management, low interest rates, margin call, market bubble, market fundamentalism, Maui Hawaii, Michael Milken, money market fund, moral hazard, mortgage debt, Northern Rock, Own Your Own Home, Ponzi scheme, proprietary trading, quantitative trading / quantitative finance, race to the bottom, risk/return, Ronald Reagan, Rosa Parks, Savings and loan crisis, shareholder value, short selling, South Sea Bubble, statistical model, stock buybacks, tail risk, Tax Reform Act of 1986, telemarketer, the long tail, too big to fail, value at risk, zero-sum game

He pushed Goldman to begin trading options, which it had long shied away from, even hiring Fischer Black, the MIT professor and coinventor of the famous Black-Scholes options pricing model. Goldman’s options trading desk soon became immensely profitable as well. As co-head of the fixed-income research department in the mid-1980s, Rubin helped transform the fixed-income division from a second-tier player into a worthy competitor to such bond strongholds as Salomon Brothers and First Boston. By 1990, he was the co-head of the entire firm. (He shared the title with Steve Friedman, who had also run the fixed-income department with him.) By the time Rubin left for the Clinton administration in 1993—where he spent two years as the head of the National Economic Council before becoming Treasury secretary—Goldman had become the envy of Wall Street.

A few months later, in April, Merrill’s directors and top executives went to Pebble Beach for an off-site. During one of the working sessions, the discussion centered on Merrill’s fixed-income department. “The world has changed,” O’Neal told the assembled executives, according to several people who were there. Fixed income and credit, he added, were no longer cyclical in nature. There was going to be an ongoing demand for fixed-income products. “We need to continue our ability to take risk and manufacture products,” he said. By then, Kronthal was beginning to fear the mortgage market was becoming overheated.

Unlike his predecessor, Corzine, or his eventual successor, Lloyd Blankfein, Paulson was an investment banker, not a fixed-income trader; he had spent the early part of his career doing banking deals out of Goldman’s Chicago office. (Prior to joining Goldman, Paulson had served as an assistant to John Ehrlichman in the Nixon administration.) He became a partner in 1982, eight years after joining the firm, rising to be co-head of the firm’s investment banking department and then its chief operating officer before taking over as CEO in 1999. Investment banker though he was, Paulson did not try to turn back the clock. He saw clearly that trading and fixed income weren’t just the future of the firm—they were the present.


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The Greed Merchants: How the Investment Banks Exploited the System by Philip Augar

Alan Greenspan, Andy Kessler, AOL-Time Warner, barriers to entry, Bear Stearns, Berlin Wall, Big bang: deregulation of the City of London, Bonfire of the Vanities, business cycle, buttonwood tree, buy and hold, capital asset pricing model, Carl Icahn, commoditize, corporate governance, corporate raider, crony capitalism, cross-subsidies, deal flow, equity risk premium, financial deregulation, financial engineering, financial innovation, fixed income, Glass-Steagall Act, Gordon Gekko, high net worth, information retrieval, interest rate derivative, invisible hand, John Meriwether, junk bonds, Long Term Capital Management, low interest rates, Martin Wolf, Michael Milken, new economy, Nick Leeson, offshore financial centre, pensions crisis, proprietary trading, regulatory arbitrage, risk free rate, Sand Hill Road, shareholder value, short selling, Silicon Valley, South Sea Bubble, statistical model, systematic bias, Telecommunications Act of 1996, The Chicago School, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, tulip mania, value at risk, yield curve

In the early 1980s Lehman came close to falling apart in a divisive power struggle between investment banking and securities. In 1984 American Express bought Lehman, then principally an investment banking and institutional fixed income firm, and merged it with Shearson, principally a retail firm. The cultures never mixed and in 1993, when American Express decided to get out of the investment business, the retail part was sold to Smith Barney, which was then absorbed by Citigroup. Lehman re-emerged as an independent listed company in 1994. But that year, a bear market in fixed income bond trading hit Lehman’s main business. At this time I was in charge of NatWest’s debt and equity broking business and Lehman’s treasurer came to see me on a mission to keep the firm’s credit lines open; we supported them but it was a close call.

It was all about getting volume; now it’s all about margin, making sure there is one.’17 When equity revenues dried up the investment banks quickly switched to fixed income, which grew from being a third of profits in 2000 to two-thirds in 2002. They were helped by favourable market conditions. As interest rates fell to their lowest levels since the 1960s, corporate treasurers rushed to borrow money and to refinance debt at low interest rates. The investment banks were there in a flash, pitching new bond and bond derivatives issues and selling them to fund managers. The yield curve was steep and the proprietary trading departments were able to borrow short, invest long and pick up a huge interest carry. Fixed income people, out of the limelight during the equities bull market, suddenly found themselves the flavour of the month and gained in power, influence and compensation: ‘Bond traders who not long ago were considered second class citizens by their colleagues in investment banking and equities were now back on top of the social pile.’18 The growth of the hedge fund industry also illustrates the investment banks’ ability to latch on to new trends and work up a business around them.

The key decision at that time was to retain capital in the firm to build securities rather than distribute it to partners. Then in 1986 the firm went public and was in effect recapitalized. During the eighties we made fewer mistakes than our competitors. We expanded overseas more intelligently, exporting our fixed income skills to Europe and Japan. The loss of Gleacher and Greenhill was an issue but never caused an implosion of the kind that hit First Boston when Wasserstein and Perella left there.* Morgan Stanley has longevity of management and consistency of strategy. Parker Gilbert hands over to Dick Fisher, Dick Fisher hands over to John Mack and so on.


pages: 297 words: 91,141

Market Sense and Nonsense by Jack D. Schwager

3Com Palm IPO, asset allocation, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, Brownian motion, buy and hold, collateralized debt obligation, commodity trading advisor, computerized trading, conceptual framework, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, diversified portfolio, fixed income, global macro, high net worth, implied volatility, index arbitrage, index fund, Jim Simons, junk bonds, London Interbank Offered Rate, Long Term Capital Management, low interest rates, managed futures, margin call, market bubble, market fundamentalism, Market Wizards by Jack D. Schwager, merger arbitrage, negative equity, pattern recognition, performance metric, pets.com, Ponzi scheme, proprietary trading, quantitative trading / quantitative finance, random walk, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, selection bias, Sharpe ratio, short selling, statistical arbitrage, statistical model, subprime mortgage crisis, survivorship bias, tail risk, transaction costs, two-sided market, value at risk, yield curve

Table 3.2 HFRI Hedge Fund Strategy Indexes* Index 1 HFRI Equity Hedge (Total) Index 2 HFRI Equity Hedge: Equity Market Neutral Index 3 HFRI Equity Hedge: Quantitative Directional 4 HFRI Equity Hedge: Sector—Energy/Basic Materials Index 5 HFRI Equity Hedge: Sector—Technology/Health Care Index 6 HFRI Equity Hedge: Short Bias Index 7 HFRI Event-Driven (Total) Index 8 HFRI Event-Driven: Distressed/Restructuring Index 9 HFRI Event-Driven: Merger Arbitrage Index 10 HFRI Event-Driven: Private Issue/Regulation D Index 11 HFRI Macro (Total) Index 12 HFRI Macro: Systematic Diversified Index 13 HFRI Relative Value (Total) Index 14 HFRI Relative Value: Fixed Income—Asset Backed 15 HFRI Relative Value: Fixed Income—Convertible Arbitrage 16 HFRI Relative Value: Fixed Income—Corporate Index 17 HFRI Relative Value: Multi-Strategy Index 18 HFRI Relative Value: Yield Alternatives Index 19 HFRI Emerging Markets (Total) Index 20 HFRI Emerging Markets: Asia ex-Japan Index 21 HFRI Emerging Markets: Global Index 22 HFRI Emerging Markets: Latin America Index 23 HFRI Emerging Markets: Russia/Eastern Europe Index *Excludes fund of fund indexes, which combine multiple strategies.

., junk bonds, emerging market bonds) can lead to capital losses far greater than the yield differential earned. Note, for example, in Figure 4.4 the sustained negative returns in the HFR Fixed Income Corporate Index (an index of credit hedge funds) from mid-2007 through early 2009, coincident with the sharp widening of credit spreads. In these instances, credit risk and leverage risk will exhibit a negative synergistic effect, as the larger the leverage, the greater the credit investment losses. Figure 4.4 HFR Fixed Income Corporate Index Monthly Returns (Six-Month Average) versus Credit Spread (Moody’s Baa Yield Minus 10-Year Treasury Note Yield) In all these instances (except perhaps for market risk, where adverse periods may be more frequent), strategies prone to the foregoing event risks will exhibit relatively smooth performance and limited equity drawdowns during most periods, interspersed with occasional episodes of large drawdowns.

Statistical arbitrage involves highly frequent trading activity, with trades lasting between seconds and days. Fixed income arbitrage. This strategy seeks to profit from perceived mispricings between different interest rate instruments. Positions are balanced to maintain neutrality to changes in the broad interest rate level, but may express directional biases in terms of the yield curve—anticipated changes in the yield relationship between short-term, medium-term, and long-term interest rates. As an example of a fixed income arbitrage trade, if five-year rates were viewed as being relatively low versus both shorter- and longer-term rates, the portfolio manager might initiate a three-legged trade of long two-year Treasury notes, short five-year T-notes, and long 10-year T-notes, with the position balanced so that it was neutral to parallel shifts in the yield curve.


pages: 362 words: 108,359

The Accidental Investment Banker: Inside the Decade That Transformed Wall Street by Jonathan A. Knee

AOL-Time Warner, barriers to entry, Bear Stearns, book value, Boycotts of Israel, business logic, call centre, cognitive dissonance, commoditize, corporate governance, Corrections Corporation of America, deal flow, discounted cash flows, fear of failure, fixed income, Glass-Steagall Act, greed is good, if you build it, they will come, iterative process, junk bonds, low interest rates, market bubble, market clearing, Mary Meeker, Menlo Park, Michael Milken, new economy, Ponzi scheme, pre–internet, proprietary trading, risk/return, Ronald Reagan, shareholder value, Silicon Valley, SoftBank, technology bubble, young professional, éminence grise

George James, I learned, was Mitch’s immediate supervisor in the new fixed income hierarchy. “Just call me from the car,” he said, “don’t worry about it.” So I called from the car. “George wants to talk to Zoe,” Mitch informed me, referring to Zoe Cruz, who was in charge of all of Fixed Income. “It should just be a few minutes.” Just before entering the board meeting I ducked into a private phone booth across the hall. “Zoe needs to speak with Vikram.” Vikram was co-head of the Institutional Securities Division into which Fixed Income reported. “You have got to be kidding me!” I cried. “None of these fucking people are even on the Commitments Committee!

This conflicted attitude created an opening for a niche player to take the leading position in this attractive business. What sends an investment banking firm into decline is typically a major scandal, a capital crisis, a mass exodus of productive partners or, usually, some combination of the three. Salomon Brothers, using street smarts and creative structuring particularly in the fixed income markets, had clawed its way to the top of the overall financing league tables in the 1980s. The downside of its out-of-control trading culture would be well documented in Michael Lewis’ Liar’s Poker, in which the author wrote about his experience as a young bond salesman in the years leading up to the crash of 1987.

Discord between the banking and trading sides of the house had torn a number of the old partnerships asunder. But Goldman had grown up as a commercial paper operation. Marcus Goldman started by literally walking the streets stuffing IOUs from merchants into his hat and trading them to a bank at day’s end. So the tensions between banking and fixed income trading never reached the fever pitch it had elsewhere. Leadership also moved from banker (Sidney Weinberg) to trader (Gus Levy) to partnerships that typically included one of each (Robert Rubin/Steve Friedman) demonstrating an institutional respect for both. Furthermore, at least since the departure of Catchings in the 30s, the strength of Goldman’s leadership and thoughtfulness of the succession planning had kept the culture strong and smoothed any divisions.


Commodity Trading Advisors: Risk, Performance Analysis, and Selection by Greg N. Gregoriou, Vassilios Karavas, François-Serge Lhabitant, Fabrice Douglas Rouah

Asian financial crisis, asset allocation, backtesting, buy and hold, capital asset pricing model, collateralized debt obligation, commodity trading advisor, compound rate of return, constrained optimization, corporate governance, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, discrete time, distributed generation, diversification, diversified portfolio, dividend-yielding stocks, financial engineering, fixed income, global macro, high net worth, implied volatility, index arbitrage, index fund, interest rate swap, iterative process, linear programming, London Interbank Offered Rate, Long Term Capital Management, managed futures, market fundamentalism, merger arbitrage, Mexican peso crisis / tequila crisis, p-value, Pareto efficiency, Performance of Mutual Funds in the Period, Ponzi scheme, proprietary trading, quantitative trading / quantitative finance, random walk, risk free rate, risk-adjusted returns, risk/return, selection bias, Sharpe ratio, short selling, stochastic process, survivorship bias, systematic trading, tail risk, technology bubble, transaction costs, value at risk, zero-sum game

Her published work has appeared in several peer-reviewed journals. Nicolas Papageorgiou is an Assistant Professor in the Department of Finance at the Hautes études commerciales (HEC), University of Montreal, Canada. His main research interests and publications deal with fixed income securities, specifically the pricing of structured products and the analysis of fixed income arbitrage strategies used by hedge fund managers. About the Authors xxi Dr. Papageorgiou has taught graduate-level courses in Canada and the U.K. and has presented at numerous academic and practitioner conferences in North America, Europe, and North Africa.

., which advises investment firms on derivatives strategies and risk management policy. Prior to Premia, Ms. Till was Chief of Derivatives Strategies at Boston-based Putnam Investments, where she was responsible for the management of all derivatives investments in domestic and international fixed income, tax-exempt fixed income, foreign exchange, and global asset allocation. Prior to Putnam Investments, Ms. Till was a Quantitative Equity Analyst at Harvard Management Company (HMC) in Boston, the investment management company for Harvard University’s endowment. She holds a B.A. in Statistics from the University of Chicago and a M.Sc. in Statistics from the London School of Economics.

They concluded that managed futures may offer some of the hedging properties of a put option at a lower cost.1 1Schneeweis and Spurgin (1998b) used a dollar-weighted index of CTAs published by Managed Account Reports (MAR). 338 PROGRAM EVALUATION, SELECTION, AND RETURNS Schneeweis and Spurgin (1998b) further presented evidence that hedge funds and managed futures may improve the risk-return profiles of equity, fixed income, as well as traditional alternative investments such as risky debt. Their findings were based on correlation analysis between the underlying factors of: ■ ■ ■ ■ Hedge fund indices from Hedge Fund Research and Evaluation Associates Capital Management (EACM) CTA indices (from MarHedge, Barclay Trading, and EACM) S&P 500 and MSCI World indices for equities Salomon Brothers Government Bond and World Government Bond indices for fixed income securities Kat (2002) studied the possible role of managed futures in portfolios of stocks, bonds, and hedge funds.


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In Pursuit of the Perfect Portfolio: The Stories, Voices, and Key Insights of the Pioneers Who Shaped the Way We Invest by Andrew W. Lo, Stephen R. Foerster

Alan Greenspan, Albert Einstein, AOL-Time Warner, asset allocation, backtesting, behavioural economics, Benoit Mandelbrot, Black Monday: stock market crash in 1987, Black-Scholes formula, Bretton Woods, Brownian motion, business cycle, buy and hold, capital asset pricing model, Charles Babbage, Charles Lindbergh, compound rate of return, corporate governance, COVID-19, credit crunch, currency risk, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, Donald Trump, Edward Glaeser, equity premium, equity risk premium, estate planning, Eugene Fama: efficient market hypothesis, fake news, family office, fear index, fiat currency, financial engineering, financial innovation, financial intermediation, fixed income, hiring and firing, Hyman Minsky, implied volatility, index fund, interest rate swap, Internet Archive, invention of the wheel, Isaac Newton, Jim Simons, John Bogle, John Meriwether, John von Neumann, joint-stock company, junk bonds, Kenneth Arrow, linear programming, Long Term Capital Management, loss aversion, Louis Bachelier, low interest rates, managed futures, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, money market fund, money: store of value / unit of account / medium of exchange, Myron Scholes, new economy, New Journalism, Own Your Own Home, passive investing, Paul Samuelson, Performance of Mutual Funds in the Period, prediction markets, price stability, profit maximization, quantitative trading / quantitative finance, RAND corporation, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, selection bias, seminal paper, shareholder value, Sharpe ratio, short selling, South Sea Bubble, stochastic process, stocks for the long run, survivorship bias, tail risk, Thales and the olive presses, Thales of Miletus, The Myth of the Rational Market, The Wisdom of Crowds, Thomas Bayes, time value of money, transaction costs, transfer pricing, tulip mania, Vanguard fund, yield curve, zero-coupon bond, zero-sum game

In 1988, Merton joined Salomon Brothers, the global investment bank then led by John Gutfreund, as a special consultant to the Office of the Chairman. John Meriwether was the head of the domestic fixed-income arbitrage group and had attracted many of Merton’s former students, most of whom had PhDs.56 Meriwether left Salomon Brothers in 1991, and in 1993 he had the idea to start a new firm. This would be a hedge fund named Long-Term Capital Management (LTCM), founded to undertake global fixed-income arbitrage on, for example, price discrepancies between similar bonds trading in different markets. Merton and Scholes were among its eleven founders, seven of whom had strong connections to MIT, Harvard Business School, or both.

There are also many more complicating factors, not the least of which is that you’re dealing with multiple objectives almost all of the time, and you’re dealing with objectives that shift in priority,”67 for example, with both the asset level and the passage of time. In terms of asset types for the individual investor, they should have both equities and bonds. Why include fixed income in a portfolio? In addition to reducing volatility and providing a relatively stable return, “fixed income is sometimes viewed as a hedge against disastrous equity markets.”68 It all comes back to the benefits of diversification that Markowitz uncovered. “Diversification, as Harry Markowitz so beautifully pointed out, is the cheapest source of reward.”

And there is software that quickly analyzes mean-variance portfolios in order to optimize return versus risk. Today, Markowitz’s recommendations would be quite different. “I know from repeated exposure the approximate asset class mix I prefer, and I invest in that mix, roughly. I implement my choice with ETFs [exchange-traded funds] for equities and with individual bonds for fixed income.”97 Markowitz’s thinking evolved between his 1952 “Portfolio Selection” article and his subsequent book by the same name. “By 1959, I had come to realize that you might want other constraints on the choice of your portfolio. You might want upper bounds on individual securities, you might want upper bounds on how much you have in certain [industries] or sets of securities, you might have other linear constraints like you want to have income at a certain level, and so on.”98 Not surprisingly, Markowitz remains a firm believer in mean-variance analysis.


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How I Invest My Money: Finance Experts Reveal How They Save, Spend, and Invest by Brian Portnoy, Joshua Brown

asset allocation, behavioural economics, bitcoin, blockchain, blue-collar work, buy and hold, coronavirus, COVID-19, cryptocurrency, diversification, diversified portfolio, estate planning, financial independence, fixed income, high net worth, housing crisis, index fund, John Bogle, low interest rates, mental accounting, passive investing, prediction markets, risk tolerance, Salesforce, Sharpe ratio, time value of money, underbanked, Vanguard fund

Our clients are high net worth and we use mostly individual bonds to fill the fixed income side of their portfolio. Why? I like the known cash flows and capital preservation. We hold bonds to maturity and don’t have to worry about the interest rate fluctuations. Tim does a great job explaining to the clients how bonds work and they are happy with the approach. Yes, it is more work, but we have plenty of good bond dealers and Tim makes sure we get good pricing. Tim now manages my and my husband’s money according to our investment policy statement. The allocation is 50% fixed income and 50% equities, and we use all the same funds as our clients.

The foundation of the institutional asset allocation framework considers expectations for both factors, then determines how to allocate assets to four primary categories, each of which serves a different purpose in an investor’s portfolio. Fixed income: Preserves capital, limits volatility, provides liquidity, and hedges against unexpected deflation. Absolute return: Generates uncorrelated returns less dependent on the direction of equity and fixed income markets. Equities: Offers long-term capital appreciation. Real assets: Hedges against unexpected inflation and produces long-term total return. Sounds simple, but present-day investors continue to dissect far-reaching policy implications of COVID-19 government actions in 2020, which include fiscal policy and global monetary policy adding yet another round of stimulus to markets in an effort to rescue the US economy.

With our personal capital Mary Ann and I are still fairly young, and thankfully healthy, so we have a fairly aggressive growth portfolio. We invest in a diversified portfolio consisting of index funds in the core part of portfolio, managed money for small cap and international, and currently have a 10% allocation to both fixed income and cash. I am a believer in investing in things you know with people you know. In the past that drove us to buying other finance stocks of companies that were run by people I knew and respected. Given the size of our closely held position in Dynasty today, and that it’s a financial services company, I have stopped buying other companies in the space given the concentration risk to industry sector.


How I Became a Quant: Insights From 25 of Wall Street's Elite by Richard R. Lindsey, Barry Schachter

Albert Einstein, algorithmic trading, Andrew Wiles, Antoine Gombaud: Chevalier de Méré, asset allocation, asset-backed security, backtesting, bank run, banking crisis, Bear Stearns, Black-Scholes formula, Bob Litterman, Bonfire of the Vanities, book value, Bretton Woods, Brownian motion, business cycle, business process, butter production in bangladesh, buy and hold, buy low sell high, capital asset pricing model, centre right, collateralized debt obligation, commoditize, computerized markets, corporate governance, correlation coefficient, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency risk, discounted cash flows, disintermediation, diversification, Donald Knuth, Edward Thorp, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, fixed income, full employment, George Akerlof, global macro, Gordon Gekko, hiring and firing, implied volatility, index fund, interest rate derivative, interest rate swap, Ivan Sutherland, John Bogle, John von Neumann, junk bonds, linear programming, Loma Prieta earthquake, Long Term Capital Management, machine readable, margin call, market friction, market microstructure, martingale, merger arbitrage, Michael Milken, Myron Scholes, Nick Leeson, P = NP, pattern recognition, Paul Samuelson, pensions crisis, performance metric, prediction markets, profit maximization, proprietary trading, purchasing power parity, quantitative trading / quantitative finance, QWERTY keyboard, RAND corporation, random walk, Ray Kurzweil, Reminiscences of a Stock Operator, Richard Feynman, Richard Stallman, risk free rate, risk-adjusted returns, risk/return, seminal paper, shareholder value, Sharpe ratio, short selling, Silicon Valley, six sigma, sorting algorithm, statistical arbitrage, statistical model, stem cell, Steven Levy, stochastic process, subscription business, systematic trading, technology bubble, The Great Moderation, the scientific method, too big to fail, trade route, transaction costs, transfer pricing, value at risk, volatility smile, Wiener process, yield curve, young professional

It also helped me begin to understand how interest rate option models fit into the larger-risk model, and how investors used that model. But my knowledge of finance at that time was an inch wide and a mile deep. I knew the Cox, Ingersoll, Ross model in considerable detail. And that was almost all I knew in finance. In October 1987, after eight months at BARRA, I attended my first Fixed Income Research Seminar at Pebble Beach. I presented an optional session on my work. Richard instructed everyone to only let me talk to the most technically sophisticated clients. Although I could discuss technical details about option models, I would have struggled with more general questions. JWPR007-Lindsey May 7, 2007 16:30 38 h ow i b e cam e a quant Success in finance would require me to acquire much more intuition and insight into the basic problems faced by investors and to build up a toolkit for analyzing those problems.

Richard left BARRA at the end of 1992 to join Wells Fargo Nikko Investment Advisors, which later became Barclays Global Investors (BGI). My years as director of research at BARRA were fantastic in terms of my intellectual development. I worked on many interesting projects, including supervising the development of new equity, fixed income, and trading models. Beyond researching new BARRA products, I participated in numerous research studies that appeared as seminar presentations and subsequent articles. Andrew Rudd and I analyzed that ultimate question for investors: Does historical performance predict future performance?12 Our contributions included better quantitative applesto-apples comparisons of managers, and an analysis of whether any perceived persistence of performance could lead to an outperforming investment strategy.

So, I grabbed my own handful of napkins and proceeded to do the same, at which point he exclaimed, “Wow, I never saw anyone else do that before – I thought I was the only one!” I got the job. My work during that next year was incredibly rewarding. The focus of the fund was to create automated trading strategies and apply them to global futures markets, including commodities, equities, and fixed income. As long as it was a valid futures market, we traded it, regardless if the prices represented Eurodollar contracts or Red Azuki Beans. I spent a lot of time writing very complex code to create and backtest different types of trading strategies using daily futures data back to the 1940s. Oodles of data, challenging analyses, and lots of programming— this is exactly what I had been doing in physics for a dozen years, and I was groovin’.


Trading Risk: Enhanced Profitability Through Risk Control by Kenneth L. Grant

backtesting, business cycle, buy and hold, commodity trading advisor, correlation coefficient, correlation does not imply causation, delta neutral, diversification, diversified portfolio, financial engineering, fixed income, frictionless, frictionless market, George Santayana, global macro, implied volatility, interest rate swap, invisible hand, Isaac Newton, John Meriwether, Long Term Capital Management, managed futures, market design, Myron Scholes, performance metric, price mechanism, price stability, proprietary trading, risk free rate, risk tolerance, risk-adjusted returns, Sharpe ratio, short selling, South Sea Bubble, Stephen Hawking, the scientific method, The Wealth of Nations by Adam Smith, transaction costs, two-sided market, uptick rule, value at risk, volatility arbitrage, yield curve, zero-coupon bond

See also Stop-out level Exposure adjustment strategies: directional bias, 135–141 diversification, 144–146 leverage, 146–148 optionality, 148–153 position level volatility, 141–142 position size, 134–135 time horizon, 142–144 Exposure range determination: components of, 110–111 inverted Sharpe Ratio, 111–114, 248–250 volatility management, as trading capital percentage, 114–126 Fat tails, 116, 118 Federal Reserve Regulation T, 148 Financial statements, 185, 225 Fixed-income market, 145 Fixed-income portfolio, 147 INDEX Fixed-income trading, 56, 74, 105 Front-running, 196–197 Fully invested risk position, 227 Futures/futures market, 56, 185, 239–240 Games of chance, 247–248 “Going to the beach,” 32–36 Gross market value, 161 Harvard Matrix, 226 Hedge funds, 41, 119–120, 166, 194–195 Hedge-oriented trades, 139–140 Hedging, 151–152, 202 High-risk profile, 59 High-velocity trading strategies, 193 High-water approach, 71, 121 Histograms, 51–53 Historical volatility, 84–88, 96–97 Holding period: correlation analysis, 175–177 individual trades, 162–165 time horizon and, 142–144 trading with an edge, 222 “House,” being the, 223 Humor, importance of, 243–244 Impact ratio, 186–188 Implied volatility, 86–87, 89 Incremental risk, 126, 141–142 Individual portfolio, risk components: correlation, 90–91 historical volatility, 84–88, 96–97 options implied volatility, 86–89 scenario analysis, 104–106 technical analysis, 106–108 value at risk (VaR), 91–104 Individual trades, risk components of: core transactions-level statistics, 161–168, 209, 211 correlation analysis, 168–181 influential factors, generally, 208–211 performance ratio improvement methods, 189–208 performance success metrics, 184–189 transaction performance, 156–161 Index Ineffective risk management, 124–125 Information processing, 220–221 Institutional investments/traders, 29, 193 Instrument classes, 200 Interest rates, as influential factor, 87, 105 In-the-money option, 150 Intraday prices, 39 Intraday P/L, 42 Intraday trading, 162 Intrinsic value, 87, 150 Inverted Sharpe Ratio, 111–114, 248–250 Investment.

Beyond this, leverage statistics have vastly different implications across asset classes and across instrument classes within a given asset class. For example, the use of a specified amount of leverage in a fixed-income portfolio will generally have lessacute impacts than will the same profile in equities, due to the fact that equity markets routinely have higher levels of volatility. For identical reasons, within the fixed-income group, leverage will be more impactful at the long end of the yield curve than it will for short-term trading instruments. Beyond this, certain derivative instrument classes are designed to engineer precise leverage for investors because they offer trade-offs that involve both the cost of the investment and the probability of their bringing about a favorable outcome.

Buy/sell indicator. Price. Quantity. Executing broker/counterparty. Commission. Order type (e.g., market, limit, stop, etc.). Native currency denomination. In addition, depending on the type of instrument traded, it may be necessary to record: • • • • Maturity (for fixed income) or expiration (for futures and options) date. Coupon rate and frequency (fixed income). Put/call indicator (for options). Strike price (for options). While these informational elements will more or less completely define a given transaction (at least for most types of trading), there are other indirect pieces of information that you need not record for each 158 TRADING RISK trade but that will be implicit in the information already gathered and that you should by all means include in your subsequent analysis.


The Handbook of Personal Wealth Management by Reuvid, Jonathan.

asset allocation, banking crisis, BRICs, business cycle, buy and hold, carbon credits, collapse of Lehman Brothers, correlation coefficient, credit crunch, cross-subsidies, currency risk, diversification, diversified portfolio, estate planning, financial deregulation, fixed income, global macro, high net worth, income per capita, index fund, interest rate swap, laissez-faire capitalism, land tenure, low interest rates, managed futures, market bubble, merger arbitrage, negative equity, new economy, Northern Rock, pattern recognition, Ponzi scheme, prediction markets, proprietary trading, Right to Buy, risk tolerance, risk-adjusted returns, risk/return, short selling, side project, sovereign wealth fund, statistical arbitrage, systematic trading, transaction costs, yield curve

Figure 1.1.4, Investment involvement, shows a broad representation of the types of services differentials that exist between discretionary and advisory approaches. _________________________________________________ THE EYE OF THE NEEDLE 11 ឣ HFs: Macro/Managed Futures 6.0% HFs: Equity Long/short 2.4% Fixed Income – Inv. Grade (International) 18.2% HFs: Relative Value/Event Driven 8.4% Fixed Income – Inv. Grade (Local) 10.2% Fixed Income – High Yield 2.1% Equity 52.6% 11.0 0% Illiquidity 10% Illiquidity 20% Illiquidity 30% Illiquidity Expected Return (%) 10.0 9.0 Model V Model IV Model III 8.0 Model II 7.0 6.0 Model I 5.0 For Illustration Only 4.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 Expected Standard Deviation (%) Source: Citi Private Bank as at December 2008 Figure 1.1.3 Illustration line of optimal portfolio ‘fits’ This is provided as a generic illustration only and differences between service offerings will vary.

Table 1.3.1 Performance of hedge fund indices in 2008 Strategy Net of fees year to date returns to 31 Oct 08 (USD) HFRI Fund Weighted Composite Index HFRI Equity Hedge (Total) Index HFRI EH: Equity Market Neutral Index HFRI EH: Quantitative Directional HFRI EH: Short Bias Index HFRI Event-Driven (Total) Index HFRI ED: Merger Arbitrage Index HFRI Macro (Total) Index HFRI Relative Value (Total) Index HFRI RV: Fixed Income–Asset Backed HFRI RV: Fixed Income–Convertible Arbitrage Index HFRI RV: Fixed Income–Corporate Index HFRI RV: Multi–Strategy Index –15.48 –22.49 –3.78 –19.04 21.18 –16.66 –5.37 5.55 –17.11 0.07 –35.06 –18.32 –20.69 ________________________________________________ HEDGE FUND STRATEGIES 33 ឣ Discretionary macro Discretionary macro is one of the few strategies that has posted positive performance in the year to date (end October 2008).

Keeping an eye on trading costs is also key as turnover is very high. Short-term CTAs must specialize in liquid markets, and often volatility and short-term trend reversals can aid performance; however rapid intrasession whipsawing may not be beneficial. Fixed income arbitrage This is an investment strategy that attempts to profit from mis-pricing in fixed income securities. Typically the arbitrageur will go long the under-priced security and short the over-priced security; a common trade is swap-spread arbitrage, which ឣ 28 PORTFOLIO INVESTMENT _________________________________________________ consists of taking opposing long and short positions in a swap and treasury bond.


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How to Predict the Unpredictable by William Poundstone

accounting loophole / creative accounting, Albert Einstein, Bernie Madoff, Brownian motion, business cycle, butter production in bangladesh, buy and hold, buy low sell high, call centre, centre right, Claude Shannon: information theory, computer age, crowdsourcing, Daniel Kahneman / Amos Tversky, Edward Thorp, Firefox, fixed income, forensic accounting, high net worth, index card, index fund, Jim Simons, John von Neumann, market bubble, money market fund, pattern recognition, Paul Samuelson, Ponzi scheme, power law, prediction markets, proprietary trading, random walk, Richard Thaler, risk-adjusted returns, Robert Shiller, Rubik’s Cube, statistical model, Steven Pinker, subprime mortgage crisis, transaction costs

Each month afterward, record the latest PE value. You sell only on a downturn. When the current month’s PE is at least 6 percent less than the highest monthly value since it rose above 24, sell your S&P 500 fund (or whatever fraction is being managed with this system) and put the money in safe fixed-income investments. Since you’ll probably have a permanent allocation to fixed income as well, you’ll need to keep a record of how much is the stock fund proceeds. Example. The Shiller PE is above 24 when you check in June. By November you’ve got this list: June, 24.03 July, 24.60 August, 24.41 September, 27.45 October, 27.32 November, 25.53 The highest value in the list is 27.45, for September.

The August pullback was only 1 percent from the July maximum and should not have triggered a sale. You remain parked in fixed-income investments until you get a buy signal. This will usually take several years. Keep checking the PE monthly. When it first dips below 15, note the month and PE. Each month thereafter, add the latest PE value to the list. Eventually there will be an upturn. When the current month’s PE is at least 6 percent above the recent low value, buy back into the stock index fund, using the proceeds of the fixed-income investments you bought at the previous sell signal (plus reinvested interest). With that the cycle renews.

As we’ve seen, there is ample evidence for that proposition. Lately the behavioral penalty has been co-opted by the mutual fund industry to promote buy-and-hold investing. They’re not entirely motivated by the public good. Fund managers collect fees only while investors own their funds. It’s easier to justify high fees for stock funds than fixed-income funds. Therefore, the fund industry is reluctant to admit that there might be times when it’s not worth owning stocks. They have concocted bogeyman stories to scare investors into buying-and-never-selling. One of the favorite pitches is that most of the stock market’s long-term return is due to a few halcyon days that post big gains.


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The Gone Fishin' Portfolio: Get Wise, Get Wealthy...and Get on With Your Life by Alexander Green

Alan Greenspan, Albert Einstein, asset allocation, asset-backed security, backtesting, behavioural economics, borderless world, buy and hold, buy low sell high, cognitive dissonance, diversification, diversified portfolio, Elliott wave, endowment effect, Everybody Ought to Be Rich, financial independence, fixed income, framing effect, hedonic treadmill, high net worth, hindsight bias, impulse control, index fund, interest rate swap, Johann Wolfgang von Goethe, John Bogle, junk bonds, Long Term Capital Management, means of production, mental accounting, Michael Milken, money market fund, Paul Samuelson, Ponzi scheme, risk tolerance, risk-adjusted returns, short selling, statistical model, stocks for the long run, sunk-cost fallacy, transaction costs, Vanguard fund, yield curve

Who Should Invest • Investors seeking a high level of dividend income and long-term growth of capital • Investors with a long-term investment horizon (at least five years) • Investors seeking to add real estate exposure to their mix of stock, bond, and money market mutual funds Who Should Not Invest • Investors unwilling to accept significant fluctuations in share price • Investors seeking a mutual fund that invests in a variety of industries Minimums TABLE A.27 Minimums Expenses How Costs Affect Returns Over Time TABLE A.28 Expenses VANGUARD SHORT-TERM INVESTMENT-GRADE FUND Description The fund invests in a variety of high-quality and, to a lesser extent, medium-quality fixed income securities, at least 80% of which will be short- and intermediate-term investment-grade securities. High-quality fixed income securities are those rated the equivalent of A3 or better by Moody’s Investors Service, Inc., or another independent rating agency; medium-quality fixed income securities are those rated the equivalent of Baa1, Baa2, or Baa3 by Moody’s or another independent rating agency. (Investment-grade fixed income securities are those rated the equivalent of Baa3 and above by Moody’s.) The fund is expected to maintain a dollar-weighted average maturity of one to three years.

The real barnburner was the following statement from the first edition, based on a thorough examination of two centuries of financial data: “Although bonds are certainly safer than stocks in the short run, over the long run the returns on stocks are so stable that stocks are actually safer than either government bonds or Treasury bills. The constancy of the long-term, after-inflation returns on stocks was truly astounding, while the returns on fixed-income assets posed higher risks for the long-term investor.” Stocks are safer than T-bills? To many investors, that sounds like lunacy. But it has been the case for more than two centuries now. Is it likely to remain so in the future? It is safe to assume so. Let me explain why, not in financial terms but in human ones.

If you stick with no-load bond funds, as we will with the Gone Fishin’ Portfolio, it’s true there are annual expenses you will absorb. But there will be no costs for buying or selling your bonds. You will also enjoy lower minimums, instant diversification, and professional management, and you can arrange to have your fund dividends automatically reinvested. For most investors, these conveniences make our fixed-income investments both safe and simple. So we’ll make good use of bond funds in our Gone Fishin’ Portfolio. But we won’t overdo it. Stocks are the greatest wealth-creating machine of all time. So our Gone Fishin’ Portfolio will have greater exposure to them than bonds. But we’re realistic. We’re taking human nature into account, too.


pages: 367 words: 110,161

The Bond King: How One Man Made a Market, Built an Empire, and Lost It All by Mary Childs

Alan Greenspan, asset allocation, asset-backed security, bank run, Bear Stearns, beat the dealer, break the buck, buy and hold, Carl Icahn, collateralized debt obligation, commodity trading advisor, coronavirus, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, diversification, diversified portfolio, Edward Thorp, financial innovation, fixed income, global macro, high net worth, hiring and firing, housing crisis, Hyman Minsky, index card, index fund, interest rate swap, junk bonds, Kevin Roose, low interest rates, Marc Andreessen, Minsky moment, money market fund, mortgage debt, Myron Scholes, NetJets, Northern Rock, off-the-grid, pneumatic tube, Ponzi scheme, price mechanism, quantitative easing, Robert Shiller, Savings and loan crisis, skunkworks, sovereign wealth fund, stem cell, Steve Jobs, stocks for the long run, The Great Moderation, too big to fail, Vanguard fund, yield curve

All these tools combined to build Total Return: the reliable “structural” trades, the “secular” view, the bond-by-bond selection by the analysts, the basis points wrung out of Wall Street dealers, the basis points wrung out of behavior that others called rude but that Pimco called “serving the clients.” This was how Bill Gross had built Total Return’s track record and why he was a three-time winner of Morningstar’s Fixed-Income Manager of the Year title—a huge honor—and now Morningstar’s Fixed-Income Manager of the Decade. By now, Bill Gross had made his imprint on the bond market, his preferences woven into its walls, his personality embedded in its structure. His ascendance—and with it, his techniques—had inspired copycats across the industry. Gross and Pimco didn’t invent pushing boundaries, but where they’d pushed, they’d created more room, and others filled in after them.

Very few stay at the top for very long.” The intervening fourteen years hadn’t mitigated that anxiety. * * * Bill Gross, and Pimco, started small. After struggling to find a job out of business school, Gross landed at the staid old insurance company Pacific Mutual as a securities analyst and loan officer in its fixed income department. The business of life insurance necessitates knowing generally how many customers will die each year, how much an insurer will need to pay out, and when-ish. Usually it’s not for a while. So Pacific Mutual could take its customers’ life insurance premia and invest the money in bonds that throw off interest payments until they mature (and return the money) approximately when the insurer expects to need it back.

So Pacific Mutual could take its customers’ life insurance premia and invest the money in bonds that throw off interest payments until they mature (and return the money) approximately when the insurer expects to need it back. It could pretty safely buy a thirty-year bond, and earn the interest, with money from customers who most likely wouldn’t die for another thirty years. Gross was hired to the fixed income department because, by happenstance, he had written his thesis on convertible bonds, so named because they can convert into stocks when the company’s shares hit a certain price. His interviewer thought this was impressive and just what they needed. It was not stimulating work. Gross found himself with uninteresting jobs like clipping bond coupons in Pacific Mutual’s vault, snipping the little tags off the bottom of corporate certificates and mailing them in for interest payments.


pages: 333 words: 76,990

The Long Good Buy: Analysing Cycles in Markets by Peter Oppenheimer

Alan Greenspan, asset allocation, banking crisis, banks create money, barriers to entry, behavioural economics, benefit corporation, Berlin Wall, Big bang: deregulation of the City of London, Black Monday: stock market crash in 1987, book value, Bretton Woods, business cycle, buy and hold, Cass Sunstein, central bank independence, collective bargaining, computer age, credit crunch, data science, debt deflation, decarbonisation, diversification, dividend-yielding stocks, equity premium, equity risk premium, Fall of the Berlin Wall, financial engineering, financial innovation, fixed income, Flash crash, foreign exchange controls, forward guidance, Francis Fukuyama: the end of history, general purpose technology, gentrification, geopolitical risk, George Akerlof, Glass-Steagall Act, household responsibility system, housing crisis, index fund, invention of the printing press, inverted yield curve, Isaac Newton, James Watt: steam engine, Japanese asset price bubble, joint-stock company, Joseph Schumpeter, Kickstarter, Kondratiev cycle, liberal capitalism, light touch regulation, liquidity trap, Live Aid, low interest rates, market bubble, Mikhail Gorbachev, mortgage debt, negative equity, Network effects, new economy, Nikolai Kondratiev, Nixon shock, Nixon triggered the end of the Bretton Woods system, oil shock, open economy, Phillips curve, price stability, private sector deleveraging, Productivity paradox, quantitative easing, railway mania, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, savings glut, secular stagnation, Shenzhen special economic zone , Simon Kuznets, South Sea Bubble, special economic zone, stocks for the long run, tail risk, Tax Reform Act of 1986, technology bubble, The Great Moderation, too big to fail, total factor productivity, trade route, tulip mania, yield curve

In the later phases of expansion, the best-performing assets remain equities, but these are dominated by equities with a higher beta, or those that tend to amplify movements in underlying fundamentals to a greater degree, such as EM equities. Commodities tend to be more neutral in this phase, and fixed income assets tend to underperform as a consequence of a higher investor tolerance for risk and, in most cases, higher inflation. In the early part of a recession, defensive assets start to outperform but oil tends to continue to do well as growth levels are still positive (albeit decelerating). In this phase, risky assets and most cyclical and high-beta equities tend to underperform most. Corporate debt has generally been a hybrid between a fixed income and equity asset, and generally does best in the latter part of the recessionary phase as bond yields fall and forward growth risks start to moderate.

Equities are on the riskier side of the investment range because equity investors have the last claim over a company's profits (after bond holders and other creditors). Equity therefore has an uncertain future return. It is possible for a company to lose money and the price of the stock can fall, or, worse still, the company can go bankrupt. For investors in fixed income assets (the income is known in nominal terms at the time of purchase), the risk is one of government or corporate default; lending to governments is generally much safer than lending to companies because it is more likely that a company will lose money or collapse entirely than a government default on its debt (although it is typically seen as riskier in emerging economies where there is often a history of default).

This relationship is encapsulated in the simple one-stage DDM or Gordon growth model, which states that If bond yields fall, all else being equal, the dividend yield should fall (and the price of equities rise). But if lower bond yields are matched by a change in long-term growth expectations, then there should be no positive impact on the current valuation from lower yields. Indeed, the uncertainty about future cash flows may increase the ERP, forcing the dividend yield up (or the price down). Fixed income assets, by contrast, provide a fixed nominal return over a defined period. The future returns are known in advance in nominal terms but not in real terms (because investors are not protected against surprises in future inflation). The ultimate return will depend on the current level of interest rates and a risk premium (an extra return) to compensate for the risk of default.


pages: 349 words: 104,796

Greed and Glory on Wall Street: The Fall of the House of Lehman by Ken Auletta

Bear Stearns, book value, business climate, classic study, corporate governance, financial independence, fixed income, floating exchange rates, Herman Kahn, interest rate swap, junk bonds, New Journalism, profit motive, proprietary trading, Ronald Reagan, Saturday Night Live, scientific management, traveling salesman, zero-coupon bond

Although banking partners were not happy with the unwieldy, relatively inexperienced troika, to impose someone from trading on the forty-fourth-floor banking department—no matter how personally agreeable Shel Gordon was—made many bankers queasy. “Lew’s idea of breaking down the barrier between traders and bankers was for a trader to come up here,” says one longtime Lehman banker. Glucksman merged the equity division with the fixed-income division, which included all commercial paper and all trading in government securities. To manage the merged department, he elevated his thirty-seven-year-old protégé, Richard Fuld, who had been running fixed income alone. This move, in particular, made partners uneasy. Fuld was a man who, for all his abilities as a trader, was almost defiantly antisocial toward bankers; he avoided the partners’ dining room and complained openly about those “fucking bankers” who hogged Lehman’s shares.

The tension between Glucksman and Peterson was hinted at by the fact that they were chauffeured uptown separately. Peterson rode to the lunch with J. Tomilson Hill III, a young Lehman banking partner he had helped to recruit; Glucksman rode with a member of his own team, Sheldon S. Gordon, head of equity trading and sales at Lehman, one of four major divisions at Lehman (the others being banking, fixed-income trading and investment management). “If I could avoid being with Peterson, I’d avoid being with Peterson,” explained Glucksman. “I couldn’t stand the monologues.” During cocktails, Glucksman and Peterson exchanged perfunctory greetings and mingled with the other seven guests at opposite ends of a bar area just outside the executive dining room.

He was placed in charge of all money market and trading activities in 1969, elevated to the board in 1971, and to the executive committee in 1972; by 1981 he was president and chief operating officer, and most Lehman managers reported to him. Glucksman’s rise coincided with the ascendancy of trading at Lehman and on Wall Street in general. In 1975 the fixed income and securities divisions at Lehman provided $18.5 million of Lehman’s pre-tax and pre-bonus profits; by 1983 this number had soared to $127.4 million. And by 1983, Lehman’s securities trading and distribution functions employed 1,863 people. Begun as an appendage to banking, by 1983 trading and distribution accounted for more than two-thirds of Lehman’s profits.


pages: 432 words: 106,612

Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever by Robin Wigglesworth

Albert Einstein, algorithmic trading, asset allocation, Bear Stearns, behavioural economics, Benoit Mandelbrot, Big Tech, Black Monday: stock market crash in 1987, Blitzscaling, Brownian motion, buy and hold, California gold rush, capital asset pricing model, Carl Icahn, cloud computing, commoditize, coronavirus, corporate governance, corporate raider, COVID-19, data science, diversification, diversified portfolio, Donald Trump, Elon Musk, Eugene Fama: efficient market hypothesis, fear index, financial engineering, fixed income, Glass-Steagall Act, Henri Poincaré, index fund, industrial robot, invention of the wheel, Japanese asset price bubble, Jeff Bezos, Johannes Kepler, John Bogle, John von Neumann, Kenneth Arrow, lockdown, Louis Bachelier, machine readable, money market fund, Myron Scholes, New Journalism, passive investing, Paul Samuelson, Paul Volcker talking about ATMs, Performance of Mutual Funds in the Period, Peter Thiel, pre–internet, RAND corporation, random walk, risk-adjusted returns, road to serfdom, Robert Shiller, rolodex, seminal paper, Sharpe ratio, short selling, Silicon Valley, sovereign wealth fund, subprime mortgage crisis, the scientific method, transaction costs, uptick rule, Upton Sinclair, Vanguard fund

Of the 21,175 publicly registered US corporate bonds outstanding in 2018, only 246 of them traded at least once a day that year, according to research by Citigroup. But almost every corner of the fixed-income market is less actively traded than stocks. The worry among some skeptics is that a bond ETF struck with a spate of investor withdrawals might be unable to sell its holdings to meet them, and collapse. That could in turn spark fears over fixed-income ETFs at large, leading to a frenzied rush for the exit that triggers a broader bond market collapse. These fears rose like a specter at the depths of the COVID-19 crisis in March 2020, when the prices of many bond ETFs careened lower, opening up sizable discounts to the theoretical value of their holdings.

Matthew Goldstein and Alexandra Stevenson, “Carl Icahn Calls BlackRock a ‘Very Dangerous Company,’ ” New York Times, July 15, 2015. 10. Joe Rennison, “How the Fed Helped Bond ETFs Meet Their Biggest Challenge,” Financial Times, March 26, 2020. 11. Robin Wigglesworth, “All That Drama About Fixed-Income ETFs Was Overplayed,” Financial Times, April 22, 2020. 12. Rohan Arora, Sebastien Betermier, Guillaume Ouellet Leblanc, Adriano Palumbo, and Ryan Shotlander, “Concentration in the Market of Authorized Participants of US Fixed-Income Exchange-Traded Funds,” Bank of Canada, November 2020. 13. Anadu, Kruttli, McCabe, Osambela, and Shin, “The Shift from Active to Passive Investing.” 14. Robin Wigglesworth, Owen Walker, and Josephine Cumbo, “UK Universities Pension Fund Closes Stockpicking Team,” Financial Times, February 13, 2020. 15.

“That decision was significant, because it set in motion the possibility that Vanguard would be restructuring itself and making its own decisions,” according to Phil Fina, one of Vanguard’s attorney’s at the time.26 Indeed, Bogle’s next gambit was to seize the final, third piece of the loaf of investment management. In 1980, the Vanguard board was discussing stripping Citi of its mandate to manage Warwick due to its poor performance. Pouncing on the opportunity, Bogle proposed that Vanguard set up its own internal fixed-income group that would manage both the municipal bond funds and also the money market funds managed by Wellington Management Company. After all, Vanguard’s at-cost business model made it perfect for the task of managing lower-returning, steadier income funds like that at a much lower cost to investors, he reasoned.27 By this time, Doran and Thorndike had both left the board, and in September 1980 the directors almost unanimously blessed the proposal.* Finally, Vanguard was no longer a mere clerical outfit, a symbolic sop by a sympathetic board to an ousted chief executive, but a full-service investment company in its own right.


pages: 419 words: 130,627

Last Man Standing: The Ascent of Jamie Dimon and JPMorgan Chase by Duff McDonald

"World Economic Forum" Davos, Alan Greenspan, AOL-Time Warner, bank run, Bear Stearns, Blythe Masters, Bonfire of the Vanities, book value, business logic, centralized clearinghouse, collateralized debt obligation, conceptual framework, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Exxon Valdez, financial innovation, fixed income, G4S, Glass-Steagall Act, Greenspan put, housing crisis, interest rate swap, Jeff Bezos, John Meriwether, junk bonds, Kickstarter, laissez-faire capitalism, Long Term Capital Management, margin call, market bubble, Michael Milken, money market fund, moral hazard, negative equity, Nelson Mandela, Northern Rock, profit motive, proprietary trading, Renaissance Technologies, risk/return, Rod Stewart played at Stephen Schwarzman birthday party, Saturday Night Live, sovereign wealth fund, statistical model, Steve Ballmer, Steve Jobs, technology bubble, The Chicago School, too big to fail, Vanguard fund, zero-coupon bond, zero-sum game

Salomon’s equity risk arbitrage unit suffered a loss of $100 million betting that British Telecommunications would purchase MCI Communications. Steve Black disbanded the group, but the firm’s much larger fixed income arbitrage group remained intact. Although the losses only intensified Dimon’s distaste for Maughan and the whole Salomon culture, the two men briefly found common cause, in a surprising situation. They combined to block another attempt at inappropriate nepotism by Weill. Just as Weill had argued in 1996 for his daughter’s advancement against Dimon’s wishes, in early 1998 he pushed to have his son Marc, then 41, placed in charge of the firm’s fixed income arbitrage group. Dimon and Maughan were united in their conviction that the division was a potential powder keg in the wrong hands—and that Marc Weill’s were definitely the wrong hands.

(Contrary to the image of Dimon as a perpetual cost-cutter, at the same time that he was reeling in the fixed income derivatives exposure, he was aggressively investing in building out Salomon Smith Barney’s equity derivatives business. According to Bob DiFazio, cohead of the company’s equities business, the business went from virtually zero revenues in the beginning of 1998 to a $400 million annual run rate shortly thereafter. Though Dimon wasn’t around to enjoy the fruits of his labor, the unit was up to a $1 billion run rate by late 1999.) The unwinding of the fixed income unit’s positions contributed to the market’s instability that summer, especially at Long-Term Capital Management (LTCM), which, having been founded by Salomon veterans, had on its books many of the same positions that Salomon was now vigorously selling.

Jay Light noticed the same thing that Mike Ingrisani had at Browning—Dimon had a powerful independent streak, and often a different grasp of what a manager’s priorities should be in case studies. He bore down on fundamental issues such as expense strategy and risk management. One day, in a class discussion of various fixed income investments, Light challenged Dimon on the concept of investing in a long-term zero coupon bond that nevertheless had a 15 percent yield-to-maturity. (In other words, although the bond offered no annual interest payments, it was selling at a price that would offer a 15 percent annualized return at maturity.)


pages: 345 words: 87,745

The Power of Passive Investing: More Wealth With Less Work by Richard A. Ferri

Alan Greenspan, asset allocation, backtesting, Benchmark Capital, Bernie Madoff, book value, buy and hold, capital asset pricing model, cognitive dissonance, correlation coefficient, currency risk, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, endowment effect, estate planning, Eugene Fama: efficient market hypothesis, fixed income, implied volatility, index fund, intangible asset, John Bogle, junk bonds, Long Term Capital Management, money market fund, passive investing, Paul Samuelson, Performance of Mutual Funds in the Period, Ponzi scheme, prediction markets, proprietary trading, prudent man rule, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Sharpe ratio, survivorship bias, Tax Reform Act of 1986, too big to fail, transaction costs, Vanguard fund, yield curve, zero-sum game

Revisiting SPIVA Performance Studies Chapter 4 introduced the Standard & Poor’s Indices Versus Active (SPIVA) report. This study tracks one-, three-, and five-year active mutual fund performance across several different asset classes and is derived from a survivorship-bias-free database. The semiannual SPIVA report includes U.S. equity, U.S. real estate, U.S. fixed income, international equity, emerging markets equity, and international fixed income. The SPIVA report constantly reminds us that indexing has had remarkable success in all asset classes and style sectors over the years, albeit with varying results over different time periods. Over the long-term, index funds outperform the average active fund in every asset class, sector, and style.

Contents Foreword Preface Acknowledgments Part I: The Active Versus Passive Debate Chapter 1: Framing the Debate In the Beginning, There Were Active Funds Passive Investing Makes Its Case All about Indexes and Benchmarks The Portfolio Management Debate Summary Chapter 2: Early Performance Studies Cowles Commission Report The Quiet Period The Rise of Mutual Funds The Roaring 60s Summary Chapter 3: The Birth of Index Funds The First Indexed Portfolios The First Index Fund Summary Chapter 4: Advances in Fund Analysis The Early Years in Review Building on Success The Three Factor Model Three-Factor Analysis for Everyone Four-Factor Models and Beyond Does Anyone have Skill? Summary Chapter 5: Passive Choices Expand The Growth of Indexing The First Fixed Income Index Fund International Equity Index Funds Real Estate Investment Trusts U.S. Small Cap Revisiting SPIVA Performance Studies Active Management Invades Indexing Summary Chapter 6: Portfolios of Mutual Funds Efficient Portfolios Portfolio Choices The Bottom Line Is Your Bottom Line Summary Part II: Chasing Alpha and Changing Behavior Chapter 7: The Futility of Seeking Alpha All That’s Needed Is a Crystal Ball Past Performance as a Way to Predict Future Returns Fund Expenses as a Predictor of Top Performance Ratings as a Predictor of Top Performance Qualitative Factors as a Predictor of Top performance Summary Chapter 8: Active and Passive Asset Allocation Tactical Versus Strategic Mutual Fund Flows Show Bad Timing Measuring the Timing Gap Dumb Money versus Smart Money Putting It All Together Summary Chapter 9: Changing Investor Behavior Helping People Go Passive Three Non-Indexers Investing Is Serious Business Summary Part III: The Case for Passive Investing Chapter 10: The Passive Management Process The Five Step Process Investment Policy Statements Summary Chapter 11: The Passive Case for Individual Investors Begin at the End Estimating Future Obligations The Asset Side Matching Assets to Obligations Asset Allocation Risk!

It was an innovative idea that’s now widely read by investors and advisors, and results in interesting media commentary from believers in active investing and passive investing. The SPIVA scorecard compares the quarterly performance data of more than 3,500 actively managed mutual funds covering U.S. equities, international equities, and fixed income funds to their appropriate market benchmarks. The analysis includes size, style, and sector indices. This methodology is designed to provide an accurate and objective apples to apples comparison. The U.S. equity funds are segregated into 13 different categories including large cap, mid cap, and small cap indices.


pages: 374 words: 114,600

The Quants by Scott Patterson

Alan Greenspan, Albert Einstein, AOL-Time Warner, asset allocation, automated trading system, Bear Stearns, beat the dealer, Benoit Mandelbrot, Bernie Madoff, Bernie Sanders, Black Monday: stock market crash in 1987, Black Swan, Black-Scholes formula, Blythe Masters, Bonfire of the Vanities, book value, Brownian motion, buttonwood tree, buy and hold, buy low sell high, capital asset pricing model, Carl Icahn, centralized clearinghouse, Claude Shannon: information theory, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computerized trading, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, Doomsday Clock, Dr. Strangelove, Edward Thorp, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial engineering, Financial Modelers Manifesto, fixed income, Glass-Steagall Act, global macro, Gordon Gekko, greed is good, Haight Ashbury, I will remember that I didn’t make the world, and it doesn’t satisfy my equations, index fund, invention of the telegraph, invisible hand, Isaac Newton, Jim Simons, job automation, John Meriwether, John Nash: game theory, junk bonds, Kickstarter, law of one price, Long Term Capital Management, Louis Bachelier, low interest rates, mandelbrot fractal, margin call, Mark Spitznagel, merger arbitrage, Michael Milken, military-industrial complex, money market fund, Myron Scholes, NetJets, new economy, offshore financial centre, old-boy network, Paul Lévy, Paul Samuelson, Ponzi scheme, proprietary trading, quantitative hedge fund, quantitative trading / quantitative finance, race to the bottom, random walk, Renaissance Technologies, risk-adjusted returns, Robert Mercer, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Savings and loan crisis, Sergey Aleynikov, short selling, short squeeze, South Sea Bubble, speech recognition, statistical arbitrage, The Chicago School, The Great Moderation, The Predators' Ball, too big to fail, transaction costs, value at risk, volatility smile, yield curve, éminence grise

He was simply thrilled that he could write his dissertation and graduate. The money would come soon enough. In 1992, as Asness buckled down on his dissertation on momentum, he received an offer to work in the fixed-income group at Goldman Sachs. A small but growing division at Goldman, called Goldman Sachs Asset Management, was reaching out to bright young academics to build what would become one of the most formidable brain trusts on Wall Street. Asness’s first real job at Goldman was building fixed-income models and trading mortgage-backed securities. Meanwhile, he spent nights and weekends toiling away at his dissertation and thinking hard about a choice he’d have to make: whether to stay in academia or pursue riches on Wall Street.

Meriwether and his merry band of quants had been so successful, first at Salomon Brothers and then at LTCM, that bond trading desks across Wall Street, from Goldman Sachs to Lehman Brothers to Bear Stearns, were doing their level best to imitate their strategies. That ultimately spelled doom for LTCM, known by many as Salomon North. The first blow was a mere mosquito bite that LTCM barely felt. Salomon Brothers’ fixed-income arbitrage desk had been ordered to shut down by its new masters, Travelers Group, which didn’t like the risk they were taking on. As Salomon began to unwind its positions—often the very same positions held by LTCM—Meriwether’s arbitrage trades started to sour. It set off a cascade as computer models at firms with similar positions, alerted to trouble, spat out more sell orders.

The more Asness thought about it, the more it seemed like a bad idea. Then he met a man with the ideal set of skills to help launch a hedge fund: David Kabiller. David Kabiller had been something of a wanderer among Goldman’s ranks since he’d joined the bank in a summer training program in 1986. He’d worked in fixed income, equities, and pension services. He first met Asness as a liaison between institutional investors and GSAM, which managed money for outside clients in addition to running proprietary funds for Goldman itself. Kabiller, who’s something of a mix between a Wall Street financier and car salesman, was quick to notice that Global Alpha was raking in money.


pages: 179 words: 42,081

DeFi and the Future of Finance by Campbell R. Harvey, Ashwin Ramachandran, Joey Santoro, Vitalik Buterin, Fred Ehrsam

activist fund / activist shareholder / activist investor, bank run, barriers to entry, bitcoin, blockchain, collateralized debt obligation, crowdsourcing, cryptocurrency, David Graeber, Ethereum, ethereum blockchain, fault tolerance, fiat currency, fixed income, Future Shock, initial coin offering, Jane Street, margin call, money: store of value / unit of account / medium of exchange, Network effects, non-fungible token, passive income, peer-to-peer, prediction markets, rent-seeking, RFID, risk tolerance, Robinhood: mobile stock trading app, Satoshi Nakamoto, seigniorage, smart contracts, transaction costs, Vitalik Buterin, yield curve, zero-coupon bond

It can be tightly integrated with other protocols like MakerDAO and Compound to create robust interest-bearing applications for investors. Demand for fixed income components will grow as mainstream investors begin adopting DeFi with portfolios in need of these types of assets (Table 6.5). Table 6.5 Problems That the Yield Protocol Solves Traditional Finance Problem Yield Solution Centralized control: Fixed income instruments largely restricted to governments and large corporations. Yield protocol is open to parties of any size. Limited access: Many investors have limited access to buy or sell sophisticated fixed income investments. Yield allows all market participants to buy or sell a fixed income asset that settles in a target asset of their choosing.

Yield allows all market participants to buy or sell a fixed income asset that settles in a target asset of their choosing. Inefficiency: Fixed income rates are lower due to layers of fat in traditional finance. Lean infrastructure running on Ethereum allows for more competitive rates and diverse liquidity pools due to the elimination of middlemen. Lack of interoperability: Fixed income instruments generally settle in cash that the investor must determine how to allocate. yTokens can settle in any Ethereum target asset and even settle synthetically into a floating-rate lending protocol to preserve returns. Opacity: Risk and uncertainty of counterparty in traditional agreements.


pages: 621 words: 123,678

Financial Freedom: A Proven Path to All the Money You Will Ever Need by Grant Sabatier

8-hour work day, Airbnb, anti-work, antiwork, asset allocation, bitcoin, buy and hold, cryptocurrency, diversified portfolio, Donald Trump, drop ship, financial independence, fixed income, follow your passion, full employment, Home mortgage interest deduction, index fund, lifestyle creep, loss aversion, low interest rates, Lyft, money market fund, mortgage debt, mortgage tax deduction, passive income, remote working, ride hailing / ride sharing, risk tolerance, robo advisor, side hustle, Skype, solopreneur, stocks for the long run, stocks for the long term, TaskRabbit, the rule of 72, time value of money, uber lyft, Vanguard fund

If you are going to need to withdraw money from your investments to cover your expenses, you’ll likely want to shift your investments to a more conservative stock/bond allocation so you can rely on bonds or some other type of fixed-income asset. A common asset allocation for early retirees is 60 percent stocks/40 percent bonds or 40 percent stocks/60 percent bonds. These allocations both allow you to participate in stock market growth over time but have fixed income from bonds that you can withdraw and live on. With a more conservative allocation, if you are living off fixed-income assets you can leave your stock investments alone and let them keep growing and compounding. Although other early retirees who can withdraw less than 3 to 4 percent of their portfolio to cover their monthly expenses leave their money in 100 percent stocks to maximize its long-term growth potential, it’s up to you to determine the level of risk you are willing to take and if you would prefer to live off fixed guaranteed income.

You can also minimize the sequence-of-returns risk with the right withdrawal strategy, which might include moving some of your investments into fixed income (bonds) that you can live off during your first five to ten years of retirement, while leaving the rest of your money in stocks to continue growing. This way you would guarantee income that’s not impacted by the performance of the stock market. You should try to live off cash and your fixed-income investments and supplement them with your stock market withdrawals; this way you are always keeping as much money growing in the stock market during both down years and up years. During the years when the stock market is down, you should live off your fixed income and cash, and when it’s up, you can live off your stock returns if you need more money.

No matter what happens in the stock market, their investments are set up to generate between $30,000 and $40,000 in dividends and fixed income while maintaining their investment principal. They prefer the security over the growth potential, but since they do have 60 percent invested in stocks, they can still participate in the gains as the stock market goes up, just at a lower rate than Brandon or I do. J. P., who reached financial independence at twenty-eight, is also conservative, but not as much as Kristy and Bryce. She has about 70 percent of her portfolio in stocks and 30 percent in bonds/fixed income. On the facing page is a chart of asset allocation recommendations based on your age and years to retirement.


pages: 272 words: 19,172

Hedge Fund Market Wizards by Jack D. Schwager

asset-backed security, backtesting, banking crisis, barriers to entry, Bear Stearns, beat the dealer, Bernie Madoff, Black-Scholes formula, book value, British Empire, business cycle, buy and hold, buy the rumour, sell the news, Claude Shannon: information theory, clean tech, cloud computing, collateralized debt obligation, commodity trading advisor, computerized trading, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, delta neutral, diversification, diversified portfolio, do what you love, Edward Thorp, family office, financial independence, fixed income, Flash crash, global macro, hindsight bias, implied volatility, index fund, intangible asset, James Dyson, Jones Act, legacy carrier, Long Term Capital Management, managed futures, margin call, market bubble, market fundamentalism, Market Wizards by Jack D. Schwager, merger arbitrage, Michael Milken, money market fund, oil shock, pattern recognition, pets.com, Ponzi scheme, private sector deleveraging, proprietary trading, quantitative easing, quantitative trading / quantitative finance, Reminiscences of a Stock Operator, Right to Buy, risk free rate, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Rubik’s Cube, Savings and loan crisis, Sharpe ratio, short selling, statistical arbitrage, Steve Jobs, systematic trading, technology bubble, transaction costs, value at risk, yield curve

I thought that economic conditions couldn’t get any better. 5 Anyone who had a pulse had a job, equity markets were at their highs, and yet we were not generating any inflation. If we were not generating inflation under those conditions, then what would happen if we started to slow at the margins? I was so focused on the long fixed-income trade that for the first three or four years of the fund, probably two-thirds of the trades were in fixed-income. Was it the topping of the equity market in early 2000 that got you long in fixed-income? The break in equities was definitely the catalyst for the fixed-income trade, but the trade was going to happen anyway. I use the fundamentals to have a directional bias, and I use the technicals to confirm that bias. Once I had the catalyst, I could say that yields should never again see their previous high.

We watched the markets very carefully, and in early 2008, I transferred a vast proportion of the firm’s money into two-year treasury notes. I got rid of all the money market funds. I put all the traders into a wind down of counterparty exposure. We dumped outright exposure to every bank possible and went maximum long fixed income. The systematic trend-following strategy was consistently moving into a similar position. It started reversing from long to short in equities and commodities and going hugely long in fixed income. Again, it was all the same trade, wasn’t it? So when the market meltdown hit later in 2008, you were positioned perfectly. In 2008, BlueCrest made the most amount of money for its investors in its history up to that point.

No, I didn’t because the repercussions of the top were a lot easier to play than being short the Nasdaq itself. You had a broad bubble in assets. The U.S. economy had been built up by a massive mispricing of assets. Once the Nasdaq burst and everything unraveled, it was clear the economy would slow down. The economic downturn led to a big move in fixed income that provided a much calmer way to play that idea than a direct trade in equities. So rather than consider the short side of the Nasdaq, you traded the long side of the bonds. That’s right. Are there any current examples of markets that are in euphoria-driven states that are running counter to fundamentals?


pages: 345 words: 100,989

The Pyramid of Lies: Lex Greensill and the Billion-Dollar Scandal by Duncan Mavin

"World Economic Forum" Davos, activist fund / activist shareholder / activist investor, Adam Neumann (WeWork), air freight, banking crisis, Bernie Madoff, Big Tech, Boeing 737 MAX, Boris Johnson, Brexit referendum, British Empire, carbon footprint, coronavirus, corporate governance, COVID-19, Credit Default Swap, democratizing finance, Donald Trump, Eyjafjallajökull, financial engineering, fixed income, global pandemic, global supply chain, Gordon Gekko, Greensill Capital, high net worth, Kickstarter, lockdown, Long Term Capital Management, low interest rates, Masayoshi Son, means of production, Menlo Park, mittelstand, move fast and break things, NetJets, Network effects, Ponzi scheme, private military company, proprietary trading, remote working, rewilding, Rishi Sunak, rolodex, Silicon Valley, skunkworks, SoftBank, sovereign wealth fund, supply chain finance, Tim Haywood, Vision Fund, WeWork, work culture

The high achievers who’d made the cut were put on a strict rotation, spending a few weeks in one department of the bank before being rolled onto another and then another. Lex instead managed to persuade his new bosses to let him work exclusively in a single business unit – the fixed income division, which consisted of a couple of hundred people on the lower floors of Morgan Stanley’s Canary Wharf headquarters. He also got the Morgan Stanley chiefs to agree to let him focus entirely on building up the firm’s trade finance programme. Most of Lex’s new colleagues in fixed income had never heard of supply chain finance. It sounded interesting and small enough to be a very low risk. Senior executives saw it as a kind of low-risk research and development experiment and decided to let the young Australian upstart run with his own project, beavering away with minimal supervision.

At ANZ, Sheard worked on the fixed income team that invests in government and corporate bonds and similar financial instruments. Haywood was in equities. They occasionally swapped information about interest rates. After ANZ, each went his own separate way for a few years. Sheard stayed in London. In the early 1990s, his career stumbled when he was censured by regulators for mispricing some investments. It was an embarrassing public chastening for Sheard early in his career and left a blemish on his reputation. Haywood left London and began to specialize in fixed income too. His work took him to Hong Kong before, eventually, he returned to the City to a role at the Swiss bank Julius Baer.

He wanted to know how the software worked. He wanted to know how TReFS would be accounted for. He was no whizz with computing or software but, compared to most colleagues, he was like a tech visionary in the stuffy Wall Street bank. The TReFS team sat in a glass office, at one end of a huge floor dedicated to fixed income. Outside, the trading desks were buzzing with row after row of bankers working on mortgage-backed securities and other complicated investments – the alphabet soup of derivatives with acronyms like CDOs and ABCP that blew up when the financial crisis roiled the global economy and sent the financial sector into a tailspin.


pages: 199 words: 48,162

Capital Allocators: How the World’s Elite Money Managers Lead and Invest by Ted Seides

Albert Einstein, asset allocation, behavioural economics, business cycle, coronavirus, COVID-19, crowdsourcing, data science, deliberate practice, diversification, Everything should be made as simple as possible, fake news, family office, fixed income, high net worth, hindsight bias, impact investing, implied volatility, impulse control, index fund, Kaizen: continuous improvement, Lean Startup, loss aversion, Paradox of Choice, passive investing, Ralph Waldo Emerson, risk tolerance, Sharpe ratio, sovereign wealth fund, tail risk, The Wisdom of Crowds, Toyota Production System, zero-sum game

The team occasionally invests directly in securities or deals, and more frequently allocates capital to the products run by money managers. Money managers often specialize in one style of investing. For example, Andreessen Horowitz, or a16z (Scott Kupor – Capital Allocators, First Meeting episode 7), is a leading venture capital firm and Wellington Management (Jean Hynes – episode 82) is best known for public equity and fixed income management. Others are intermediaries, like Outsourced Chief Investment Officer (OCIO) Hirtle Callaghan (Jon Hirtle – episode 98), who raise capital from end owners and invest it in money management products. There are so many specialized, well-resourced money managers in different strategies around the world that one sensible investment approach for CIOs is to identify the best of them across each area of expertise.

At Hostplus, Sam Sicilia oversees a pool of capital that will have inflows for decades before a single Aussie dollar trickles out. His investment philosophy focuses on growing the capital without concern for interim liquidity needs. Corporate and public pension funds seek to meet the needs of retirees. Their fixed liability streams with finite duration leads to matching liabilities with fixed income assets. Individuals define their own purpose for the capital they have accumulated. When it comes to investing, Josh Brown of Ritholtz Wealth Management believes that less is more. People who come wanting the bells and whistles of an institutional portfolio within the first conversation get weeded out as prospects.

Each component is a multi-step process. Sourcing managers A well-defined investment philosophy and strategy helps allocators narrow the massive universe of potential investments. According to data gathered by NEPC, active managers oversee approximately 3,850 funds in U.S. equities, 5,100 in international equities, 4,800 in fixed income, 2,300 in balanced strategies, and 8,000 hedge funds. Add roughly 3,200 private equity managers, 5,400 in venture capital, 1,200 in real estate, and 400 in infrastructure, and the investable universe for allocators to consider totals at least 34,250 funds. The binding constraint on reviewing opportunities is time.


The Trade Lifecycle: Behind the Scenes of the Trading Process (The Wiley Finance Series) by Robert P. Baker

asset-backed security, bank run, banking crisis, Basel III, Black-Scholes formula, book value, Brownian motion, business continuity plan, business logic, business process, collapse of Lehman Brothers, corporate governance, credit crunch, Credit Default Swap, diversification, financial engineering, fixed income, functional programming, global macro, hiring and firing, implied volatility, interest rate derivative, interest rate swap, locking in a profit, London Interbank Offered Rate, low interest rates, margin call, market clearing, millennium bug, place-making, prediction markets, proprietary trading, short selling, statistical model, stochastic process, the market place, the payments system, time value of money, too big to fail, transaction costs, value at risk, Wiener process, yield curve, zero-coupon bond

To overcome this problem, companies issue bonds. Purchasers of bonds pay capital to the company, which is repaid to them at the end of the period (term) of the bond. The lenders are rewarded by receiving interest in the form of coupons, in most cases throughout the term of the bond. Fixed income is another name for the asset class comprising of bonds. The term fixed income is used because, once a bond is issued, the expected income is known. This contrasts with equities, where dividend payments are unknown. Another difference with equities is that bonds have a termination date. A further distinction is that many bonds are issued by governments wishing to raise finance, whereas all equities are corporate.

Buying shares is intrinsically the same as buying aluminium, sovereign bonds or purchasing dollars in exchange for euros. However, since the people and trading environments of each of these trades are very different, we generally group them into different asset classes. (The examples above corresponding to equities, commodity, fixed income and foreign exchange (FX)). The processes for dealing with each of these trades will normally depend on the asset class rather than the product itself. As we have seen, some products exist in more than one asset class. Every asset class has a suite of possible products. A financial institution organises its traders, sales staff, middle office and controllers around each asset class rather than around each product.

Examples of spot trades in various asset classes are: Commodity: We buy 1m troy ounces of Gold from Commerzbank at USD 1000 per troy ounce. Equity: We buy 10,000 Ford Motor Company shares from BNP Paribas at USD 17.32 per share. FX: We buy 10m Swiss Francs from RBS at exchange rate of 1.118142 francs per US dollar. Fixed income: We buy 5m IBM Bonds from Chase Manhattan at 92.88 cents per bond. Note that when purchasing an equity or a bond, we have settled outright with the counterparty (BNP Paribas or Chase Manhattan in the examples above) so they have no further financial responsibility or liability, but we now own an active financial instrument and will need to manage it in order to draw dividends or coupons in the future from the issuer (Ford Motor Company or IBM respectively).


pages: 566 words: 155,428

After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead by Alan S. Blinder

Affordable Care Act / Obamacare, Alan Greenspan, asset-backed security, bank run, banking crisis, banks create money, Bear Stearns, book value, break the buck, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, conceptual framework, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, Detroit bankruptcy, diversification, double entry bookkeeping, eurozone crisis, facts on the ground, financial engineering, financial innovation, fixed income, friendly fire, full employment, Glass-Steagall Act, hiring and firing, housing crisis, Hyman Minsky, illegal immigration, inflation targeting, interest rate swap, Isaac Newton, junk bonds, Kenneth Rogoff, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low interest rates, market bubble, market clearing, market fundamentalism, McMansion, Minsky moment, money market fund, moral hazard, naked short selling, new economy, Nick Leeson, Northern Rock, Occupy movement, offshore financial centre, Paul Volcker talking about ATMs, price mechanism, proprietary trading, quantitative easing, Ralph Waldo Emerson, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, shareholder value, short selling, South Sea Bubble, statistical model, the payments system, time value of money, too big to fail, vertical integration, working-age population, yield curve, Yogi Berra

Just as the fundamentals for, say, stocks and houses are often improving as a bubble inflates, the same is true of bonds and other fixed-income securities. During prosperous times, default rates drop to very low levels. Investors then deduce that rational interest-rate spreads over Treasuries—just enough to compensate lenders for the default risks they bear—should also drop to very low levels. The trouble is, how low is low? Markets sometimes get carried away. DEFAULT RISK AND INTEREST-RATE SPREADS One key respect in which fixed-income securities differ is their risk of default. There is no such risk on U.S. government securities.

It was the kind of thinking that led to the bond-market bubble. As investors shifted out of Treasuries into riskier fixed-income securities—whether Columbian government bonds or MBS backed by subprime mortgages—those riskier securities were bid up in price, and hence down in yield. You had to pay more to buy the same stream of interest payments. So what was once, say, a 150-basis-point reward for bearing more risk became a 100-basis-point reward, or maybe just a 50-basis-point reward. Investors’ response to dwindling yields on fixed-income securities was to try to magnify their yields by going for more leverage—which is the second item on my list of villains.

The rating agencies had called Bear’s creditworthiness into question. Several notable counterparties, including Citigroup and JP Morgan Chase, had pulled away from it. Warren Spector, Bear’s top expert on the firm’s exotic fixed-income positions, had been purged, leaving Schwartz, an investment banker who was gamely trying to acquire bond-market expertise in a hurry, in charge. But as one of Bear’s top fixed-income executives put it, his crash course “was like Bonds 101.” On Monday, March 10, 2008, rumors—vigorously denied by the company—began to circulate that Bear Stearns was experiencing liquidity problems. Other rumors held that one or more of its Wall Street rivals was spreading the rumors—it’s a tough crowd.


pages: 265 words: 93,231

The Big Short: Inside the Doomsday Machine by Michael Lewis

Alan Greenspan, An Inconvenient Truth, Asperger Syndrome, asset-backed security, Bear Stearns, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, diversified portfolio, facts on the ground, financial engineering, financial innovation, fixed income, forensic accounting, Gordon Gekko, high net worth, housing crisis, illegal immigration, income inequality, index fund, interest rate swap, John Meriwether, junk bonds, London Interbank Offered Rate, Long Term Capital Management, low interest rates, medical residency, Michael Milken, money market fund, moral hazard, mortgage debt, pets.com, Ponzi scheme, Potemkin village, proprietary trading, quantitative trading / quantitative finance, Quicken Loans, risk free rate, Robert Bork, short selling, Silicon Valley, tail risk, the new new thing, too big to fail, value at risk, Vanguard fund, zero-sum game

The subprime mortgage market in its current incarnation never had done anything but rise. The people in it who were regarded as successes were those who had always said "buy." Now they should really all be saying "sell," but they didn't know how to do it. "You always knew that fixed income guys thought they knew more than you did," said Eisman, "and generally that was true. I wasn't a fixed income guy, but here I'd taken this position that was a bet against their whole industry, and I wanted to know if they know something I don't. Could it really be this obvious? Could it really be this simple?" He entered private meetings with the lenders and the bankers and the rating agencies probing for an intelligence he had yet to detect.

The original cast of subprime financiers had been sunk by the small fraction of the loans they made that they had kept on their books. The market might have learned a simple lesson: Don't make loans to people who can't repay them. Instead it learned a complicated one: You can keep on making these loans, just don't keep them on your books. Make the loans, then sell them off to the fixed income departments of big Wall Street investment banks, which will in turn package them into bonds and sell them to investors. Long Beach Savings was the first existing bank to adopt what was called the "originate and sell" model. This proved such a hit--Wall Street would buy your loans, even if you would not!

In the fog of the first eighteen months of running his own business, Eisman had an epiphany, an identifiable moment when he realized he'd been missing something obvious. Here he was, trying to figure out which stocks to pick, but the fate of the stocks depended increasingly on the bonds. As the subprime mortgage market grew, every financial company was, one way or another, exposed to it. "The fixed income world dwarfs the equity world," he said. "The equity world is like a fucking zit compared to the bond market." Just about every major Wall Street investment bank was effectively run by its bond departments. In most cases--Dick Fuld at Lehman Brothers, John Mack at Morgan Stanley, Jimmy Cayne at Bear Stearns--the CEO was a former bond guy.


pages: 413 words: 117,782

What Happened to Goldman Sachs: An Insider's Story of Organizational Drift and Its Unintended Consequences by Steven G. Mandis

activist fund / activist shareholder / activist investor, algorithmic trading, Bear Stearns, Berlin Wall, Bob Litterman, bonus culture, book value, BRICs, business process, buy and hold, Carl Icahn, collapse of Lehman Brothers, collateralized debt obligation, commoditize, complexity theory, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, disintermediation, diversification, eat what you kill, Emanuel Derman, financial innovation, fixed income, friendly fire, Glass-Steagall Act, Goldman Sachs: Vampire Squid, high net worth, housing crisis, junk bonds, London Whale, Long Term Capital Management, merger arbitrage, Myron Scholes, new economy, passive investing, performance metric, proprietary trading, radical decentralization, risk tolerance, Ronald Reagan, Saturday Night Live, Satyajit Das, shareholder value, short selling, sovereign wealth fund, subprime mortgage crisis, systems thinking, The Nature of the Firm, too big to fail, value at risk

Then I returned to M&A, rising to the head of the hostile raid defense business (defending a company from unsolicited take-overs—one of the cornerstones of Goldman’s M&A brand and reputation) and becoming business unit manager of the M&A department. Finally, I ended up as a proprietary trader and ultimately portfolio manager in the fixed income, commodities, and currencies division (FICC)—similar to an internal hedge fund—managing Goldman’s own money. My rotations to a different geographic region and through different divisions were typical at the time for a certain percentage of selected employees in order to train people and unite the firm.

The resignations caused people to think more about themselves, their own interests, and their own personal ambitions—and materialism began to grow.16 With Friedman’s sudden resignation and no succession plan, a fierce power struggle ensued, increasing the instability and prompting personal reflection. Corzine, a trader in the FICC department who also had a CFO-type role (which at the time was typically the head of fixed income and chief risk allocator), aggressively announced to the management committee that he wanted to be senior partner (and be given the title of CEO) and for Paulson to be the number two, with the title of COO. In recent memory there had always been co-head senior partners, reflecting a culture of teamwork.

Morgan, respectively. Certain Goldman client-oriented sales and trading desks had “proprietary trading” operations. They got to see client order flow, but theoretically they existed to provide liquidity or “facilitate client trades.” This was prevalent in less liquid, more opaque products and desks, especially fixed-income securities like high-yield bonds, where it may not have been easy to immediately match a buyer and a seller. It was also prevalent in relatively lightly regulated markets such as foreign exchange. Generally, proprietary trading on client-oriented sales and trading desks was less frequent in highly transparent and highly regulated areas such as equities.


pages: 311 words: 99,699

Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe by Gillian Tett

"World Economic Forum" Davos, accounting loophole / creative accounting, Alan Greenspan, asset-backed security, bank run, banking crisis, Bear Stearns, Black-Scholes formula, Blythe Masters, book value, break the buck, Bretton Woods, business climate, business cycle, buy and hold, collateralized debt obligation, commoditize, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, easy for humans, difficult for computers, financial engineering, financial innovation, fixed income, Glass-Steagall Act, housing crisis, interest rate derivative, interest rate swap, inverted yield curve, junk bonds, Kickstarter, locking in a profit, Long Term Capital Management, low interest rates, McMansion, Michael Milken, money market fund, mortgage debt, North Sea oil, Northern Rock, Plato's cave, proprietary trading, Renaissance Technologies, risk free rate, risk tolerance, Robert Shiller, Satyajit Das, Savings and loan crisis, short selling, sovereign wealth fund, statistical model, tail risk, The Great Moderation, too big to fail, value at risk, yield curve

Second, in the autumn of 2005, the bank implemented a major review of its fixed-income business, hiring consultants from McKinsey and Oliver Wyman. On the advice of this review, the bank’s senior management decided to expand the securitization business. On paper, UBS did not seem well placed to make the move. Though the bank’s asset management group had already been investing in American mortgage products for several years, it did not have its own mortgage-lending operation. To make matters worse, when Costas created the new hedge fund, he took 120 of the bank’s staff with him, including many of the firm’s fixed-income specialists. However, that did not deter UBS’s senior management.

As business boomed, the swaps department basked in the knowledge that it was producing an ever-increasing share of the bank’s profits. By the early 1990s, it accounted for almost half the bank’s trading revenues, and Hancock had been promoted to run not just the derivatives group but also the entire department it was part of, known as fixed income. He was considered a prime candidate for CEO. A few months before the Boca off-site, a reporter from Fortune asked Hancock to explain how a complicated swap might work, and his response reaffirmed for her that derivatives traders were “like the spacecraft Galileo, heading for planet Jupiter.” “It would be something,” Hancock apparently said, “in which you get beyond binary risk and into a combination of risks, such as interest rates and currencies.

It was becoming increasingly clear—just as Hancock and Demchak had long complained—that the bank’s level of profitability was lagging behind its rivals’, and these losses were a body blow. Warner decided to throw his weight behind the value of credit derivatives business. He gave Hancock responsibility for managing not just the fixed-income business, but the commercial lending department, too. That was a radical move for staid J.P. Morgan, since almost no other Western bank had ever tried to combine lending, bonds, and derivatives into a single group before. Then Hancock handed responsibility for managing the loan book to Demchak.


The Global Money Markets by Frank J. Fabozzi, Steven V. Mann, Moorad Choudhry

asset allocation, asset-backed security, bank run, Bear Stearns, Bretton Woods, buy and hold, collateralized debt obligation, credit crunch, currency risk, discounted cash flows, discrete time, disintermediation, Dutch auction, financial engineering, fixed income, Glass-Steagall Act, high net worth, intangible asset, interest rate derivative, interest rate swap, land bank, large denomination, locking in a profit, London Interbank Offered Rate, Long Term Capital Management, margin call, market fundamentalism, money market fund, moral hazard, mortgage debt, paper trading, Right to Buy, short selling, stocks for the long run, time value of money, value at risk, Y2K, yield curve, zero-coupon bond, zero-sum game

The Global money markets THE FRANK J. FABOZZI SERIES Fixed Income Securities, Second Edition by Frank J. Fabozzi Focus on Value: A Corporate and Investor Guide to Wealth Creation by James L. Grant and James A. Abate Handbook of Global Fixed Income Calculations by Dragomir Krgin Managing a Corporate Bond Portfolio by Leland E. Crabbe and Frank J. Fabozzi Real Options and Option-Embedded Securities by William T. Moore Capital Budgeting: Theory and Practice by Pamela P. Peterson and Frank J. Fabozzi The Exchange-Traded Funds Manual by Gary L. Gastineau Professional Perspectives on Fixed Income Portfolio Management, Volume 3 edited by Frank J.

See Long-Term Capital Management Statistical Release H.15, 35 tightening cycle, 42 320 Federal Reserve Bank of New York, 53 data collection, 68–69 Federal Reserve Banks, 28, 90 Federal Reserve Board, time deposits data series, 86 FGIC, 181 Finance companies, 2 Financial asset, 85 Financial information vendors, 69 Financial institutions, 2–4, 150, 161, 256, 258 debt obligations, 85 Financial market culture, differences, 3 Financial/global crises, 36 Financing rate, 113 First Chicago, 102 First Chicago NBD Corp., 102 First lien. See Properties Fitzgerald Securities, Inc., 34 Fix rate, 113 Fixed coupon bond, 234 Fixed-floating currency swap, 263 Fixed-income investments, 46 Fixed-income markets, 8 Fixed-rate assets, 283 Fixed-rate bond, 233 class, 161 Fixed-rate cash flow, 267 Fixed-rate closed-end HELs, 198 Fixed-rate debt, 82 market, 256 Fixed-rate gap, 293 Fixed-rate investors, 258 Fixed-rate issue, 105 Fixed-rate level-payment fully amortized mortgage, 152– 153, 158 Fixed-rate markets, 254 Fixed-rate payer, 230–232, 235– 238 benefits, 248 Fixed-rate payments, 236–237, 246–247.

Gastineau Professional Perspectives on Fixed Income Portfolio Management, Volume 3 edited by Frank J. Fabozzi Investing in Emerging Fixed Income Markets edited by Frank J. Fabozzi and Efstathia Pilarinu Handbook of Alternative Assets by Mark J. P. Anson The Exchange-Traded Funds Manual by Gary L. Gastineau The Handbook of Financial Instruments edited by Frank J. Fabozzi The Global money markets FRANK J. FABOZZI STEVEN V. MANN MOORAD CHOUDHRY John Wiley & Sons, Inc. FJF To my wife, Donna, and my children, Karly, Patricia, and Francesco SVM To my wife Mary and our daughters Meredith and Morgan. MC To Olga—like the wild cat of Scotland, both elusive and exclusive… The views, thoughts and opinions expressed in this book are those of the authors in their private capacity and should not be taken to be representative of any employing institution or named body.


pages: 354 words: 118,970

Transaction Man: The Rise of the Deal and the Decline of the American Dream by Nicholas Lemann

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, Abraham Maslow, Affordable Care Act / Obamacare, Airbnb, airline deregulation, Alan Greenspan, Albert Einstein, augmented reality, basic income, Bear Stearns, behavioural economics, Bernie Sanders, Black-Scholes formula, Blitzscaling, buy and hold, capital controls, Carl Icahn, computerized trading, Cornelius Vanderbilt, corporate governance, cryptocurrency, Daniel Kahneman / Amos Tversky, data science, deal flow, dematerialisation, diversified portfolio, Donald Trump, Elon Musk, Eugene Fama: efficient market hypothesis, Fairchild Semiconductor, financial deregulation, financial innovation, fixed income, future of work, George Akerlof, gig economy, Glass-Steagall Act, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, Ida Tarbell, index fund, information asymmetry, invisible hand, Irwin Jacobs, Joi Ito, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kickstarter, life extension, Long Term Capital Management, Mark Zuckerberg, Mary Meeker, mass immigration, means of production, Metcalfe’s law, Michael Milken, money market fund, Mont Pelerin Society, moral hazard, Myron Scholes, Neal Stephenson, new economy, Norman Mailer, obamacare, PalmPilot, Paul Samuelson, Performance of Mutual Funds in the Period, Peter Thiel, price mechanism, principal–agent problem, profit maximization, proprietary trading, prudent man rule, public intellectual, quantitative trading / quantitative finance, Ralph Nader, Richard Thaler, road to serfdom, Robert Bork, Robert Metcalfe, rolodex, Ronald Coase, Ronald Reagan, Sand Hill Road, Savings and loan crisis, shareholder value, short selling, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, Snow Crash, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, TaskRabbit, TED Talk, The Nature of the Firm, the payments system, the strength of weak ties, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, too big to fail, transaction costs, universal basic income, War on Poverty, white flight, working poor

This kind of trading could go on continuously, every hour of every day. Morgan Stanley set up a fixed-income department, headed by John Mack, an extroverted bond salesman from a small town in North Carolina. Mack was a protégé of Dick Fisher’s—his department operated on the trading floor that Fisher had set up—and was another member of the restless, younger, nontraditional generation at Morgan Stanley. His family had originally come from Lebanon and had worked as shopkeepers; Mack himself was exuberantly theatrical and incautious, preoccupied with keeping large blocks of securities moving smartly on and off the floor. Because fixed-income trading did not take place on public exchanges, the Morgan Stanley traders knew more than their buyers or the sellers about prices.

The firm’s job was not to make sure both parties were getting a fair price; it was to match buyers (who thought the sellers were underpricing) with sellers (who thought the buyers were overpaying). Fixed-income was another division that required the firm to buy large quantities of financial instruments, at least temporarily, either with its own capital—or, increasingly, with borrowed money. When Morgan Stanley itself was the buyer or the seller, its job was to take advantage of the party on the other side of the transaction. If, as the traders liked to say, you could rip their face off, tear their eyes out, blow them up, or whatever cock-of-the-walk metaphor was in favor that day, that meant you were doing your job. Before long, fixed-income was producing far more trading volume than stocks, at Morgan Stanley and in the markets generally.

So he decided to have a career in his family’s tradition, but in an untraditional way, seizing every opportunity to be aggressive in the mold of the unrestrained capitalists of the Gilded Age. He talked rapidly, joked, cajoled, prodded, trying to get the firm moving faster. His operation at Morgan Stanley required a sales force, which Morgan Stanley hadn’t had, and more trading capacity and additional capital. “Fixed income” is a Wall Street term that covers instruments that pay investors at a set rate—for example, a ten-year government bond that can be redeemed at the end of that time for the amount it cost, plus interest. The name connotes cautious, buy-and-hold investors, but as time went on, what it came to mean was almost completely different.


pages: 130 words: 11,880

Optimization Methods in Finance by Gerard Cornuejols, Reha Tutuncu

asset allocation, call centre, constrained optimization, correlation coefficient, diversification, financial engineering, finite state, fixed income, frictionless, frictionless market, index fund, linear programming, Long Term Capital Management, passive investing, Sharpe ratio, transaction costs, value at risk

We consider a universe of 5 asset classes: large cap growth stocks, large cap value stocks, small cap growth stocks, small cap value stocks, and fixed income securities. To represent each asset class, we use a monthly log-return time series of corresponding market indices: Russell 1000 growth and value indices for large cap stocks, Russell 2000 growth and value indices for small cap stocks, and Lehman Brothers US Intermediate Government/Credit Bond index for fixed income securities. Lehman Brothers U.S. Intermediate Government/Credit Bond Index is an unmanaged index generally representative of government and investment-grade corporate securities with maturities of 1-10 years.

Figure 7.1 depicts the standard efficient frontier obtained by using the 50 percentile values for expected returns and covariances as inputs and the composition of the portfolios on the efficient frontier. Lowest risk efficient portfolios are obtained, as expected, using the fixed income securities. As one moves along the efficient frontier toward the efficient portfolio with the highest expected return, fixed income securities are gradually replaced by a mixture of large-cap and small-cap value stocks. Close to the high-return end of the frontier, large-cap stocks are also phased out and one gets a portfolio consisting entirely of small cap value stocks.

How are they related to (5.2)?) 2. Implement the returns-based style analysis approach to determine the effective asset mix of your favorite mutual fund. Use the following asset classes as your “factors”: Large growth stocks, large value stocks, small growth stocks, small value stocks, international stocks, and fixed income investments. You should obtain time series of returns representing these asset classes from on-line resources. You should also obtain a corresponding time series of returns for the mutual fund you picked for this exercise. Solve the problem using 30 periods of data (i.e., T = 30). 3. Classification problems are among the important classes of problems in financial mathematics that can be solved using optimization models and techniques.


pages: 225 words: 11,355

Financial Market Meltdown: Everything You Need to Know to Understand and Survive the Global Credit Crisis by Kevin Mellyn

Alan Greenspan, asset-backed security, bank run, banking crisis, Bernie Madoff, bond market vigilante , bonus culture, Bretton Woods, business cycle, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, deal flow, disintermediation, diversification, fiat currency, financial deregulation, financial engineering, financial innovation, financial intermediation, fixed income, foreign exchange controls, Francis Fukuyama: the end of history, George Santayana, global reserve currency, Greenspan put, Home mortgage interest deduction, inverted yield curve, Isaac Newton, joint-stock company, junk bonds, Kickstarter, liquidity trap, London Interbank Offered Rate, long peace, low interest rates, margin call, market clearing, mass immigration, Money creation, money market fund, moral hazard, mortgage tax deduction, Nixon triggered the end of the Bretton Woods system, Northern Rock, offshore financial centre, paradox of thrift, pattern recognition, pension reform, pets.com, Phillips curve, plutocrats, Ponzi scheme, profit maximization, proprietary trading, pushing on a string, reserve currency, risk tolerance, risk-adjusted returns, road to serfdom, Ronald Reagan, shareholder value, Silicon Valley, South Sea Bubble, statistical model, Suez canal 1869, systems thinking, tail risk, The Great Moderation, the long tail, the new new thing, the payments system, too big to fail, value at risk, very high income, War on Poverty, We are all Keynesians now, Y2K, yield curve

The buyer of a bond has a need for future income and is willing to put up money for it today. So the bond buyer is really buying a series of fixed interest payments that The Financial Market Made Simple might continue for many years, and even in a few cases forever. That is why investment bankers call the bond business ‘‘fixed income.’’ The rate of interest is often referred to as the ‘‘coupon,’’ referring to the time when bonds were printed with paper coupons that had to be cut out and presented to the bond issuers when each interest payment fell due. That is why the idle rich are still sometimes referred to as ‘‘coupon clippers.’’

However, great fortunes have been amassed by canny investors like Warren Buffett in the equity markets of the world. Such investors are a kind of celebrity in some circles. Both the upside and the downside of equity investing are pretty much unbounded. Stocks offer real excitement and feed our dreams of riches. They are a bet on the future. Bonds by contrast offer ‘‘fixed income.’’ Stocks versus Bonds That contrast is why, in the short run, the prices for stocks and bonds tend to move in opposite directions. Markets are always in flux between fear and greed. When people are optimistic about the future prospects of the economy, fear takes a back seat. Stock markets become convinced that the prices of almost all shares can only go higher.

What you are not told is that over that period most of the total growth in the value of stock market took place on a handful of days. Most of the losses took place in a few days during sudden panics and sell-offs. The averages over a century tell you almost nothing. If you missed the upswings and were caught in a big downdraft, you would have done better in fixed income. The point is that all financial instruments involve risk/reward tradeoffs. There are no safe bets that have big upsides. Because the risk/reward tradeoffs of stocks and bonds are never ideal for either issuers or investors, the markets have over the years developed ‘‘hybrid’’ classes of financial instruments that are neither debt nor equity instruments.


pages: 339 words: 109,331

The Clash of the Cultures by John C. Bogle

Alan Greenspan, asset allocation, buy and hold, collateralized debt obligation, commoditize, compensation consultant, corporate governance, corporate social responsibility, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, diversified portfolio, estate planning, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, financial intermediation, fixed income, Flash crash, Glass-Steagall Act, Hyman Minsky, income inequality, index fund, interest rate swap, invention of the wheel, John Bogle, junk bonds, low interest rates, market bubble, market clearing, military-industrial complex, money market fund, mortgage debt, new economy, Occupy movement, passive investing, Paul Samuelson, Paul Volcker talking about ATMs, Ponzi scheme, post-work, principal–agent problem, profit motive, proprietary trading, prudent man rule, random walk, rent-seeking, risk tolerance, risk-adjusted returns, Robert Shiller, seminal paper, shareholder value, short selling, South Sea Bubble, statistical arbitrage, stock buybacks, survivorship bias, The Wealth of Nations by Adam Smith, transaction costs, two and twenty, Vanguard fund, William of Occam, zero-sum game

Perhaps even more significantly, bond index funds as a group now claim a record high 17 percent market share among taxable bond funds—$370 billion of the $2.4 trillion total. What’s more, during 2011, bond index funds accounted for fully 40 percent of the investor cash flow into taxable fixed-income funds as a group. This penetration is a harbinger that the trend toward bond indexing will continue to strengthen, just as has the trend toward stock indexing. This accelerating trend confirms what Peter Fisher, talented head of the fixed-income group for giant global money manager BlackRock, has observed: “We’re moving to the second phase of the index revolution. The world is a frightening, uncertain place, and investors want to make their (bond) portfolios much simpler so they can sleep at night.”

The good news is that many of the new funds were bond funds and money market funds, which for decades have provided generous premium yields over stocks and also over traditional bank savings accounts, where yields were constrained by federal government regulation until 1980. Today, of course, these generous yields have disappeared. But these new “fixed-income” funds provided more stable portfolio values and offered access to sectors of the financial market not previously available to most families. The bad news is that in the equity fund sector of the industry, the massive proliferation of so many untested strategies (and often untested managers) resulted in confusion for investors.

Since the SEC would not accept the notion that an index fund could own a relatively small number of individual bonds and hope to closely replicate the performance of an index that included 4,000 bonds, the Commission staff would not permit our use of the name Vanguard Bond Index Fund. We had been laying the groundwork for a bond index fund during much of 1986, but the final inspiration—this is true!—came when Forbes magazine, writing about the second-rate returns and high costs of most fixed-income mutual funds, expressed the crying need for a low-cost bond index fund. A Second Cri de Coeur The magazine plaintively asked, “Vanguard, where are you when we need you?” Thus, yet another cri de coeur—an echo of the plea of Paul Samuelson a decade earlier for a stock index fund—provided the final impetus.


pages: 341 words: 107,933

The Dealmaker: Lessons From a Life in Private Equity by Guy Hands

Airbus A320, banking crisis, Bear Stearns, British Empire, Bullingdon Club, corporate governance, COVID-19, credit crunch, data science, deal flow, Etonian, family office, financial engineering, fixed income, flag carrier, high net worth, junk bonds, lockdown, Long Term Capital Management, low cost airline, Nelson Mandela, North Sea oil, old-boy network, Paul Samuelson, plutocrats, proprietary trading, Silicon Valley, South Sea Bubble, sovereign wealth fund, subprime mortgage crisis, traveling salesman

He also told me that the salespeople and the traders were two very different tribes and that the relationship between them could be stormy. Bond underwriting, he said, was for experienced people. Trading involved a level of risk and trust that ruled me out. But a role in fixed income sales, which meant dealing with institutions and getting paid a salary with a potentially large annual bonus, was a possibility. The Goldman people I met in London were all very bright and very different from one another. Those in the equity division were cultured, sophisticated and well-dressed. Those in fixed income were, for the most part, a strange collection of highly intelligent misfits, who shared little in common except for an unbelievable determination to succeed.

The letter concluded with a request for an interview for a sales role in their equities division. It was the impertinence of youth writ large. But something must have caught the bank’s attention. To my surprise I was offered a lunchtime slot with one Jamie Kiernan during his day of recruiting interviews at Oxford. Equally to my surprise, Jamie was from the fixed income division, not equities. The interviews were held at the Randolph Hotel in very plush meeting rooms. But whereas my fellow students were subjected to the usual intensive bombardment of questions by two interviewers arranged behind a desk, I found that I was apparently meeting Jamie – a big, friendly Irish American – for lunch.

I made the mistake of ordering soup, which arrived in a tureen along with the most enormous soup spoon and which I proceeded to dribble everywhere. But amid our discussion of picture selling something about me must have clicked with Jamie, because he put me forward for a series of interviews in London with the fixed income and equity divisions, which dealt with bond underwriting, bond trading and bond sales. He patiently explained that bonds are basically a debt security sold, or issued, by governments and corporations when they need capital. Goldman underwrote the issuing, sold the bonds and had a team that traded bonds on the secondary market.


pages: 403 words: 119,206

Toward Rational Exuberance: The Evolution of the Modern Stock Market by B. Mark Smith

Alan Greenspan, bank run, banking crisis, book value, business climate, business cycle, buy and hold, capital asset pricing model, compound rate of return, computerized trading, Cornelius Vanderbilt, credit crunch, cuban missile crisis, discounted cash flows, diversified portfolio, Donald Trump, equity risk premium, Eugene Fama: efficient market hypothesis, financial independence, financial innovation, fixed income, full employment, Glass-Steagall Act, income inequality, index arbitrage, index fund, joint-stock company, junk bonds, locking in a profit, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, market clearing, merger arbitrage, Michael Milken, money market fund, Myron Scholes, Paul Samuelson, price stability, prudent man rule, random walk, Richard Thaler, risk free rate, risk tolerance, Robert Bork, Robert Shiller, Ronald Reagan, scientific management, shareholder value, short selling, stocks for the long run, the market place, transaction costs

(New investment trusts were created at a furious pace throughout most of 1929, with a new trust appearing approximately every business day.) The hypothetical new trust would be capitalized at perhaps $150 million, of which $50 million would be raised from the sale of common stock, and $100 million from the sale of fixed-income securities, such as bonds and preferred stock. Since the holders of the bonds and preferred stock expected only to receive a fixed return, all the gains (if any) beyond the amount necessary to pay the fixed-income investors would go to the common holders. Say the value of the stocks in which the trust had invested rose by 50%. The value of the trust’s assets (before interest, preferred-stock dividends, and expenses) would increase from the original $150 million to $225 million.

Rockefeller, stating simply, “I don’t like him.”3 The feeling was mutual; Rockefeller often said of Morgan that he could not see “why any man should have such a high and mighty feeling about himself.”4 In late March 1901, Schiff began to buy Northern Pacific. Orders to purchase shares were parceled out carefully to unrelated brokers so as to disguise the buying—to avoid alerting Hill and Morgan. Schiff bought shares of Northern Pacific preferred stock in addition to the common. The preferred, unlike the common, was a fixed income security, paying a set dividend that would not rise or fall with the company’s earnings. This distinction, however, was not important to Schiff. The Northern Pacific preferred shares carried with them the same rights to elect the board of directors as did the common shares; thus Schiff bought preferred and/or common stock whenever he could without dramatically disturbing the respective prices.

Searching for means of providing tax-deductible employee compensation not subject to wage controls, many corporations began to offer pension plans. These innovations at first had no real impact on the stock market, in that they were usually “defined benefit”h plans funded by corporate investments in fixed-income assets, not equities. Few pension fund managers considered stocks to be prudent investments. Over time, however, this would change, and pension and retirement funds would become the single most important engine driving the bull markets of the later twentieth century. Other changes, gradual yet perceptible, were also occurring.


pages: 219 words: 15,438

The Essays of Warren Buffett: Lessons for Corporate America by Warren E. Buffett, Lawrence A. Cunningham

book value, business logic, buy and hold, compensation consultant, compound rate of return, corporate governance, Dissolution of the Soviet Union, diversified portfolio, dividend-yielding stocks, fixed income, George Santayana, Henry Singleton, index fund, intangible asset, invisible hand, junk bonds, large denomination, low cost airline, Michael Milken, oil shock, passive investing, price stability, Ronald Reagan, stock buybacks, Tax Reform Act of 1986, Teledyne, the market place, transaction costs, Yogi Berra, zero-coupon bond

The point you should keep in mind is that most of the value of our convertible preferreds is derived from their fixed-income characteristics. That means the securities cannot be worth less than the value they would possess as non-convertible preferreds and may be worth more because of their conversion options. 116 CARDOZO LAW REVIEW [Vol. 19:1 Berkshire made five private purchases of convertible preferred stocks during the 1987-91 period and the time seems right to discuss their status. In each case we had the option of sticking with these preferreds as fixed-income securities or converting them into common stock. Initially, their value to us came primarily from their fixedincome characteristics.

Bob Wilmers, CEO of the company, is an outstanding banker, and we love being associated with him. Our other two preferreds have been disappointing, though the Salomon preferred has modestly outperformed the fixed-income securities for which it was a substitute. However, the amount of management time Charlie and I have devoted to this holding has been vastly greater than its economic significance to Berkshire. Certainly I never dreamed I would take a new job at age 60-Salomon interim chairman, that is-because of an earlier purchase of a fixed-income security. 118 CARDOZO LAW REVIEW [Vol. 19:1 Soon after our purchase of the Salomon preferred in 1987, I wrote that I had "no special insights regarding the direction or future profitability of investment banking."

Nor will the returns be as attractive as those produced when we make our favorite form of capital deployment, the acquisition of 80% or more of a fine business with a fine management. But both opportunities are rare, particularly in a size befitting our present and anticipated resources. In summation, Charlie and I feel that our preferred stock investments should produce returns moderately above those achieved by most fixed-income portfolios and that we can play a minor but enjoyable and constructive role in the investee companies. Mistakes occur at the time of decision. We can only make our mistake-du-jour award, however, when the foolishness of a decision becomes obvious. By this measure, 1994 was a vintage year with keen competition for the gold medal.


pages: 444 words: 86,565

Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions by Joshua Rosenbaum, Joshua Pearl, Joseph R. Perella

accelerated depreciation, asset allocation, asset-backed security, bank run, barriers to entry, Benchmark Capital, book value, business cycle, capital asset pricing model, collateralized debt obligation, corporate governance, credit crunch, discounted cash flows, diversification, equity risk premium, financial engineering, fixed income, impact investing, intangible asset, junk bonds, London Interbank Offered Rate, performance metric, risk free rate, shareholder value, sovereign wealth fund, stocks for the long run, subprime mortgage crisis, technology bubble, time value of money, transaction costs, yield curve

The most recent 10-K and 10-Q for the period ending prior to the announcement date typically serve as the source for the necessary information to calculate the target’s LTM financial statistics and balance sheet data. In some cases, the banker may use a filing after announcement if the financial information is deemed more relevant. The 10-K and 10-Q are also relied upon to provide information on the target’s shares outstanding and options/warrants.66 Equity and Fixed Income Research Equity and fixed income research reports often provide helpful deal insight, including information on pro forma adjustments and expected synergies. Furthermore, research reports typically provide color on deal dynamics and other circumstances. Private Targets A private target (i.e., a non-public filer) is not required to publicly file documentation in an M&A transaction as long as it is not subject to SEC disclosure requirements.

Toward this end, the banker is encouraged to read and study as much company- and sector-specific material as possible. The actual selection of comparable companies should only begin once this research is completed. For targets that are public registrants,4 annual (10-K) and quarterly (10-Q) SEC filings, consensus research estimates, equity and fixed income research reports, press releases, earnings call transcripts, investor presentations,5 and corporate websites provide key business and financial information. Private companies present a greater challenge as the banker is forced to rely upon sources such as corporate websites, sector research reports, news runs, and trade journals for basic company data.

In the event the banker is starting from scratch, we suggest searching through M&A databases, examining the M&A history of the target and its comparable companies, and reviewing merger proxies of comparable companies for lists of selected comparable acquisitions disclosed in the fairness opinions. Equity and fixed income research reports for the target (if public), its comparable companies, and overall sector may also provide lists of comparable acquisitions, including relevant financial data (for reference purposes only).As part of this process, the banker seeks to learn as much as possible regarding the specific circumstances and deal dynamics of each transaction.


pages: 332 words: 81,289

Smarter Investing by Tim Hale

Albert Einstein, asset allocation, buy and hold, buy low sell high, capital asset pricing model, classic study, collapse of Lehman Brothers, corporate governance, credit crunch, currency risk, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, Donald Trump, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, eurozone crisis, fiat currency, financial engineering, financial independence, financial innovation, fixed income, full employment, Future Shock, implied volatility, index fund, information asymmetry, Isaac Newton, John Bogle, John Meriwether, Long Term Capital Management, low interest rates, managed futures, Northern Rock, passive investing, Ponzi scheme, purchasing power parity, quantitative easing, random walk, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, South Sea Bubble, technology bubble, the rule of 72, time value of money, transaction costs, Vanguard fund, women in the workforce, zero-sum game

The rewards that you receive are the regular dividends the company pays in cash, and the hope that the strategy of the company is a strong one and this will be reflected in growing profits, and a rise in the price of its shares over time. The second is to lend your money to someone, be it an individual (not usually recommended), a corporation or a government. In return, investors receive interest (usually referred to as a coupon) and their capital back at the maturity date of the loan. Loan instruments are often called ‘fixed income’ securities, because the interest is fixed at the outset, or, alternatively they are called bonds. In general, the higher the risk of not getting your money back and the longer the time you lend your money for, the higher the rate of interest you will expect to be paid by the borrower. When you next place a bank deposit, remember that you are lending your money to the bank.

To draw a conclusion we need to look at the track record of active managers as a collective group, to see if they do. We study the evidence a little later. Signs of efficiency include a narrow dispersion of longer-term returns between the top and bottom managers, as no one has a truly sustainable advantage or disadvantage. On this basis, the fixed income markets are reasonably efficient, as are equity markets such as the USA and the UK. Active managers invariably claim that their market-beating approach will work better in less-efficient markets, such as small company stocks or small overseas equity markets, as they theoretically have the ability to exploit these inefficiencies.

This is an area that quite a few investors get confused about, and make basic, avoidable mistakes with. One problem is that many investors feel that, having taken on bond exposure at the expense of equity exposure, they should try to get as much juice out of the Defensive Mix as possible. Alternatively, they own some fixed income in order to generate an income to live off and again try to squeeze as much income as they can. This has material consequences. Figure 7.6 The role of bonds depends on what kind of investor you are James Tobin and the ‘whisky and water’ approach would simply suggest that you take all the risk in the growth-oriented portfolio and simply add the risk-free water to it.


pages: 389 words: 81,596

Quit Like a Millionaire: No Gimmicks, Luck, or Trust Fund Required by Kristy Shen, Bryce Leung

Affordable Care Act / Obamacare, Airbnb, Apollo 13, asset allocation, barriers to entry, buy low sell high, call centre, car-free, Columbine, cuban missile crisis, Deng Xiaoping, digital nomad, do what you love, Elon Musk, fear of failure, financial independence, fixed income, follow your passion, Great Leap Forward, hedonic treadmill, income inequality, index fund, John Bogle, junk bonds, longitudinal study, low cost airline, Mark Zuckerberg, mortgage debt, Mr. Money Mustache, obamacare, offshore financial centre, passive income, Ponzi scheme, risk tolerance, risk/return, side hustle, Silicon Valley, single-payer health, Snapchat, Steve Jobs, subprime mortgage crisis, supply-chain management, the rule of 72, working poor, Y2K, Zipcar

Traditional retirement planning means investing heavily in equities when a person is young, then shifting into fixed-income assets like bonds over time. Once the person hits sixty-five, the majority of their portfolio is in bonds, and the danger is a spike in inflation after retirement, in which case their fixed income won’t keep up with the cost of living. My investing strategy avoids this situation entirely. I’ve achieved income stability not by shifting into fixed income but by using a combination of the Yield Shield, the Cash Cushion, and Buckets and Backups. My portfolio never flips into a majority-fixed-income allocation. And because I’ll stay invested in equities throughout retirement, my portfolio is naturally hedged against inflation.

MY FIRST PORTFOLIO So, there we were in our first apartment, two years into our careers, huddled around the computer with printed-out charts and papers scattered throughout our bedroom. The research was done, our portfolio designed, our investment funds picked out, and our combined life savings ($100,000) sitting in our brokerage accounts, waiting for their marching orders. Here’s the portfolio Bryce and I decided on: It had a 60 percent equity/40 percent fixed-income asset allocation, with the equity portion split evenly among Canada, the United States, and EAFE. “Ready?” Bryce asked. “Yes. I . . . I think . . . ,” I stammered. My heart raced. This was the first truly “rich person” thing I had ever done. I had gone from being relieved to have any money at all to learning how to grow it.

It said to sell the only asset that wasn’t on fire (bonds) and buy more stocks even as the markets continued to plummet. I didn’t know it at the time, but this turned out to be the exact right thing to do. Limits to Rebalancing Before I go any further, I have to warn you about a few limitations to this approach. First, Modern Portfolio Theory only works if a portfolio has some fixed income as well as some equity. This system breaks down if you’re too tilted one way or the other. For example, during a stock market crash like the one we had, if I had been holding 100 percent equity, rebalancing wouldn’t work. As the stock market plummeted, there would have been no complementary asset that would rise, so my allocations wouldn’t have changed and I’d have had nothing to rebalance.


pages: 733 words: 179,391

Adaptive Markets: Financial Evolution at the Speed of Thought by Andrew W. Lo

Alan Greenspan, Albert Einstein, Alfred Russel Wallace, algorithmic trading, Andrei Shleifer, Arthur Eddington, Asian financial crisis, asset allocation, asset-backed security, backtesting, bank run, barriers to entry, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, bitcoin, Bob Litterman, Bonfire of the Vanities, bonus culture, break the buck, Brexit referendum, Brownian motion, business cycle, business process, butterfly effect, buy and hold, capital asset pricing model, Captain Sullenberger Hudson, carbon tax, Carmen Reinhart, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computerized trading, confounding variable, corporate governance, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, Daniel Kahneman / Amos Tversky, delayed gratification, democratizing finance, Diane Coyle, diversification, diversified portfolio, do well by doing good, double helix, easy for humans, difficult for computers, equity risk premium, Ernest Rutherford, Eugene Fama: efficient market hypothesis, experimental economics, experimental subject, Fall of the Berlin Wall, financial deregulation, financial engineering, financial innovation, financial intermediation, fixed income, Flash crash, Fractional reserve banking, framing effect, Glass-Steagall Act, global macro, Gordon Gekko, greed is good, Hans Rosling, Henri Poincaré, high net worth, housing crisis, incomplete markets, index fund, information security, interest rate derivative, invention of the telegraph, Isaac Newton, it's over 9,000, James Watt: steam engine, Jeff Hawkins, Jim Simons, job satisfaction, John Bogle, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, Joseph Schumpeter, Kenneth Rogoff, language acquisition, London Interbank Offered Rate, Long Term Capital Management, longitudinal study, loss aversion, Louis Pasteur, mandelbrot fractal, margin call, Mark Zuckerberg, market fundamentalism, martingale, megaproject, merger arbitrage, meta-analysis, Milgram experiment, mirror neurons, money market fund, moral hazard, Myron Scholes, Neil Armstrong, Nick Leeson, old-boy network, One Laptop per Child (OLPC), out of africa, p-value, PalmPilot, paper trading, passive investing, Paul Lévy, Paul Samuelson, Paul Volcker talking about ATMs, Phillips curve, Ponzi scheme, predatory finance, prediction markets, price discovery process, profit maximization, profit motive, proprietary trading, public intellectual, quantitative hedge fund, quantitative trading / quantitative finance, RAND corporation, random walk, randomized controlled trial, Renaissance Technologies, Richard Feynman, Richard Feynman: Challenger O-ring, risk tolerance, Robert Shiller, Robert Solow, Sam Peltzman, Savings and loan crisis, seminal paper, Shai Danziger, short selling, sovereign wealth fund, Stanford marshmallow experiment, Stanford prison experiment, statistical arbitrage, Steven Pinker, stochastic process, stocks for the long run, subprime mortgage crisis, survivorship bias, systematic bias, Thales and the olive presses, The Great Moderation, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Malthus, Thorstein Veblen, Tobin tax, too big to fail, transaction costs, Triangle Shirtwaist Factory, ultimatum game, uptick rule, Upton Sinclair, US Airways Flight 1549, Walter Mischel, Watson beat the top human players on Jeopardy!, WikiLeaks, Yogi Berra, zero-sum game

The Fed helped to form a consortium of LTCM’s major creditors to recapitalize the firm just in time to avoid a hard landing.34 LTCM wasn’t the only hedge fund to be hit by this financial meteor strike, but it was certainly the biggest. The aftermath of the Russian bond default disrupted a very specific group of hedge funds and trading desks, those using a fixed-income arbitrage strategy. Fixed-income arbitrage funds experienced an 18 percent attrition rate in 1998, more than double the baseline rate until the financial crisis of 2008. From an evolutionary perspective, only the exceptional size of LTCM made its collapse stand out. Interestingly enough, the events of 1998 failed to make a noticeable impact in the attrition rate of other categories of hedge funds.

This combination allowed three financial economists—Amir Barnea, Henrik Cronqvist, and Stephan Siegel—to analyze the relative differences in financial portfolios between pairs of identical twins, who share the same DNA, and pairs of fraternal twins, who are only as closely related as any pair of biological siblings.32 They looked at the proportion of assets held in cash, in bonds and fixed income securities, in equities directly, in equities held in funds, and in other financial assets such as rights, convertibles, and warrants. And what Barnea, Cronqvist, and Siegel discovered was remarkable. By comparing the performance of pairs of fraternal and identical twins, they found that a third of the observed investment behavior in the Swedish twin portfolios could be attributed to genetics: 29 percent of stock market participation, 32 percent of the share of equities, and 38 percent of portfolio volatility.

Evolutionary competition caused hedge funds to trawl the universities for high-caliber mathematical talent, not merely in finance, but in physics, mathematics, and computer science—the rise of the “quants.” One of the most audacious experiments in this new style of hedge fund was based in Greenwich, Connecticut. It called itself Long-Term Capital Management, or LTCM, as it soon became known. LTCM was the brainchild of John Meriwether, the former head of the domestic fixed-income arbitrage group at Salomon Brothers, once one of Wall Street’s largest investment banks. Meriwether conceived LTCM to operate on a grand scale. If we think of hedge funds as analogous to biological species, then Meriwether’s vision of LTCM was to be one of the great filter-feeding whales of the oceanic depths, using very small fluctuations in the world’s bond markets for its financial sustenance.


Concentrated Investing by Allen C. Benello

activist fund / activist shareholder / activist investor, asset allocation, barriers to entry, beat the dealer, Benoit Mandelbrot, Bob Noyce, Boeing 747, book value, business cycle, buy and hold, carried interest, Claude Shannon: information theory, corporate governance, corporate raider, delta neutral, discounted cash flows, diversification, diversified portfolio, Dutch auction, Edward Thorp, family office, fixed income, Henry Singleton, high net worth, index fund, John Bogle, John von Neumann, junk bonds, Louis Bachelier, margin call, merger arbitrage, Paul Samuelson, performance metric, prudent man rule, random walk, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, shareholder value, Sharpe ratio, short selling, survivorship bias, technology bubble, Teledyne, transaction costs, zero-sum game

Outside its holding in Sequoia, and its brief flirtation with a technology investor, Grinnell also directly held between 8 to 10 other stocks, but little in the way of cash and fixed income. Rosenfield and Gordon purposely minimized Grinnell’s exposure to fixed income:67 We didn’t really like having fixed income. We always had the philosophy that cash was the inverse relationship of having enough good ideas. We didn’t have asset allocation, no consultant. If we had enough good ideas, we had zero cash. Grinnell College: The School of Concentration 169 The board, however, wanted Gordon to hold more in fixed income so that the endowment didn’t need to sell stocks to pay the college’s operating expenses.

Grinnell’s investment team continued the practice of employing outside investment managers, who now manage 80 percent of the capital, up from 60 percent under Gordon.84 Grinnell’s capital is allocated 45 percent to stocks, 45 percent to alternative investments, and 10 percent to cash and fixed-income instruments. The biggest change is that Grinnell focuses on the cash and fixed-income portion of the college’s investment holdings, Grinnell College: The School of Concentration 173 while outside managers handle the stock portfolio. Grinnell continues to have some private investments directly managed by the endowment. Wilson eschews “macro” money managers who bet on big-picture theses, preferring managers whose performance is repeatable.85 He favors managers who rely on analysis, rather than instinct or “gut feelings,” as Wilson describes it.86 Another significant shift is the focus on international investments.

The First Bursar was responsible for the financial administration of King’s College, which might encompass anything from collecting tuition fees to managing assets, and the Second Bursar acted as assistant to the First. Cambridge was subject to a statute and to the Trustee Act, which restricted its investment holdings to high‐grade fixed income securities.53 By mid‐1920, Keynes had persuaded the college to carve out from the endowment a separate portfolio not subject to the restrictions of the legislation.54 The new portfolio would contain common John Maynard Keynes: Investor Philosopher 47 stock, currency, and commodity futures.55 Though Keynes shifted some of the capital out of long‐term government bonds, the endowment maintained its income level, which was important because endowment income was not reinvested in the portfolio, but rather directed to spending.


pages: 1,042 words: 266,547

Security Analysis by Benjamin Graham, David Dodd

activist fund / activist shareholder / activist investor, asset-backed security, backtesting, barriers to entry, Bear Stearns, behavioural economics, book value, business cycle, buy and hold, capital asset pricing model, Carl Icahn, carried interest, collateralized debt obligation, collective bargaining, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, diversification, diversified portfolio, fear of failure, financial engineering, financial innovation, fixed income, flag carrier, full employment, Greenspan put, index fund, intangible asset, invisible hand, Joseph Schumpeter, junk bonds, land bank, locking in a profit, Long Term Capital Management, low cost airline, low interest rates, Michael Milken, moral hazard, mortgage debt, Myron Scholes, prudent man rule, Right to Buy, risk free rate, risk-adjusted returns, risk/return, secular stagnation, shareholder value, stock buybacks, The Chicago School, the market place, the scientific method, The Wealth of Nations by Adam Smith, transaction costs, two and twenty, zero-coupon bond

The securities performed as promised, of course, but there were a couple of developments that Graham and Dodd did not and could not foresee. First and foremost were the ravaging effects of inflation in the late 1970s and early 1980s. The inflationary spiral ultimately led to higher interest rates and large losses for bond investors. Second was the expansion of the fixed income markets and the proliferation of innumerable fixed income securities that created opportunities for value investing in the bond market for those willing to sift through vast numbers of similar instruments in search of anomalous pricing. Graham and Dodd advised profit-seeking investors, both large and small, to purchase securities trading below their intrinsic value, and they suggested that investors submit their analytical work for critique by others.

In a sense the market and the future present the same kind of difficulties. Neither can be predicted or controlled by the analyst, yet his success is largely dependent upon them both. The major activities of the investment analyst may be thought to have little or no concern with market prices. His typical function is the selection of high-grade, fixed-income-bearing bonds, which upon investigation he judges to be secure as to interest and principal. The purchaser is supposed to pay no attention to their subsequent market fluctuations, but to be interested solely in the question whether the bonds will continue to be sound investments. In our opinion this traditional view of the investor’s attitude is inaccurate and somewhat hypocritical.

While this approach is hallowed by tradition, it is open to several serious objections. Of these the most obvious is that it places preferred stocks with common stocks, whereas, so far as investment practice is concerned, the former undoubtedly belong with bonds. The typical or standard preferred stock is bought for fixed income and safety of principal. Its owner considers himself not as a partner in the business but as the holder of a claim ranking ahead of the interest of the partners, i.e., the common stockholders. Preferred stockholders are partners or owners of the business only in a technical, legalistic sense; but they resemble bondholders in the purpose and expected results of their investment. 2.


pages: 250 words: 77,544

Personal Investing: The Missing Manual by Bonnie Biafore, Amy E. Buttell, Carol Fabbri

asset allocation, asset-backed security, book value, business cycle, buy and hold, currency risk, diversification, diversified portfolio, Donald Trump, employer provided health coverage, estate planning, fixed income, Home mortgage interest deduction, index fund, John Bogle, Kickstarter, low interest rates, money market fund, mortgage tax deduction, risk tolerance, risk-adjusted returns, Rubik’s Cube, Sharpe ratio, stocks for the long run, Vanguard fund, Yogi Berra, zero-coupon bond

It’s a good idea to keep some money in shortterm investments so you don’t have to sell long-term investments when their values are down. • Reinvestment risk. When you invest in bonds, bills, or even certificates of deposit and hold them until they mature, you face reinvestment risk, the risk that interest rates are lower when your fixed-income investment matures and that you have to reinvest your money in a new investment with a lower interest rate. Unfortunately, reinvestment risk is a fact of life with any kind of fixed-income investment you hold to maturity. • Interest rate risk. If you buy a bond and sell it before it matures, you face interest rate risk, the risk that the bond price drops because interest rates rise (see page 136). • Currency risk.

For example, the Charles Schwab website has a risk profile questionnaire (http://tinyurl.com/ schwabriskprofile) that analyzes your risk tolerance and investment timeframe to determine what type of investor you are. 160 Chapter 9 But because your stocks need time to recover from the bottom of a business cycle or bad news about a company, you also need other types of investments. Enter fixed-income investments, which deliver more dependable returns. Although bond returns sometimes don’t beat inflation, you use bonds and other fixed-income investments for overall portfolio stability. In effect, you take on small risks, like interest rate risk and reinvestment risk, to counteract the risks from stocks. REITs offer both attractive dividends and potential capital appreciation, so they help reduce overall risk further.

The table below compares returns for intermediate- and long-term fixedincome investments, large stocks, and small stocks, from 1926 through the end of 2008. As you can see, the long-term average annual returns and real returns (that is, the return adjusted for inflation) for stocks are almost twice those for fixed-income investments. For example, the real return for government bonds beats inflation by only a few percentage points. (Treasury bills [not listed below], which are short-term government bonds, delivered a real return of only 0.7% during the same period.) The single best years for stocks are likely to make you salivate.


pages: 351 words: 102,379

Too big to fail: the inside story of how Wall Street and Washington fought to save the financial system from crisis--and themselves by Andrew Ross Sorkin

"World Economic Forum" Davos, affirmative action, Alan Greenspan, Andy Kessler, Asian financial crisis, Bear Stearns, Berlin Wall, book value, break the buck, BRICs, business cycle, Carl Icahn, collapse of Lehman Brothers, collateralized debt obligation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, deal flow, Dr. Strangelove, Emanuel Derman, Fall of the Berlin Wall, fear of failure, financial engineering, fixed income, Glass-Steagall Act, Goldman Sachs: Vampire Squid, housing crisis, indoor plumbing, invisible hand, junk bonds, Ken Thompson, London Interbank Offered Rate, Long Term Capital Management, low interest rates, margin call, market bubble, Michael Milken, Mikhail Gorbachev, money market fund, moral hazard, naked short selling, NetJets, Northern Rock, oil shock, paper trading, proprietary trading, risk tolerance, Robert Shiller, rolodex, Ronald Reagan, Savings and loan crisis, savings glut, shareholder value, short selling, sovereign wealth fund, supply-chain management, too big to fail, uptick rule, value at risk, éminence grise

The firm had made a commitment and it was going to stick with it. Gregory made a circuit to rally the troops. “This is going to be temporary,” he told Lehman colleagues. “We’re going to fight through this.” As both Gregory and Fuld were fixed-income traders at heart, they weren’t entirely up to speed on how dramatically that world had changed since the 1980s. Both had started in commercial paper, probably the sleepiest, least risky part of the firm’s business. Fixed-income trading was nothing like Fuld and Gregory knew in their day: Banks were creating increasingly complex products many levels removed from the underlying asset. This entailed a much greater degree of risk, a reality that neither totally grasped and showed remarkably little interest in learning more about.

To criticize the firm’s direction was to be branded a traitor and tossed out the door. Among those who tried to sound the alarm was Michael Gelband, who had been Lehman’s head of fixed-income trading for two years and had known Gregory for two decades. In late 2006, in a discussion with Fuld about his bonus, Gelband remarked that the good times were about to hit a rough patch, for which the firm was not well positioned. “We’re going to have to change a lot of things,” he warned. Fuld, looking unhappy, said little in reply. The fixed-income guys had been spending a lot of time talking about the train wreck that awaited the U.S. economy. In February 2007, Larry McCarthy, Lehman’s top distressed-debt trader, had delivered a presentation to his group in which he laid out a dire scenario.

Goldman had decided to make a major push into trading bonds, commodities, and currencies, and to take on larger risks. The firm had been a pioneer in commercial paper and a leader in municipal finance, but remained an also-ran in fixed income, compared with Salomon Brothers and others. Winkelman and Jon Corzine overhauled that part of the business and recruited talent from Salomon. Impressed by Blankfein’s well-honed diplomacy and his obvious intelligence, Winkelman placed him in charge of six salesmen in currency trading and, later, the entire unit. Robert Rubin, who then ran fixed income with Stephen Friedman, was opposed to the move. “We’ve never seen it work to put salespeople in charge of trading in other areas of the firm,” Rubin told Winkelman.


Financial Statement Analysis: A Practitioner's Guide by Martin S. Fridson, Fernando Alvarez

Bear Stearns, book value, business cycle, corporate governance, credit crunch, discounted cash flows, diversification, Donald Trump, double entry bookkeeping, Elon Musk, financial engineering, fixed income, information trail, intangible asset, interest rate derivative, interest rate swap, junk bonds, negative equity, new economy, offshore financial centre, postindustrial economy, profit maximization, profit motive, Richard Thaler, shareholder value, speech recognition, statistical model, stock buybacks, the long tail, time value of money, transaction costs, Y2K, zero-coupon bond

As a result, the analyst forecasts that Dex One will pay down $2.7 billion of debt as its revenues shrink, resulting in a reduction of net leverage (defined as debt minus cash divided by EBITDA) from 2.58X to 1.41X. From the standpoint of the fixed-income investors, the picture does not look as bleak as it does to equity investors accustomed to seeing forecasts that show large, steady gains in earnings. Fixed-income investors are in fact the target of the analyst's research, with particular focus on the term loans of Dex One's subsidiaries, RHD, Dex East, and Dex West. Exhibit 12.22 Dex One Corporation: Best-Case Projection CONCLUSION Of the various types of analysis of financial statements, projecting future results and ratios requires the greatest skill and produces the most valuable findings.

Fridson has served as president of the Fixed Income Analysts Society, governor of the Association for Investment Management and Research (now CFA Institute), and director of the New York Society of Security Analysts. Since 1989 he has been book review editor of the Financial Analysts Journal. The New York Times described Fridson as “one of Wall Street's most thoughtful and perceptive analysts.” Investment Dealers Digest called him “perhaps the most well-known figure in the high yield world.” In 2000, Fridson became the youngest person inducted into the Fixed Income Analysts Hall of Fame. The Financial Management Association named him Financial Executive of the Year in 2002.

Still, the company disclosures provide useful information on tax effects and such accounting matters as expected changes in asset valuations and the effects of conforming the two companies’ treatment of discretionary items. MULTIYEAR PROJECTIONS So far, this chapter has focused on one-year projections and pro forma adjustments to current financial statements. Such exercises, however, represent nothing more than the foundation of a complete projection. A fixed-income investor buying a 30-year bond is certainly interested in the issuer's financial prospects beyond a 12-month horizon. Similarly, a substantial percentage of the present value of future dividends represented by a stock's price lies in years beyond the coming one. Even if particular investors plan to hold the securities for one year or less, they have an interest in estimating longer-term projections.


pages: 77 words: 18,414

How to Kick Ass on Wall Street by Andy Kessler

Andy Kessler, Bear Stearns, Bernie Madoff, buttonwood tree, call centre, collateralized debt obligation, eat what you kill, family office, fixed income, hiring and firing, invention of the wheel, invisible hand, London Whale, low interest rates, margin call, NetJets, Nick Leeson, pets.com, risk tolerance, Silicon Valley, sovereign wealth fund, time value of money, too big to fail, value at risk

But there is no exchange. These are negotiated transactions. It’s you against the client, even though you are providing a service for the client. Your job is to get the best price for your firm. Some view this as screwing the client. Very confusing for outsiders. Here is a quote from Bloomberg News: Unlike equities, fixed-income trades typically are privately negotiated outside exchanges, increasing the fees traders collect by making bids and offers because they’re more difficult to execute. To make markets in debt securities, banks typically risk their own capital to buy assets from clients before lining up someone else to sell them to, sometimes making bets on the direction of markets.

Every day there is some tough deal to get done. A block of shares to cross, a cleanup print to complete, a hot corporate client to reel in, a mispriced corporate bond to buy, a gamey stock deal to get done. The thing about finance is that it’s all numbers. Everything has a price. Companies that are hot have high prices. Fixed income paper that is safe have low yields. Pieces of shit have low prices. You have to think of everything in terms of its price. When a deal comes out that no one likes, it usually because the price is too high. The best way to turn a piece of shit into a Picasso is to lower the price. Don’t ever forget that.

Almost everyone on Wall Street gets paid a modest draw, modest by Wall Street means anyway, maybe $100K, maybe $150K, sometimes more, sometimes less. The rest of compensation is paid as a bonus out of that ginormous bonus pool. Usually, after the Big Kahunas at the top take their huge cut, smaller bonus pools are allocated by division, capital markets, fixed income, investment banking etc. And even then, after the co-heads of these divisions take two bonuses when probably one would do, it is allocated further to distinct trading desks and groups. That is the pool you are fighting for. Everything you have ever done to generate revenue, bring in new clients, being a hero on this deal or that will come into play.


pages: 741 words: 179,454

Extreme Money: Masters of the Universe and the Cult of Risk by Satyajit Das

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", "there is no alternative" (TINA), "World Economic Forum" Davos, affirmative action, Alan Greenspan, Albert Einstein, algorithmic trading, Andy Kessler, AOL-Time Warner, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Basel III, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, bonus culture, book value, Bretton Woods, BRICs, British Empire, business cycle, buy the rumour, sell the news, capital asset pricing model, carbon credits, Carl Icahn, Carmen Reinhart, carried interest, Celtic Tiger, clean water, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, Daniel Kahneman / Amos Tversky, deal flow, debt deflation, Deng Xiaoping, deskilling, discrete time, diversification, diversified portfolio, Doomsday Clock, Dr. Strangelove, Dutch auction, Edward Thorp, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, Fall of the Berlin Wall, financial engineering, financial independence, financial innovation, financial thriller, fixed income, foreign exchange controls, full employment, Glass-Steagall Act, global reserve currency, Goldman Sachs: Vampire Squid, Goodhart's law, Gordon Gekko, greed is good, Greenspan put, happiness index / gross national happiness, haute cuisine, Herman Kahn, high net worth, Hyman Minsky, index fund, information asymmetry, interest rate swap, invention of the wheel, invisible hand, Isaac Newton, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", job automation, Johann Wolfgang von Goethe, John Bogle, John Meriwether, joint-stock company, Jones Act, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, laissez-faire capitalism, load shedding, locking in a profit, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, market bubble, market fundamentalism, Market Wizards by Jack D. Schwager, Marshall McLuhan, Martin Wolf, mega-rich, merger arbitrage, Michael Milken, Mikhail Gorbachev, Milgram experiment, military-industrial complex, Minsky moment, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, Naomi Klein, National Debt Clock, negative equity, NetJets, Network effects, new economy, Nick Leeson, Nixon shock, Northern Rock, nuclear winter, oil shock, Own Your Own Home, Paul Samuelson, pets.com, Philip Mirowski, Phillips curve, planned obsolescence, plutocrats, Ponzi scheme, price anchoring, price stability, profit maximization, proprietary trading, public intellectual, quantitative easing, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Ray Kurzweil, regulatory arbitrage, Reminiscences of a Stock Operator, rent control, rent-seeking, reserve currency, Richard Feynman, Richard Thaler, Right to Buy, risk free rate, risk-adjusted returns, risk/return, road to serfdom, Robert Shiller, Rod Stewart played at Stephen Schwarzman birthday party, rolodex, Ronald Reagan, Ronald Reagan: Tear down this wall, Satyajit Das, savings glut, shareholder value, Sharpe ratio, short selling, short squeeze, Silicon Valley, six sigma, Slavoj Žižek, South Sea Bubble, special economic zone, statistical model, Stephen Hawking, Steve Jobs, stock buybacks, survivorship bias, tail risk, Teledyne, The Chicago School, The Great Moderation, the market place, the medium is the message, The Myth of the Rational Market, The Nature of the Firm, the new new thing, The Predators' Ball, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, trickle-down economics, Turing test, two and twenty, Upton Sinclair, value at risk, Yogi Berra, zero-coupon bond, zero-sum game

The next day, JR will be crowned Hedge Fund of the Year and Hedge Fund Manager of the Year at the all-star gala Global Finance Forum. Mailer’s bank is also getting an award—Fixed Income House of the Year. Mailer bought that prize of course. The idea behind industry awards is that clients and peers vote on who is the best. A dealer voted best “something in something somewhere” uses it prominently to solicit clients. Polling is supposedly anonymous and independent. Like democracy, the process is obscure. Mailer “heard” that his bank would be crowned Fixed Income House of the Year. If this were correct, he explained to the magazine arranging the awards, then he would buy a platinum sponsorship of the award event (cost $100,000) and take a full-page ad (cost $40,000).

I am in London to brief Mailer’s bank on conditions in credit markets. Mailer ruminates on my gloomy prognostications, drains his drink, and tries to order another. The bartender has trouble understanding Mailer’s Bostonian rolled vowels and laryngeal consonants. When I first met Mailer, he introduced himself as: “Mailer Stevenson. Managing director. Fixed income. Graduate School of Business, Chicago.” Mailer then worked at a white-shoe Wall Street firm. Used to describe pedigreed investment banks, “white shoe” is a reference to “white bucks,” a laced suede or buckskin shoe once popular among upper-class, Ivy League-trained bankers. Losing out in the internecine wars that break out periodically in investment banks, Mailer moved to London to lead the trading operations of Euro Swiss Bank (ESB), a major European bank.

Author Rita Hatton pointed out that The Physical Impossibility of Death in the Mind of Someone Living was both an aquarium and a tourist attraction.3 JR was rumored to have commissioned Hirst to create an installation for its new offices, using white pointer sharks, a feared large predator. Retreat The bad blood between Mailer and JR dates to Mailer’s time as the head of fixed income at ESB. Each year, the bank held its Global Strategy Session (GSS) at Versailles. Sceptics referred to it secretly as the God Sun King Speaketh. Eduard Keller, the young, urbane, and snappily dressed chief executive of ESB, was the Sun King. Keller, a former management consultant, knew little about banking.


pages: 348 words: 82,499

DIY Investor: How to Take Control of Your Investments & Plan for a Financially Secure Future by Andy Bell

asset allocation, bank run, Bear Stearns, Black Monday: stock market crash in 1987, buy and hold, collapse of Lehman Brothers, credit crunch, currency risk, diversification, diversified portfolio, estate planning, eurozone crisis, fixed income, high net worth, hiring and firing, Isaac Newton, junk bonds, Kickstarter, lateral thinking, low interest rates, money market fund, Northern Rock, passive investing, place-making, quantitative easing, selection bias, short selling, South Sea Bubble, technology bubble, transaction costs, Vanguard fund

Mixed asset funds have set percentages that can be invested in different asset classes, typically equities and fixed income investments such as corporate and government bonds, and cash. UK All Companies funds, for example, are defined by the IMA as ‘funds which invest at least 80 per cent of their assets in UK equities which have a primary objective of achieving capital growth’. However, funds within any IMA sector may have widely varying asset mixes, strategies and risk profiles. Income – fixed income/equity/mixed asset Income funds invest in fixed-income assets such as corporate and government bonds, in dividend-generating equities or a combination of the two. Fixed-income sectors include UK Gilts, Sterling Corporate Bonds and Sterling Strategic Bond funds.

These two statements oversimplify what is a complex interaction between market expectations of interest rates and the price of a bond, which is also influenced by inflation, wider views of the economy and many other factors. People often mistakenly believe that because bond investments are promoted as being safer than equity investments, that they carry some form of capital protection. They don’t, unless you hold them to maturity. Inflation-linked bonds High inflation erodes the value of fixed-income bonds, which is what most conventional gilt and corporate bonds are. If you are concerned about inflation you can opt for bonds that increase their payout in line with inflation. National Grid issued the first inflation-linked corporate bond ever to be made available to retail investors in 2011, paying 1.25 per cent above the Retail Price Index.

Permanent interest-bearing shares (PIBS) Permanent interest-bearing shares (PIBS) are a special class of share issued by building societies. They pay a fixed rate of interest and can be bought and sold on the stock exchange. They have some of the characteristics of a corporate bond, in that they pay a fixed income on a regularly basis, but they normally run for an indeterminate period. Some PIBS, however, have a ‘call date’, which gives the issuer the right to buy the PIBS back from you if it wants to. Unlike the fixed-term interest deals that building societies are well known for, PIBS do not benefit from the protection of the Financial Services Compensation Scheme.


When Money Dies by Adam Fergusson

Albert Einstein, British Empire, fixed income, full employment, large denomination, plutocrats, Right to Buy, South Sea Bubble, strikebreaker

I am left with the impression [he wrote] that wages and the cost of living have now reached an equilibrium, and that the purchasing power of wages is nearly equal to that of before the war. But there is still much insecurity of life and property, and acts of violence are frequently reported . . . The middle class, i.e. persons with fixed incomes from investments or pensions and government officials are perhaps the most hard hit, and it can readily be realised that what before the war had been a fair competence - I speak of incomes up to 10,000 marks a year - is now entirely inadequate for the barest necessities. He reported finally that Saxon industry was in a very satisfactory condition, making a good recovery though working only the new eight-hour day, and with many orders in hand. 18 Indeed, the apparent health of industry was one of the factors which most effectively confused the inflation issue.

The most notable thing about the pu">lement of the financial world, not least the writers of the Frankfurter Zeitung, was the complete failure to consider the continuing flood of new banknotes as one of the reasons for the mark's behaviour. Its latest fall was reckoned disastrous for the finances both of the Reich and of the regional governments: all efforts to restore order in the federal budget had been rendered void. It meant the further impoverishment of the classes on fixed incomes, state officials included, and (as another newspaper feared) further recruits for the radical circles of the Right from these 'social declasses'. 'Grave feeling of disquiet here,' wrote D'Abernon in Berlin in his diary entry for July 10, 1922. The whole sky is overcast and gloomy. The fall of the mark continues — today it is 2,430, or about half the price of a month ago.

As the korona improved, in other words, the position of merchants and manufacturers worsened; and when Hegedus resigned and the korona fell a sigh of relief rose from the commercial world and work was restored to the industrial workless. On the other hand, the temporary rise had been profoundly welcomed by the official classes and others on fixed incomes. By contrast, the peasantry (two-thirds of the population) on the whole viewed it all with indifference as they were always able to sell their produce at something close to the world market price: possibly they were better off than any similar body in Europe. In the last months of 1921 the government had to face again the survival problems of the official classes.


Hedgehogging by Barton Biggs

activist fund / activist shareholder / activist investor, Alan Greenspan, asset allocation, backtesting, barriers to entry, Bear Stearns, Big Tech, book value, Bretton Woods, British Empire, business cycle, buy and hold, diversification, diversified portfolio, eat what you kill, Elliott wave, family office, financial engineering, financial independence, fixed income, full employment, global macro, hiring and firing, index fund, Isaac Newton, job satisfaction, junk bonds, low interest rates, margin call, market bubble, Mary Meeker, Mikhail Gorbachev, new economy, oil shale / tar sands, PalmPilot, paradox of thrift, Paul Samuelson, Ponzi scheme, proprietary trading, random walk, Reminiscences of a Stock Operator, risk free rate, Ronald Reagan, secular stagnation, Sharpe ratio, short selling, Silicon Valley, transaction costs, upwardly mobile, value at risk, Vanguard fund, We are all Keynesians now, zero-sum game, éminence grise

Everybody was deeply embarrassed, and ever since the big institutions have been obsessed with risk analytics and throw around terms like stress-testing portfolios, value at risk (VAR), and Sharpe ratios. The funds of funds employ sophisticated quantitative analytics to add value by strategically allocating among the different hedge-fund classes.The hedge-fund universe is usually broken down into seven broad investment style classifications.These are event driven, fixed-income arbitrage, global convertible bond arbitrage, equity market-neutral, long/short equity, global macro, and commodity trading funds. Each has its own, unique performance cycle. One year a fund of funds will be heavy in macro and long/short equity funds and be out of or have very little in equity market neutral and convertible arbitrage.

Two-thirds of the 24 European jumbo funds in the sample beat the average. Swensen maintains that in private equity the poor and mediocre performers stay that way. Just being in the asset class won’t do it. It’s very important to be with the real pros. He emphasizes that the difference between the twenty-fifth and seventy-fifth percentiles among U.S. fixed income managers is minimal, and even among equity managers it’s only three percentage points a year. But in the universe of private equity funds, this same performance differential exceeds 20 percentage points per annum. The Yale Endowment’s numbers are proof of this view. Its large private equity portfolio earned 37.6% over the 10 years that ended June 30, 2004, outperforming the return of a pool of private equity managers, compiled by the consulting firm Cambridge Associates, by 14.7% a year.

Meanwhile, today, back in the good old United States of America you might think private equity firms would be suffering because the IPO market has been slow and selective.They need to book gains to get paid their fees. However, the private equity guys are ingenious, and they have found a new escape hatch. The investment world is desperate for yield because interest rates on Treasury bonds are so meager. As a result, fixed income investors are reaching for yield by buying heavily into high yield, or in the parlance, junk bonds.The spread between the yield on junk and Treasuries is close to an all-time low. Everyone seems to have forgotten that from time to time, just when the buyers are frothing at the mouth about a new era, junk lives up to its name and defaults soar.


pages: 444 words: 151,136

Endless Money: The Moral Hazards of Socialism by William Baker, Addison Wiggin

Alan Greenspan, Andy Kessler, asset allocation, backtesting, bank run, banking crisis, Bear Stearns, Berlin Wall, Bernie Madoff, Black Swan, bond market vigilante , book value, Branko Milanovic, bread and circuses, break the buck, Bretton Woods, BRICs, business climate, business cycle, capital asset pricing model, carbon tax, commoditize, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, crony capitalism, cuban missile crisis, currency manipulation / currency intervention, debt deflation, Elliott wave, en.wikipedia.org, Fall of the Berlin Wall, feminist movement, fiat currency, fixed income, floating exchange rates, foreign exchange controls, Fractional reserve banking, full employment, German hyperinflation, Great Leap Forward, housing crisis, income inequality, index fund, inflation targeting, Joseph Schumpeter, Kickstarter, laissez-faire capitalism, land bank, land reform, liquidity trap, Long Term Capital Management, lost cosmonauts, low interest rates, McMansion, mega-rich, military-industrial complex, Money creation, money market fund, moral hazard, mortgage tax deduction, naked short selling, negative equity, offshore financial centre, Ponzi scheme, price stability, proprietary trading, pushing on a string, quantitative easing, RAND corporation, rent control, rent stabilization, reserve currency, risk free rate, riskless arbitrage, Ronald Reagan, Savings and loan crisis, school vouchers, seigniorage, short selling, Silicon Valley, six sigma, statistical arbitrage, statistical model, Steve Jobs, stocks for the long run, Tax Reform Act of 1986, The Great Moderation, the scientific method, time value of money, too big to fail, Two Sigma, upwardly mobile, War on Poverty, Yogi Berra, young professional

Through the founding of the Fed, also in 1913, the United States government regained the ability to print money extensively, which led to inflation that undercut the value of the dollar by nearly 50 percent over the ensuing three years. This eroded the purchasing power of those who bought some $17 billion of Liberty Bonds or otherwise lived on fixed income streams. (For comparison, nominal GDP had been about $32 billion in the 1907-1911 period.) While gold could still be demanded in exchange for dollars, an inconvenient check on government, during the interwar years creditors and debtors would become more apt to expand their balance sheets by pyramiding paper atop gold reserves.

When in October the stock market followed the credit market into the abyss, the lights flickered off. Despite unparalleled intervention, well into 2009 there remains a huge standoff between borrowers and lenders, and an inability for most market participants to comprehend why market prices for fixed income securities could sink below rationally computed values. The U.S. economy is creaking under the weight of public and private debt that reached 364 percent of GDP in 2008, up from 267 percent 10 years earlier and 188 percent 25 years previously. This is well above levels for the last century, including the Depression-era when the denominator, economic output, collapsed.

The Fed’s swapping out good assets for bad is the first step outlined in Bernanke’s 2002 speech, and it is clever in that it simply resets the clock for banks as if they had not made bad loans in the first place. When this remedy was applied in early 2008, the monetary base did not rise initially as a result, although it was hoped that the stimulation might catch on and expand money creation in banks and in the fixed income securities market. The crux of the problem can be seen clearly from the perspective of the financial institutions being rescued. To allude to the freezing pond allegory sketched out in the beginning of this book, the credit markets may have been melted loose by the Fed’s pouring salt on the ice, but the overall weather conditions remain the same.


pages: 261 words: 70,584

Retirementology: Rethinking the American Dream in a New Economy by Gregory Brandon Salsbury

Alan Greenspan, Albert Einstein, asset allocation, Bear Stearns, behavioural economics, buy and hold, carried interest, Cass Sunstein, credit crunch, Daniel Kahneman / Amos Tversky, diversification, estate planning, financial independence, fixed income, full employment, hindsight bias, housing crisis, loss aversion, market bubble, market clearing, mass affluent, Maui Hawaii, mental accounting, mortgage debt, mortgage tax deduction, National Debt Clock, negative equity, new economy, RFID, Richard Thaler, risk tolerance, Robert Shiller, side project, Silicon Valley, Steve Jobs, the rule of 72, Yogi Berra

The absence of one of these points of reference makes it impractical to plan financially to meet your objective or to assign an appropriate level of risk to your investment decisions. Traditionally, long-term investors have opted for greater risk on the belief that it would, over the right period of time, produce greater rewards. For example, historical data suggested that equity investments tend to outperform fixed income investments over time. However, the day-to-day volatility of the stock market generally makes equity investments a risky bet for short-term needs. In the context of retirement planning, equity investments provide long-term growth potential and a hedge against inflation but have greater volatility.

A story I read recently detailed that some retirees have stopped questioning their physicians and pharmacists about side effects and dosing for their medicine; now their questioning is entirely about cost! In fact, some people who are too well-off for government health insurance, but can’t afford their own insurance, are often weighing the needs of taking maintenance medications against more immediate needs, like food and shelter.32 When you retire, you will likely be on a fixed income. It may be a large income or it may be a small one, but you can rest assured that your health will require more attention and more money during your retirement. Indeed, your health will take a bigger percentage of your budget every day, every month, every year. People in and approaching retirement in most of the past decade have “debt loads that their parents would not have considered,” according to Sally Hurme of the AARP.33 Don’t be overconfident about your health or the certainty of government programs to be there for you.

But one thing that people forget about during that era of general prosperity is that inflation still existed. It may have been 1% or 2% annually, but it was still there. Even at that low level, inflation was doing what it always does: taking away purchasing power from consumers, especially consumers on a fixed income, such as retirees. Because the rate of inflation was relatively low, however, people didn’t pay much attention to it. Instead, they looked at their nominal returns over those years. A person who invested in the stock market on January 29, 1982, when the DJIA was 871.10, didn’t necessarily have 12.5 times more buying power with that money on January 31, 2000, when the Dow was 10,940.53.7 Many dollars that were invested in the stock market in 1982 and stayed there for the following 18 years increased many times in value, at a rate that far outpaced inflation.


pages: 459 words: 118,959

Confidence Game: How a Hedge Fund Manager Called Wall Street's Bluff by Christine S. Richard

activist fund / activist shareholder / activist investor, Alan Greenspan, Asian financial crisis, asset-backed security, banking crisis, Bear Stearns, Bernie Madoff, Blythe Masters, book value, buy and hold, Carl Icahn, cognitive dissonance, collateralized debt obligation, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, electricity market, family office, financial innovation, fixed income, forensic accounting, glass ceiling, Greenspan put, Long Term Capital Management, market bubble, money market fund, moral hazard, old-boy network, Pershing Square Capital Management, Ponzi scheme, profit motive, Savings and loan crisis, short selling, short squeeze, statistical model, stock buybacks, subprime mortgage crisis, white flight, zero-sum game

By late 2007, confidence in one financial institution after another cratered on fears they weren’t admitting the full extent of their losses, including those on massive portfolios of super-senior CDOs. “Anything else before we end for the day?” the other attorney asked. Ackman seized his chance. “It is worth remembering,” Ackman said, “that every Wall Street firm does a huge amount of business with the bond insurers, including MBIA, Ambac, and FSA. Frankly, the fixed-income markets are what have saved investment-banking profits, because the IPO [initial public offering] market is basically gone. That means MBIA might just be the biggest business generator on Wall Street,” Ackman added. “No one wants me to be right on MBIA.” The SEC attorneys told Ackman they’d be happy to hear his concerns about MBIA if he wanted to come back at a later date.

He described how the incentives to securitize and sell mortgages created enormous moral hazard in the mortgage market, how faulty structures allowed billions of dollars of doomed securities to be built out of the riskiest parts of bonds, and how small losses on $100 billion portfolios of collateralized-debt obligations (CDOs) could wipe out a bond insurer’s entire capital base. He also reviewed other issues specific to the insurance department’s role in overseeing the bond insurers, such as how bond insurers were engaging in prohibited credit-default swaps (CDSs) and how MBIA’s growing fixed-income arbitrage business amounted to a disguised dividend from its regulated insurance subsidiary. Ackman argued that Dinallo couldn’t stand by and allow the credit-rating companies to usurp the department’s role as the de facto regulator of bond insurers. The ABX index referencing triple-B-rated subprime mortgage bonds indicated investors expected to recover just 65 cents on the dollar for those bonds before the credit-rating companies began to downgrade the debt, he said.

There was strong demand for bond insurance, and the premiums that insurers could command in the current market had improved, said Patrick Kelly, head of CDOs and structured products at MBIA. “We want to take advantage of the current situation where we can, even in the ABS CDO market,” Kelly said. “We also want to avoid getting stuffed with the risk that people are just looking to get off their own books.” THREE WEEKS LATER, on August 24, 2007, Merrill Lynch’s head of fixed income, Osman Semerci, along with three other executives from Merrill, boarded a helicopter for the short flight to MBIA’s Armonk headquarters. Janet Tavakoli, a CDO guru who runs her own structured finance research firm in Chicago, later dubbed Merrill Lynch’s last-ditch effort to dump toxic securities on MBIA the “Apocalypse Now helicopter ride,” a reference to the scene in the Francis Ford Coppola movie in which U.S. helicopters level a Vietcong village while blaring Wagner’s highly dramatic “Ride of the Valkyries.”


pages: 422 words: 113,830

Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism by Kevin Phillips

"World Economic Forum" Davos, Alan Greenspan, algorithmic trading, asset-backed security, bank run, banking crisis, Bear Stearns, Bernie Madoff, Black Swan, Bretton Woods, BRICs, British Empire, business cycle, buy and hold, collateralized debt obligation, computer age, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency peg, diversification, Doha Development Round, energy security, financial deregulation, financial engineering, financial innovation, fixed income, Francis Fukuyama: the end of history, George Gilder, Glass-Steagall Act, housing crisis, Hyman Minsky, imperial preference, income inequality, index arbitrage, index fund, interest rate derivative, interest rate swap, Joseph Schumpeter, junk bonds, Kenneth Rogoff, large denomination, Long Term Capital Management, low interest rates, market bubble, Martin Wolf, Menlo Park, Michael Milken, military-industrial complex, Minsky moment, mobile money, money market fund, Monroe Doctrine, moral hazard, mortgage debt, Myron Scholes, new economy, oil shale / tar sands, oil shock, old-boy network, peak oil, plutocrats, Ponzi scheme, profit maximization, prosperity theology / prosperity gospel / gospel of success, Renaissance Technologies, reserve currency, risk tolerance, risk/return, Robert Shiller, Ronald Reagan, Satyajit Das, Savings and loan crisis, shareholder value, short selling, sovereign wealth fund, stock buybacks, subprime mortgage crisis, The Chicago School, Thomas Malthus, too big to fail, trade route

Yes, the profits had indeed been huge. JPMorgan Chase estimated that in 2006, banks globally brought in $30 billion from their asset-backed securities business, and Bloomberg News later surmised that securitized products produced one-fifth of bank revenues during the preceding decade. In 2008, the fixed-income research firm CreditSights Inc. estimated that over-the-counter sales of derivatives accounted for as much as 40 percent of the profits of firms like Goldman Sachs and Morgan Stanley.13 However, the potential vulnerabilities were mind boggling. Back in 1993, the notional or nominal value of U.S. derivative instruments had been some $14 trillion.

Banks, in particular, could use these initially cheap pseudo-insurance policies as wraparounds to upgrade their speculative investments to triple-A, respecting which the bank in question would not have to hold collateral. This allowed banks to leverage themselves to the hilt and shrug off low assets quality—“we’re insured, aren’t we?” High returns drove the marketing. “It was a quest for yield,” said Don Kowalchik, fixed-income strategist at St. Louis-based A.G. Edwards. “As soon as you get all of these synthetic products based on other products, it’s a cancer that refuses to stop spreading.”15 Nonspecialist readers who have gotten this far may be starting to chuckle. Between 2001 and 2008, according to Bloomberg News, credit default swaps surged from a notional value of $681 billion to a notional value of $62 trillion.

Like digital buccaneers, and hardly more restrained than their seventeenth-century predecessors, they arbitraged the nooks and crannies of global finance, capturing even more return on capital than casino operators made from one-armed bandits and favorable gaming-table odds. As the mortgage markets seized up in mid-2007, shrewd players understood the virginity of the terrain. Jack Malvey, the chief global fixed-income strategist for Lehman Brothers, explained: “This is what we would characterize as the first correction of the neo-credit market. We’ve never had a correction with these types of institutions and these types of instruments.”3 Others distilled the doubts about hedge funds themselves—the exotic quantitative mathematics, the obscure language of fixed-leg features and two-step binomial trees, and the humongous bank loans needed for the fifteen- or twenty-to-one leverage that alchemized mere decimal points into financial Olympic gold medals.


pages: 236 words: 77,735

Rigged Money: Beating Wall Street at Its Own Game by Lee Munson

affirmative action, Alan Greenspan, asset allocation, backtesting, barriers to entry, Bear Stearns, Bernie Madoff, Bretton Woods, business cycle, buy and hold, buy low sell high, California gold rush, call centre, Credit Default Swap, diversification, diversified portfolio, estate planning, fear index, fiat currency, financial engineering, financial innovation, fixed income, Flash crash, follow your passion, German hyperinflation, Glass-Steagall Act, global macro, High speed trading, housing crisis, index fund, joint-stock company, junk bonds, managed futures, Market Wizards by Jack D. Schwager, Michael Milken, military-industrial complex, money market fund, moral hazard, Myron Scholes, National best bid and offer, off-the-grid, passive investing, Ponzi scheme, power law, price discovery process, proprietary trading, random walk, Reminiscences of a Stock Operator, risk tolerance, risk-adjusted returns, risk/return, Savings and loan crisis, short squeeze, stocks for the long run, stocks for the long term, too big to fail, trade route, Vanguard fund, walking around money

My job was to figure out what the money was supposed to do for him and what type of risk he was interested in taking—or budgeting, as I call it. He quickly said, “I am an income investor.” To me, that means a person that needs a high rate of income to live off of his portfolio. At this point the average stockbroker would have enough information to start putting together a list of fixed-income securities that are appropriate for a gentleman of that age. Once the box is checked, any movement is frowned upon. Why? Look at it this way, if you change a client’s profile as a broker, you may have done it wrong in the first place or are simply changing it to fit the product being sold that day.

SPDR Barclays Capital High Yield Bond ETF (JNK) may be the worst bond strategy of all time. Now that I have your attention, let’s break down the major issues with junk bonds, and more specifically ETFs that trade baskets of those bonds. Don’t worry, there is a place for these ugly ducklings, but they are not for those trying to get fixed income risk and return. If that doesn’t keep you reading, nothing will. The junk bond market developed by Michael Milken in the 1980s is predominately a U.S. phenomenon, though they exist anywhere there is tradable debt. Simply stated, they are bonds with a poor rating. Most notably, junk bonds have higher credit risk and illiquidity, but also higher interest payments—as long as they keep paying.

I thought inflation and bond declines would have happened by now, but with trillions of extra dollars in the system, the bull run received a shot in the arm. One of the primary reasons for including bonds in a portfolio is the diversification factor, coupled with income generation. That said, how is an investor supposed to commit large allocations of capital in fixed income ETFs with that sinking feeling that this 30-year party may be over? MLPs are neither stock nor bond, but they can be an alternative to a portfolio seeking diversification and income outside of traditional asset classes. If you were thinking of buying higher-volatility bond ETFs like HYG, JNK, or PFD, read on and find another way to capture higher risk return and diversification.


pages: 304 words: 99,836

Why I Left Goldman Sachs: A Wall Street Story by Greg Smith

Alan Greenspan, always be closing, asset allocation, Bear Stearns, Black Swan, bonus culture, break the buck, collateralized debt obligation, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, delayed gratification, East Village, fear index, financial engineering, fixed income, Flash crash, glass ceiling, Glass-Steagall Act, Goldman Sachs: Vampire Squid, high net worth, information asymmetry, London Interbank Offered Rate, mega-rich, money market fund, new economy, Nick Leeson, proprietary trading, quantitative hedge fund, Renaissance Technologies, short selling, short squeeze, Silicon Valley, Skype, sovereign wealth fund, Stanford marshmallow experiment, statistical model, technology bubble, too big to fail

We were told in no uncertain terms that we were to wear the name tags around our necks every moment we were on the premises; failure to do so would lead to big trouble. The firm wanted there to be no doubt on the trading floor as to who the interns were. Goldman ran a summer intern program in each of its divisions: one in Equities; one in Fixed Income, Currency and Commodities (FICC); one in Investment Management; one in Research, and so on. Back when I’d passed the interview process, I’d been offered two internships: one in Equities, in New York; and one in Investment Management, in Chicago. I had learned something about private wealth management the previous summer, at Paine Webber: it’s a slower business, a smaller environment.

But if understood correctly, derivatives can help investors hedge against (or speculate on) very specific risks. The term derivatives can be used as a catchall to include products such as options, swaps, and futures. And you can get derivatives on all asset classes: equities, foreign exchange, commodities, fixed income. At Goldman Sachs, derivatives teams were divided by asset class. Corey’s Futures Execution desk was a subsector of the broader Derivatives Sales team. I took a deep breath and told Corey the whole truth. “I did a little bit of it in college,” I said. At Stanford I’d taken a course called Economics 140, which dealt with the basics of options, futures, and other derivatives.

Some people made a mess of jamming the triplicate forms into the very thin slot of the time stamp; now and then, when things slowed down a little, Corey and I would try to top each other at the Zen of time-stamping, the goal being to insert a ticket then pull it out—zip!—in one swift and seamless motion. Someone always has to rain on your parade, though. Lloyd Blankfein, who in early 2003 was a vice chairman who oversaw the FICC (Fixed Income, Currency and Commodities) and Equities divisions, used to like to cruise by Derivatives Sales to say hello to Daffey and hear the latest buzz about his pals Jones, Bacon, and Druckenmiller. Lloyd wanted to know, “What’s the smart money doing?” One day he stopped at my desk and raised an eyebrow.


Mathematical Finance: Core Theory, Problems and Statistical Algorithms by Nikolai Dokuchaev

Black-Scholes formula, Brownian motion, buy and hold, buy low sell high, discrete time, electricity market, fixed income, implied volatility, incomplete markets, martingale, random walk, risk free rate, short selling, stochastic process, stochastic volatility, transaction costs, volatility smile, Wiener process, zero-coupon bond

A similar approach can be used for the case of random r. Remember that, in our generic setting, we called the risk-free investment a bond, and it was considered as a riskfree investment. In reality, there are many different bonds (or fixed income securities). In fact, they are risky assets, similarly to stocks (discussed in the next section). If r is random, then the market can be made complete by including additional fixed income securities. © 2007 Nikolai Dokuchaev Continuous Time Market Models 101 5.12 A generalization: multistock markets Similarly, we can consider a multistock market model, when there are N stocks. Let {Si(t)} be the vector of the stock prices.

(Hint: consider first N=2 and Ti≥T.) 5.13 Bond markets Bonds are being sold an initial time for a certain price, and the owners are entitled to obtain certain amounts of cash (higher than this initial price) in fixed time (we restrict our consideration to zero-coupon bonds only). Therefore, the owner can have fixed income. Typically, there are many different bonds on the market with different times of maturity, and they are actively traded, so the analysis of bonds is very important for applications. For the bond-and-stock market models introduced above, we refer to bonds as a riskfree investment similar to a cash account.

© 2007 Nikolai Dokuchaev Mathematical Finance 104 The last feature (iii) has explicit economical sense: there are many different bonds (since bonds with different maturities represent different assets) but their evolution depends on few factors only, and the main factors are the ones that describe the evolution of r(t). The multistock market model can be used as a model for a market with many different bonds (or fixed income securities). Assume that we are using a multistock market model described above as the model for bonds (i.e., Si(t) are the bond prices). Feature (iii) can be expressed as the condition that σij(t)≡0 for all j>n,=1,…, N, where n is the number of driving Wiener processes, N is the number of bonds, N>>n.


pages: 269 words: 83,307

Young Money: Inside the Hidden World of Wall Street's Post-Crash Recruits by Kevin Roose

activist fund / activist shareholder / activist investor, Basel III, Bear Stearns, Carl Icahn, cognitive dissonance, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, deal flow, discounted cash flows, Donald Trump, East Village, eat what you kill, eurozone crisis, financial engineering, fixed income, forward guidance, glass ceiling, Goldman Sachs: Vampire Squid, hedonic treadmill, information security, Jane Street, jitney, junk bonds, Kevin Roose, knowledge worker, Michael Milken, new economy, Occupy movement, off-the-grid, plutocrats, proprietary trading, Robert Shiller, selection bias, shareholder value, side project, Silicon Valley, Skype, Steve Jobs, tail risk, The Predators' Ball, too big to fail, two and twenty, urban planning, We are the 99%, work culture , young professional

He talked through the possible outcomes and managed to convince the interviewer that he knew something about game theory and probability. Two weeks later, Samson got an e-mail telling him that he’d gotten an internship in Goldman’s fixed-income, currencies, and commodities division. Known as FICC, the division houses all of Goldman’s bond trading, mortgage sales, and other types of fixed-income transactions. It was also one of the most profitable areas of the firm, and accounted for anywhere from 50 to 70 percent of the entire firm’s revenue in a given year. In the moneymaking theater that was Goldman Sachs, he’d been invited to sit in the front row.

Later that summer, I met Chelsea and several other analysts in her group at a bar in Murray Hill. It was pub quiz night, but none of them wanted to play. They were all more interested in gossiping about their third-year plans. Chelsea’s best friend at work, who worked in a related fixed-income group, said she’d be making at least $150,000, including her bonus, if she stayed for a third year. Another fixed-income analyst said he was going to try and re-up for a third year as well. But Chelsea, who rested her chin in her hand on the bar, couldn’t muster any enthusiasm at all. “I don’t mean to act like a rebel,” she said, “but I don’t want to stay.”

To them, it was as if Tiffany had merged with Costco, and now they were stuck selling pristine jewels next to freezers of chicken cutlets. The new analysts spent four weeks in the ballroom of the Crowne Plaza, being put through their paces in a Finance 101 course that taught them the basics of equities, fixed income, corporate valuation, and other skills they would need for their jobs. Most of the job openings in the highly sought-after groups had been filled by Merrill kids. For the people who had originally been hired by Bank of America there were a few positions open in mortgage sales, a rate sales job or two, and a handful of openings in something called public finance.


pages: 350 words: 103,270

The Devil's Derivatives: The Untold Story of the Slick Traders and Hapless Regulators Who Almost Blew Up Wall Street . . . And Are Ready to Do It Again by Nicholas Dunbar

Alan Greenspan, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, behavioural economics, Black Swan, Black-Scholes formula, bonus culture, book value, break the buck, buy and hold, capital asset pricing model, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, commoditize, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, delayed gratification, diversification, Edmond Halley, facts on the ground, fear index, financial innovation, fixed income, George Akerlof, Glass-Steagall Act, Greenspan put, implied volatility, index fund, interest rate derivative, interest rate swap, Isaac Newton, John Meriwether, junk bonds, Kenneth Rogoff, Kickstarter, Long Term Capital Management, margin call, market bubble, money market fund, Myron Scholes, Nick Leeson, Northern Rock, offshore financial centre, Paul Samuelson, price mechanism, proprietary trading, regulatory arbitrage, rent-seeking, Richard Thaler, risk free rate, risk tolerance, risk/return, Ronald Reagan, Salesforce, Savings and loan crisis, seminal paper, shareholder value, short selling, statistical model, subprime mortgage crisis, The Chicago School, Thomas Bayes, time value of money, too big to fail, transaction costs, value at risk, Vanguard fund, yield curve, zero-sum game

For the Love of the Game When I first met Osman Semerci, in January 2007, he was beaming with pleasure. It was not just the $20 million bonus he had recently been awarded that caused him to glow with self-satisfaction as he flashed million-dollar smiles while sharing a celebratory dinner with a gaggle of his tuxedo-clad colleagues. As the dapper, Turkish-born head of fixed income, currencies, and commodities at Merrill Lynch cracked jokes, he was proudly clutching a phallic, hard-plastic trophy with the logo of the trade magazine I worked for honoring his firm as “House of the Year.” By this time, my professional life had become synced with the annual cycle of the bonus season.

Most of the journalists present still thought of the investment bank in terms of its stellar reputation for advising companies and governments on privatizations and takeovers, but I was introduced to a man lurking on the sidelines, a rising star at the firm. Michael Sherwood had just become European head of FICC (fixed income, currencies, and commodities), perhaps Goldman’s least understood but most profitable division. Trading—derivatives in particular—was his forte. When credit derivatives were invented in the mid-1990s, Goldman held back. But once the utility of the new tools had been demonstrated, Sherwood became the firm’s leading default swap visionary.

The newly invented tool was going to lead to the “derivatization of credit,” he would tell colleagues. He believed the market approach to buying, selling, and owning corporate bonds had a massive disadvantage to the much more transparent markets in equities. If you like the prospects of a company, say, Walmart, an equity trader only has to look at one type of security: Walmart’s stock. In fixed income, a company might have hundreds of different bonds in the market, repayable in different currencies, and with myriad maturity dates and interest payment profiles. Which one should you buy or sell? You had to be a geek to figure it out. With credit default swaps, all that detail could be stripped away.


pages: 349 words: 134,041

Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives by Satyajit Das

accounting loophole / creative accounting, Alan Greenspan, Albert Einstein, Asian financial crisis, asset-backed security, Bear Stearns, beat the dealer, Black Swan, Black-Scholes formula, Bretton Woods, BRICs, Brownian motion, business logic, business process, buy and hold, buy low sell high, call centre, capital asset pricing model, collateralized debt obligation, commoditize, complexity theory, computerized trading, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, currency peg, currency risk, disinformation, disintermediation, diversification, diversified portfolio, Edward Thorp, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, financial engineering, financial innovation, fixed income, Glass-Steagall Act, Haight Ashbury, high net worth, implied volatility, index arbitrage, index card, index fund, interest rate derivative, interest rate swap, Isaac Newton, job satisfaction, John Bogle, John Meriwether, junk bonds, locking in a profit, Long Term Capital Management, low interest rates, mandelbrot fractal, margin call, market bubble, Marshall McLuhan, mass affluent, mega-rich, merger arbitrage, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mutually assured destruction, Myron Scholes, new economy, New Journalism, Nick Leeson, Nixon triggered the end of the Bretton Woods system, offshore financial centre, oil shock, Parkinson's law, placebo effect, Ponzi scheme, proprietary trading, purchasing power parity, quantitative trading / quantitative finance, random walk, regulatory arbitrage, Right to Buy, risk free rate, risk-adjusted returns, risk/return, Salesforce, Satyajit Das, shareholder value, short selling, short squeeze, South Sea Bubble, statistical model, technology bubble, the medium is the message, the new new thing, time value of money, too big to fail, transaction costs, value at risk, Vanguard fund, volatility smile, yield curve, Yogi Berra, zero-coupon bond

Buffet is the ‘Oracle of Omaha’. In 2003 Buffet took aim at derivatives, calling them ‘financial weapons of mass destruction’.1 He was joined in this crusade by a few notable figures. A significant fellow-traveller was Bill Gross, who managed PIMCO’s (one of the world’s largest investment management companies) vast fixed income fund. Their complaint seemed to be that derivative contracts had DAS_C02.QXP 8/7/06 20 4:22 PM Page 20 Tr a d e r s , G u n s & M o n e y hidden losses that would eventually emerge. This would affect the banks and insurance companies who traded in these instruments. They were concerned that derivatives allowed companies and investors to gamble with other people’s money.

This takes the form of a random brutal execution of a formerly trusted associate for no plausible reason. It has no purpose other than to engender fear in the remaining followers. The major court game is ‘divide and conquer’, with the ruler playing their people off against each other. In one case, the head of fixed income promised his job to all seven lieutenants, simultaneously (I was one of those to whom the job was promised). It all ends in a palace coup d’état then the cycle just repeats itself. Uncivil wars Overlaps between units abound. One bank once espoused a Maoist philosophy – ‘Let many flowers bloom’.

Nero is a large man, about as wide as he is tall; another of his nicknames was ‘slug’. The older man had been asking his colleague, ‘What did the big fat whale say?’ Perhaps the most embarrassing cross-cultural incident involved a trader visiting Japan. He thought it might be useful to have his business cards translated into Japanese. His official title was ‘Trader–Fixed Income’. The Japanese translation was ‘Trader on Fixed Salary’. The card brought strange looks from the bemused Japanese clients. It seemed more than a little was lost in translation. A day in the life Recently, I had lunch with Steve; we had known each other a long time; we had worked together and afterwards had kept in touch.


pages: 829 words: 187,394

The Price of Time: The Real Story of Interest by Edward Chancellor

"World Economic Forum" Davos, 3D printing, activist fund / activist shareholder / activist investor, Airbnb, Alan Greenspan, asset allocation, asset-backed security, assortative mating, autonomous vehicles, balance sheet recession, bank run, banking crisis, barriers to entry, Basel III, Bear Stearns, Ben Bernanke: helicopter money, Bernie Sanders, Big Tech, bitcoin, blockchain, bond market vigilante , bonus culture, book value, Bretton Woods, BRICs, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, cashless society, cloud computing, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, commodity super cycle, computer age, coronavirus, corporate governance, COVID-19, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cryptocurrency, currency peg, currency risk, David Graeber, debt deflation, deglobalization, delayed gratification, Deng Xiaoping, Detroit bankruptcy, distributed ledger, diversified portfolio, Dogecoin, Donald Trump, double entry bookkeeping, Elon Musk, equity risk premium, Ethereum, ethereum blockchain, eurozone crisis, everywhere but in the productivity statistics, Extinction Rebellion, fiat currency, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, Flash crash, forward guidance, full employment, gig economy, Gini coefficient, Glass-Steagall Act, global reserve currency, global supply chain, Goodhart's law, Great Leap Forward, green new deal, Greenspan put, high net worth, high-speed rail, housing crisis, Hyman Minsky, implied volatility, income inequality, income per capita, inflation targeting, initial coin offering, intangible asset, Internet of things, inventory management, invisible hand, Japanese asset price bubble, Jean Tirole, Jeff Bezos, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Rogoff, land bank, large denomination, Les Trente Glorieuses, liquidity trap, lockdown, Long Term Capital Management, low interest rates, Lyft, manufacturing employment, margin call, Mark Spitznagel, market bubble, market clearing, market fundamentalism, Martin Wolf, mega-rich, megaproject, meme stock, Michael Milken, Minsky moment, Modern Monetary Theory, Mohammed Bouazizi, Money creation, money market fund, moral hazard, mortgage debt, negative equity, new economy, Northern Rock, offshore financial centre, operational security, Panopticon Jeremy Bentham, Paul Samuelson, payday loans, peer-to-peer lending, pensions crisis, Peter Thiel, Philip Mirowski, plutocrats, Ponzi scheme, price mechanism, price stability, quantitative easing, railway mania, reality distortion field, regulatory arbitrage, rent-seeking, reserve currency, ride hailing / ride sharing, risk free rate, risk tolerance, risk/return, road to serfdom, Robert Gordon, Robinhood: mobile stock trading app, Satoshi Nakamoto, Satyajit Das, Savings and loan crisis, savings glut, Second Machine Age, secular stagnation, self-driving car, shareholder value, Silicon Valley, Silicon Valley startup, South Sea Bubble, Stanford marshmallow experiment, Steve Jobs, stock buybacks, subprime mortgage crisis, Suez canal 1869, tech billionaire, The Great Moderation, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thorstein Veblen, Tim Haywood, time value of money, too big to fail, total factor productivity, trickle-down economics, tulip mania, Tyler Cowen, Uber and Lyft, Uber for X, uber lyft, Walter Mischel, WeWork, When a measure becomes a target, yield curve

As duration lengthened and the size of the global bond market expanded after 2008, the total loss exposure for fixed-income investors climbed inexorably. With trillions of dollars’ worth of bonds trading at negative yields, bondholders faced huge losses if interest rates were to rise unexpectedly. According to Goldman Sachs, the aggregate duration of corporate bonds around the world doubled between 2006 and 2016. By the latter date, Bloomberg estimated that a mere half a percentage point rate increase would generate $1.6 trillion of losses in the fixed-income markets.28 A dislocation in the bond markets posed a potential threat to the market for financial derivatives, those financial weapons of mass destruction, as Warren Buffett called them, whose nominal exposure was measured in the quadrillions (thousand million million) of dollars, most of which were tied to interest-rate contracts.

In the second decade of the new millennium, the bond market showed several bubble characteristics: abnormal valuations; a ‘this-time-is-different’ mindset among investors; moral hazard induced by continuous central bank interventions; massive bond issuance; and a widespread myopia that blinded investors to the prospect of losses. The bond vigilante, ever alert to the risks of fixed-income investing and demanding protection in the form of adequate interest compensation, was laid to rest. No capitalist was ever more supine than the millennial fixed-income investor. How else could one explain thirty-year Swiss bonds paying less than zero, or Eurozone sovereign debt being styled a ‘negative haven’ just months after the region emerged from its debt crisis?29 ‘The notion that negative-yielding bonds, denominated in a fiat currency, are a “safe” asset is a misconception that belongs in the next edition of Extraordinary Popular Delusions and the Madness of Crowds,’ asserted James Grant, editor of Grant’s Interest Rate Observer in the summer of 2016.30 ‘The biggest bond bubble in world history,’ pronounced hedge fund manager Paul Singer, a month earlier.31 Alan Greenspan was of the same opinion.

Yet Galiani’s description of interest as an insurance premium is also strikingly modern. Finance in the twenty-first century is underpinned by the role that interest plays in pricing risk. An enormous variety of risks are incorporated into the rate of interest: credit risk (which can be divided into default and recovery risk), legal risk, liquidity risk and inflation risk. Fixed-income bonds are exposed to future changes in interest rates (known as ‘duration risk’). A bank acts much like an insurance company. The spread between what the bank charges for its loans and pays on deposits is akin to an insurance premium.fn2 In fact, bonds can be replicated with insurance contracts, known as credit default swaps (CDS).


Quantitative Trading: How to Build Your Own Algorithmic Trading Business by Ernie Chan

algorithmic trading, asset allocation, automated trading system, backtesting, Bear Stearns, Black Monday: stock market crash in 1987, Black Swan, book value, Brownian motion, business continuity plan, buy and hold, classic study, compound rate of return, Edward Thorp, Elliott wave, endowment effect, financial engineering, fixed income, general-purpose programming language, index fund, Jim Simons, John Markoff, Long Term Capital Management, loss aversion, p-value, paper trading, price discovery process, proprietary trading, quantitative hedge fund, quantitative trading / quantitative finance, random walk, Ray Kurzweil, Renaissance Technologies, risk free rate, risk-adjusted returns, Sharpe ratio, short selling, statistical arbitrage, statistical model, survivorship bias, systematic trading, transaction costs

For example, the Canadian dollar/Australian dollar (CAD/AUD) cross-currency rate is quite stationary, both being commodities currencies. Numerous pairs of futures as well as well as fixed-income instruments can be found to be cointegrating as well. (The simplest examples of cointegrating futures pairs are calendar spreads: long and short futures contracts of the same underlying commodity but different expiration months. Similarly for fixed-income instruments, one can long and short bonds by the same issuer but of different maturities.) FACTOR MODELS Financial commentators often say something like this: “The current market favors value stocks,” “The market is focusing on earnings growth,” or “Investors are paying attention to inflation numbers.”

Since the actual returns distributions have fat tails, one should be quite wary of using too much leverage on normally low-beta stocks. SUMMARY This book has been largely about a particular type of quantitative trading called statistical arbitrage in the investment industry. Despite this fancy name, statistical arbitrage is actually far simpler than trading derivatives (e.g., options) or fixed-income instruments, both conceptually and mathematically. I have described a large part of the statistical arbitrageur’s standard arsenal: mean reversion and momentum, regime switching, stationarity and cointegration, arbitrage pricing theory or factor model, seasonal trading models, and, finally, high-frequency trading.

Some of the toolboxes useful to quantitative traders are the optimization, partial differential equations P1: JYS app JWBK321-Chan 168 September 24, 2008 14:13 Printer: Yet to come APPENDIX (for derivative traders), genetic algorithms, statistics, neural networks, signal processing, wavelet, financial, financial derivatives, GARCH, financial times series, datafeed, and fixed-income toolboxes. If these toolboxes are too costly, or if they still do not meet all your needs, there are also a number of free user-contributed toolboxes available for download from the Internet. I have introduced one of them in this book: the Econometrics toolbox developed by James LeSage (www.spatial-econometrics.com).


pages: 43 words: 11,160

Best Places to Retire: The Top 15 Affordable Towns for Retirement on a Budget (Retirement Books) by Clayton Geoffreys

fixed income, The 4% rule

We get used to having a stable source of income and cash inflow when we are still working and once we retire, all of that can change drastically. It's important that we make plans or a chart for our monthly or weekly expenses during retirement. Money can be depleted easily if all you do is spend without keeping a close watch. Be sure to list down all of your fixed expenses (groceries, food, rent, and taxes) based on your fixed income or asset. What Do You Do with Your Personal Savings? People immediately jump to the conclusion that their entire life savings are limitless, but unless you have invested some of your finances elsewhere, then there is a big chance that your life savings are going to run out in time. Instead, try to search for retirement savings accounts in your area.

However, it does not stop there, because it’s best to look at other choices as you might be able to find a more suitable place than the one you are looking at right now. There are costs and expenses in everything so be sure to keep your savings and expenditures in check. It’s ideal to match your fixed income or fixed assets along with your fixed expenses to make sure that you will not fall into financial trouble. Also, when you withdraw money from your retirement savings, keep it at a diminutive amount, around 2% per annum or if you retired at a much later age like 70, you can increase it to 4% or 6% per annum.


pages: 339 words: 95,270

Trade Wars Are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace by Matthew C. Klein

Alan Greenspan, Albert Einstein, Asian financial crisis, asset allocation, asset-backed security, Berlin Wall, Bernie Sanders, Branko Milanovic, Bretton Woods, British Empire, business climate, business cycle, capital controls, centre right, collective bargaining, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, deglobalization, deindustrialization, Deng Xiaoping, Donald Trump, Double Irish / Dutch Sandwich, Fall of the Berlin Wall, falling living standards, financial innovation, financial repression, fixed income, full employment, George Akerlof, global supply chain, global value chain, Great Leap Forward, high-speed rail, illegal immigration, income inequality, intangible asset, invention of the telegraph, joint-stock company, land reform, Long Term Capital Management, low interest rates, Malcom McLean invented shipping containers, manufacturing employment, Martin Wolf, mass immigration, Mikhail Gorbachev, Money creation, money market fund, mortgage debt, New Urbanism, Nixon triggered the end of the Bretton Woods system, offshore financial centre, oil shock, open economy, paradox of thrift, passive income, reserve currency, rising living standards, Robert Shiller, Ronald Reagan, savings glut, Scramble for Africa, sovereign wealth fund, stock buybacks, subprime mortgage crisis, The Nature of the Firm, The Wealth of Nations by Adam Smith, Tim Cook: Apple, trade liberalization, Wolfgang Streeck

The total supply of U.S. corporate debt issued by nonfinancial companies grew by just $200 billion between the start of 2002 and the end of 2007, and most of that debt was issued at the end of the period. At the same time, pension funds and life insurers the world over needed to buy more fixed income to offset the growth of their long-term liabilities. Even without Asian and Middle Eastern reserve managers hoovering up every new U.S. Treasury bond and much of the debt issued by Fannie and Freddie, there would have been a fundamental shortage of safe assets relative to demand. The heightened demand for U.S. fixed income needed to be matched with a massive increase in American borrowing, but neither the American government nor its businesses were willing to participate.

From 1998 through 2017, American companies operating in the seven corporate tax havens “earned” and then “reinvested” more than $2.1 trillion of profits. Over the same period, American companies operating in the rest of the world earned and reinvested less than $1.5 trillion in profits—a difference of roughly $640 billion.38 Most of this money ended up back in the United States as fixed-income investments even though it was considered foreign for tax purposes. Company reports are transparent about this. Apple’s 2017 annual report describes how most of its financial assets are “held by foreign subsidiaries” yet invested in “dollar-denominated holdings.” Microsoft’s 2017 annual report says that its “investments are predominantly U.S. dollar-denominated securities” even though it also says that 96 percent of its financial assets are “held by our foreign subsidiaries and would be subject to material repatriation tax effect.”39 Between the start of 2012 and the end of 2017, U.S. companies reinvested about $1.2 trillion in the main corporate tax havens, according to the Bureau of Economic Analysis.

The loan was a great success for investors and the capital markets, however, and the newly emerging international loan market subsequently took off. Bankers made very large profits on limited risk. British investors receiving 4 percent on their own government’s perpetual bonds were eager to purchase fixed income with 6 percent coupons at initial prices ranging from 80 percent to 84 percent of face value from a country that, as many promoters and journalists suggested, seemed really no different from the United States forty years earlier. The Colombian bond quickly traded up in the secondary market. Thanks to the success of the 1822 Colombian loan, several other sovereign borrowers came to market that year.


pages: 206 words: 70,924

The Rise of the Quants: Marschak, Sharpe, Black, Scholes and Merton by Colin Read

Abraham Wald, Albert Einstein, Bayesian statistics, Bear Stearns, Black-Scholes formula, Bretton Woods, Brownian motion, business cycle, capital asset pricing model, collateralized debt obligation, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, discovery of penicillin, discrete time, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, fixed income, floating exchange rates, full employment, Henri Poincaré, implied volatility, index fund, Isaac Newton, John Meriwether, John von Neumann, Joseph Schumpeter, Kenneth Arrow, Long Term Capital Management, Louis Bachelier, margin call, market clearing, martingale, means of production, moral hazard, Myron Scholes, Paul Samuelson, price stability, principal–agent problem, quantitative trading / quantitative finance, RAND corporation, random walk, risk free rate, risk tolerance, risk/return, Robert Solow, Ronald Reagan, shareholder value, Sharpe ratio, short selling, stochastic process, Thales and the olive presses, Thales of Miletus, The Chicago School, the scientific method, too big to fail, transaction costs, tulip mania, Works Progress Administration, yield curve

Indeed, in 1976, Merton and Scholes teamed up to create the world’s first such instrument in the USA, the Money Market/Options Fund. Options can also be used to protect against a declining yield on a fixed income security. Alternatively, an investor can book some profits immediately in the security by selling a call on a bond. If the bond price rises above a certain level, the seller of the call must sacrifice the underlying bond and in turn sacrifice the gain above the exercise price, but is able to book some profit with certainty. Assuming that these fixed-income options are properly priced in an efficient market, we can even calculate the implied volatility by solving the Black-Scholes equation for the volatility necessary to generate the prevailing price.

Both Merton and Scholes also supervised graduate students and consulted with mutual fund and investment houses part time. On many occasions, they had the chance to work with John Meriwether, the influential and successful investment director of Salomon Brothers, a significant employer of MIT finance graduates. The investment house’s proprietary algorithms for the trading of fixed-income securities employed Black-Scholes-Merton models that had been modified and extended in-house to earn arbitrage profits for Salomon Brothers. For ten years, from 1978 to 1987, Merton continued to explore issues of risk bearing and sharing, but increasingly from an institutional perspective. During this period, he served as the President of the American Finance Association, and explored measures of market efficiency.

He also received a Doctor of Management Science (Honoris Causa) degree from National Sun Yat-Sen University in 1998, a Doctor of Science (Honoris Causa) degree from the Athens 174 The Rise of the Quants University of Economics and Business in 2003, a Doctor Honoris Causa degree from the Universidad Nacional Mayor de San Marcos of Lima, Peru, a Doctor of Philosophy Honoris Causa degree from the Universidad Nacional Federico Villarreal, Lima, in 2004, and a Doctor of Science, Honoris Causa degree from Claremont Graduate University in California in 2008. Merton remains a member of the National Bureau of Economic Research and of the International Board of Scientific Advisers of the Tinbergen Institute. He serves on a number of advisory and editorial boards, including the Journal of Fixed Income, the Journal of Banking and Finance, and the Journal of Financial Education. He sits on the advisory boards of the European Finance Review, the International Journal of Theoretical and Applied Finance, Mathematical Finance, and the Review of Derivatives Research. Despite his exhilarating and ultimately historically painful experience with Long Term Capital Management, he remains the consummate scholar and academic.


pages: 212 words: 70,224

How to Retire the Cheapskate Way by Jeff Yeager

asset allocation, car-free, employer provided health coverage, estate planning, FedEx blackjack story, financial independence, fixed income, Pepto Bismol, pez dispenser, rent control, ride hailing / ride sharing, risk tolerance, Ronald Reagan, Zipcar

Because I don’t write traditional personal finance books, I always feel compelled to give readers a few words of advance warning about what to expect. As I often say: I don’t write books about how to get rich; I write books about how to get happy, perhaps with what you already have. That seems to me to be the real key to enjoying life, particularly when it comes to enjoying retirement, when many will be living on a fixed income. So by way of warning, if you’re looking for a book about retirement investing—particularly magical ways to hatch an ostrich-size retirement nest egg overnight without working or planning for it—this isn’t that book. The good news is, most books written about retirement focus almost exclusively on investing, so go pick up one of those books instead.

That means you’ll need an annual income of $51,000 in your first year of retirement, with cost-of-living increases factored in going forward. Like nearly three-quarters of all Americans today, you’re not lucky enough to have a traditional pension provided by your employer(s), one that would guarantee you an income stream for life. Nor do you have any annuities to provide additional fixed income. So the only income other than what you draw from your 401(k) and other savings will be Social Security, which, based on your work history, you calculate will be about $1,700 per month, or $20,400 per year. That leaves a difference of $30,600 per year to be made up from your nest egg. Assuming you withdraw 3 percent annually from your nest egg, that means—you guessed it—you need roughly ONE MILLION DOLLARS ($1,020,000, to be exact) in retirement savings in order to generate the level of income the experts insist you’ll need to live on in retirement.

Most respondents said yes, their non-healthcare-related spending has definitely decreased—even dramatically so—with age. The interesting thing, though, was some of the reasons, stories, and explanations readers gave regarding this phenomenon: “Yes, I am getting cheaper the older I get. I think I am getting ready to live on a fixed income.” (Wendy L. Dietze, 60) “I believe I have become more frugal with age, at least on some things. I bring my lunch to work and have my own coffeepot at work to brew my own instead of buying it anywhere. On the other hand, I have a daughter in a private kindergarten, a new car payment, and other bills that make me become more frugal on these sorts of things.”


Stock Market Wizards: Interviews With America's Top Stock Traders by Jack D. Schwager

Asian financial crisis, banking crisis, barriers to entry, Bear Stearns, beat the dealer, Black-Scholes formula, book value, commodity trading advisor, computer vision, East Village, Edward Thorp, financial engineering, financial independence, fixed income, implied volatility, index fund, Jeff Bezos, John Meriwether, John von Neumann, junk bonds, locking in a profit, Long Term Capital Management, managed futures, margin call, Market Wizards by Jack D. Schwager, money market fund, Myron Scholes, paper trading, passive investing, pattern recognition, proprietary trading, random walk, risk free rate, risk tolerance, risk-adjusted returns, short selling, short squeeze, Silicon Valley, statistical arbitrage, Teledyne, the scientific method, transaction costs, Y2K

The performance results you're referring to are for our equity and equity-linked trading strategies, which have formed the core of our proprietary trading activities since our start over eleven years ago. For a few years, though, we also traded a fixed income strategy. That strategy was qualitatively different from the equity-related strategies we'd historically employed and exposed us to fundamentally different sorts of risks. Although we initially made a lot of money on our fixed income trading, we experienced significant losses during the global liquidity crisis in late 1998, as was the case for most fixed income arbitrage traders during that period. While our losses were much smaller, in both percentage and absolute dollar terms, than those suffered by, for example, Long Term Capital Management, they were significant enough that we're no longer engaged in this sort of trading at all.

How do they try to do it? At one extreme, P1MCO buys S&P futures for the stock exposure and tries to provide the additional 100 basis points return by managing a fixed income portfolio. Sure, that would work if interest rates are stable or go down. But if interest rates rise, aren't they taking the risk of a loss on their bond portfolio? WIN-WIN INVEST! Yes, they definitely are. In effect, all they are really doing is taking the active manager risk in the fixed income market as opposed to the equity market. What other approaches have people used to try to consistently outperform the S&P 500 benchmark? Some people attempt to beat the S&P 500 by trying to pick the best stocks in each sector.

"ten-bagger," i61 Thailand, 18 Thermolase, 46-47 ThcSlreet.com, 218 Thorpe, Ed, 266 3Com, 22 lick indicators, 107-1 1, 114, 312, 322 Time, 277 timc-and-sales log, 80 lips, stock, 6, 13-14, 20, 25, 72, 173, 176, 312 Tokyo Stock Exchange, 223 traders: athletes compared with, 285, 288, 289-90, 291, 297, 310 author's previous works on, 30, 77, I 70, 189, 197, 214-15,233 black, 127-28, 136-38 competitive edge of, 61-62, 144-45, 172, 177,203, 217-18, 225-26, 255-56, 301-2 conviction of, 27, 37-38, 48-49, 51, 52, 55, 57, 120-21, 126, 152, 167, 171, 174, 288-97, 302-3 decision-making by, 6, 13-14, 20. 21-22, 23, 25, 72,78, 173, 1 7 6 , 3 1 2 , 3 1 8 determination of, 28, 29, 31, 54, 125. 174-75, 186-87, 194, 203-4, 205, 208, 283-84,299, 303^1 discipline of, 72, 166, 167-68, 177, 186, 187, 202, 205, 208, 209, 292, 298 experience of, 28, 1 19-22. 195, 254-55, 300, 304, 308,314,317-18 fees of, 35, 55.275 flexibility of, 188,299-300 independence of, 22-23, 26-27, 57-58, 60-61, 93, 119-21,254-55,301,316, 326 instincts of, 5, 16, 27, 28, 71-72, 186, 188, 278-79, 286-87 lessons from, 298-326 novice, 67, 72,93-94. 183-86, 204, 218-19, 286-87, 308 patience of, 167-68, 176, 309-10 personality of, 29, 281, 285, 288-97, 298-99, 312-13, 314 style of, 183-84,2)8-20,281-83, 286-87 in teams, 282-83 whole-picture perspective o f , xiii-xiv women, 77, 88-89 see also specific trailers trading: as art vs. science, 61, 7i—72 "bond ratio," 110-11 capitalization for, 10, 114-19, 120. 142, 146, 147, 205, 207, 222, 303 "catapult," 110 charts for, 158, 181-83, 264-74 complexity of, 3 1 5 — 1 6 contests for, 97, 111, 118, 170 currency, 5, 9, 202-3 equity, 6, 144-45,257 fixed-income, 271 goals For, 296,297, 310 high-probability. 110, 116. 177. 1 7 8 , 2 1 6 - 1 7 . 2 1 9 , 255-56,307,316 leveraged, 47-48, 69-70, I 17, 174, 204, 222, 314-15 losses capped in, 179-80, 184, 187, 188 paper, 175 positions in, see positions, trading post-trade analysis of, 97, 109-10, 179-80, 185, 187-88, 218, 219, 300-301,314 research for, see research restrictions on, 21-22, 27-28, 8 1 , 118-22, 152-53, 166, 179-80 systems of, 169, 171-82, 189-206, 264-74 timing in, xiii, 85, 157-58, 162-63, 171, 185, 196, 217, 220, 231, 232, 239, 257, 284-85, 305, 308 unethical, 79-80, 84, 234-35 as vocation, 119-21,316 Trading in the "Lane (Kiev), 288-89 Trading Places, 277 Trading to Win (Kiev), 288 transaction costs, 134-35, 255 turbo indexing, 34 TV set-type adjustments, 233-34 INDEX Ultrafem, 69 U.S.


pages: 400 words: 121,988

Trading at the Speed of Light: How Ultrafast Algorithms Are Transforming Financial Markets by Donald MacKenzie

algorithmic trading, automated trading system, banking crisis, barriers to entry, bitcoin, blockchain, Bonfire of the Vanities, Bretton Woods, Cambridge Analytica, centralized clearinghouse, Claude Shannon: information theory, coronavirus, COVID-19, cryptocurrency, disintermediation, diversification, en.wikipedia.org, Ethereum, ethereum blockchain, family office, financial intermediation, fixed income, Flash crash, Google Earth, Hacker Ethic, Hibernia Atlantic: Project Express, interest rate derivative, interest rate swap, inventory management, Jim Simons, level 1 cache, light touch regulation, linked data, lockdown, low earth orbit, machine readable, market design, market microstructure, Martin Wolf, proprietary trading, Renaissance Technologies, Satoshi Nakamoto, Small Order Execution System, Spread Networks laid a new fibre optics cable between New York and Chicago, statistical arbitrage, statistical model, Steven Levy, The Great Moderation, transaction costs, UUNET, zero-sum game

Once there, it has entered what market participants sometimes call the Treasurys triangle: the three datacenters—interconnected by the cable, microwave, and millimeter-wave links discussed in chapter 5, and each packed with computer servers—in which Treasurys and Treasury futures are traded (see figure 4.1). My interviewee, though, has an alternative to entering the ultrafast, automated Treasurys triangle. He shows me how he also uses another trading system, Bloomberg FIT (Fixed-Income Trading). Buying on FIT is different from bidding on BrokerTec. His on-screen FIT window has buttons containing the names of a dozen of the 23 primary dealers in Treasurys. These firms, all but one of them large banks, have been granted that official status by the Federal Reserve Bank of New York, which is the market agent of the Department of the Treasury.

As noted earlier, in the trading of shares and of futures a central clearinghouse stands between the two parties to a trade (buying from the seller, and selling to the buyer), preserving anonymity and protecting each party from a default by the anonymous other. In the Treasurys market, that role is played by the Fixed Income Clearing Corporation (FICC), making it essential for a trading platform to have access to FICC. The qualifications for FICC membership, though, were and are daunting—“a net worth of at least $25 million and cash on hand of $10 million or more” (Smith 2016: 44)—and Direct Match, as a small start-up, could not meet them.

Again, no major regulatory change to market structure followed, although a diluted form of the TRACE (Trade Reporting and Compliance Engine) deal-reporting system for bonds issued by corporations (mandatory since 2002) was introduced for Treasurys in 2017.5 While, as discussed in chapter 3, nearly all US share trading flows through a unified nationwide clearing and settlement system (mandated, ultimately, by Congress), much trading of Treasurys takes place outside the ambit of the Fixed Income Clearing Corporation, and HFT firms, although major participants in the interdealer Treasurys market, are not usually members of FICC, typically accessing it indirectly through a bank that is an FICC member. Why the lack of intervention in the trading and clearing of Treasurys by government regulatory agencies of the kind that has been so influential in shaping the way shares are traded?


Work Less, Live More: The Way to Semi-Retirement by Robert Clyatt

asset allocation, backtesting, buy and hold, currency risk, death from overwork, delayed gratification, diversification, diversified portfolio, do what you love, eat what you kill, employer provided health coverage, estate planning, Eugene Fama: efficient market hypothesis, financial independence, fixed income, future of work, independent contractor, index arbitrage, index fund, John Bogle, junk bonds, karōshi / gwarosa / guolaosi, lateral thinking, Mahatma Gandhi, McMansion, merger arbitrage, money market fund, mortgage tax deduction, passive income, rising living standards, risk/return, Silicon Valley, The 4% rule, The Theory of the Leisure Class by Thorstein Veblen, Thorstein Veblen, transaction costs, unpaid internship, upwardly mobile, Vanguard fund, work culture , working poor, zero-sum game

(See “Consider Whether Low Tax Brackets Apply,” below, for more on these attractive brackets.) 244 | Work Less, Live More What to Put in an IRA With the current 10% income tax rate and 5% capital gains tax rate, some of the traditional wisdom about what to put in an IRA is starting to look dated. Traditionally, people put fixed-income or high-dividend assets in IRAs to shelter them from higher tax rates. Although putting fixed income in the IRA still makes sense, if you are paying little or no income tax, you might consider an alternative strategy: Place your actively managed mutual funds in the IRA, as these funds will tend to throw off a bit more capital gains distributions—possibly even some short-term capital gains—that could cause an unplanned tax bite.

You can find it at www.vanguard.com. 166 | Work Less, Live More There are a few other high-caliber firms that view managing your money as a sacred trust. They offer plenty of sensible index, tax-efficient, and low-fee funds. They include: • Dimensional Fund Advisors (DFA): www.dfaus.com • T. Rowe Price: www.troweprice.com • Dodge & Cox: www.dodgeandcox.com • Pacific Management Company (Pimco), fixed income specialists, online at www.pimco.com, and • Capital Research, managers of the American Funds mutual fund series, at www.americanfunds.com. Investment Terminology Explained For many people, one of the mystifying things about the investment world is the strange language spoken there. Here are some simple definitions for common terms and strategies, along with some basic advice for building your own autopilot along Rational Investing principles.

No matter what you do, don’t start selling equities to load back up on allegedly safe CDs or bonds. The Rational Investing portfolio (described in Chapter 3) is both conservative and quite likely to deliver gains over the long run. But one sure way to undermine the portfolio’s performance would be to make a panicky decision to sell stocks at their lows, putting the money into low-yielding fixed-income investments with no chance of long-run appreciation. Special Advice for Couples “How do you put up with him around the house?” My wife has heard this one more often than any other source of wonder or confusion over semi-retirement. The answer she always gives is that she barely sees me chapter 7 | Don’t Blow It | 319 any more during the day as each of us goes about our various activities.


pages: 447 words: 104,258

Mathematics of the Financial Markets: Financial Instruments and Derivatives Modelling, Valuation and Risk Issues by Alain Ruttiens

algorithmic trading, asset allocation, asset-backed security, backtesting, banking crisis, Black Swan, Black-Scholes formula, Bob Litterman, book value, Brownian motion, capital asset pricing model, collateralized debt obligation, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, delta neutral, discounted cash flows, discrete time, diversification, financial engineering, fixed income, implied volatility, interest rate derivative, interest rate swap, low interest rates, managed futures, margin call, market microstructure, martingale, p-value, passive investing, proprietary trading, quantitative trading / quantitative finance, random walk, risk free rate, risk/return, Satyajit Das, seminal paper, Sharpe ratio, short selling, statistical model, stochastic process, stochastic volatility, time value of money, transaction costs, value at risk, volatility smile, Wiener process, yield curve, zero-coupon bond

BAILLIE, Patrick C. McMAHON, The Foreign Exchange Market, Theory and Econometric Evidence, Cambridge University Press, 1990, 276 p. Patrick J. BROWN, Bond Markets: Structures and Yield Calculations, ISMA Publications, 1998, 96 p. Frank FABOZZI, The Handbook of Fixed Income Securities, McGraw-Hill, 7th ed., 2005, 1500 p. Frank FABOZZI, Fixed Income Mathematics, McGraw-Hill, 4th ed., 2005, 600 p. Imad A. MOOSA, Razzaque H. BHATTI, The Theory and Empirics of Exchange Rates, World Scientific Publishing Company, 2009, 512 p. Lucio SARNO, Mark TAYLOR, The Economics of Exchange Rates, Cambridge University Press, 2003, 330 p.

Darrell DUFFIE, Security Markets: Stochastic Models, Academic Press Inc, 1988, 250 p. E. ELTON, M. GRUBER, S. BROWN, W. GOETZMANN, Modern Portfolio Theory and Investments Analysis, John Wiley & Sons, Inc., Hoboken, 2006, 752 p. R.F. ENGLE, D.L. McFADDEN (eds) Handbook of Econometrics, Elsevier, 1994. Frank FABOZZI, The Handbook of Fixed Income Securities, McGraw-Hill, 7th ed., 2005, 1500 p. Frank FABOZZI, Fixed Income Mathematics, McGraw-Hill, 4th ed., 2005, 600 p. Frank J. FABOZZI, Anand K. BHATTACHARYA, William S. BERLINER, Mortgage-Backed Securities: Products, Structuring and Analytical Techniques, John Wiley & Sons, Inc., Hoboken, 2007, 336 p. Frank J. FABOZZI, Roland FUSS, Dieter G.

BIGLOVA, “Desirable properties of an ideal risk measure in portfolio theory”, International Journal of Theoretical and Applied Finance, 2005. 3 This third component can be viewed as the “correlation” term, in the calculation of a variance or standard deviation for two different assets (σP2 = w12 σ22 + w22 σ22 + 2ρw1w2σ1σ2), and expresses to what extent both impacts are more or less opportunely combined. 4 See for example Mathieu CUBILIE, “Fixed income attribution model”, The Journal of Performance Measurement, Winter 2005/2006, pp. 46–63. 5 This ratio is also called “Gamma”. 6 See for example A. BERNARDO, O. LEDOIT, “Gain, loss and asset pricing”, The Journal of Political Economy, Jan 2000, pp. 144–172. 7 This section is partly inspired from Philippe JORION, Financial Risk Manager Handbook, 5th ed., 2009, John Wiley & Sons, Inc., Hoboken, and Moorad CHOUDHRY, An Introduction to Value-at-Risk, 4th ed., 2006, John Wiley & Sons, Ltd, Chichester. 8 To make a more precise calculation, the width of the bins should be narrower than 0.5%, as used here. 9 The 2510 returns used for the example present a kurtosis of 7.81 and a skewness of −0.10. 10 In the initial basic example, the only risk factor was the price change of the exposure in S&P 500. 11 A.


pages: 289 words: 95,046

Chaos Kings: How Wall Street Traders Make Billions in the New Age of Crisis by Scott Patterson

"World Economic Forum" Davos, 2021 United States Capitol attack, 4chan, Alan Greenspan, Albert Einstein, asset allocation, backtesting, Bear Stearns, beat the dealer, behavioural economics, Benoit Mandelbrot, Bernie Madoff, Bernie Sanders, bitcoin, Bitcoin "FTX", Black Lives Matter, Black Monday: stock market crash in 1987, Black Swan, Black Swan Protection Protocol, Black-Scholes formula, blockchain, Bob Litterman, Boris Johnson, Brownian motion, butterfly effect, carbon footprint, carbon tax, Carl Icahn, centre right, clean tech, clean water, collapse of Lehman Brothers, Colonization of Mars, commodity super cycle, complexity theory, contact tracing, coronavirus, correlation does not imply causation, COVID-19, Credit Default Swap, cryptocurrency, Daniel Kahneman / Amos Tversky, decarbonisation, disinformation, diversification, Donald Trump, Doomsday Clock, Edward Lloyd's coffeehouse, effective altruism, Elliott wave, Elon Musk, energy transition, Eugene Fama: efficient market hypothesis, Extinction Rebellion, fear index, financial engineering, fixed income, Flash crash, Gail Bradbrook, George Floyd, global pandemic, global supply chain, Gordon Gekko, Greenspan put, Greta Thunberg, hindsight bias, index fund, interest rate derivative, Intergovernmental Panel on Climate Change (IPCC), Jeff Bezos, Jeffrey Epstein, Joan Didion, John von Neumann, junk bonds, Just-in-time delivery, lockdown, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, Mark Spitznagel, Mark Zuckerberg, market fundamentalism, mass immigration, megacity, Mikhail Gorbachev, Mohammed Bouazizi, money market fund, moral hazard, Murray Gell-Mann, Nick Bostrom, off-the-grid, panic early, Pershing Square Capital Management, Peter Singer: altruism, Ponzi scheme, power law, precautionary principle, prediction markets, proprietary trading, public intellectual, QAnon, quantitative easing, quantitative hedge fund, quantitative trading / quantitative finance, Ralph Nader, Ralph Nelson Elliott, random walk, Renaissance Technologies, rewilding, Richard Thaler, risk/return, road to serfdom, Ronald Reagan, Ronald Reagan: Tear down this wall, Rory Sutherland, Rupert Read, Sam Bankman-Fried, Silicon Valley, six sigma, smart contracts, social distancing, sovereign wealth fund, statistical arbitrage, statistical model, stem cell, Stephen Hawking, Steve Jobs, Steven Pinker, Stewart Brand, systematic trading, tail risk, technoutopianism, The Chicago School, The Great Moderation, the scientific method, too big to fail, transaction costs, University of East Anglia, value at risk, Vanguard fund, We are as Gods, Whole Earth Catalog

(Black, after seeing Goldman Sachs’s money-making machine up close, soon realized that while markets might look efficient from a professor’s podium, giant investment banks are able to squeeze oodles of dollars out of ubiquitous market inefficiencies.) Despite Black’s qualms, Goldman hired Litterman, who joined the bank’s fixed-income department. Soon after, he was asked to help Japanese clients (at the time very wealthy clients indeed) put together global fixed-income portfolios. He went to Black for help. “Well, you know, my attitude is to start out simple, and if it doesn’t work, then you can always do something more complicated,” Black said. He suggested using a standard risk-return model based on Harry Markowitz’s Modern Portfolio Theory method that encouraged the multi-basket diversification approach (the very approach derided by Spitznagel and Taleb).

It didn’t fit the model. He was an outlier. He was a… Black Swan? * * * In 1996, Taleb met Victor Niederhoffer, one of the most successful hedge fund managers in America, who spent his spare time playing tennis with George Soros. He’d made his name in the 1980s as the manager of Soros’s massive fixed-income and foreign-exchange operations. Soros was so impressed by Niederhoffer’s trading acumen that he had his own son work alongside him. In 1996, the Brooklyn-born trader was crushing it, eventually racking up a gain of 35 percent for the year. MARHedge, a newsletter that tracked the hedge fund industry, named him the world’s number one hedge fund manager.

What’s more, since the strategy only required a small slice of an investor’s holdings—say 2 or 3 percent—the amount of cash left over for stocks or other risky assets was much higher than in a portfolio with gold, bonds, or francs. A standard bond hedge, for instance, typically required a 30 or 40 percent position in fixed income. Spitznagel’s point: Universa investors could do very well in bull markets because they got a lot more of the upside than investors seeking protection in Treasury bonds or cash. That didn’t mean it was easy. Universa traders found the job hard and often tedious. Coming in every day—and losing money—for years.


pages: 244 words: 79,044

Money Mavericks: Confessions of a Hedge Fund Manager by Lars Kroijer

activist fund / activist shareholder / activist investor, Bear Stearns, Bernie Madoff, book value, capital asset pricing model, corporate raider, diversification, diversified portfolio, equity risk premium, family office, fixed income, forensic accounting, Gordon Gekko, hiring and firing, implied volatility, index fund, intangible asset, Jeff Bezos, Just-in-time delivery, Long Term Capital Management, Mary Meeker, merger arbitrage, NetJets, new economy, Ponzi scheme, post-work, proprietary trading, risk free rate, risk-adjusted returns, risk/return, shareholder value, Silicon Valley, six sigma, statistical arbitrage, Vanguard fund, zero-coupon bond

Harlan Korenvaes had used his connections from heading the convertibles group at Merrill Lynch to raise money for his own venture. Since inception, the returns had been excellent. After the early days of focusing on one area, the firm had quickly expanded into others such as fixed-income arbitrage, merger arbitrage, emerging-markets fixed-income, and special situations. When I joined in July 1999 the firm was managing around $1.5 billion in assets, on its way to managing double-digit billions five years later. There were eight partners at the firm when I joined, along with a whole army of people in back offices for a total worldwide headcount of around 150.

The general feedback from the guys (there were virtually no women in the crowd) was similar: their jobs were not very structured, there was little hierarchy, skill was enthusiastically acknowledged by superiors and lack of it punished mercilessly. The job was entrepreneurial, in that you were encouraged to pursue what you thought were interesting angles, and if you were good the money was great. It was also clear that the type of work varied quite a bit from fund to fund. While the fixed-income or statistical arbitrage funds could be very mathematical in nature, the work at some of the long or short funds largely resembled that of more traditional stock-picking. Joining the clan I eventually joined a value fund in New York called SC Fundamental. During the interview process, the firm’s founder, Peter Collery, had thoroughly impressed me and I still consider him one of the smartest people I have ever met.

The evening was not looking like a breakthrough event for Holte, and I briefly considered going back to my room and ordering room service. Two middle-aged Asian-looking guys sat down and made typically formal introductions. At least they made an effort to be nice to the lonely no-hoper. But sadly I could hardly understand their heavily accented English. ‘Ah, start-up. Good. Good. Fixed income bad. Macro good,’ and so on. After establishing that they mainly invested in macro, and only in managers who had been running for three years, I realised that they would also rather talk to each other. So there I was as a social outcast who ended up drinking too much of the lovely red wine. Half-drunk and halfway through dessert, I excused myself to join some people who had retired to the terrace to smoke.


pages: 300 words: 77,787

Investing Demystified: How to Invest Without Speculation and Sleepless Nights by Lars Kroijer

Andrei Shleifer, asset allocation, asset-backed security, Bernie Madoff, bitcoin, Black Swan, BRICs, Carmen Reinhart, clean tech, compound rate of return, credit crunch, currency risk, diversification, diversified portfolio, equity premium, equity risk premium, estate planning, fixed income, high net worth, implied volatility, index fund, intangible asset, invisible hand, John Bogle, Kenneth Rogoff, low interest rates, market bubble, money market fund, passive investing, pattern recognition, prediction markets, risk tolerance, risk/return, Robert Shiller, selection bias, sovereign wealth fund, too big to fail, transaction costs, Vanguard fund, yield curve, zero-coupon bond

Until fairly recently there was a dearth of investable index products available to investors who wanted bond exposure, other than perhaps that of the major country government bonds or US corporate bonds. Things are slowly getting better and the next decade will see further expansion in the amount of fixed-income products available for the retail investor. The historical indices that do go back some time have a heavy US bias and until recently broad-based indices were hard to come by, much less ones you could actually create as a product. Table 7.2 shows the performance data for some broad bond indices.

Although the time period shown in Table 7.2 is far too short to make meaningful conclusions, 2008 stands out as an interesting data point. Both the US aggregate and global government bond indices had positive returns in a terrible equity market. The outperformance of highly rated bonds in a tough market environment points to the potential advantage of adding fixed income to the rational portfolio. As equity markets collapsed, investors sought security in highly rated bonds. There was a belief that whatever happened, the bonds would be repaid at maturity, while nobody knew what would happen to equities. The large decline in the Barclays US High Yield index in 2008 was no surprise.

Different accounts Many investors will have different accounts that in aggregate add up to their investment portfolio. One may be a fully taxed normal deposit account whereas another is tax-free (e.g. a UK ISA). Generally, different accounts may have different tax characteristics; by putting the high-income generating investments (typically fixed income) in the tax-free accounts you may lower your overall tax burden. Being informed about which investments fit best into various accounts can save you taxes. In the UK, for example, if you pay tax it almost always make sense to have an ISA account and benefit from its tax advantages. Tax efficient proxies In some countries certain government bonds are tax advantageous.


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The Secret Club That Runs the World: Inside the Fraternity of Commodity Traders by Kate Kelly

"Hurricane Katrina" Superdome, Alan Greenspan, Bakken shale, bank run, Bear Stearns, business cycle, commodity super cycle, Credit Default Swap, diversification, fixed income, Gordon Gekko, index fund, light touch regulation, locking in a profit, London Interbank Offered Rate, Long Term Capital Management, margin call, oil-for-food scandal, paper trading, peak oil, Ponzi scheme, proprietary trading, risk tolerance, Ronald Reagan, side project, Silicon Valley, Sloane Ranger, sovereign wealth fund, supply-chain management, the market place

Banks everywhere were relying on commodity traders to help them survive the rout in mortgage-backed securities and the resultant setbacks in other markets. At Goldman Sachs, which reported fixed-income revenues of $3.71 billion for that year and $22 billion overall, commodities contributed more than $3 billion. Even at other banks with smaller, less profitable commodities units, the trading of raw materials was a major help. Among the top ten investment banks, commodities on average made up 14 percent of their combined total fixed-income revenue. Morgan and Goldman tended to top the list, with Barclays, JPMorgan, Bank of America, and others following behind. Bank commodities units made money in three ways.

In 1990, he advised the National Football League on the sale of its broadcast rights to television networks over the coming four years. (One of Gensler’s tactics, which involved withholding the rights to broadcast the 1994 Super Bowl, helped net the league a record $3.6 billion package.) He had also worked overseas, relocating in 1993 to Tokyo, where he ran the Asian branch of Goldman’s sprawling fixed-income, or bond, division. The job put him in close proximity to a major financial scandal: a series of futures contract trades at the Singapore office of the UK-based Barings Bank on the direction of the Japanese stock market and certain interest rates that ultimately brought Barings down. For Gensler, who knew little about such contract markets before living in Tokyo, it was an education in the perils of trading complex products across borders during times of market stress.

THE BANKS once used by the energy company Texaco: Elsa Brenner, “Morgan Stanley Seals Deal on Texaco Headquarters,” New York Times, March 31, 2002, http://www.nytimes.com/2002/03/31/nyregion/in-business-morgan-stanley-seals-deal-on-texaco-headquarters.html. after the terrorist attacks: Ibid. 14 percent of their combined total fixed-income revenue: “Coalition Index—2012,” Coalition Development Ltd., February 2013. a quarter of Goldman’s pretax income: Gregory Zuckerman and Susanne Craig, “To Weather Rocky Period, Goldman Makes Riskier Bets,” Wall Street Journal, December 17, 2002, http://online.wsj.com/news/articles/SB1040074780804862913


The Fix: How Bankers Lied, Cheated and Colluded to Rig the World's Most Important Number (Bloomberg) by Liam Vaughan, Gavin Finch

Alan Greenspan, asset allocation, asset-backed security, bank run, banking crisis, Bear Stearns, Bernie Sanders, Big bang: deregulation of the City of London, buy low sell high, call centre, central bank independence, collapse of Lehman Brothers, corporate governance, credit crunch, Credit Default Swap, eurozone crisis, fear of failure, financial deregulation, financial innovation, fixed income, interest rate derivative, interest rate swap, Kickstarter, light touch regulation, London Interbank Offered Rate, London Whale, low interest rates, mortgage debt, Neil Armstrong, Northern Rock, performance metric, Ponzi scheme, Ronald Reagan, social intelligence, sovereign wealth fund, subprime mortgage crisis, urban sprawl

He became a managing director before his 35th birthday, and by the time he left Morgan Stanley for Credit Suisse First Boston in 1992, he was running the bank’s European and Asian bond-trading operations. Diamond then moved his young family to Japan to become the Swiss bank’s chairman, president and CEO for Asia. He was soon promoted to head of fixed income and currencies globally and given a seat on the executive board in New York. In 1996, Barclays CEO Martin Taylor, an Eton and Oxford-educated former journalist, hired the 45-year-old Diamond to come to London and run the lender’s securities and investment division. By then fixed income,currencies and commodities,or FICC as it’s known in the industry, was driving profits at the bulge-bracket investment banks and Diamond was a rising star.

His colleagues included Tom Steyer, who would go on to start Farallon Capital Management; Eddie Lampert, who founded ESL Investments; and Richard Perry, the founder of Perry Capital. The three hedge-fund managers are now worth a combined $5 billion, according to Forbes magazine, leading Gensler to quip: “Maybe I should have stayed there.” Other alumni include Treasury Secretary Hank Paulson. A few years after making partner, Gensler was dispatched to Tokyo to run the fixed-income, currencies and commodities trading business. By then he was married to an Italian-American artist with an MBA from Columbia, Francesca Danieli, and the couple had two daughters under three years old. They lived in Roppongi, the same well-to-do neighborhood Tom Hayes would move to. About a third of the $300 million in Escape to London 73 revenue Gensler oversaw came from trading yen-based swaps, the very instruments Hayes and his counterparts bought and sold.

(Bob) xi, 90–1, 92, 94, 96–9, 134, 136, 137, 139–46, 170 Diamond, Robert Edward, Sr. 90, 93, 94 Dimon, Jamie 137 DKB Financial Products 17 Dole, Bob 127 Ducrot, Yvan 81, 82, 85, 86, 126 Dudley, William 51 Dynegy 41 easyJet 144 Engel, Marcy 17 Enrich, David 151 Enron 42, 70, 101, 116, 154 ESL Investments 72 Euribor 135–6 euro 54 eurodollar futures 17 European Banking Federation 135 European Central Bank (ECB) 99, 118 European Commission 118 eurozone debt crisis xi Ewan, John 50, 51–2, 161–2, 163 exchange-rate mechanism (EU) 54 Fannie Mae 103 Farallon Capital Management 72 197 Farmanfarmaian, Khodadad 13, 15, 18 Farr, Terry 30–2, 33, 37, 63, 64, 65, 68, 79, 85, 117, 148, 168, 169 Federal Bureau of Investigation (FBI) 125, 129 Federal Energy Regulatory Commission 41 Federal Reserve 45, 55, 167 Term Auction Facility (TAF) 55 Federal Reserve Bank 51 Financial Conduct Authority (FCA) 129, 168, 173 Financial Services Authority (FSA) 54, 56–60, 75, 105–8, 133, 137, 140–3, 148, 152, 159, 163 Financial Times 73, 141, 146 Finma 109, 110 fixed income,currencies and commodities (FICC) 91 floating-rate note 15 Flowers, Chris 72 Foreign Exchange and Money Markets Committee (FXMMC) 50–1, 56, 115, 163 forward rate agreements 10 Fraser, Simon 144 Freshfield Bruckhaus Deringer 107 FTSE 171 Fulcrum Chambers 148, 155 Galbraith, Evan 15 Garstangs Burrows Bussin 155 Geithner, Tim 54–5, 69, 70 Gensler, Francesca 70, 135 Gensler, Gary 69–75, 89, 91, 135, 136, 169 Great Mutual Fund Trap, The 72 Gensler, Robert 71–2 Ghosh, Dr.


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King of Capital: The Remarkable Rise, Fall, and Rise Again of Steve Schwarzman and Blackstone by David Carey

"World Economic Forum" Davos, activist fund / activist shareholder / activist investor, asset allocation, banking crisis, Bear Stearns, Bonfire of the Vanities, business cycle, Carl Icahn, carried interest, collateralized debt obligation, corporate governance, corporate raider, credit crunch, deal flow, diversification, diversified portfolio, financial engineering, fixed income, Future Shock, Gordon Gekko, independent contractor, junk bonds, low interest rates, margin call, Menlo Park, Michael Milken, mortgage debt, new economy, Northern Rock, risk tolerance, Rod Stewart played at Stephen Schwarzman birthday party, Sand Hill Road, Savings and loan crisis, sealed-bid auction, Silicon Valley, sovereign wealth fund, Teledyne, The Predators' Ball, éminence grise

A pioneering financier and salesman, he was considered the second leading figure, after Salomon Brothers’ Lewis Ranieri, in the development of the mortgage-backed bond market. At the time, Fink was about to lose his job at First Boston after his unit racked up $100 million in losses in early 1988. But Schwarzman and Peterson had from the start hoped to launch affiliated investment businesses and thought Fink was the ideal choice to head a new group focused on fixed-income investments—the Wall Street term for bonds and other interest-paying securities. They accepted Fink’s explanation that flawed computer software and bad data inputs had triggered the stunning trading losses, and they were further reassured by a conversation Schwarzman had with Bruce Wasserstein, First Boston’s cohead of M&A, who had become a friend and frequent tennis partner of Schwarzman’s.

They accepted Fink’s explanation that flawed computer software and bad data inputs had triggered the stunning trading losses, and they were further reassured by a conversation Schwarzman had with Bruce Wasserstein, First Boston’s cohead of M&A, who had become a friend and frequent tennis partner of Schwarzman’s. “Bruce told me that Larry was by far the most gifted person at First Boston,” Schwarzman says. Peterson and Schwarzman offered Fink a $5 million credit line to start a joint venture called Blackstone Financial Management, or BFM, which would trade in mortgage and other fixed-income securities. In exchange for the seed money, Blackstone’s partners got a 50 percent stake in the new business while Fink and his team, which included Ralph Schlosstein, a former Lehman partner and a good friend of Roger Altman’s, owned the other 50 percent. Eventually, the Blackstone partners’ stake would fall to around 40 percent as the BFM staff grew and employees were given shares in the business.

Overall, though, his record sparkled. From February 1983 to September 1987 at Smith Barney and then from May 1988 to March 1989 at Drexel, McVeigh’s arbitrage funds had returned on average 39 percent a year. Blackstone formed a joint venture with McVeigh along the lines of the one it had formed with Larry Fink for the fixed-income investment affiliate. McVeigh and his group were allotted a 50 percent interest in Blackstone Capital Arbitrage and were handed custody of about $50 million of Nikko’s money and were told to go at it. Blackstone couldn’t have picked a worse moment to ramp up in arbitrage. The economy was just beginning to slow, putting the brakes on takeovers, and by October 1989 LBOs and most takeover activity had screeched to a halt.


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No One Would Listen: A True Financial Thriller by Harry Markopolos

Alan Greenspan, backtesting, barriers to entry, Bernie Madoff, buy and hold, call centre, centralized clearinghouse, correlation coefficient, diversified portfolio, Edward Thorp, Emanuel Derman, Eugene Fama: efficient market hypothesis, family office, financial engineering, financial thriller, fixed income, forensic accounting, high net worth, index card, Long Term Capital Management, Louis Bachelier, low interest rates, Market Wizards by Jack D. Schwager, offshore financial centre, payment for order flow, Ponzi scheme, price mechanism, proprietary trading, quantitative trading / quantitative finance, regulatory arbitrage, Renaissance Technologies, risk-adjusted returns, risk/return, rolodex, Sharpe ratio, statistical arbitrage, too big to fail, transaction costs, two and twenty, your tax dollars at work

As I was to learn over the next few years, the SEC had been created to monitor the stock market and it really had never evolved with the industry. Its investigators had neither the experience nor the training to understand something fairly complicated like fixed income, for example, an array of investments that yields a specific return on a regular basis but is much more complex than it initially appears. Municipal bonds, for example, is an area in which there is well-known and widespread corruption. And if the SEC couldn’t do the math for fixed income, it certainly could not do it for complicated derivatives or structured products. Structured products are combinations of underlying assets, like stocks and bonds, combined with various types of derivatives.

We considered ourselves an asset management firm, but we operated as a hedge fund. Because we were so small, each of us had to wear many hats, which was a great opportunity for me. I did everything there from routine correspondence, monthly client statements, and handling of compliance issues to assisting a very good fixed-income portfolio manager. It was a lot of grunt work, but I was in on all the action. I got to learn the business of being a money manager by being an assistant portfolio manager. I learned more there in three years than I might have learned elsewhere in a decade. Certainly one of the more important things I learned was that the numbers can be deceiving.

After Madoff collapsed, I was told so many stories about people who knew he was a fraud and warned others. For example, I’ve been told about an e-mail a manager at one of the largest investment houses sent to a Madoff client in 2005, warning him that “everybody here knows Madoff is a fraud” and urging him to get his funds out. Another very smart guy Neil and I knew ran a fixed income arbitrage strategy for one of the major feeder funds that was heavily invested in Madoff. This manager joined the firm long after it had made its initial investments in Bernie, and I believe he eventually became a partner. This person is very outspoken, but he knows what he’s talking about. He speaks numbers.


Mastering Private Equity by Zeisberger, Claudia,Prahl, Michael,White, Bowen, Michael Prahl, Bowen White

Alan Greenspan, asset allocation, backtesting, barriers to entry, Basel III, Bear Stearns, book value, business process, buy low sell high, capital controls, carbon credits, carried interest, clean tech, commoditize, corporate governance, corporate raider, correlation coefficient, creative destruction, currency risk, deal flow, discounted cash flows, disintermediation, disruptive innovation, distributed generation, diversification, diversified portfolio, family office, fixed income, high net worth, impact investing, information asymmetry, intangible asset, junk bonds, Lean Startup, low interest rates, market clearing, Michael Milken, passive investing, pattern recognition, performance metric, price mechanism, profit maximization, proprietary trading, risk tolerance, risk-adjusted returns, risk/return, Savings and loan crisis, shareholder value, Sharpe ratio, Silicon Valley, sovereign wealth fund, statistical arbitrage, time value of money, transaction costs, two and twenty

Exhibit 1.5 shows the lifecycle of a successful PE firm with a family of four funds. Exhibit 1.5 Lifecycle of a Successful PE Firm The LP Perspective Committing Capital and Earning Returns Investors have traditionally allocated capital to PE due to its historical outperformance of more traditional asset classes such as public equity and fixed income.16 However, this outperformance comes with higher (or rather different) risks first and foremost due to the illiquid nature of PE investments. Given its lack of liquidity and the long investment horizon of a PE fund, hitting a target allocation to PE is a far more challenging task than maintaining a stable allocation to any of the liquid asset classes.17 In addition, PE funds’ multiyear lock-up and 10-day notice period for capital calls introduce complex liquidity management questions.

To execute these successfully, an investor needs to develop a clear mandate and performance target for its PE program and set up an internal process for manager selection and portfolio management, all of which we discuss in this chapter. Deciding on an Allocation to PE Let’s start with a hypothetical LP, a large institutional investor such as a pension plan or endowment, which has been investing in global markets for decades—but only through public equity and fixed income. While it has used external fund managers and been willing to explore innovative tools, including derivatives, to date it has not added PE to its portfolio. Its investment committee (IC) has decided to give this fast-growing and, at first glance, attractive asset class serious consideration and is lining up the arguments in favor of and against such a move; needless to say, the IC must consider the risk of not allocating to PE and thereby depriving its beneficiaries of attractive future returns.

Public exchanges in emerging markets only capture a portion of the overall economy and are often underweight with respect to a large number of interesting growth sectors. A PE fund’s investments in private companies provide a way to gain exposure to these sectors. Challenges of Investing in the PE Asset Class Introducing PE into a traditional portfolio of public equity and fixed income investments presents LPs with a novel set of challenges. These primarily relate to implementation, due to the specific characteristics of PE investing, including illiquidity, cash flow management, and organizational challenges. We look at each below. ILLIQUIDITY: PE demands a long-term commitment from its investors and a high comfort level with illiquidity; the required 10-year commitment of capital to a PE fund is necessary to execute its investment strategy, be it venture, growth or buyout.


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Corporate Finance: Theory and Practice by Pierre Vernimmen, Pascal Quiry, Maurizio Dallocchio, Yann le Fur, Antonio Salvi

"Friedman doctrine" OR "shareholder theory", accelerated depreciation, accounting loophole / creative accounting, active measures, activist fund / activist shareholder / activist investor, AOL-Time Warner, ASML, asset light, bank run, barriers to entry, Basel III, Bear Stearns, Benoit Mandelbrot, bitcoin, Black Swan, Black-Scholes formula, blockchain, book value, business climate, business cycle, buy and hold, buy low sell high, capital asset pricing model, carried interest, collective bargaining, conceptual framework, corporate governance, correlation coefficient, credit crunch, Credit Default Swap, currency risk, delta neutral, dematerialisation, discounted cash flows, discrete time, disintermediation, diversification, diversified portfolio, Dutch auction, electricity market, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, eurozone crisis, financial engineering, financial innovation, fixed income, Flash crash, foreign exchange controls, German hyperinflation, Glass-Steagall Act, high net worth, impact investing, implied volatility, information asymmetry, intangible asset, interest rate swap, Internet of things, inventory management, invisible hand, joint-stock company, joint-stock limited liability company, junk bonds, Kickstarter, lateral thinking, London Interbank Offered Rate, low interest rates, mandelbrot fractal, margin call, means of production, money market fund, moral hazard, Myron Scholes, new economy, New Journalism, Northern Rock, performance metric, Potemkin village, quantitative trading / quantitative finance, random walk, Right to Buy, risk free rate, risk/return, shareholder value, short selling, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, Steve Jobs, stocks for the long run, supply-chain management, survivorship bias, The Myth of the Rational Market, time value of money, too big to fail, transaction costs, value at risk, vertical integration, volatility arbitrage, volatility smile, yield curve, zero-coupon bond, zero-sum game

Even if investors anticipate fixed short-term rates, the yield curve will slope upward due to the liquidity premiums. 4. Yield curves and valuation of securities After having studied the yield curve, it is easier to understand that the discounting of all the cash flows from a fixed-income security at a single rate, regardless of the period when they are paid, is an oversimplification, although this is the method that will be used throughout this text for stocks and capital expenditure. It would be wrong to use it for fixed-income securities. In order to be more rigorous, it is necessary to discount each flow with the interest rate of the yield curve corresponding to its maturity: the one-year rate for next year’s income stream, the three-year rate for flows paid in three years, etc.

Inflation makes it possible to run this risk and, indeed, it encourages companies to take on more debt. The bank-based (or credit-based) economy and inflation are inextricably linked, but the system is flawed because the real return to investors is zero or negative. Their savings are insufficiently rewarded, particularly if they have invested in fixed-income vehicles. The savings rate in a credit-based economy is usually low. The savings that do exist typically flow into tangible assets and real property (purchase of houses, land, etc.) that are reputed to offer protection against inflation. In this context, savings do not flow towards corporate needs.

Source: Factset The β of Orange used to be higher than at the end of the 1990s (1.83), the stock was more volatile than the market, the risk was high. With the mobile telecom and Internet market maturing, the industry became less risky and the β of Orange is now below 1. 2. Parameters behind beta By definition, the market b is equal to 1. β of fixed-income securities ranges from about 0 to 0.5. The β of equities is usually higher than 0.5, and normally between 0.5 and 1.5. Very few companies have negative β, and a β greater than 2 is quite exceptional. To illustrate, the table below presents betas, as of 2017, of the members of the Euro Stoxx 50 index: Beta of the Eurostoxx 50 Iberdrola 0.65 Inditex 0.85 Deutsche Post 0.95 Telefonica 1.07 AXA 1.25 Adidas 0.72 Essilor 0.87 Philips 0.95 Airbus 1.07 BNP Paribas 1.27 Munich Re 0.73 Safran 0.87 Engie 0.95 Total 1.08 BBVA 1.28 Danone 0.75 Eni 0.89 Siemens 0.97 E.ON 1.09 CRH 1.29 Vivendi 0.76 Enel 0.90 Deutsche Telekom 1.00 Schneider 1.11 Deutsche Bank 1.34 Ahold Delhaize 0.79 Air Liquide 0.90 LVMH 1.01 Bayer 1.14 Nokia 1.35 L'Oréal 0.83 Unibail-Rodamco 0.91 AB InBev 1.02 Saint-Gobain 1.16 Intesa Sanpaolo 1.39 SAP 0.83 Unilever 0.93 Orange 1.03 BMW 1.18 ING 1.39 Fresenius 0.84 Sanofi 0.93 BASF 1.06 Daimler 1.19 Société Générale 1.44 Vinci 0.85 Allianz 0.94 ASML 1.07 Volkswagen 1.21 Santander 1.46 Source: Factset, March 2017 For a given security, the following parameters explain the value of beta: (a) Sensitivity of the stock’s sector to the state of the economy The greater the effect of the state of the economy on a business sector, the higher its β is – temporary work is one such highly exposed sector.


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Advanced Stochastic Models, Risk Assessment, and Portfolio Optimization: The Ideal Risk, Uncertainty, and Performance Measures by Frank J. Fabozzi

algorithmic trading, Benoit Mandelbrot, Black Monday: stock market crash in 1987, capital asset pricing model, collateralized debt obligation, correlation coefficient, distributed generation, diversified portfolio, financial engineering, fixed income, global macro, index fund, junk bonds, Louis Bachelier, Myron Scholes, p-value, power law, quantitative trading / quantitative finance, random walk, risk free rate, risk-adjusted returns, short selling, stochastic volatility, subprime mortgage crisis, Thomas Bayes, transaction costs, value at risk

DECOMPOSITION OF TIME SERIES REPRESENTATION OF TIME SERIES WITH DIFFERENCE EQUATIONS APPLICATION: THE PRICE PROCESS CONCEPTS EXPLAINED IN THIS CHAPTER (IN ORDER OF PRESENTATION) PART Two - Basic Probability Theory CHAPTER 8 - Concepts of Probability Theory HISTORICAL DEVELOPMENT OF ALTERNATIVE APPROACHES TO PROBABILITY SET OPERATIONS AND PRELIMINARIES PROBABILITY MEASURE RANDOM VARIABLE CONCEPTS EXPLAINED IN THIS CHAPTER (IN ORDER OF PRESENTATION) CHAPTER 9 - Discrete Probability Distributions DISCRETE LAW BERNOULLI DISTRIBUTION BINOMIAL DISTRIBUTION HYPERGEOMETRIC DISTRIBUTION MULTINOMIAL DISTRIBUTION POISSON DISTRIBUTION DISCRETE UNIFORM DISTRIBUTION CONCEPTS EXPLAINED IN THIS CHAPTER (IN ORDER OF PRESENTATION) CHAPTER 10 - Continuous Probability Distributions CONTINUOUS PROBABILITY DISTRIBUTION DESCRIBED DISTRIBUTION FUNCTION DENSITY FUNCTION CONTINUOUS RANDOM VARIABLE COMPUTING PROBABILITIES FROM THE DENSITY FUNCTION LOCATION PARAMETERS DISPERSION PARAMETERS CONCEPTS EXPLAINED IN THIS CHAPTER (IN ORDER OF PRESENTATION) CHAPTER 11 - Continuous Probability Distributions with Appealing Statistical Properties NORMAL DISTRIBUTION CHI-SQUARE DISTRIBUTION STUDENT’S t-DISTRIBUTION F-DISTRIBUTION EXPONENTIAL DISTRIBUTION RECTANGULAR DISTRIBUTION GAMMA DISTRIBUTION BETA DISTRIBUTION LOG-NORMAL DISTRIBUTION CONCEPTS EXPLAINED IN THIS CHAPTER (IN ORDER OF PRESENTATION) CHAPTER 12 - Continuous Probability Distributions Dealing with Extreme Events GENERALIZED EXTREME VALUE DISTRIBUTION GENERALIZED PARETO DISTRIBUTION NORMAL INVERSE GAUSSIAN DISTRIBUTION α-STABLE DISTRIBUTION CONCEPTS EXPLAINED IN THIS CHAPTER (IN ORDER OF PRESENTATION) CHAPTER 13 - Parameters of Location and Scale of Random Variables PARAMETERS OF LOCATION PARAMETERS OF SCALE CONCEPTS EXPLAINED IN THIS CHAPTER (IN ORDER OF PRESENTATION) CHAPTER 14 - Joint Probability Distributions HIGHER DIMENSIONAL RANDOM VARIABLES JOINT PROBABILITY DISTRIBUTION MARGINAL DISTRIBUTIONS DEPENDENCE COVARIANCE AND CORRELATION SELECTION OF MULTIVARIATE DISTRIBUTIONS CONCEPTS EXPLAINED IN THIS CHAPTER (IN ORDER OF PRESENTATION) CHAPTER 15 - Conditional Probability and Bayes’ Rule CONDITIONAL PROBABILITY INDEPENDENT EVENTS MULTIPLICATIVE RULE OF PROBABILITY BAYES’ RULE CONDITIONAL PARAMETERS CONCEPTS EXPLAINED IN THIS CHAPTER (IN ORDER OF PRESENTATION) CHAPTER 16 - Copula and Dependence Measures COPULA ALTERNATIVE DEPENDENCE MEASURES CONCEPTS EXPLAINED IN THIS CHAPTER (IN ORDER OF PRESENTATION) PART Three - Inductive Statistics CHAPTER 17 - Point Estimators SAMPLE, STATISTIC, AND ESTIMATOR QUALITY CRITERIA OF ESTIMATORS LARGE SAMPLE CRITERIA MAXIMUM LIKEHOOD ESTIMATOR EXPONENTIAL FAMILY AND SUFFICIENCY CONCEPTS EXPLAINED IN THIS CHAPTER (IN ORDER OF PRESENTATION) CHAPTER 18 - Confidence Intervals CONFIDENCE LEVEL AND CONFIDENCE INTERVAL CONFIDENCE INTERVAL FOR THE MEAN OF A NORMAL RANDOM VARIABLE CONFIDENCE INTERVAL FOR THE MEAN OF A NORMAL RANDOM VARIABLE WITH UNKNOWN VARIANCE CONFIDENCE INTERVAL FOR THE VARIANCE OF A NORMAL RANDOM VARIABLE CONFIDENCE INTERVAL FOR THE VARIANCE OF A NORMAL RANDOM VARIABLE WITH UNKNOWN MEAN CONFIDENCE INTERVAL FOR THE PARAMETER P OF A BINOMIAL DISTRIBUTION CONFIDENCE INTERVAL FOR THE PARAMETER λ OF AN EXPONENTIAL DISTRIBUTION CONCEPTS EXPLAINED IN THIS CHAPTER (IN ORDER OF PRESENTATION) CHAPTER 19 - Hypothesis Testing HYPOTHESES ERROR TYPES QUALITY CRITERIA OF A TEST EXAMPLES CONCEPTS EXPLAINED IN THIS CHAPTER (INORDER OF PRESENTATION) PART Four - Multivariate Linear Regression Analysis CHAPTER 20 - Estimates and Diagnostics for Multivariate Linear Regression Analysis THE MULTIVARIATE LINEAR REGRESSION MODEL ASSUMPTIONS OF THE MULTIVARIATE LINEAR REGRESSION MODEL ESTIMATION OF THE MODEL PARAMETERS DESIGNING THE MODEL DIAGNOSTIC CHECK AND MODEL SIGNIFICANCE APPLICATIONS TO FINANCE CONCEPTS EXPLAINED IN THIS CHAPTER (IN ORDER OF PRESENTATION) CHAPTER 21 - Designing and Building a Multivariate Linear Regression Model THE PROBLEM OF MULTICOLLINEARITY INCORPORATING DUMMY VARIABLES AS INDEPENDENT VARIABLES MODEL BUILDING TECHNIQUES CONCEPTS EXPLAINED IN THIS CHAPTER (IN ORDER OF PRESENTATION) CHAPTER 22 - Testing the Assumptions of the Multivariate Linear Regression Model TESTS FOR LINEARITY ASSUMED STATISTICAL PROPERTIES ABOUT THE ERROR TERM TESTS FOR THE RESIDUALS BEING NORMALLY DISTRIBUTED TESTS FOR CONSTANT VARIANCE OF THE ERROR TERM (HOMOSKEDASTICITY) ABSENCE OF AUTOCORRELATION OF THE RESIDUALS CONCEPTS EXPLAINED IN THIS CHAPTER (IN ORDER OF PRESENTATION) APPENDIX A - Important Functions and Their Features APPENDIX B - Fundamentals of Matrix Operations and Concepts APPENDIX C - Binomial and Multinomial Coefficients APPENDIX D - Application of the Log-Normal Distribution to the Pricing of Call Options References Index The Frank J. Fabozzi Series Fixed Income Securities, Second Edition by Frank J. Fabozzi Focus on Value: A Corporate and Investor Guide to Wealth Creation by James L. Grant and James A. Abate Handbook of Global Fixed Income Calculations by Dragomir Krgin Managing a Corporate Bond Portfolio by Leland E. Crabbe and Frank J. Fabozzi Real Options and Option-Embedded Securities by William T. Moore Capital Budgeting: Theory and Practice by Pamela P. Peterson and Frank J. Fabozzi The Exchange-Traded Funds Manual by Gary L. Gastineau Professional Perspectives on Fixed Income Portfolio Management, Volume 3 edited by Frank J.

Grant Financial Management and Analysis, Second Edition by Frank J. Fabozzi and Pamela P. Peterson Measuring and Controlling Interest Rate and Credit Risk, Second Edition by Frank J. Fabozzi, Steven V. Mann, and Moorad Choudhry Professional Perspectives on Fixed Income Portfolio Management, Volume 4 edited by Frank J. Fabozzi The Handbook of European Fixed Income Securities edited by Frank J. Fabozzi and Moorad Choudhry The Handbook of European Structured Financial Products edited by Frank J. Fabozzi and Moorad Choudhry The Mathematics of Financial Modeling and Investment Management by Sergio M. Focardi and Frank J.

Gastineau Professional Perspectives on Fixed Income Portfolio Management, Volume 3 edited by Frank J. Fabozzi Investing in Emerging Fixed Income Markets edited by Frank J. Fabozzi and Efstathia Pilarinu Handbook of Alternative Assets by Mark J. P. Anson The Global Money Markets by Frank J. Fabozzi, Steven V. Mann, and Moorad Choudhry The Handbook of Financial Instruments edited by Frank J. Fabozzi Collateralized Debt Obligations: Structures and Analysis by Laurie S. Goodman and Frank J. Fabozzi Interest Rate, Term Structure, and Valuation Modeling edited by Frank J. Fabozzi Investment Performance Measurement by Bruce J. Feibel The Handbook of Equity Style Management edited by T.


pages: 416 words: 106,532

Cryptoassets: The Innovative Investor's Guide to Bitcoin and Beyond: The Innovative Investor's Guide to Bitcoin and Beyond by Chris Burniske, Jack Tatar

Airbnb, Alan Greenspan, altcoin, Alvin Toffler, asset allocation, asset-backed security, autonomous vehicles, Bear Stearns, bitcoin, Bitcoin Ponzi scheme, blockchain, Blythe Masters, book value, business cycle, business process, buy and hold, capital controls, carbon tax, Carmen Reinhart, Clayton Christensen, clean water, cloud computing, collateralized debt obligation, commoditize, correlation coefficient, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, disintermediation, distributed ledger, diversification, diversified portfolio, Dogecoin, Donald Trump, Elon Musk, en.wikipedia.org, Ethereum, ethereum blockchain, fiat currency, financial engineering, financial innovation, fixed income, Future Shock, general purpose technology, George Gilder, Google Hangouts, high net worth, hype cycle, information security, initial coin offering, it's over 9,000, Jeff Bezos, Kenneth Rogoff, Kickstarter, Leonard Kleinrock, litecoin, low interest rates, Marc Andreessen, Mark Zuckerberg, market bubble, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Network effects, packet switching, passive investing, peer-to-peer, peer-to-peer lending, Peter Thiel, pets.com, Ponzi scheme, prediction markets, quantitative easing, quantum cryptography, RAND corporation, random walk, Renaissance Technologies, risk free rate, risk tolerance, risk-adjusted returns, Robert Shiller, Ross Ulbricht, Salesforce, Satoshi Nakamoto, seminal paper, Sharpe ratio, Silicon Valley, Simon Singh, Skype, smart contracts, social web, South Sea Bubble, Steve Jobs, transaction costs, tulip mania, Turing complete, two and twenty, Uber for X, Vanguard fund, Vitalik Buterin, WikiLeaks, Y2K

For instance, the American Association of Individual Investors provides simplified models for three types of investors:4 • Aggressive investors: 90 percent diversified stock and 10 percent fixed income • Moderate investors: 70 percent diversified stock and 30 percent fixed income • Conservative investors: 50 percent diversified stock and 50 percent fixed income These three simple models can be used by people of different ages who have different investment time horizons. A whole host of equities can be included within “diversified stock,” and even more so for the variety of bonds that can be used for “fixed income.” For example, equities can be considered based on the size of the company, the growth characteristics, the valuation, the sector type, geographic exposure, and so on.

CryptoCompare, Log scale. 8. https://www.wired.com/2017/01/monero-drug-dealers-cryptocurrency-choice-fire/. 9. http://www.coindesk.com/chinas-central-bank-issues-warnings-major-bitcoin-exchanges/. 10. An example of increased regulation dampening liquidity and trading volume is the new regulation that came out after the financial crisis of 2008. Regulations like Dodd-Frank required much stricter compliance processes, and led to decreased trading volumes especially in the fixed-income market. 11. http://www.nytimes.com/2013/12/06/business/international/china-bars-banks-from-using-bitcoin.html. 12. https://www.cryptocompare.com/coins/eth/analysis/BTC?type=Currencies. 13. Technically, it is absolute returns minus the risk-free rate, which is commonly represented by the three-month Treasury bill. 14.


pages: 162 words: 50,108

The Little Book of Hedge Funds by Anthony Scaramucci

Alan Greenspan, Andrei Shleifer, asset allocation, Bear Stearns, Bernie Madoff, business process, carried interest, corporate raider, Credit Default Swap, diversification, diversified portfolio, Donald Trump, Eugene Fama: efficient market hypothesis, fear of failure, financial engineering, fixed income, follow your passion, global macro, Gordon Gekko, high net worth, index fund, it's over 9,000, John Bogle, John Meriwether, Long Term Capital Management, mail merge, managed futures, margin call, mass immigration, merger arbitrage, Michael Milken, money market fund, Myron Scholes, NetJets, Ponzi scheme, profit motive, proprietary trading, quantitative trading / quantitative finance, random walk, Renaissance Technologies, risk-adjusted returns, risk/return, Ronald Reagan, Saturday Night Live, Sharpe ratio, short selling, short squeeze, Silicon Valley, tail risk, Thales and the olive presses, Thales of Miletus, the new new thing, too big to fail, transaction costs, two and twenty, uptick rule, Vanguard fund, Y2K, Yogi Berra, zero-sum game

In other words, pair traders search for situations where two companies in the same industry—or even two companies in different industries—may move in opposite directions. As a result of this practice, investors profit from the “relative value” of the two securities. Strategies within this classification include: Convertible Bond Arbitrage Fixed-Income Arbitrage Equity Market Neutral Relative value funds can pair trade indices, futures, options, currencies, and commodities; however, stocks that are in the same industry and have similar trading histories are most often used in this strategy. In my humble opinion, the pairs trading process is one of the most fascinating forms of hedge fund investing; however, it may also be the most nuanced.

These strategies focus on alpha generation. We also take sector betas that are attractively priced and hard to source in a typical long only structure. 4. What do you see as the future of the industry? The future for active management is quite bright. Given the low absolute level of interest rates, fixed income returns will remain quite low, while the high volatility and lack of directionality in equity markets make long only strategies less effective. However, managers who mainly take a long only strategy and call it a hedge fund to justify higher fees may see attrition of assets. The market will pay up for real alpha and superior risk management, and is increasingly able to differentiate those from “dressed up” long only strategies.

Typically, an investor should strive to find a manager with many years of real “buy-side experience,” that is, the manager should have actually managed a reasonable amount of capital over a reasonable period of time. The exception to this rule is a new, cutting-edge manager who is implementing strategies that may not have existed three years ago. You would be surprised at how many hedge funds fail the basic “experience” test. For instance, if a manager’s only prior experience is that he was a fixed-income salesman, you could undoubtedly find someone with more relevant experience and skills. For whatever reason, a lot of hedge fund investors tend to be drawn like moths to a flame to big-name sell-side guys who come out and launch a new hedge fund. A general rule of thumb: Avoid these guys like the plague as history has shown that they tend to always fail.


pages: 302 words: 86,614

The Alpha Masters: Unlocking the Genius of the World's Top Hedge Funds by Maneet Ahuja, Myron Scholes, Mohamed El-Erian

"World Economic Forum" Davos, activist fund / activist shareholder / activist investor, Alan Greenspan, Asian financial crisis, asset allocation, asset-backed security, backtesting, Bear Stearns, Bernie Madoff, book value, Bretton Woods, business process, call centre, Carl Icahn, collapse of Lehman Brothers, collateralized debt obligation, computerized trading, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, en.wikipedia.org, family office, financial engineering, fixed income, global macro, high net worth, high-speed rail, impact investing, interest rate derivative, Isaac Newton, Jim Simons, junk bonds, Long Term Capital Management, managed futures, Marc Andreessen, Mark Zuckerberg, merger arbitrage, Michael Milken, Myron Scholes, NetJets, oil shock, pattern recognition, Pershing Square Capital Management, Ponzi scheme, proprietary trading, quantitative easing, quantitative trading / quantitative finance, Renaissance Technologies, risk-adjusted returns, risk/return, rolodex, Savings and loan crisis, short selling, Silicon Valley, South Sea Bubble, statistical model, Steve Jobs, stock buybacks, systematic bias, systematic trading, tail risk, two and twenty, zero-sum game

The legendary head of Goldman’s international risk arbitrage desk had left the department by the late 1980s and served as co-chairman of the firm from 1990 to 1992, when he left Goldman to join President Clinton’s economics team, first as the director of the National Economic Council, then as the Secretary of the Treasury. After Rubin moved on, Tepper continued to turn to him for advice, which didn’t sit well with Jon Corzine, the new co-head of the fixed income department. “I think that’s pretty public,” says Tepper. “People say that I basically kept going to Rubin instead of Corzine but it wasn’t for political reasons. It was just because Rubin knew what was going on with equities and Corzine was a Treasury guy that didn’t know corporates. I wasn’t disloyal to him, but I wasn’t one of his boys,” he says.

Instead of thinking about how to get bigger, Tepper and his team strive to decrease the amount of assets. “We don’t want to be bigger than we can invest,” he says. “The question is what size gets you—except more fees for the manager. But it doesn’t necessarily make the investor more money.” Tepper thinks that for most funds, growing over a certain amount doesn’t do anyone any good. “Fixed income funds should naturally be a little bit larger than, say, equity funds. You want to be big enough that you can see everything and small enough that you don’t kill yourself with size. So I think different sizes are right for different types of funds.” He gives an example. “Say you want to buy 5 percent of a $2 billion company, and have it be meaningful.

So there’s an aspect to the business, in equity funds especially, that gets funky on size.” By March 2011, Appaloosa’s funds had appreciated so substantially that Tepper decided to return $600 million to investors. For the Thoroughbred Fund, however, investors had committed money for three years. The fund opened in July 2008, with a mandate to invest 70 percent of assets in fixed-income securities. Thoroughbred gained 22 percent net in 2010, after soaring 96 percent net in 2009, according to investors. The lock-up period expired at the end of 2011. Tepper reiterates that he’s in the game to make returns, not to have assets, and is looking to place some of his personal wealth with a select few other managers.


pages: 302 words: 84,428

Mastering the Market Cycle: Getting the Odds on Your Side by Howard Marks

activist fund / activist shareholder / activist investor, Alan Greenspan, Albert Einstein, behavioural economics, business cycle, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, financial engineering, financial innovation, fixed income, Glass-Steagall Act, if you build it, they will come, income inequality, Isaac Newton, job automation, junk bonds, Long Term Capital Management, low interest rates, margin call, Michael Milken, money market fund, moral hazard, new economy, profit motive, quantitative easing, race to the bottom, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, secular stagnation, short selling, South Sea Bubble, stocks for the long run, superstar cities, The Chicago School, The Great Moderation, transaction costs, uptick rule, VA Linux, Y2K, yield curve

In addition to short memories, psychological excesses and logical lapses, the bubble that arose in mortgage backed securities was abetted by two additional factors: Because this new bubble arose in mortgage-land—a part of the financial markets completely separate from that which had been visited by the tech and Internet bubble—the fixed income investors and financial institutions it appealed to were ones who hadn’t been affected firsthand by the other, and hadn’t learned from it. The terrible recent performance of equities had so discouraged equity investors—and interest rates brought low by the dovish Fed had so diminished the yields available on fixed income investments—that investors gave up on obtaining strong returns from stocks and bonds. That rendered them highly susceptible to the promise of a new source of return without risk: mortgage backed securities.

Debtholders occupy a senior position relative to the equity investors, who are said to be in the “first-loss” position; this means the equity holders suffer all declines in profits, and then all losses, until the equity is wiped out, at which time any further losses fall to the debtholders. As long as there’s equity in the company, the outcome for the debtholders remains unchanged—they merely receive the interest payments they were promised. (That’s why bonds and notes are called “fixed income securities”: the outcome is fixed.) Let’s assume the capital structure of this company consists of $15,000 of debt (requiring annual interest payments of $1,500) and $15,000 of equity. That means the $1,000 decline in operating profits reduces the net income from $1,500 ($3,000 of operating profit before interest payments, minus $1,500 of interest) to $500 ($2,000 minus $1,500).

What if we depart from investment grade bonds? “I’m not going to touch a high yield bond unless I get 600 over a Treasury note of comparable maturity.” So high yield bonds are required to yield 12%, for a spread of 6% over the Treasury note, if they’re going to attract buyers. Now let’s leave fixed income altogether. Things get tougher, because you can’t look anywhere to find the prospective return on investments like stocks (that’s because, simply put, their returns are conjectural, not “fixed”). But investors have a sense for these things. “Historically S&P stocks have returned 10%, and I’ll only buy them if I think they’re going to keep doing so.”


pages: 479 words: 113,510

Fed Up: An Insider's Take on Why the Federal Reserve Is Bad for America by Danielle Dimartino Booth

Affordable Care Act / Obamacare, Alan Greenspan, asset-backed security, bank run, barriers to entry, Basel III, Bear Stearns, Bernie Sanders, Black Monday: stock market crash in 1987, break the buck, Bretton Woods, business cycle, central bank independence, collateralized debt obligation, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, financial deregulation, financial engineering, financial innovation, fixed income, Flash crash, forward guidance, full employment, George Akerlof, Glass-Steagall Act, greed is good, Greenspan put, high net worth, housing crisis, income inequality, index fund, inflation targeting, interest rate swap, invisible hand, John Meriwether, Joseph Schumpeter, junk bonds, liquidity trap, London Whale, Long Term Capital Management, low interest rates, margin call, market bubble, Mexican peso crisis / tequila crisis, money market fund, moral hazard, Myron Scholes, natural language processing, Navinder Sarao, negative equity, new economy, Northern Rock, obamacare, Phillips curve, price stability, proprietary trading, pushing on a string, quantitative easing, regulatory arbitrage, Robert Shiller, Ronald Reagan, selection bias, short selling, side project, Silicon Valley, stock buybacks, tail risk, The Great Moderation, The Wealth of Nations by Adam Smith, too big to fail, trickle-down economics, yield curve

He had spied Collins’s pretty daughter Nancy in his classes. They married and moved to California, where Fisher earned an MBA from Stanford. Upon graduating, Fisher set his sights on Wall Street. He got a job at the investment bank of Brown Brothers Harriman & Company, where he specialized in fixed-income securities and foreign exchange markets. There he learned the first rule of banking: “Know your customer.” Despite the extraordinary odds against him, Fisher had arrived at the epicenter of the financial world, with family connections to the inner workings of America’s political establishment.

Fuld started in commercial paper and worked his way up. Under Glucksman’s stormy leadership, the company eventually foundered and merged with American Express. After that relationship soured, American Express spun Lehman off into a stand-alone company. When Lehman went public in 1994, Fuld steered Lehman from a fixed-income house—the bond market—into the financial innovations taking hold on Wall Street. Fuld prided himself on building a team culture inside Lehman. Many of his hires had grown up poor. Few had Ivy League degrees. He paid bonuses largely in stock, which they couldn’t sell for five years. That built loyalty and a sense of ownership—and fueled infighting and turf wars.

Hoenig hit back, saying that dissents at the Fed were as essential as they were at the Supreme Court. He added that the continued damage being done to more prudent players in the economy through ZIRP and QE would come back to haunt the Fed. “Importantly,” Hoenig said, “such actions as they continue are demanding the saving public and those on fixed incomes subsidize the borrowing public.” For now, Fisher remained quiet, choosing to hold his dissents for a time when change was afoot. Signs had emerged that investors were becoming desperate in response to continued zero interest rates. The search for yield took on greater intensity. On February 18, 2011, junk bond yields hit a low of 6.80 percent, dipping below the prior December 2004 record of 6.86 percent.


pages: 353 words: 148,895

Triumph of the Optimists: 101 Years of Global Investment Returns by Elroy Dimson, Paul Marsh, Mike Staunton

asset allocation, banking crisis, Berlin Wall, Black Monday: stock market crash in 1987, book value, Bretton Woods, British Empire, buy and hold, capital asset pricing model, capital controls, central bank independence, classic study, colonial rule, corporate governance, correlation coefficient, cuban missile crisis, currency risk, discounted cash flows, diversification, diversified portfolio, dividend-yielding stocks, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, European colonialism, fixed income, floating exchange rates, German hyperinflation, index fund, information asymmetry, joint-stock company, junk bonds, negative equity, new economy, oil shock, passive investing, purchasing power parity, random walk, risk free rate, risk tolerance, risk/return, selection bias, shareholder value, Sharpe ratio, stocks for the long run, survivorship bias, Tax Reform Act of 1986, technology bubble, transaction costs, yield curve

To Helen, Steff, and our parents Contents Preface xi Part One: 101 years of global investment returns 1 Chapter 1 3 Introduction and overview 1.1 Need for an international perspective 3 1.2 The historical record 5 1.3 Inside the markets 7 1.4 The equity premium 1.5 Sixteen countries, one world Chapter 2 8 10 World markets: today and yesterday 11 2.1 The world’s stock markets today 11 2.2 The world’s bond markets today 14 2.3 Why stock and bond markets matter 18 2.4 The world’s markets yesterday 19 2.5 The US and UK stock markets: 1900 versus 2000 23 2.6 Industry composition: 1900 versus 2000 23 2.7 Stock market concentration 28 2.8 Summary 32 Chapter 3 Measuring long-term returns 34 3.1 Good indexes and bad 34 3.2 Index design: a case study 36 3.3 Dividends, coverage, and weightings 38 3.4 Easy-data bias in international indexes 40 3.5 Measuring inflation and fixed-income returns 43 3.6 Summary 44 Chapter 4 International capital market history 45 4.1 The US record 45 4.2 The UK record 48 4.3 Stock market returns around the world 50 4.4 Equities compared with bonds and bills 51 4.5 Investment risk and the distribution of annual returns 54 4.6 Risk, diversification, and market risk 56 4.7 Risk comparisons across asset classes and countries 59 4.8 Summary 61 vii viii Chapter 5 Inflation, interest rates, and bill returns 63 5.1 Inflation in the United States and the United Kingdom 63 5.2 Inflation around the world 65 5.3 US treasury bills and real interest rates 68 5.4 Real interest rates around the world 71 5.5 Summary 72 Chapter 6 Bond returns 74 6.1 US and UK bond returns 6.2 Bond returns around the world 79 6.3 Bond maturity premia 81 6.4 Inflation-indexed bonds and the real term premium 84 6.5 Corporate bonds and the default risk premium 87 6.6 Summary 89 Chapter 7 Exchange rates and common-currency returns 74 91 7.1 Long-run exchange rate behavior 91 7.2 The international monetary system 93 7.3 Long-run purchasing power parity 95 7.4 Deviations from purchasing power parity 96 7.5 Volatility of exchange rates 98 7.6 Common-currency returns on bonds and equities 100 7.7 Summary 103 Chapter 8 International investment 105 8.1 Local market versus currency risk 105 8.2 A twentieth century world index for equities and bonds 108 8.3 Ex post benefits from holding the world index 111 8.4 Correlations between countries 114 8.5 Prospective gains from international diversification 117 8.6 Home bias and constraints on international investment 120 8.7 Summary 123 Chapter 9 Size effects and seasonality in stock returns 124 9.1 The size effect in the United States 124 9.2 The size effect in the United Kingdom 126 9.3 The size effect around the world 129 9.4 The reversal of the size premium 131 9.5 Seasonality and size 135 9.6 Summary 138 ix Chapter 10 Value and growth in stock returns 139 10.1 Value versus growth in the United States 139 10.2 Value and growth investing in the United Kingdom 142 10.3 The international evidence 145 10.4 Summary 148 Chapter 11 Equity dividends 149 11.1 The impact of income 149 11.2 US and UK dividend growth 152 11.3 Dividend growth around the world 154 11.4 Dividend growth, GDP growth, and real equity returns 155 11.5 Dividend yields around the world and over time 157 11.6 Disappearing dividends 158 11.7 Summary 161 Chapter 12 The equity risk premium 163 12.1 US risk premia relative to bills 163 12.2 Worldwide risk premia relative to bills 166 12.3 US risk premia relative to bonds 169 12.4 Worldwide risk premia relative to bonds 171 12.5 Summary 173 Chapter 13 The prospective risk premium 176 13.1 Why the risk premium matters 177 13.2 How big should the risk premium be?

Finally, we should point out that studying the entire period since 1900—though by no means particularly easy—is easier than starting at a still earlier date. We have recently become aware of several new initiatives in this direction, but we do not know what results will be obtained from new studies of nineteenth century security prices in markets other than the United States and the United Kingdom. 3.5 Measuring inflation and fixed-income returns Most of the guiding principles listed in section 3.1 extend beyond equity indexes to the measurement of inflation and bill and bond returns. In addition, some further considerations apply. The Boskin Commission (1996) documented extensive evidence that inflation has systematically been overstated, at least in the United States, because of productivity and quality improvements.

We turn to the question of investment risk in section 4.5. Interestingly, countries that experienced major dislocations still achieved equity market returns that were ahead of inflation. Bond and bill returns in these countries were often markedly negative, however, as these periods of economic turmoil had a more dramatic impact on fixed income than on equity investors. Figure 4-7 shows the real equity and bond return data from Table 4-1 in bar chart form, in ascending order of equity market performance from left to right. In the bond markets, the five worst performing countries (shown by the blue bars with negative returns) were among those with the lowest equity returns (on the left-hand side of the chart).


pages: 477 words: 144,329

How Money Became Dangerous by Christopher Varelas

activist fund / activist shareholder / activist investor, Airbnb, airport security, barriers to entry, basic income, Bear Stearns, Big Tech, bitcoin, blockchain, Bonfire of the Vanities, California gold rush, cashless society, corporate raider, crack epidemic, cryptocurrency, discounted cash flows, disintermediation, diversification, diversified portfolio, do well by doing good, Donald Trump, driverless car, dumpster diving, eat what you kill, fiat currency, financial engineering, fixed income, friendly fire, full employment, Gordon Gekko, greed is good, initial coin offering, interest rate derivative, John Meriwether, junk bonds, Kickstarter, Long Term Capital Management, low interest rates, mandatory minimum, Mary Meeker, Max Levchin, Michael Milken, mobile money, Modern Monetary Theory, mortgage debt, Neil Armstrong, pensions crisis, pets.com, pre–internet, profit motive, proprietary trading, risk tolerance, Saturday Night Live, selling pickaxes during a gold rush, shareholder value, side project, Silicon Valley, Steve Jobs, technology bubble, The Predators' Ball, too big to fail, universal basic income, zero day

My friend and Wharton classmate Ben Giess was also coming to work at Salomon for the summer, but he was headed for the much more civilized and sophisticated investment banking department. “I don’t picture you on the trading floor,” he said. “Are you sure that’s a good idea?” Other classmates were similarly concerned. Clearly they didn’t think I had the toughness to survive in fixed income at Salomon. And I would be the first to admit that they were probably right, although I accepted the offer anyway. Sales and trading were the two main types of jobs that made up the fixed income department. The salespeople bought and sold bonds on behalf of their clients and customers, who included other investment and commercial banks, as well as large institutional investment firms such as Fidelity and PIMCO.

Michael Lewis would later write in Liar’s Poker, his seminal exposé of Wall Street trading, that on his first day at Salomon Brothers he felt like he was going to collect lottery winnings rather than to work. I felt like I was going to a firing squad. My classmates at The Wharton School had portrayed the fixed income department at Salomon Brothers as the wildest, most Darwinian job in the world. This investment bank, founded in 1910, was indeed the lions’ den of the Wall Street jungle, the top of the financial food chain. And somehow here I was—fresh out of Disneyland and commercial lending, an Orange County kid with a liberal arts degree.

The head recruiter, the same woman who would later run our orientation, said, “People seem to like you, but we’re worried that you don’t have that salesman killer instinct.” “Okay.” I shrugged, surrendering to my fate. “But wait,” she said. Apparently the less I appeared to want it, the more desirable I became. “Let’s put you in one last interview with O’Leary, the head of fixed income sales. If you can convince him that you can sell, then you’ve got the spot.” She led me down the hall to the open door of O’Leary’s office. “Come on in,” he yelled, waving me into a seat facing him. “Listen, Mr. Varelas, despite all the glitz around working on Wall Street, we’re really just salesmen.


pages: 825 words: 228,141

MONEY Master the Game: 7 Simple Steps to Financial Freedom by Tony Robbins

"World Economic Forum" Davos, 3D printing, active measures, activist fund / activist shareholder / activist investor, addicted to oil, affirmative action, Affordable Care Act / Obamacare, Albert Einstein, asset allocation, backtesting, Bear Stearns, behavioural economics, bitcoin, Black Monday: stock market crash in 1987, buy and hold, Carl Icahn, clean water, cloud computing, corporate governance, corporate raider, correlation does not imply causation, Credit Default Swap, currency risk, Dean Kamen, declining real wages, diversification, diversified portfolio, Donald Trump, estate planning, fear of failure, fiat currency, financial independence, fixed income, forensic accounting, high net worth, index fund, Internet of things, invention of the wheel, it is difficult to get a man to understand something, when his salary depends on his not understanding it, Jeff Bezos, John Bogle, junk bonds, Kenneth Rogoff, lake wobegon effect, Lao Tzu, London Interbank Offered Rate, low interest rates, Marc Benioff, market bubble, Michael Milken, money market fund, mortgage debt, Neil Armstrong, new economy, obamacare, offshore financial centre, oil shock, optical character recognition, Own Your Own Home, passive investing, profit motive, Ralph Waldo Emerson, random walk, Ray Kurzweil, Richard Thaler, risk free rate, risk tolerance, riskless arbitrage, Robert Shiller, Salesforce, San Francisco homelessness, self-driving car, shareholder value, Silicon Valley, Skype, Snapchat, sovereign wealth fund, stem cell, Steve Jobs, subscription business, survivorship bias, tail risk, TED Talk, telerobotics, The 4% rule, The future is already here, the rule of 72, thinkpad, tontine, transaction costs, Upton Sinclair, Vanguard fund, World Values Survey, X Prize, Yogi Berra, young professional, zero-sum game

Let me give you an example: In a 2012 Wall Street Journal article titled “How to Create a Pension (with a Few Catches),” writer Anne Tergesen highlights the benefits of putting away $100,000 today (for a male age 65) into a deferred fixed-income annuity. This man has other savings and investments, which he thinks will last him to age 85 and get him down the mountain safely. But if he lives past 85, his income insurance payments will begin, and the amounts he receives will be staggeringly large compared with how much he put in. “Currently, a 65-year-old man paying $100,000 for an immediate fixed annuity can get about $7,600 a year for life . . . But with a longevity policy [a long-term deferred fixed-income annuity—I know the language is long] that starts issuing payments at age 85, his annual payout will be $63,990, New York Life says.”

If that happens, there is no US government, and all bets are off anyway! 2. Bonds. We all know what a bond is, right? When I give you my bond, I give you my word. My promise. When I buy a bond, you give me your word—your promise—to return my money with a specific rate of interest after X period of time (the maturity date). That’s why bonds are called “fixed-income investments.” The income—or return—you’ll get from them is fixed at the time you buy them, depending on the length of time you agree to hold them. And sometimes you can use those regular interest payments (dividends) as income while the bond matures. So it’s like a simple IOU with benefits, right?

And you can actually buy US bonds called Treasury inflation-protected securities, or TIPS, that rise in value to keep up with inflation through the consumer price index. Again, we’ll cover all of this in the bond briefing. And later I’ll be showing you an amazing portfolio that uses bond funds in a totally unique way. But meanwhile, let’s consider another fixed-income investment that might belong in your Security Bucket. 3. CDs. Remember them? With certificates of deposit, you’re the one loaning the money to the bank. It takes your cash for a fixed rate of interest, and then returns it—along with your earnings—after a set amount of time. Because CDs are insured by the FDIC, they’re as safe as savings accounts, and—at the time of this writing—just about as exciting.


pages: 261 words: 63,473

Warren Buffett Accounting Book: Reading Financial Statements for Value Investing (Warren Buffett's 3 Favorite Books) by Stig Brodersen, Preston Pysh

accelerated depreciation, book value, discounted cash flows, fixed income, intangible asset, low interest rates, market bubble, money market fund, principal–agent problem, profit maximization, risk tolerance, stock buybacks, time value of money

Too much inflation creates uncertainty, and that is not good for lenders, companies, consumers or the exchange rate. There will be fewer investments and spending, which, as we have just learned, is not good for employment and general wealth in society. Too much inflation also means that people living on fixed incomes, such as pension benefits, experience less buying power for their money as time goes on. This brings us back to the concept of real dollars. We are interested in what we can buy for our money—not how much money we have. Or if you are in debt, like our government, you are also interested in the real value of your debt.

Takeaways from this chapter Let me summarize the interaction between interest rates, inflation, bonds and stocks here: Low interest rates High interest rates Low inflation Stocks Bonds High inflation Stocks Stocks Bonds are preferred in the situation where inflation is low and interest rates are high. That is partly because inflation diminishes the fixed income received from bonds, but also because a high-interest environment may yield better returns. In all other cases, stocks are likely the preferred choice. As the book progresses, I’ll provided more definitive guidance on which type of investment you should consider and why. Chapter 3 A Brief Introduction to Financial Statements For most people, financial reports are as interesting as looking at paint dry.

In this book, we are going to discuss two different intrinsic value calculations so you have the flexibility to choose which approach you prefer. The first calculation is called a discount cash flow calculation. The second calculation is a variant of the discount cash flow calculation and it values stocks similarly to fixed income bonds. Although both approaches might sound a little confusing, there’s no need to worry—we’ll go step by step and provide examples on the following pages. It is important to understand that every valuation technique can be boiled down to one thing: “How much money can I expect to get in return for my initial investment?”


pages: 239 words: 60,065

Retire Before Mom and Dad by Rob Berger

Airbnb, Albert Einstein, Apollo 13, asset allocation, Black Monday: stock market crash in 1987, buy and hold, car-free, cuban missile crisis, discovery of DNA, diversification, diversified portfolio, en.wikipedia.org, fixed income, hedonic treadmill, index fund, John Bogle, junk bonds, mortgage debt, Mr. Money Mustache, passive investing, Ralph Waldo Emerson, robo advisor, The 4% rule, the rule of 72, transaction costs, Vanguard fund, William Bengen, Yogi Berra, Zipcar

That dividend gets paid out to you in proportion to your percentage of ownership. No different than our little dry cleaners. A bond is a fancy word for debt. When the government issues a bond, it is borrowing money from investors who purchase the bond. Bonds are sometimes referred to as Fixed Income. Most bonds have a fixed interest rate paid out over a predictable schedule. Savings accounts and CDs are also fixed income investments. Governments issue bonds, cleverly called Government Bonds. Corporations issue bonds, called Corporate Bonds. Local municipalities issue bonds, called—you guessed it—Municipal Bonds. You can impress your friends by referring to municipal bonds by their nickname, Munis.

Index 403(B) 61, 97, 168 401(K) 18-19, 27, 61, 64, 67, 80-81, 85-86, 97, 107, 143, 145, 161, 167-170, 172, 174-179, 181, 183-187, 189-191, 195-196, 200, 202, 213-214, 229, 235-238, 241, 243, 245 3-Fund Portfolio 162, 165, 184-187, 191, 246 7 Levels Of Financial Freedom 44, 48, 50-52, 57 4% Rule 50, 59, 63-65, 69, 160 Actively Managed Mutual Funds 140-142 Asset Allocation 190, 195, 201, 246 Asset Classes 136, 157 Backdoor Roth IRA 172-173, 177 Bad Debt 219 Basis Points (bips) 152, 154, 159, 185-186, 191-192, 195-196, 207 Betterment 192, 207, 243 Blend 146, 186 Bogleheads 162 Bond(s) 20, 33, 38, 65, 129-141, 143, 147-150, 152, 157-163, 184-186, 195-196, 201-202 Charles Duhigg 104 Commissions 205 Commodities 144, 147 Credit Cards 4, 39, 96, 105, 202, 217, 226, 235 Credit Risk 133, 147-148 Debt 4-7, 12, 18, 49, 80, 82, 84, 90-92, 107, 135, 138, 202-203, 215-231, 233-241, 243, 246 Debt Avalanche 225, 228-231 Debt Snowball 225, 228-231 Dividend 19, 134-135, 200 Dividends 134-135, 200 Duration 149 Emerging Markets 131, 145, 163 Equity 6, 132, 135, 140, 216, 225, 227 ETF 207 Expense Ratio 152-154, 159, 184, 186, 190-191, 195 Fee-Only 205-206, 208 Fees 123, 140, 142-143, 151-156, 159, 161, 178, 184-186, 191, 196, 205-206 Fidelity 154, 164, 180, 183-184, 186, 192, 195 Financial Freedom 2-3, 5, 7, 9-13, 17, 19, 23, 28, 35, 41, 43-52, 57, 59, 61, 63, 65-69, 71-76, 93-94, 98-99, 115-116, 142, 153, 156-157, 167, 195-196, 202-203, 211, 215, 222, 224, 227-228, 231, 234, 239, 244, 246-247, 249-250 Fixed Income 135 Freedom Fund 10, 39, 45-51, 59, 63-67, 69, 72, 74, 76, 88, 93, 96-97, 117, 119, 184-185, 206 Good Debt 219 Growth 144, 146, 159, 186 Health Savings Account (HSA) 173-175, 177, 179, 182, 189 Hedonic Treadmill 5-6 I Bonds 149 Index Mutual Fund 80, 140 Interest Rate Risk 131, 133, 147-149 IRA 18, 64, 167, 170-173, 175, 177-181, 189, 191-193, 195-196, 200, 238, 245 Jeff Rose 119 Junk Bonds 148 Level 7 45, 47-52, 59-60, 63, 65-69, 71-76, 93, 96, 98, 115-116, 123, 125, 142, 153, 156-157, 168, 176, 182, 185, 202, 204, 206, 211, 213, 215, 222, 249, 251 Load Fees 153, 155, 159, 184, 186 Market Cap 141, 144-145 Market Capitalization 144 Mark Zoril 207 Maturity 136 Money Audit 11, 87, 89-91, 94, 99, 101, 167 Money Multiplier 9-11, 17, 19-23, 26, 28, 31-32, 38-39, 45-46, 50-52, 63, 71, 105, 153, 167, 195 Morningstar 151, 159, 184-187, 190, 195-196, 200 Mr.


pages: 195 words: 63,455

Damsel in Distressed: My Life in the Golden Age of Hedge Funds by Dominique Mielle

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", activist fund / activist shareholder / activist investor, airline deregulation, Alan Greenspan, banking crisis, Bear Stearns, Black Monday: stock market crash in 1987, blood diamond, Boris Johnson, British Empire, call centre, capital asset pricing model, Carl Icahn, centre right, collateralized debt obligation, Cornelius Vanderbilt, coronavirus, COVID-19, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, Elon Musk, Eugene Fama: efficient market hypothesis, family office, fear of failure, financial innovation, fixed income, full employment, glass ceiling, high net worth, hockey-stick growth, index fund, intangible asset, interest rate swap, John Meriwether, junk bonds, Larry Ellison, lateral thinking, Long Term Capital Management, low interest rates, managed futures, mega-rich, merger arbitrage, Michael Milken, Myron Scholes, Northpointe / Correctional Offender Management Profiling for Alternative Sanctions, offshore financial centre, Paul Samuelson, profit maximization, Reminiscences of a Stock Operator, risk free rate, risk tolerance, risk-adjusted returns, satellite internet, Savings and loan crisis, Sharpe ratio, Sheryl Sandberg, SoftBank, survivorship bias, Tesla Model S, too big to fail, tulip mania, union organizing

The name stuck despite becoming a misnomer when hedge funds started investing in a wide variety of assets and strategies beyond long and short stocks, and not necessarily uncorrelated to the market. Today, there are innumerable types of hedge funds: equity (long/short, long, activist); emerging markets; event-driven; macro; convertible arbitrage; merger arbitrage; fixed-income arbitrage; macro; distressed; and the list goes on. Canyon combines a number of these strategies, but with deep roots in high-yield bonds and distressed investing—that’s what I did, sitting in my office, a glorified nomenclature for a sad little cubicle at first, turning a decade later into a plushy furnished suite with a view—rather than standing at a bank window, bless my grandfather.

I lost confidence in my ability to invest and make sound judgments on the market. And the way back up wasn’t easy. There was no market to speak of for junk bonds, leveraged loans, and most of our assets from mid-2008 to spring 2009. For financial securities that do not trade through an electronic stock exchange, like many corporate fixed income instruments including junk bonds and distressed securities, a trader must match an actual physical buyer and a seller, much like a real estate broker representing a house. If there is no willing seller or buyer—the seller is loath to sell at what he considers a ludicrously low bid and the buyer is unwilling to step up to what he believes is a preposterous ask—there is simply no trade at all.

If the market goes down, new loans are more attractively priced, but your existing portfolio shows a loss—which is appalling to potential investors. Anything can happen. Anything can go wrong at any point. The founding partners were only loosely involved in the structuring and marketing aspects. For the most part, their opinion was that, what with this being a Canyon product and all, and Canyon being one of the largest, most reputable fixed income managers around, investors were surely tripping all over each other to put money in. How could we not get investors? The truth is that we were indeed well established in many areas, just not this one. This was our first CLO in years (six to be exact). Investors were most definitely not going to airily take a chance on us.


pages: 102 words: 30,120

Why Wages Rise by F. A. Harper

business cycle, collective bargaining, fixed income, full employment, means of production, wage slave

In speaking of the consequences of inflation at the time of the French Revolution, Andrew Dickson White said: Now began to be seen more plainly some of the many ways in which an inflation policy robs the working class . . . . the classes living on fixed incomes and small salaries felt the pressure first, as soon as the purchasing power of their fixed incomes was reduced. Soon the great class living on wages felt it even more sadly . . . . the demand for labor was diminished; laboring men were thrown out of employment . . . the price of labor . . . went down. . . . Workmen of all sorts were more and more thrown out of employment.6 So if the wage earner is to be able to enjoy further increases in real wages through a healthy and sound economic growth, inflation must be stopped.


Risk Management in Trading by Davis Edwards

Abraham Maslow, asset allocation, asset-backed security, backtesting, Bear Stearns, Black-Scholes formula, Brownian motion, business cycle, computerized trading, correlation coefficient, Credit Default Swap, discrete time, diversified portfolio, financial engineering, fixed income, Glass-Steagall Act, global macro, implied volatility, intangible asset, interest rate swap, iterative process, John Meriwether, junk bonds, London Whale, Long Term Capital Management, low interest rates, margin call, Myron Scholes, Nick Leeson, p-value, paper trading, pattern recognition, proprietary trading, random walk, risk free rate, risk tolerance, risk/return, selection bias, shareholder value, Sharpe ratio, short selling, statistical arbitrage, statistical model, stochastic process, systematic trading, time value of money, transaction costs, value at risk, Wiener process, zero-coupon bond

Some especially popular ETFs mirror broad market indexes like the S&P 500 or the Dow Jones Industrial Average. Real Estate Investment Trusts (REITs). REITs are investment funds which own real estate. These funds allow investors to trade real estate. BONDS (FIXED INCOME, DEBT) Debt instruments (bonds) are financial assets that are created when investors loan money to a corporation, nation, or other legal entity. These instruments allow investors to loan money to companies and receive interest payments in return. Debt instruments are often called fixed income investments because the borrower is required to make fixed payments at regular intervals that are determined when the bond is issued. The owner of the bond is the lender (creditor) and the issuer of the bond is the borrower (debtor).

Currencies are traded in the foreign exchange (FX) market. 49 Financial Markets tes st Ra Intere Bond Price s Interest Ra tes Bond Falling interest rates cause prices of already issued bonds to rise FIGURE 2.4 s Price Rising interest rates cause prices of already issued bonds to fall Bond Prices and Interest Rates KEY CONCEPT: TYPES OF DEBT SECURITIES The terms fixed income securities, bonds, and debt investments are all largely synonymous. These assets give the debt holder (the lender) a creditor position in the borrower. These instruments often have specific terms associated with them: Debenture. A debenture is an unsecured corporate bond. It is backed by the full faith and credit of the issuer.

See exchange traded funds European options, 213 exchange traded funds, 45 expected loss, 240–241 expected shortfall, 172–173 exponentially weighted volatility, 156–158 exposure at default, 240–241, 243–245 exposure, current and potential future, 260 F fair price, 26 fair value, 122, 129, 135 fair value classification, 133 fair value hierarchy, 131–134 FASB. See Financial Accounting Standards Board fill or kill orders, 19–20 303 Index Financial Accounting Standards Board, 129, 239–240 financial assets, 37 financial control, 14 financial instruments, 33–35 requirements for, 35 first derivative, 83–85 fixed income, 45–48 FOK. See fill or kill orders forced transactions, 130 foreign exchange, 48–51 forward contracts, 37, 51–54 forward curves, building, 251–252 forward prices, 21 forward testing, 100–101 front office, 12–13 functions, 62–63, 83 funds of funds, 8–9 future exposure, potential, 260 futures contracts, 37–38, 53–54 G gamma, 202, 218–225 put/call parity and, 225–226 GARCH historical volatility, 158–160 Garman-Kohlhagen, 210 generalized autoregressive conditionally heteroskedatic.


Systematic Trading: A Unique New Method for Designing Trading and Investing Systems by Robert Carver

asset allocation, automated trading system, backtesting, barriers to entry, Black Swan, buy and hold, cognitive bias, commodity trading advisor, Credit Default Swap, diversification, diversified portfolio, easy for humans, difficult for computers, Edward Thorp, Elliott wave, fear index, fixed income, global macro, implied volatility, index fund, interest rate swap, Long Term Capital Management, low interest rates, margin call, Market Wizards by Jack D. Schwager, merger arbitrage, Nick Leeson, paper trading, performance metric, proprietary trading, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Sharpe ratio, short selling, survivorship bias, systematic trading, technology bubble, transaction costs, Two Sigma, Y Combinator, yield curve

He initially traded exotic derivative products for Barclays Investment Bank and then worked as a portfolio manager for AHL – one of the world’s largest systematic hedge funds – before, during and after the global financial meltdown of 2008. He was responsible for the creation of AHL’s fundamental global macro strategy and then managed the fund’s multi-billion dollar fixed income portfolio before retiring from the industry in 2013. Robert, who has bachelors and masters degrees in Economics, now systematically trades his own portfolio of futures and equities. Every owner of a physical copy of this version of Systematic Trading can download the eBook for free direct from us at Harriman House, in a format that can be read on any eReader, tablet or smartphone.

Often requires leverage to achieve decent absolute returns in normal times; so gets killed in bad times. 40 Chapter Two. Systematic Trading Rules Positive skew Negative skew Examples: Examples: • Trend following strategies. • FX carry • Bets done by buying options, e.g. if you think the stock market will weaken then buying put options. • Fixed income relative value as practised by Long Term Capital Management (LTCM), a large hedge fund that blew up in 1998.** • John Paulson in 2006 buying cheap credit default swap insurance on securities backed by mortgages.* • Market making. • Tail protect hedge funds that try and provide cheap insurance against large market moves, as practised by Nassim Taleb amongst others

Often after a long stable period of rising markets these trades get swamped by people seeking extra returns. This results in the available profits being reduced, the apparent risk falling, and required leverage increasing further. Then the music stops and their negative skew becomes horribly apparent. 45 Systematic Trading Two classic examples are the meltdown of fixed income relative value hedge fund manager Long Term Capital Management in mid-199836 and the Quant Quake – sharp losses seen over just two days by equity relative value systematic funds in August 2007. Achievable Sharpe ratios This section is relevant to all readers It’s important to have a realistic sense of what level of Sharpe ratios (SR) are achievable.


pages: 222 words: 70,559

The Oil Factor: Protect Yourself-and Profit-from the Coming Energy Crisis by Stephen Leeb, Donna Leeb

Alan Greenspan, book value, Buckminster Fuller, buy and hold, currency risk, diversified portfolio, electricity market, fixed income, government statistician, guns versus butter model, hydrogen economy, income per capita, index fund, low interest rates, mortgage debt, North Sea oil, oil shale / tar sands, oil shock, peak oil, profit motive, reserve currency, rising living standards, Ronald Reagan, shareholder value, Silicon Valley, Vanguard fund, vertical integration, Yom Kippur War, zero-coupon bond

And if our oil indicator signals its onset, it’s time to rush into deflation hedges. Cash, Bonds, and Zeros Historically the only investments that perform well during the kind of economy-ravaging deflation that would occur this time around are fixed income instruments such as cash and bonds—and in particular zero coupon bonds. The most analogous period is 1929-32, and as figure 17a, “Bonds in the Depression,” shows, fixed income investments were the only shelter. More recently, deflationary fears arose when oil prices surged and acted as the catalyst that punctured the tech bubble. The sharp fall in the market threatened to cause an economic meltdown.

Because as we’ve noted, nothing in the market is ever a hundred percent certain, and if inflation picks up unexpectedly, your zeros will tank. Regular bonds will come down less, and they’ll still give you income. Individual bonds generally aren’t as liquid as stocks, and sometimes you can be forced to overpay for them. Thus, when it comes to investing in any fixed income instrument as a deflation hedge, we prefer the mutual fund route. One key rule is to go for quality. Don’t get tempted by high-yield bond funds, because these consist of the debt of risky companies, exactly the kind that could go broke if a depression hits. Stick to government bonds and ultra-high-quality corporate bonds.


Principles of Corporate Finance by Richard A. Brealey, Stewart C. Myers, Franklin Allen

3Com Palm IPO, accelerated depreciation, accounting loophole / creative accounting, Airbus A320, Alan Greenspan, AOL-Time Warner, Asian financial crisis, asset allocation, asset-backed security, banking crisis, Bear Stearns, Bernie Madoff, big-box store, Black Monday: stock market crash in 1987, Black-Scholes formula, Boeing 747, book value, break the buck, Brownian motion, business cycle, buy and hold, buy low sell high, California energy crisis, capital asset pricing model, capital controls, Carl Icahn, Carmen Reinhart, carried interest, collateralized debt obligation, compound rate of return, computerized trading, conceptual framework, corporate governance, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, cross-border payments, cross-subsidies, currency risk, discounted cash flows, disintermediation, diversified portfolio, Dutch auction, equity premium, equity risk premium, eurozone crisis, fear index, financial engineering, financial innovation, financial intermediation, fixed income, frictionless, fudge factor, German hyperinflation, implied volatility, index fund, information asymmetry, intangible asset, interest rate swap, inventory management, Iridium satellite, James Webb Space Telescope, junk bonds, Kenneth Rogoff, Larry Ellison, law of one price, linear programming, Livingstone, I presume, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, low interest rates, market bubble, market friction, money market fund, moral hazard, Myron Scholes, new economy, Nick Leeson, Northern Rock, offshore financial centre, PalmPilot, Ponzi scheme, prediction markets, price discrimination, principal–agent problem, profit maximization, purchasing power parity, QR code, quantitative trading / quantitative finance, random walk, Real Time Gross Settlement, risk free rate, risk tolerance, risk/return, Robert Shiller, Scaled Composites, shareholder value, Sharpe ratio, short selling, short squeeze, Silicon Valley, Skype, SpaceShipOne, Steve Jobs, subprime mortgage crisis, sunk-cost fallacy, systematic bias, Tax Reform Act of 1986, The Nature of the Firm, the payments system, the rule of 72, time value of money, too big to fail, transaction costs, University of East Anglia, urban renewal, VA Linux, value at risk, Vanguard fund, vertical integration, yield curve, zero-coupon bond, zero-sum game, Zipcar

Defaults are rare for companies with investment-grade bond ratings, but investors worry nevertheless. Companies need to compensate investors for default risk by promising to pay higher rates of interest. ● ● ● ● ● FURTHER READING Two good general texts on fixed income markets are: F. J. Fabozzi and S. V. Mann, Handbook of Fixed Income Markets, 8th ed. (New York: McGraw-Hill, 2011). S. Sundaresan, Fixed Income Markets and Their Derivatives, 3rd ed. (San Diego, CA: Academic Press, 2009). Schaefer’s paper is a good review of duration and how it is used to hedge fixed liabilities: A. M. Schaefer, “Immunisation and Duration: A Review of Theory, Performance and Application,” in The Revolution in Corporate Finance, ed.

Then P&G accused Bankers Trust of misrepresenting the transactions—an embarrassing allegation, since P&G was hardly investing as a widow or orphan—and sued Bankers Trust. We take no stand on the merits of this litigation, which was eventually settled. But think of P&G’s competition when it traded in the fixed-income markets. Its competition included the trading desks of all the major investment banks, hedge funds, and fixed-income portfolio managers. P&G had no special insights or competitive advantages on the fixed-income playing field. There was no evident reason to expect positive NPV on the trades it committed to. Why was it trading at all? P&G would never invest to enter a new consumer market if it had no competitive advantage in that market.

On occasion, the British and the French have been known to disagree and sometimes even to fight wars. At the end of some of these wars the British consolidated the debt they had issued during the war. The securities issued in such cases were called consols. Consols are perpetuities. These are bonds that the government is under no obligation to repay but that offer a fixed income for each year to perpetuity. The British government is still paying interest on consols issued all those years ago. The annual rate of return on a perpetuity is equal to the promised annual payment divided by the present value:4 We can obviously twist this around and find the present value of a perpetuity given the discount rate r and the cash payment C: The year is 2030.


Layered Money: From Gold and Dollars to Bitcoin and Central Bank Digital Currencies by Nik Bhatia

Alan Greenspan, bank run, basic income, Bear Stearns, bitcoin, blockchain, Bretton Woods, British Empire, central bank independence, Cornelius Vanderbilt, Credit Default Swap, cryptocurrency, distributed ledger, fiat currency, fixed income, Fractional reserve banking, interest rate derivative, interest rate swap, Isaac Newton, joint-stock company, Kickstarter, Long Term Capital Management, margin call, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, offshore financial centre, quantitative easing, reserve currency, risk free rate, Satoshi Nakamoto, slashdot, smart contracts, time value of money, tulip mania, universal basic income

These dollars didn’t have any connection to the Fed’s second-layer reserves or third-layer dollar deposits insured by the FDIC. Nevertheless, LIBOR mirrored Fed Funds; the investing world didn’t prescribe any substantial quantitative difference to the price of interbank money whether in New York or in London. In 1998, the Fixed Income Clearing Corporation introduced an interest rate called General Collateral Financing to reflect the average collateralized lending interest rates of Treasury Repo. The concept of General Collateral (GC) started because hundreds of different Treasury securities can exist at any time, and therefore measuring the interest rate of Treasury Repo should be done by averaging interbank Treasury Repo transactions.

“Insight Report, Central Bank Digital Currency Policy‐Maker Toolkit,” Centre for the Fourth Industrial Revolution, 2020. http://www3.weforum.org/docs/WEF_CBDC_Policymaker_Toolkit.pdf About the Author Nik Bhatia is a financial researcher, CFA charterholder, and Adjunct Professor of Finance and Business Economics at the University of Southern California Marshall School of Business where he teaches Applied Finance in Fixed Income Securities. Previously, Nik worked the US Treasuries trading desk for a large institutional asset manager and has extensive trading experience in money markets and interest rate futures. After starting his teaching career, Nik felt the urge to bring his research on both the international monetary system and Bitcoin together as one to write Layered Money: From Gold and Dollars to Bitcoin and Central Bank Digital Currencies.


pages: 280 words: 79,029

Smart Money: How High-Stakes Financial Innovation Is Reshaping Our WorldÑFor the Better by Andrew Palmer

Affordable Care Act / Obamacare, Alan Greenspan, algorithmic trading, Andrei Shleifer, asset-backed security, availability heuristic, bank run, banking crisis, behavioural economics, Black Monday: stock market crash in 1987, Black-Scholes formula, bonus culture, break the buck, Bretton Woods, call centre, Carmen Reinhart, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, computerized trading, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Graeber, diversification, diversified portfolio, Edmond Halley, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, eurozone crisis, family office, financial deregulation, financial engineering, financial innovation, fixed income, Flash crash, Google Glasses, Gordon Gekko, high net worth, housing crisis, Hyman Minsky, impact investing, implied volatility, income inequality, index fund, information asymmetry, Innovator's Dilemma, interest rate swap, Kenneth Rogoff, Kickstarter, late fees, London Interbank Offered Rate, Long Term Capital Management, longitudinal study, loss aversion, low interest rates, margin call, Mark Zuckerberg, McMansion, Minsky moment, money market fund, mortgage debt, mortgage tax deduction, Myron Scholes, negative equity, Network effects, Northern Rock, obamacare, payday loans, peer-to-peer lending, Peter Thiel, principal–agent problem, profit maximization, quantitative trading / quantitative finance, railway mania, randomized controlled trial, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Savings and loan crisis, short selling, Silicon Valley, Silicon Valley startup, Skype, South Sea Bubble, sovereign wealth fund, statistical model, subprime mortgage crisis, tail risk, Thales of Miletus, the long tail, transaction costs, Tunguska event, unbanked and underbanked, underbanked, Vanguard fund, web application

They are also part of the skeleton of the financial system. After the 1930s (a decade now lauded for its postcrisis regulatory overhaul), US banks were required by their regulators to use credit ratings to assess the creditworthiness of the fixed-income instruments they invest in; international rules still use ratings to determine the amount of equity banks have to use to fund these assets. Investment firms use credit ratings to specify what types of fixed-income products they can invest in, and the biggest pools of capital—pension funds, sovereign-wealth funds, and the like—are often confined to “investment-grade securities,” which carry a higher rating.

Basis risk: The risk that a hedging strategy will not work out because assets whose prices and risks are supposed to offset each other, with one rising as the other falls, do not behave as expected. Bond: An IOU issued by a company or government, which entitles the lenders to get their initial money (or principal) back as well as income in the form of an interest payment. Because bonds offer investors a fixed return, they are known as fixed-income assets. Like loans, bonds are a form of debt. Unlike loans, they are highly tradable and their ownership is very dispersed. Clearinghouse: A clearinghouse stands in between buyers and sellers in financial transactions and is designed to reduce counterparty risk. When an uncleared derivatives contract moves onto a clearinghouse, it divides into two: a contract between the buyer and the clearinghouse and a matching contract between the seller and the clearinghouse.


Where Does Money Come From?: A Guide to the UK Monetary & Banking System by Josh Ryan-Collins, Tony Greenham, Richard Werner, Andrew Jackson

bank run, banking crisis, banks create money, Basel III, Big bang: deregulation of the City of London, book value, Bretton Woods, business cycle, capital controls, cashless society, central bank independence, credit crunch, currency risk, double entry bookkeeping, en.wikipedia.org, eurozone crisis, fiat currency, financial innovation, fixed income, floating exchange rates, Fractional reserve banking, full employment, global reserve currency, Goodhart's law, Hyman Minsky, inflation targeting, interest rate derivative, interest rate swap, Joseph Schumpeter, low skilled workers, market clearing, market design, market friction, Modern Monetary Theory, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Northern Rock, offshore financial centre, Post-Keynesian economics, price mechanism, price stability, proprietary trading, purchasing power parity, quantitative easing, Real Time Gross Settlement, reserve currency, Ronald Reagan, seigniorage, special drawing rights, the payments system, trade route, transaction costs

Wholesale banking can include assistance in raising equity and debt finance, providing advice in relation to mergers and acquisitions, acting as counterparty to client trades and ‘market-making’ (investment banking). An investment bank may also undertake trading on its own account (proprietary trading) in a variety of financial products such as derivatives, fixed income instruments, currencies and commodities. Note that investment banks need not necessarily hold a licence to accept deposits from customers to carry out some of these trading and advisory activities. This theory is incorrect, for reasons that will be covered below. It also leads to assumptions about the economy that do not hold true in reality, such as the idea that high levels of savings by the public will lead to high investment in productive businesses, and conversely, that a lack of savings by the public will choke off investment in productive businesses.

The investor, who could be an individual, but these days is more often an institutional investor (e.g. a pension fund) loans a certain amount of money, for a certain amount of time, with a certain interest rate, to the company or country. In return, the investor receives a certificate which they can use to redeem the bond when it matures (i.e. the date at which it expires). Meanwhile, a fixed payment is usually made by the issuer to the holder (the coupon). This is why bonds are also called fixed income securities. Furthermore, when market interest rates rise, the value of bonds falls, and vice versa, as the value of the expected future income stream from the fixed coupon payment changes. Bonds are an example of debt based securities or tradable securities (stocks are equity based securities).

Retrievable from http://www.cls-group.com/Publications/CLS%20About%20Us.pdf CLS Bank (2011). CLS market share report, February 2011 Cobbett, W., (1828). Paper Against Gold. New York: John Doyle Credit Suisse (2009). Market Focus – Long Shadows: Collateral Money, Asset Bubbles and Inflation. Fixed Income Research, Market Focus, May 5, 2009 Croome, D. R., Johnson and G. J. (eds), (1970). Money in Britain 1959-69: The papers of the ‘Radcliffe report – ten years after’ conference at Hove, Sussex, October 1969. London: Oxford University Press Davies, G., (2002). A History of Money. Cardiff: University of Wales Press Davies, R., Richardson, P., Katinatire, V. and Manning, M., (2010).


pages: 252 words: 73,387

Mini Farming: Self-Sufficiency on 1/4 Acre by Brett L. Markham

active measures, classic study, clean water, Columbine, coronavirus, fixed income, Mason jar, place-making

The goals of the mini-farmer are similar to those of the home gardener but with an added emphasis on economics. The mini-farmer’s aim is to reduce the amount of income needed by providing a substantial portion of the household’s food needs. This can allow a parent to stay at home with children, make homeschooling feasible, improve conditions under a fixed income, or act as a buffer against uncertain economic conditions. In the chapters ahead, I intend to demonstrate how the goals of gardening and mini-farming can be achieved with greater enjoyment and much less time, effort, money, and equipment than you ever expected, in spite of whatever obstacles may arise.

According to the USDA, the average annual per capita expenditure on food was $2,964 in 2001, with food costs increasing at a rate of 27.7% over the previous 10 years.5 Understanding that food is purchased with after-tax dollars, it becomes clear that home agricultural methods that take a significant chunk out of that figure can make the difference, for example, between a parent being able to stay at home with children and he or she having to work, or it could vastly improve the quality of life of a retiree on a fixed income. The key to making a garden work to your economic benefit is to approach mini-farming as a business. No, it is not a business in the sense of incorporation and taxes unless some of its production is sold, but it is a business in that by reducing your food expenditures, it has the same net effect on finances as income from a small business.

For families who want to have a parent stay at home with a child or who want to homeschool their children, mini-farming may make it possible—and make money in the process, by having whichever parent who earns the least money from regular employment go into mini-farming. For healthy people on a fixed income, it’s a no-brainer. 3 Raised Beds Raised beds and properly constituted soil make mini-farming practical. Modern people in the industrialized world have a lot less spare time and a lot less available land than their ancestors. Raised beds offer so many advantages over row gardening that it is hard to imagine why everyone except big agribusiness cartels isn’t using them.


pages: 407 words: 114,478

The Four Pillars of Investing: Lessons for Building a Winning Portfolio by William J. Bernstein

Alan Greenspan, asset allocation, behavioural economics, book value, Bretton Woods, British Empire, business cycle, butter production in bangladesh, buy and hold, buy low sell high, carried interest, corporate governance, cuban missile crisis, Daniel Kahneman / Amos Tversky, Dava Sobel, diversification, diversified portfolio, Edmond Halley, equity premium, estate planning, Eugene Fama: efficient market hypothesis, financial engineering, financial independence, financial innovation, fixed income, George Santayana, German hyperinflation, Glass-Steagall Act, high net worth, hindsight bias, Hyman Minsky, index fund, invention of the telegraph, Isaac Newton, John Bogle, John Harrison: Longitude, junk bonds, Long Term Capital Management, loss aversion, low interest rates, market bubble, mental accounting, money market fund, mortgage debt, new economy, pattern recognition, Paul Samuelson, Performance of Mutual Funds in the Period, quantitative easing, railway mania, random walk, Richard Thaler, risk tolerance, risk/return, Robert Shiller, Savings and loan crisis, South Sea Bubble, stock buybacks, stocks for the long run, stocks for the long term, survivorship bias, Teledyne, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the rule of 72, transaction costs, Vanguard fund, yield curve, zero-sum game

Conversely, the highest returns are obtained by shouldering prudent risk when things look the bleakest, a theme we shall return to repeatedly. Bond Returns in the Twentieth Century The history of bonds in the twentieth century is unique—even the most comprehensive grasp of financial history would not have prepared the nineteenth century investor for the hurricane that buffeted the world’s fixed-income markets after 1900. In order to understand what happened, it’s necessary to briefly discuss the transition from the gold standard to the paper currency system that took place in the early 1900s. We’ve already touched on the abandonment of the gold standard after World War I. Before then, except for very brief periods, gold was money.

Figure 4-4. Mix of 75% Stock/25% Treasury bill annual returns, 1901–2000. (Source: Jeremy Siegel.) Figure 4-5. All-stock annual returns, 1901–2000. (Source: Jeremy Siegel.) It’s important to clear up a bit of confusing terminology first. Until this point in the book, we’ve used two designations for fixed-income securities: bonds and bills, referring to long- and short-duration obligations, respectively. Bonds and bills are also different in one other respect: bonds most often yield regular interest, whereas bills do not—they are simply bought at a discount and redeemed at face value. The most common kinds of bills in everyday use are Treasury bills and commercial paper, the latter issued by corporations.

For the purposes of this book, when we use the term “bonds” we are intentionally excluding long-term treasuries and corporate bonds, as these do not have an acceptable return/risk profile. I’ll admit that this is a bit confusing. A more accurate designation would be “stocks and relatively short-term fixed-income instruments,” but this wording is unwieldy. Table 4-1. 1901–2000, 100-Year Annualized Return versus 1973–1974 Bear Market Return The data in Table 4-1 and the plot in Figure 4-6 vividly portray the tradeoff between risk and return. The key point is this: the choice between stocks and bonds is not an either/or problem.


Common Stocks and Uncommon Profits and Other Writings by Philip A. Fisher

book value, business climate, business cycle, buy and hold, data science, El Camino Real, estate planning, fixed income, index fund, low interest rates, market bubble, market fundamentalism, profit motive, RAND corporation, Salesforce, the market place, transaction costs, vertical integration

The rise in interest rates that had been going on for several years gained major momentum in the fall of 1956. With high-grade bonds subsequently selling at the lowest prices in twenty-five years, many voices in the financial community were raised to advocate switching from stocks which were selling at historically high levels into such fixed-income securities. The abnormally high yield of bonds over dividend return on stocks—in relation to the ratio that normally prevails—would appear to have given strong support to the soundness of this policy. For the short term, such a policy sooner or later may prove profitable. As such, it might have great appeal for those mak-ing short- or medium-term investments—that is, for “traders” with the acuteness and sense of timing to judge when to make the necessary buying and selling moves.

This means that in the United States the annual rate of monetary depreciation during the period was 3.4 per cent, and in Canada it was 4.2 per cent. In contrast, the yield offered by United States Government bonds bought at the beginning of the period, which admittedly was one of rather low interest rates, was only 2.19 per cent. This means that the holder of this type of high-grade, fixed-income security actually received negative interest (or loss) of better than 1 per cent per annum if the real value of his money is considered. Suppose, however, that instead of acquiring bonds at the rather low rates that prevailed at the beginning of this period, the investor could have bought them at the rather high interest rates that prevailed ten years later.

It seems to me that if this whole inflation mechanism is studied carefully it becomes clear that major inflationary spurts arise out of wholesale expansions of credit, which in turn result from large government deficits greatly enlarging the monetary base of the credit system. The huge deficit incurred in winning World War II laid such a base. The result was that prewar bondholders who have maintained their positions in fixed-income securities have lost over half the real value of their investments. As already explained, our laws, and more importantly our accepted beliefs of what should be done in a depression, make one of two courses seem inevitable. Either business will remain good, in which event outstanding stocks will continue to out-perform bonds, or a significant recession will occur.


pages: 287 words: 81,970

The Dollar Meltdown: Surviving the Coming Currency Crisis With Gold, Oil, and Other Unconventional Investments by Charles Goyette

Alan Greenspan, bank run, banking crisis, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Bernie Madoff, Bretton Woods, British Empire, Buckminster Fuller, business cycle, buy and hold, California gold rush, currency manipulation / currency intervention, Deng Xiaoping, diversified portfolio, Elliott wave, fiat currency, fixed income, Fractional reserve banking, housing crisis, If something cannot go on forever, it will stop - Herbert Stein's Law, index fund, junk bonds, Lao Tzu, low interest rates, margin call, market bubble, McMansion, Money creation, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, National Debt Clock, oil shock, peak oil, pushing on a string, reserve currency, rising living standards, road to serfdom, Ronald Reagan, Saturday Night Live, short selling, Silicon Valley, transaction costs

Maybe that confusion is to be expected from the governing classes and their lapdog press, such as the news writer who insists that the government’s bailout spending will have “no effect on Social Security and Medicare.” When his drug bill added the biggest burden to the hidden debt since the Great Society, Bush said, “This week Congress made significant progress toward improving the lives of America’s senior citizens.” Really, Mr. President? Because America’s senior citizens, and everyone else on a fixed income, will be among the hardest hit by the dollar meltdown. At least David Walker understands that failure to solve the problem of hidden debt means a depreciating dollar and a lower standard of living. “Young people in particular will end up paying double or more in taxes what the current generation pays if they don’t become more involved,” he said.

Those financial institutions, large insurance companies, and banks have a clear moral obligation to use their considerable political clout to resist the destruction of the value of the deposits, insurance policies, and pension plans their clients have been paying for over a lifetime. But they did not do so in Germany, and they have not done so in the United States. Meanwhile, chief among the victims of inflation are those who save, such as bank depositors, those who buy bonds, and fixed income investors, retirees, and pension plan owners. In other words, all the virtues of thrift and savings that contribute to a healthy and prosperous economy are penalized. Nightmare in Zimbabwe Finally in this section a word about the recent mind-boggling runaway inflation in Zimbabwe. It is a tragic tale of bloodshed and ruin.

It was good for the likes of Merrill Lynch, JPMorgan, and Chase Manhattan, which saw their depressed stock prices take off, but it had a costly impact on Americans. Driving rates to 3 percent by the time he was finished, Greenspan fundamentally altered the investment outlook and risk-taking proclivities of retired people and baby boomers alike, as they sought to make up in the stock market for the certificate of deposit and fixed income returns that had disappeared. Ultimately Americans lost $6 trillion in that Greenspan stock market bubble. But while the profits of the banks from market distortions are privatized, banking system losses, as we are wit nessing, are socialized. More alarming is the role of the central bank in funding wars not popular enough to be sustained by direct taxation.


pages: 285 words: 86,174

Twilight of the Elites: America After Meritocracy by Chris Hayes

"Hurricane Katrina" Superdome, "World Economic Forum" Davos, affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, asset-backed security, barriers to entry, Bear Stearns, Berlin Wall, Bernie Madoff, carried interest, circulation of elites, Climategate, Climatic Research Unit, collapse of Lehman Brothers, collective bargaining, creative destruction, Credit Default Swap, dark matter, David Brooks, David Graeber, deindustrialization, Fall of the Berlin Wall, financial deregulation, fixed income, full employment, George Akerlof, Gunnar Myrdal, hiring and firing, income inequality, Jane Jacobs, jimmy wales, Julian Assange, Kenneth Arrow, Mark Zuckerberg, mass affluent, mass incarceration, means of production, meritocracy, meta-analysis, military-industrial complex, money market fund, moral hazard, Naomi Klein, Nate Silver, peak oil, plutocrats, Ponzi scheme, post-truth, radical decentralization, Ralph Waldo Emerson, rolodex, Savings and loan crisis, The Spirit Level, too big to fail, University of East Anglia, Vilfredo Pareto, We are the 99%, WikiLeaks, women in the workforce

Further compounding the problem was that the storm hit at the very end of the month, a time when those on fixed income, and Temporary Assistance for Needy Families, were at their most cash strapped. During congressional hearings devoted to untangling what went wrong during Katrina, Representative Gene Taylor pointed this out to FEMA head Michael Brown: “In all these scenarios that I’m sure you’ve thought out, did FEMA bother to realize that it is the 28th of the month, a lot of people live on fixed income, be it a Social Security check or a retirement check, they’ve already made their necessary purchase for the month.

: See Frank Bass, “Katrina’s Worst-Hit Victims Much Poorer Than Rest of America, Census Analysis Shows,” Associated Press, September 4, 2005. 22 “I’ve only got like $80 to my name”: Morning Edition, National Public Radio, September 2, 2005. 23 Among the poor nationwide, 20 percent live in households that don’t have access to a car, and among the poor in the city of New Orleans that number was 47 percent: See Alan Berube et al., “Economic Difference in Household Automobile Ownership Rates: Implications for Evacuation Policy,” pp. 7–8, http://socrates.berkeley.edu/~raphael/BerubeDeakenRaphael.pdf, accessed January 23, 2012. 24 “a lot of people live on fixed income, be it a Social Security check or a retirement check” … “It is not the role of the federal government to supply five gallons of gas”: See U.S. House of Representatives, A Failure of Initiative: Final Report of the Select Bipartisan Committee to Investigate the Preparation for and Response to Hurricane Katrina (Washington, D.C.: U.S.


pages: 519 words: 118,095

Your Money: The Missing Manual by J.D. Roth

Airbnb, Alan Greenspan, asset allocation, bank run, book value, buy and hold, buy low sell high, car-free, Community Supported Agriculture, delayed gratification, diversification, diversified portfolio, do what you love, estate planning, Firefox, fixed income, full employment, hedonic treadmill, Home mortgage interest deduction, index card, index fund, John Bogle, late fees, lifestyle creep, low interest rates, mortgage tax deduction, Own Your Own Home, Paradox of Choice, passive investing, Paul Graham, random walk, retail therapy, Richard Bolles, risk tolerance, Robert Shiller, speech recognition, stocks for the long run, traveling salesman, Vanguard fund, web application, Zipcar

If your risk tolerance is high, you can handle big fluctuations in your investment returns in exchange for the possibility of large gains. If your tolerance is low, on the other hand, you'd rather not deal with the ups and downs—even if that means giving up a chance at making higher returns. Some of your portfolio should be in fixed-income investments like bonds and CDs, which pay interest on a regular schedule. How much depends on your goals, needs, and risk tolerance. A common rule of thumb is that the percentage of fixed-income investments in your portfolio should be equal to your age. So, if you're 30, you should have 30% in something like a bond mutual fund. (A lot of experts dislike this guideline, but it's an easy place to start.)

Siegel goes back even further than 1926, showing that if you'd invested just one dollar in stocks in 1802, it would have been worth more than $750,000 in 2006. If you'd put that dollar in bonds instead, it would have grown to just $1,083. And if you'd put it in gold, it would be worth $1.95. (All those figures take inflation into account.) "The dominance of stocks over fixed-income securities [like bonds] is overwhelming for investors with long horizons," Siegel writes. In plain English: Over the past 200 years, stocks have outperformed every other kind of investment. But before you rush out and sink your savings in the stock market, you need to understand a few important points.

stocks, The Tools of Investing Escape from Cubicle Nation, Resources for Entrepreneurs estate planning, A Brief Overview of Estate Planning, Drawing up a Will, Drawing up a Will estimated taxes, Where to Get More Tax Info exchange-traded funds (ETFs), Index funds exemptions, How Income Tax Works expectations, It's Not About the Money expense notifications, Using Credit Without Getting Burned expense ratios, Mutual Funds, Keep Costs Low expenses index funds, Index funds mutual funds, Mutual Funds planning, Mapping Your Financial Future tracking, Mapping Your Financial Future Experian, Your Credit Report, How to Get Your Credit Score experiences, How Money Affects Happiness, Living a Rich Life, The Tyranny of Stuff extended warranties, Close the deal, General Insurance Tips extensions on tax returns, What To Do If You Can't Pay Uncle Sam F Fair Credit Reporting Act, Getting a Free Credit Report Fair Debt Collection Practices Act, Debtors Anonymous families, Kids and Money, Allowances FatWallet.com, Save While Shopping, Choosing a Card Federal Deposit Insurance Corporation (FDIC), Credit unions fee-only financial planners, Know Your Goals fees banks, The Right Bank for You, Keeping Your Accounts Optimized credit cards, Credit Cards, Choosing a Card mutual funds, Mutual Funds small business rates, The Pros and Cons of Entrepreneurship FICO scores, Your Credit Score Fidelity investment funds, Lifecycle funds, Mutual fund companies financial management, How Much Is Enough? financial news, Ignore the Financial News Financial Peace University, Financial Peace University financial planners, Roth IRA rules and requirements financial trolls, Coping with Mistakes and Setbacks FireCalc.com, Retirement Calculators first-time homebuyer's credit, Other moves fixed-income securities, How Much Do Stocks Actually Earn? floater policies, Homeowners Insurance foreign stock funds, Keep Costs Low, Lazy Portfolios foreign stocks, Stocks and Bonds Form 9465, What To Do If You Can't Pay Uncle Sam Form W-4, How Income Tax Works fraud, Why Use a Credit Card?, Choosing a Card, Selling a Car free checking, The Right Bank for You free credit reports, Getting a Free Credit Report Free File tax program, Hire a pro Freecycle website, Donating to Charity Freedman, Mystery shopping freedom, Friends and Family, True Wealth frequent flyer miles, Why Use a Credit Card?


pages: 312 words: 91,538

The Fear Index by Robert Harris

algorithmic trading, backtesting, banking crisis, dark matter, family office, fear index, Fellow of the Royal Society, fixed income, Flash crash, God and Mammon, high net worth, implied volatility, Jim Simons, Large Hadron Collider, mutually assured destruction, National best bid and offer, Neil Kinnock, Renaissance Technologies, speech recognition, two and twenty

‘We have various prime brokers these days, not just AmCor.’ ‘More’s the pity,’ said Easterbrook, laughing. Quarry said, ‘With the greatest respect to Bill, we don’t want one single brokerage firm knowing all our strategies. At the moment we use a mix of big banks and specialist houses: three for equities, three for commodities and five for fixed income. Let’s take a look at the hardware, shall we?’ As the group moved off, Quarry pulled Hoffmann aside. ‘Am I missing something here,’ he said quietly, ‘or are those positions way out of line?’ ‘They do look a little more exposed than normal,’ agreed Hoffmann, ‘but nothing to worry about. Now I think of it, LJ mentioned that Gana wanted a meeting of the Risk Committee.

His method was to show them the independently back-tested results of Hoffmann’s algorithm and the mouth-watering projections of future returns, then break it to them that the fund was already closed: he had only fulfilled his engagement to speak in order to be polite but they didn’t need any more money, sorry. Afterwards the investors would come looking for him in the hotel bar; it worked nearly every time. Quarry had hired a guy from BNP Paribas to oversee the back office, a receptionist, a secretary, and a French fixed-income trader from AmCor who had run into some regulatory issues and needed to get out of London fast. On the technical side, Hoffmann had recruited an astrophysicist from CERN and a Polish mathematics professor to serve as quants. They had run simulations throughout the summer and had gone live in October 2002 with $107 million in assets under management.

If we start liquidating positions this size too quickly, we’ll move prices.’ Hoffmann nodded. ‘That’s true, but VIXAL will help us achieve the optimums, even in override.’ He looked up at the row of digital clocks beneath the giant TV screens. ‘We’ve still got just over three hours before America closes. Imre, will you and Dieter help out with fixed income and currencies? Franco and Jon, take three or four guys each and divide up stocks and sector bets. Kolya, you do the same with the indices. Everyone else in their normal sections.’ ‘If you encounter any problems,’ said Quarry, ‘Alex and I will be here to help out. And can I just say: don’t anyone think for a second that this is a retreat.


pages: 327 words: 91,351

Traders at Work: How the World's Most Successful Traders Make Their Living in the Markets by Tim Bourquin, Nicholas Mango

algorithmic trading, automated trading system, backtesting, buy and hold, commodity trading advisor, Credit Default Swap, Elliott wave, financial engineering, fixed income, global macro, Long Term Capital Management, managed futures, Market Wizards by Jack D. Schwager, paper trading, pattern recognition, prediction markets, risk tolerance, Small Order Execution System, statistical arbitrage, The Wisdom of Crowds, transaction costs, zero-sum game

There are boundless opportunities to come up with your own little nuances on your methods to make them just a little better. The minute you think you’ve found the key to trading, I promise you the markets will change the lock. CHAPTER 3 Serge Berger Serge Berger has been an active trader since 1998. During his career, he has been a financial analyst, dealt in fixed-income instruments at J.P. Morgan, and was a proprietary trader in equities, equity options, and futures. Exposure to a range of different asset classes has allowed Berger to identify which asset classes and strategies best fit his goal of achieving consistent profits. Over the years, Berger has created a trading methodology that divides markets into different time frames and characters, allowing him to more clearly and without emotions determine which strategies to apply in given situations.

Berger: I can’t give a dollar amount, but what I can tell you is that the goal when trading the opening gap is basically to make between one and two S&P 500 E-mini futures points. If you do that, you make a very good living. Bourquin: Right. And how did you go about learning to trade the opening gap? Berger: I worked at J.P. Morgan as a fixed-income guy, and I always wanted to break loose from that and just trade, but I wanted to find something that would give me enough certainty of cash flow on a monthly or quarterly basis so I could leave, or at least get to a prop desk where I could survive. The gap trade is a very high-probability trade that allows me to do that, and that’s really why I came around it.

Because you’re following the ECB and other central banks, are you trading currency futures at all? Berger: No. I don’t trade currency futures. And the main reason I stick with the asset classes I mentioned is because I think it gets too difficult to keep track of things. As I said earlier, I used to be a fixed-income guy and traded a lot of credit default swaps, corporate bonds, and even sovereign bonds, but it’s just too much to keep track of. Nowadays, with the advent of ETFs, if I want to get a general trade on, say, the euro or the Australian dollar, I can trade that using ETFs. Of course, I’m giving up some fees here and there, but I’m happy to just take it as a macro trade and not have to worry about the intricacies of dealing with foreign exchange and corporate bonds, because I’d then need different brokers and every­thing else.


pages: 312 words: 93,836

Barometer of Fear: An Insider's Account of Rogue Trading and the Greatest Banking Scandal in History by Alexis Stenfors

Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, Bear Stearns, Big bang: deregulation of the City of London, bonus culture, capital controls, collapse of Lehman Brothers, credit crunch, Credit Default Swap, Eugene Fama: efficient market hypothesis, eurozone crisis, financial deregulation, financial innovation, fixed income, foreign exchange controls, game design, Gordon Gekko, inflation targeting, information asymmetry, interest rate derivative, interest rate swap, London Interbank Offered Rate, loss aversion, mental accounting, millennium bug, Nick Leeson, Northern Rock, oil shock, Post-Keynesian economics, price stability, profit maximization, proprietary trading, regulatory arbitrage, reserve currency, Rubik’s Cube, Snapchat, Suez crisis 1956, the market place, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, work culture , Y2K

In reality, however, only large institutions are able to raise money this way. T-bills are securities that expire within a year and are issued by governments, whereas bonds refer to papers with longer maturities. Mortgage bonds are securities issued by institutions involved in mortgage lending. Considering the small size of the country, the Swedish fixed-income market (the common name for these products) was enormous. The government had borrowed a lot for an extended period of time and therefore had accumulated substantial debts. These debts could be traded in the market as securities, and this is precisely what we did. The dealing room was minuscule compared with the one I had seen in Frankfurt, containing no more than 15 or 20 seats.

In 2015, the Bank of England, the UK Treasury and the FCA published a joint assessment of the financial markets following the manipulation scandals. In the Fair and Effective Markets Review, the message is clear; it states that ‘no distinction is made between wholesale and retail markets, or between FICC [fixed income, currencies and commodities] and non-FICC markets’ with regards to UK and EU competition law. The report specifically stressed that it ‘also applies to financial markets, including FX spot, which may currently fall outside of the direct scope of financial market regulation’.23 In fact, a class action has already been filed in the US in which the claimants (a long list of clients in the FX market) allege that the defendants conspired to fix bid–offer spreads for various currency pairs in the FX spot market.

Bernstein & Company, 10 Sanwa Bank, 34 Scandanavia: banking crisis, 31, 47; derivatives market, 27 secrets, 157, 170; bank employee clauses, 156, 158; value of, 157 self-confidence, hubristic sense of, 261 ‘self-detection’, 213 Service Employees International Union, USA, 163 SFO, 13 Sherman Anti-Trust Act, 220 short-term maturities, trading, 145 short-termism, 279 SIMEX (Singapore International Monetary Exchange), 127 Simmel, George, 157 skydivers, studies on, 268 Smith, Adam, 234 Smithfield market, London, 48 Snapchat, monitoring difficulty, 283 ‘snipers’, hardened traders, 66 Snow, Jon, 11; blog of, 247 SOAS (School of Oriental and African Studies), 6–7, 168 social norms, fear of retaliation, 231 Societé Générale, 194, 223 ‘sophisticated traders’, financial crisis impact on, 276 Soros, George, 32 South Korea, financial crisis, 36 Spandau Ballet, Gold, 188 ‘spoofing’, 204 Standard & Poor’s, 96 Standard Chartered, 223 Stenfors, Alexis: accusation distress, 245; childhood coins interest, 64–5; father of, 57–8; FCA five year ban, 244; FSA Final Notice, 249; guilt feelings, 69; media coverage distress, 11, 247; mismarking episode 280; press coverage, 242; silencing of, 12; threats against, 243 Stern, Andy, 163 STIBOR (Stockholm Interbank Offered Rate), 28, 76, 79; new unpredictability, 62 Stiglitz, Joseph, 225 STIRT (Short-term Interest Rate Trading) desk, 30, 40, 52, 140, 215 stock markets, benchmarks, 149 Stockholm School of Economics, 20 stop-loss order, 205–9; 258 Story, Louise, 9 Strange, Susan, ‘casino capitalism’, 171 Suez War outbreak of, 113 supply and demand, FX information, 207 swap desk, FX, 214 Swedbank, 23 Sweden, 32; banking crisis, 20; central bank, 116–17; fixed-income market, 22; FX market, 176, 178; T-bills, official rule book, 230 Swiss franc, 44; derivatives market, market makers cartel, 221 Swiss National Bank, 151 syndicated loans market, LIBOR prompting, 117–19 T-bills, 21, 230; pricing, 23 ‘take-profit orders’, 206–8 takers, market/price, 24 Telerate, LIBOR rate updating, 19 Term Auction Facility, Federal Reserve, 51 Thailand, financial crisis, 37 Thain, John, 164 Thatcher, Margaret, ‘Big Bang’, 115 TIBOR (Tokyo Interbank Offered Rate), 14, 76, 78–9, 127, 130; new unpredictability of, 62; yen, 81 TIBOR-LIBOR spread, 81, 127; ‘barometer of fear’ gauge, 36; Japanese Christmas party, 101 TIFFE (Tokyo International Financial Futures Exchange), 127 Tokyo-Mitsubishi Bank, 34 ‘Tomnext’, contracts, 145 tomorrow rate bets, LIBOR, 146 Totan brokerage, 101 trade tickets, 24; ‘Benchmark’ detail, 19; details on, 18 traders: biases, 203; bonds and FX, 27; bonuses, 56; brokers blackmailing, 90; constant observation of, 26; ‘feel’, 32; ‘profit centres’, 95; respect among, 267; risk takers, 257, 260; sloppy mistakes, 253; stereotypical perceptions of, 240 trades, 79; client prioritised, 19; speed of, 29 trading: books, 2; buzz addiction, 271; competitive, 267; computer speed, 273; principles erosion, 67; proprietary, 257; risk level, 62; risk taking, 280; rules social norms, 65; secrets, 167; ‘styles’, 47 transparency, LIBOR lack, 79 trimming process, 7, 79, 81–2 Tullett Prebon brokerage, 101, 175 Turner, Adair, 124 ‘two-way price’ making, 116 UBS bank, 92–3, 101, 153, 188, 192–3, 210, 213, 220–1, 223; bad apple narrative, 214, 236; FX scandal press release, 232; LIBOR scandal fine, 82; rogue trading scandal, 168 UK (United Kingdom): Consumer Price Index, 123; EU referendum pound fall, 171; Prudential Regulation Authority, 279; taxpayers RBS rescue, 83; Treasury, 222 University of Cologne, 17 University of Iowa, 237 USA: corporations innovative borrowing, 112; Reserve, 44–5, 50–1, 163, 174, 176, 225, 265; SEC, 180; sub-prime mortgage market, 49 US dollars, 44; demand for, 98; growing pool abroad, 112; LIBOR, 45 US dollar: LIBOR panel, 82; Middle East Europe placing, 113; trading in, 30 USSR (Union of Soviet Socialist Republics), Banque pour l’Europe du Nord, 113 Wall Street, 236, 250 Wall Street Journal 182 ‘wash trades’, 91–2, 94, 96 Weber, Axel, 213 Wheatley, Martin, 188 Whitehouse, Mark, 98 Wilson, Paul, 238–9 Winter War, USSR-Finland, 65 WM/Reuters 4pm fix, 208, 212, 277 World Trade Center Attacks, New York, 45, 264–6 yen, 33 ‘Your Amount’, trader call, 143–4 Zacher, Linda, 153 ABOUT THE AUTHOR Alexis Stenfors spent 15 years as a foreign exchange and interest rate derivatives trader at HSBC, Citi, Crédit Agricole and Merrill Lynch.


pages: 584 words: 187,436

More Money Than God: Hedge Funds and the Making of a New Elite by Sebastian Mallaby

Alan Greenspan, Andrei Shleifer, Asian financial crisis, asset-backed security, automated trading system, bank run, barriers to entry, Bear Stearns, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, book value, Bretton Woods, business cycle, buy and hold, capital controls, Carmen Reinhart, collapse of Lehman Brothers, collateralized debt obligation, computerized trading, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, currency peg, deal flow, do well by doing good, Elliott wave, Eugene Fama: efficient market hypothesis, failed state, Fall of the Berlin Wall, financial deregulation, financial engineering, financial innovation, financial intermediation, fixed income, full employment, German hyperinflation, High speed trading, index fund, Jim Simons, John Bogle, John Meriwether, junk bonds, Kenneth Rogoff, Kickstarter, Long Term Capital Management, low interest rates, machine translation, margin call, market bubble, market clearing, market fundamentalism, Market Wizards by Jack D. Schwager, Mary Meeker, merger arbitrage, Michael Milken, money market fund, moral hazard, Myron Scholes, natural language processing, Network effects, new economy, Nikolai Kondratiev, operational security, pattern recognition, Paul Samuelson, pre–internet, proprietary trading, public intellectual, quantitative hedge fund, quantitative trading / quantitative finance, random walk, Renaissance Technologies, Richard Thaler, risk-adjusted returns, risk/return, Robert Mercer, rolodex, Savings and loan crisis, Sharpe ratio, short selling, short squeeze, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical arbitrage, statistical model, survivorship bias, tail risk, technology bubble, The Great Moderation, The Myth of the Rational Market, the new new thing, too big to fail, transaction costs, two and twenty, uptick rule

By calculating the risk of losses, Long-Term could hold the capital it needed and no more, turning minuscule price anomalies into fabulous profits. Yet as the scholars savored their glory, Long-Term reached a fateful crossroads. Back in the 1980s, Meriwether and his professors had been the upstarts on Wall Street; one decade on, nearly all investment banks had fixed-income arbitrage desks that competed with them directly.23 In the first half of 1997, LTCM’s profits had started to slow down, and the partners began to do some soul-searching. One response to shrunken opportunity was to shrink the fund, returning money to investors. But LTCM was not ready to shrink to the point of giving up.

Shaw got hurt in the bond-market turbulence that accompanied Long-Term Capital’s collapse in 1998—“It could have been the end of the game for Shaw at that point,” one of the firm’s traders said later. The company sold part of its trading book, taking a loss that wiped out that year’s gains in all its other strategies combined. Having learned how highly leveraged fixed-income strategies could get hit in a liquidity crunch, Shaw abandoned bond arbitrage for a few years, though by 2002 it had tiptoed back into it. WHILE SHAW WAS BUILDING HIS MACHINE, ANOTHER effort was under way in a surprising corner of the industry. Paul Tudor Jones, rock-and-roll trader and Robin Hood founder, was investing the fruits of his winnings in a computer-trading project.

It would have been less likely to fly with a real hedge fund. Ralph Cioffi himself was not the sort of figure who could have launched his own hedge fund easily. As a salesman, he had virtually no experience in controlling portfolio risk—indeed, some Bear executives argued that he should not be allowed to do so. Paul Friedman, the COO of Bear’s fixed-income desk, said afterward, “There were a fair number of skeptics internally who couldn’t figure out how this guy—who was bright but had never managed money—was now going to be running money. He knew nothing about risk management, had never written a ticket in his life that wasn’t someone else’s money.”15 Likewise, Cioffi was short on managerial ability: In a brief stint as a supervisor, he had performed disappointingly.


pages: 356 words: 51,419

The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns by John C. Bogle

asset allocation, backtesting, buy and hold, creative destruction, currency risk, diversification, diversified portfolio, financial intermediation, fixed income, index fund, invention of the wheel, Isaac Newton, John Bogle, junk bonds, low interest rates, new economy, passive investing, Paul Samuelson, random walk, risk tolerance, risk-adjusted returns, Sharpe ratio, stocks for the long run, survivorship bias, transaction costs, Upton Sinclair, Vanguard fund, William of Occam, yield management, zero-sum game

But the relentless rules of humble arithmetic with which I’ve regaled you also apply—arguably even more forcefully—to bond funds. Perhaps it’s obvious why this is so. While a seemingly infinite number of factors influence the stock market and each individual stock that is traded there, a single factor dominates the returns earned by investors in the bond market: the prevailing level of interest rates. Managers of fixed-income funds can’t do much, if anything, to influence rates. If they don’t like the rates established in the marketplace, neither calling the Treasury Department or the Federal Reserve, nor otherwise trying to change the supply/demand equation, is likely to bear fruit. Why would an intelligent investor hold bonds?

Indeed, many of the earlier chapters in this book that were focused on stock funds could just as easily be the titles of a series of bond fund chapters—especially, “Focus on the Lowest-Cost Funds,” “Selecting Long-Term Winners,” and “Profit from the Majesty of Simplicity and Parsimony.” These rules are universal. Don’t Take My Word for It The power of bond indexing is growing. Peter Fisher, former head of the fixed-income group at giant global money manager BlackRock, has observed: “We’re moving to the second phase of the index revolution. The world is a frightening, uncertain place, and investors want to make their [bond] portfolios much simpler so they can sleep at night.” * * * While not a lot has been written about the remarkable (and remarkably obvious) value of index funds that invest in bonds, the convictions expressed in this chapter have been strongly reinforced by Walter R.


pages: 334 words: 98,950

Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism by Ha-Joon Chang

"there is no alternative" (TINA), "World Economic Forum" Davos, affirmative action, Albert Einstein, Big bang: deregulation of the City of London, bilateral investment treaty, borderless world, Bretton Woods, British Empire, Brownian motion, business cycle, call centre, capital controls, central bank independence, colonial rule, Corn Laws, corporate governance, David Ricardo: comparative advantage, Deng Xiaoping, Doha Development Round, en.wikipedia.org, export processing zone, falling living standards, Fellow of the Royal Society, financial deregulation, financial engineering, fixed income, foreign exchange controls, Francis Fukuyama: the end of history, income inequality, income per capita, industrial robot, Isaac Newton, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, land reform, liberal world order, liberation theology, low skilled workers, market bubble, market fundamentalism, Martin Wolf, means of production, mega-rich, moral hazard, Nelson Mandela, offshore financial centre, oil shock, price stability, principal–agent problem, Ronald Reagan, South Sea Bubble, structural adjustment programs, The Wealth of Nations by Adam Smith, trade liberalization, transfer pricing, urban sprawl, World Values Survey

Neo-liberals would argue that all inflation – moderate or not – is still objectionable, because it disproportionately hurts people on fixed incomes – notably wage earners and pensioners, who are the most vulnerable sections of the population. Paul Volcker, the chairman of the US Federal Reserve Board (the US central bank) under Ronald Reagan (1979–87), argued: ‘Inflation is thought of as a cruel, and maybe the cruellest, tax because it hits in a many-sectored way, in an unplanned way, and it hits the people on a fixed income hardest’.16 But this is only half the story. Lower inflation may mean that what the workers have already earned is better protected, but the policies that are needed to generate this outcome may reduce what they can earn in the future.

Emphasis on fiscal prudence has been a central theme in the neo-liberal macroeconomics promoted by the Bad Samaritans. They argue that government should not live beyond its means and must always balance its budget. Deficit spending, they argue, only leads to inflation and undermines economic stability, which, in turn, reduces growth and diminishes the living standards of people on fixed income. Once again, who can argue against prudence? But, as in the case of inflation, the real question is what exactly it means to be prudent. For one thing, being prudent does not mean that the government has to balance its books every year, as is preached to developing countries by the Bad Samaritans.


pages: 571 words: 105,054

Advances in Financial Machine Learning by Marcos Lopez de Prado

algorithmic trading, Amazon Web Services, asset allocation, backtesting, behavioural economics, bioinformatics, Brownian motion, business process, Claude Shannon: information theory, cloud computing, complexity theory, correlation coefficient, correlation does not imply causation, data science, diversification, diversified portfolio, en.wikipedia.org, financial engineering, fixed income, Flash crash, G4S, Higgs boson, implied volatility, information asymmetry, latency arbitrage, margin call, market fragmentation, market microstructure, martingale, NP-complete, P = NP, p-value, paper trading, pattern recognition, performance metric, profit maximization, quantitative trading / quantitative finance, RAND corporation, random walk, risk free rate, risk-adjusted returns, risk/return, selection bias, Sharpe ratio, short selling, Silicon Valley, smart cities, smart meter, statistical arbitrage, statistical model, stochastic process, survivorship bias, transaction costs, traveling salesman

Figure 16.8 displays (a) a large correlation matrix of fixed income securities before and (b) after clustering, with over 2.1 million entries. Traditional optimization or econometric methods fail to recognize the hierarchical structure of financial Big Data, where the numerical instabilities defeat the benefits of the analysis, resulting in unreliable and detrimental outcomes. Figure 16.8 Correlation matrix before and after clustering The methodology described in this chapter can be applied to problems beyond optimization. For example, a PCA analysis of a large fixed income universe suffers the same drawbacks we described for CLA.

Still, you may want to sample dollar bars where the size of the bar is not kept constant over time. Instead, the bar size could be adjusted dynamically as a function of the free-floating market capitalization of a company (in the case of stocks), or the outstanding amount of issued debt (in the case of fixed-income securities). 2.3.2 Information-Driven Bars The purpose of information-driven bars is to sample more frequently when new information arrives to the market. In this context, the word “information” is used in a market microstructural sense. As we will see in Chapter 19, market microstructure theories confer special importance to the persistence of imbalanced signed volumes, as that phenomenon is associated with the presence of informed traders.


pages: 340 words: 100,151

Secrets of Sand Hill Road: Venture Capital and How to Get It by Scott Kupor

activist fund / activist shareholder / activist investor, Airbnb, Amazon Web Services, asset allocation, barriers to entry, Ben Horowitz, Benchmark Capital, Big Tech, Blue Bottle Coffee, carried interest, cloud computing, compensation consultant, corporate governance, cryptocurrency, discounted cash flows, diversification, diversified portfolio, estate planning, family office, fixed income, Glass-Steagall Act, high net worth, index fund, information asymmetry, initial coin offering, Lean Startup, low cost airline, Lyft, Marc Andreessen, Myron Scholes, Network effects, Paul Graham, pets.com, power law, price stability, prudent man rule, ride hailing / ride sharing, rolodex, Salesforce, Sand Hill Road, seminal paper, shareholder value, Silicon Valley, software as a service, sovereign wealth fund, Startup school, the long tail, Travis Kalanick, uber lyft, VA Linux, Y Combinator, zero-sum game

Over the last twenty years, Yale’s foreign equity portfolio has returned about 14 percent annually. Hedge funds—Yale calls its hedge fund strategy “absolute return,” meaning that it is investing in this asset class largely to generate high long-term returns by exploiting market inefficiencies with relatively low correlation to broader equity market and fixed income returns. Yale’s allocation of 22 percent to absolute return strategies is generally in line with other university endowments and has returned 9 percent annually over the last twenty years (with the expected low correlation to equities and bonds). Buyout funds—Yale has a 15 percent allocation to buyout funds; recall that these are private equity funds that typically buy controlling ownership stakes in existing businesses and seek to increase their value over time by improving their financial operations.

Real estate—Yale has a 12.5 percent allocation to real estate investments, well in excess of the 4 percent average at other university endowments. Over the last twenty years, Yale’s real estate portfolio has returned about 11 percent annually. The smallest portion of Yale’s endowment is targeted to deflation hedging assets—7.2 percent, well below the 12.7 percent allocation of the average university endowment: Fixed income—Yale has a 4.9 percent allocation to bonds, which are intended to protect against unexpected deflation and to provide near-term cash flow. Over the last twenty years, Yale’s bond portfolio has returned about 5 percent annually. Cash—Yale has about a 2 percent allocation to cash. A couple of big-picture things stand out when looking at the Yale endowment portfolio.

., 11 fiduciary duties and Bloodhound case, 236–239 to debt holders, 246 in difficult financing scenarios, 232, 236, 237 dual fiduciaries, 201–202, 212 duty of candor, 215 duty of care, 211–212, 215, 217 duty of confidentiality, 212–215 duty of loyalty, 212, 215, 218 and winding down the company, 246 financial crisis of 2008, 59 financial forecasts, 150–151 fixed income, 63 foreign equities, 62 foundations, 55, 57 founders adaptability of, 49 and board of directors, 97–98, 171–172 and capitalization tables, 190–191 and common stock, 93 and company vs. product-first companies, 44–45 departure of cofounders, 94–95, 96–100 egomania in, 47–48 and evaluation of early-stage companies, 43, 44, 49 founder-market fit, 45–47, 131–133 and information asymmetry, 5, 140, 275 and intellectual property, 101–103 leadership abilities of, 47–48 and product development, 49 and stock restrictions in term sheets, 181 and storytelling skills, 134 and taxation, 71 and vesting, 95–97, 99–101, 183, 186–187, 205–206 409A opinions, 205 fraud, accusations of, 218 Freenome, 128 full ratchet, 166 funds of funds, 56 general partners (GPs) and board seats, 179, 214–215 and carried interest, 74–77 and choosing a corporate structure, 93–94 and clawbacks, 80–81 co-investments of, 86–87 compensation of, 73–77 as dual fiduciaries, 202 and equity partners agreement, 88–89 and exit of VC after IPO, 267 and indemnification, 89–90 investments as domain of, 85–86 and LP–GP relationship, 70–71, 85–88 and management fee, 72–74 and managing conflicts, 214–215 obligations of, 87 and state of fund, 84 suspension of, 87–88 and vesting, 89 See also limited partnership agreement Glass-Steagall Act, 54 going to market, 135–138 good corporate governance, 206–207 Google, 10, 25, 41 Gornall, Will, 3 go-shop provisions, 239, 255 governance terms in term sheets, 196–198 Graham, Paul, 20 green shoe, 265 growth assets, 57–58, 61–63 HA Angel Fund (Horowitz Andreessen Angel Fund), 19 The Hard Thing about Hard Things (Horowitz), 18 hedge funds, 57–58, 62 Hewlett-Packard, 18–19 Hindawi, David, 46 Hindawi, Orion, 46 Horowitz, Ben and Andreessen Horowitz, 21–22, 270 angel investing, 19 aspirin/vitamin analogy of, 50 on founders’ leadership capabilities, 47 The Hard Thing about Hard Things, 18 interview with, 12–13, 14 “hurdle rates,” 83 illiquid assets, 64 incentive stock options (ISOs), 104–105, 185 indemnification, 89–90, 183, 253 inflation, 56–57, 61 inflation hedges, 58, 63 information asymmetry, 5, 140, 275 information rights, 282 initial coin offerings (ICOs), 274 initial public offerings (IPOs), 257–268 and alternative forms of financing, 108–109 and conversion to common shares, 160–161 costs involved in, 107 declining number of, 106–109, 160–161, 249 and dot.com boom/bust, 9–10, 15 effects of efficiency rules on, 107–108 and emerging growth companies (EGCs), 261–263 and exit of VC, 2, 266–267 and the green shoe, 265 and initial filing range, 17 and liquidity, 258–260, 265 and lockup agreements, 265–266 mutual funds’ impact on, 108 percentage of venture backed, 3 and pressure on public companies, 109 pricing, 263–265 process of, 260–268 and prospectus, 261, 263 and reasons to go public, 257–260 and road shows, 263 and secondary offering of shares, 267–268 time frame for, 10 Instacart, 45 Instagram, 45, 130 institutional investors, 29–30, 40–41 insurance companies, 56, 57 intellectual property, 101–103 invention and assignment agreements, 101 investment banks, 260–261 investors’ role in venture capital, 29.


pages: 347 words: 99,317

Bad Samaritans: The Guilty Secrets of Rich Nations and the Threat to Global Prosperity by Ha-Joon Chang

"there is no alternative" (TINA), "World Economic Forum" Davos, affirmative action, Albert Einstein, banking crisis, Big bang: deregulation of the City of London, bilateral investment treaty, borderless world, Bretton Woods, British Empire, Brownian motion, business cycle, call centre, capital controls, central bank independence, colonial rule, Corn Laws, corporate governance, David Ricardo: comparative advantage, Deng Xiaoping, Doha Development Round, en.wikipedia.org, export processing zone, falling living standards, Fellow of the Royal Society, financial deregulation, financial engineering, fixed income, foreign exchange controls, Francis Fukuyama: the end of history, income inequality, income per capita, industrial robot, Isaac Newton, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, land reform, liberal world order, liberation theology, low skilled workers, market bubble, market fundamentalism, Martin Wolf, means of production, mega-rich, moral hazard, Nelson Mandela, offshore financial centre, oil shock, price stability, principal–agent problem, Ronald Reagan, South Sea Bubble, structural adjustment programs, The Wealth of Nations by Adam Smith, trade liberalization, transfer pricing, urban sprawl, World Values Survey

Neo-liberals would argue that all inflation – moderate or not – is still objectionable, because it disproportionately hurts people on fixed incomes – notably wage earners and pensioners, who are the most vulnerable sections of the population. Paul Volcker, the chairman of the US Federal Reserve Board (the US central bank) under Ronald Reagan (1979–87), argued: ‘Inflation is thought of as a cruel, and maybe the cruellest, tax because it hits in a many-sectored way, in an unplanned way, and it hits the people on a fixed income hardest’.16 But this is only half the story. Lower inflation may mean that what the workers have already earned is better protected, but the policies that are needed to generate this outcome may reduce what they can earn in the future.

Emphasis on fiscal prudence has been a central theme in the neo-liberal macroeconomics promoted by the Bad Samaritans. They argue that government should not live beyond its means and must always balance its budget. Deficit spending, they argue, only leads to inflation and undermines economic stability, which, in turn, reduces growth and diminishes the living standards of people on fixed income. Once again, who can argue against prudence? But, as in the case of inflation, the real question is what exactly it means to be prudent. For one thing, being prudent does not mean that the government has to balance its books every year, as is preached to developing countries by the Bad Samaritans.


pages: 318 words: 99,524

Why Aren't They Shouting?: A Banker’s Tale of Change, Computers and Perpetual Crisis by Kevin Rodgers

Alan Greenspan, algorithmic trading, bank run, banking crisis, Basel III, Bear Stearns, Berlin Wall, Big bang: deregulation of the City of London, bitcoin, Black Monday: stock market crash in 1987, Black-Scholes formula, buy and hold, buy low sell high, call centre, capital asset pricing model, collapse of Lehman Brothers, Credit Default Swap, currency peg, currency risk, diversification, Fall of the Berlin Wall, financial innovation, Financial Instability Hypothesis, fixed income, Flash crash, Francis Fukuyama: the end of history, Glass-Steagall Act, Hyman Minsky, implied volatility, index fund, interest rate derivative, interest rate swap, invisible hand, John Meriwether, latency arbitrage, law of one price, light touch regulation, London Interbank Offered Rate, Long Term Capital Management, Minsky moment, money market fund, Myron Scholes, Northern Rock, Panopticon Jeremy Bentham, Ponzi scheme, prisoner's dilemma, proprietary trading, quantitative easing, race to the bottom, risk tolerance, risk-adjusted returns, Silicon Valley, systems thinking, technology bubble, The Myth of the Rational Market, The Wisdom of Crowds, Tobin tax, too big to fail, value at risk, vertical integration, Y2K, zero-coupon bond, zero-sum game

The Gaussian Copula and the Material Cultures of Modelling’, Donald MacKenzie and Taylor Spears, School of Social & Political Science, University of Edinburgh, June 2012, http://www.sps.ed.ac.uk/__data/assets/pdf_file/0003/84243/Gaussian14.pdf 14 Ibid., p31. 15 ‘On Default Correlation: A Copula Function Approach’, David X. Li, Journal of Fixed Income, 9/4:43–54, http://www.defaultrisk.com/pp_corr_05.htm 16 Standard & Poor’s Ratings Definitions, Standard & Poor’s Ratings Services, 20 Nov 2014, http://www.standardandpoors.com/en_US/web/guest/article/-/view/sourceId/504352 17 Deutsche Bank to acquire MortgageIT Holdings, Inc., Deutsche Bank press release, 12 July 2006, https://www.db.com/newsroom_news/archive/medien/deutsche-bank-to-acquire-mortgageit-holdings-inc-en-11232.htm 18 Traders: Risks, Decisions, and Management in Financial Markets, Mark Fenton-O’Creevy, Nigel Nicholson, Emma Soane and Paul Willman, Oxford University Press, 2005, Chapter 6. 19 For evidence of this, see for example Table 1 in ‘Pay, Politics and the Financial Crisis’, Kevin J.

equity The claim on the value of the bank by the bank’s owners, accounted for on the liability side of a bank’s balance sheet. For most banks equity exists in the form of shares. Equity department The business within a bank responsible for issuing and trading shares (as opposed to bonds or other fixed income products). ERM The Exchange Rate Mechanism: a system introduced in 1979 by the European Union to manage currency fluctuations. It attempted, by means of interest rate policy and FX market intervention by central banks, to maintain currencies in predefined bands around central parities with each other.

exchange A centralised financial marketplace where standardised securities (e.g. shares or futures) can be traded. exchange-traded A description of deals that are transacted on an exchange rather than bilaterally in the OTC market. exotic A term used to describe variants of a derivative with more features than the simplest possible version (see plain vanilla). fixed income The set of financial products that are not equities. It includes loans, bonds, FX, credit products, commodities etc. forward A transaction to buy or sell a financial instrument for a fixed price at a date in the future; for example: an FX forward is the exchange of one currency for another; a share forward is the purchase or sale of a share.


pages: 443 words: 51,804

Handbook of Modeling High-Frequency Data in Finance by Frederi G. Viens, Maria C. Mariani, Ionut Florescu

algorithmic trading, asset allocation, automated trading system, backtesting, Bear Stearns, Black-Scholes formula, book value, Brownian motion, business process, buy and hold, continuous integration, corporate governance, discrete time, distributed generation, fear index, financial engineering, fixed income, Flash crash, housing crisis, implied volatility, incomplete markets, linear programming, machine readable, mandelbrot fractal, market friction, market microstructure, martingale, Menlo Park, p-value, pattern recognition, performance metric, power law, principal–agent problem, random walk, risk free rate, risk tolerance, risk/return, short selling, statistical model, stochastic process, stochastic volatility, transaction costs, value at risk, volatility smile, Wiener process

Financial ratios as predictors of failure. J Account Res 1966;4:71–111. Berle A, Means G. The modern corporation and private property. New York: Harcourt; 1932. Black F, Litterman R. Asset allocation: combining investor views with market equilibrium. Fixed income research. Goldman Sachs & Co., New York; 1990. Black F, Litterman R. Global asset allocation with equities, bonds, and currencies. Fixed income research, Goldman Sachs & Co., New York; 1991. Bornholdt S. Expectation bubbles in a spin model of markets: intermittency from frustration across scales. Int J Mod Phys C 2001;12:667–674. Breiman L. Statistical modeling: the two cultures.

J Credit Risk 2007;3(2):27–62. Das SR, Freed L, Geng G, Kapadia N. Correlated default risk. J Fixed Income 2006;16(2):7–32. Gorton G. The panic of 2007. Working Paper 14358, NBER; 2008. References 95 Hillebrand E, Sengupta A, Xu J. Temporal correlation of defaults in subprime securitization. Working paper; 2010. Hull J, Predescu M, White A. The valuation of correlation-dependent credit derivatives using a structural model. Working paper; 2009. Li D. On default correlation: a copula function approach. J Fixed Income 2000;9(4):43–54. Meng C, Sengupta A. CDO tranche sensitivities in the Gaussian copula model.


pages: 507 words: 145,878

The Predators' Ball: The Inside Story of Drexel Burnham and the Rise of the JunkBond Raiders by Connie Bruck

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", Alvin Toffler, Bear Stearns, book value, Carl Icahn, corporate raider, diversified portfolio, Edward Thorp, financial independence, fixed income, Future Shock, Glass-Steagall Act, Irwin Jacobs, junk bonds, Michael Milken, mortgage debt, offshore financial centre, Oscar Wyatt, paper trading, profit maximization, Tax Reform Act of 1986, The Predators' Ball, yield management, Yogi Berra, zero-coupon bond

Milken realized that delivery should be made overnight, thereby cutting the period of interest payment from five days to one. According to its vice-president of operations, Douglas Clark, that idea saved the firm an estimated $500,000 annually. When he left Wharton in 1970, he was hired full time at Drexel, to work in the Wall Street office as head of research for fixed-income securities; from there he moved into sales and trading. While Milken’s academic record was superb, he lacked all the other requisites—Ivy League school, social standing, physical presence—for acceptance at one of the premier firms on the Street, such as Goldman, Sachs. Drexel, while it was in a state of decline, at least had a major-bracket franchise.

According to one Drexel executive, Milken received 35 percent of his small group’s trading profits as a bonus, to be distributed as he saw fit. This fixed percentage had no cap, and it would remain unchanged over the next fourteen years. Milken told his boss, Edwin Kantor, who was in charge of all fixed-income trading, that he wanted to create an autonomous unit, with its own sales force, its own traders and its own research people: the high-yield- and convertible-bond department. Selling these low-rated bonds, he explained, was more like selling stocks than it was like selling high-grade bonds. If a bond was rated triple A by a rating agency, institutions bought them based on that rating—not on the salesman’s pitch about the company.

“He didn’t just say, he preached,” one buyer recalled. “He was like a messiah, preaching the gospel. He had this total singlemindedness of purpose.” “If my purpose was to try to help people, maybe I was singleminded,” Milken responded, in an interview in 1987. “The marketplace was willing to invest in long-term, fixed-income securities of non-investment-grade companies. I felt it was our responsibility, in terms of making a contribution to both parties, the companies and the investors. “To me,” Milken continued, “it was a form of discrimination—to discriminate against the management and employees of a company which offered value-added products and services, all because he didn’t get a certain rating.


The Volatility Smile by Emanuel Derman,Michael B.Miller

Albert Einstein, Asian financial crisis, Benoit Mandelbrot, Black Monday: stock market crash in 1987, book value, Brownian motion, capital asset pricing model, collateralized debt obligation, continuous integration, Credit Default Swap, credit default swaps / collateralized debt obligations, discrete time, diversified portfolio, dividend-yielding stocks, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial engineering, fixed income, implied volatility, incomplete markets, law of one price, London Whale, mandelbrot fractal, market bubble, market friction, Myron Scholes, prediction markets, quantitative trading / quantitative finance, risk tolerance, riskless arbitrage, Sharpe ratio, statistical arbitrage, stochastic process, stochastic volatility, transaction costs, volatility arbitrage, volatility smile, Wiener process, yield curve, zero-coupon bond

Joo-Hyung (David) Park has extensive experience in valuation of financial instruments and derivatives. He provides valuation advisory services to corporate and private equity clients for their holdings in nonstandard derivative products. These products include equity options granted to executives, embedded derivatives in convertible bonds, and many other customized fixed income and equity derivatives. Prior to this, he studied financial engineering at Columbia University, and physics at the University of Toronto. xv CHAPTER 1 Overview Financial models in light of the great financial crisis. The difficulties of option valuation. An introduction to the volatility smile.

THE BLACK-SCHOLES-MERTON MODEL AND ITS DISCONTENTS Stephen Ross of MIT, one of the inventors of the binomial option valuation model and the theory of risk-neutral valuation, once wrote: “When judged by its ability to explain the empirical data, option pricing theory is the most successful theory not only in finance, but in all of economics” (Ross 1987). But even this most successful of models is far from being perfect. Finance academics tend to think of option valuation as a solved problem, of little current interest. But readers of this book who end up working as practitioners—on options trading desks in equities, fixed income, currencies, or commodities, as risk managers or controllers or model auditors—will find that the valuation of options isn’t really a solved problem at all. Financial markets disrespect the traditional BSM formula even while they employ its flawed language to communicate with each other. Practitioners and traders who are responsible for coming up with the prices at which they are willing to trade derivative securities, especially exotic illiquid derivatives, grapple Overview 3 with appropriate valuation every day.

The smile’s appearance after the 1987 crash was clearly connected with the visceral shock upon discovering, 5 Overview 25% Volatility 20% 15% 10% 5% 0% 0.90 FIGURE 1.2 0.95 1.00 Strike/Index 1.05 1.10 Representative S&P 500 Implied Volatilities after 1987 for the first time since 1929, that a giant market could suddenly drop by 20% or more in a day. Market participants immediately drew the conclusion that an investor should pay more for low-strike puts than for high-strike calls. Since the crash of 1987, the volatility smile has spread to most other option markets (currencies, fixed income, commodities, etc.), but in each market it has taken its own characteristic form and shape. Traders and quants in every product area have had to model the smile in their own market. At many firms, not only does each front-office trading desk have its own particular smile models, but the firm-wide risk management group is likely to have its own models as well.


pages: 1,164 words: 309,327

Trading and Exchanges: Market Microstructure for Practitioners by Larry Harris

active measures, Andrei Shleifer, AOL-Time Warner, asset allocation, automated trading system, barriers to entry, Bernie Madoff, Bob Litterman, book value, business cycle, buttonwood tree, buy and hold, compound rate of return, computerized trading, corporate governance, correlation coefficient, data acquisition, diversified portfolio, equity risk premium, fault tolerance, financial engineering, financial innovation, financial intermediation, fixed income, floating exchange rates, High speed trading, index arbitrage, index fund, information asymmetry, information retrieval, information security, interest rate swap, invention of the telegraph, job automation, junk bonds, law of one price, London Interbank Offered Rate, Long Term Capital Management, margin call, market bubble, market clearing, market design, market fragmentation, market friction, market microstructure, money market fund, Myron Scholes, National best bid and offer, Nick Leeson, open economy, passive investing, pattern recognition, payment for order flow, Ponzi scheme, post-materialism, price discovery process, price discrimination, principal–agent problem, profit motive, proprietary trading, race to the bottom, random walk, Reminiscences of a Stock Operator, rent-seeking, risk free rate, risk tolerance, risk-adjusted returns, search costs, selection bias, shareholder value, short selling, short squeeze, Small Order Execution System, speech recognition, statistical arbitrage, statistical model, survivorship bias, the market place, transaction costs, two-sided market, vertical integration, winner-take-all economy, yield curve, zero-coupon bond, zero-sum game

See immediate-or-cancel orders Financial Accounting Standards Board (FASB), 65 financial advisers, 139 financial analysts, 66, 147 financial assets, 39–41, 178 financial engineering, 353 financial instruments, 38 FINEX (New York Cotton Exchange), 92 firm bid/offer market, 490 firm prices, 69, 280 firm quotes, 280 firm-specific factors, 443 First Boston, 22 first harvest contract, 54 fixed commission rates, 151 fixed-income arbitrageurs, 40 fixed-income products, 41 fixed-price open offering, 39 fixed-rate stock offer, 362 FIX Protocol, 149 flat distribution, 467 flat organizations, 228–29 fledglings, 190–91, 193 Fleischmann, Martin, 566 FLEX Options, 52 float, 255 floating limit orders, 309 floor-based trading, 48 advantages of, 104 costs, 551–52 exchange of information in, 548–49 explanation of, 99 and fairness, 544–46 futures markets, 521 market data reporting, 549 negotiation speed, 547–48 in options exchanges, 50 skills, 143–44, 146 versus automated trading, 543–54 floor brokers, 146, 147, 500, 530 floor time precedence, 117 flour, 183–85 forced buy-in, 372 foreign exchange high transaction costs of, 59 postal reply coupons, 470 predicting trades, 253 rates, 357 trade, 29–30, 293 See also currency forward contracts definition of, 42, 183 hedging with, 183–84, 215 tomato, 41 forward market, 39 fourth market, 49 fractional pricing, 115 fragmented market, 524, 526, 530–35, 539–40 fraud, 255, 469–71, 473, 535 fraudulent trade assignment, 165, 166 free-market economies.

Stock values depend on corporate assets, liabilities, and income. They also depend critically on how well traders expect corporate managers will use corporate assets in the future. * * * ▶ Stripping Bonds When traders want more zero-coupon bonds than are available, zero-coupon bonds become expensive relative to straight bonds. Fixed-income arbitrageurs then buy straight bonds and clip the coupons. They bundle the coupons by their interest payment dates and sell the bundles and the remaining final principal payments as zero coupon bonds. Traders call this process stripping a bond. The term comes from a time when all bonds were bearer bonds.

It is obviously the most risky tranche. CMOs are also called real estate mortgage investment conduits (REMICs). Companies issue CMOs to distribute mortgage prepayment risk and interest rate risk among investors with varying degrees of risk tolerance. All debt instruments are collectively known as fixed-income products. 3.3.3 Derivative Contracts Derivative contracts are instruments that derive their values from the values of the underlying instruments upon which they are based. They are contractual agreements between buyers and sellers that specify the exchange of certain privileges and liabilities.


pages: 430 words: 109,064

13 Bankers: The Wall Street Takeover and the Next Financial Meltdown by Simon Johnson, James Kwak

Alan Greenspan, American ideology, Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, banking crisis, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, Bonfire of the Vanities, bonus culture, book value, break the buck, business cycle, business logic, buy and hold, capital controls, Carmen Reinhart, central bank independence, Charles Lindbergh, collapse of Lehman Brothers, collateralized debt obligation, commoditize, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency risk, Edward Glaeser, Eugene Fama: efficient market hypothesis, financial deregulation, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, George Akerlof, Glass-Steagall Act, Gordon Gekko, greed is good, Greenspan put, Home mortgage interest deduction, Hyman Minsky, income per capita, information asymmetry, interest rate derivative, interest rate swap, junk bonds, Kenneth Rogoff, laissez-faire capitalism, late fees, light touch regulation, Long Term Capital Management, low interest rates, market bubble, market fundamentalism, Martin Wolf, Michael Milken, money market fund, moral hazard, mortgage tax deduction, Myron Scholes, Paul Samuelson, Ponzi scheme, price stability, profit maximization, proprietary trading, race to the bottom, regulatory arbitrage, rent-seeking, Robert Bork, Robert Shiller, Ronald Reagan, Saturday Night Live, Satyajit Das, Savings and loan crisis, sovereign wealth fund, Tax Reform Act of 1986, The Myth of the Rational Market, too big to fail, transaction costs, Tyler Cowen, value at risk, yield curve

A credit default swap is a form of insurance on debt; the “buyer” of the swap pays a fixed premium to the “seller,” who agrees to pay off the debt if the debtor fails to do so. Typically the debt is a bond or a similar fixed income security, and the debtor is the issuer of the bond. Historically, monoline insurance companies provided insurance for municipal bonds, and Fannie Mae and Freddie Mac insured the principal payments on their mortgage-backed securities. With credit default swaps, however, now anyone could sell insurance on any fixed income security. Credit default swaps were invented in the early 1990s by Bankers Trust, but were popularized by J.P. Morgan later in the decade as a way for banks to unload the default risk of their asset portfolios; this enabled them to lower their capital requirements, freeing up money that could be lent out again.77 Credit default swaps also provide a way for a bond investor to hedge against the risk of default by the bond issuer.

Robert Rubin, President Clinton’s first director of the National Economic Council (NEC) and second treasury secretary, began his Goldman Sachs career in risk arbitrage (betting on the likelihood of corporate events, such as acquisitions), branched out into relative value arbitrage (capitalizing on pricing discrepancies between similar securities), and co-headed Goldman’s fixed income trading department before becoming co-chair of the firm.14 Henry Paulson, President George W. Bush’s last treasury secretary, headed Goldman Sachs from 1999 to 2006, at a time when its trading operations were the most profitable part of the firm. Second, the increasingly complex nature of finance changed the balance of power between Wall Street insiders and other economic policymakers.


pages: 192 words: 62,439

The Weed Runners: Travels With the Outlaw Capitalists of America's Medical Marijuana Trade by Nicholas Schou

facts on the ground, failed state, fixed income, off-the-grid, Ronald Reagan

From visits to a public library and through appointments with local doctors, Chavez learned that many in the medical community saw marijuana as a safer, healthier painkiller and appetite-inducer than several of the medications he was already taking. After Proposition 215 became law, Chavez, who was then living in the Disneyland-adjacent suburb of Garden Grove, decided to set up a nonprofit cannabis co-op, the Orange County Cannabis Patient-Doctor-Nurse Support Group. His goal was to make marijuana available to sick people on fixed incomes who were unable to grow it themselves. If Chavez was a drug dealer, he was an inept one. In late 1996, just weeks after Prop. 215’s passage, he spoke with Garden Grove city officials, announcing his intention to open the co-op. He pleaded fruitlessly with the city elders for permission to set up an office somewhere in the city and wrote letters to then-Orange County Sheriff Brad Gates expressing his hope that the county’s law enforcement folks would work with him to ensure that the co-op would remain on the good side of the law.

When Monson was arrested in October 2007 for growing marijuana, his lawyer asked him to stop cultivating until the case was settled. That’s how he met Byron and Grumbine. “I needed a way to get my medicine,” says Monson, a quadriplegic who broke his neck in a Newport Beach swimming accident when he was sixteen. Since he lives on a fixed income and couldn’t afford the cannabis, he offered to provide Unit D with services in exchange for his medicine. “I taught classes on how to cook with medicine, made sure people got wheelchairs who needed them, created a program in which we put grab rails in people’s homes.” Byron and Grumbine assisted in the fieldwork.


pages: 416 words: 118,592

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing by Burton G. Malkiel

accounting loophole / creative accounting, Alan Greenspan, Albert Einstein, asset allocation, asset-backed security, backtesting, Bear Stearns, beat the dealer, Bernie Madoff, book value, BRICs, butter production in bangladesh, buy and hold, capital asset pricing model, compound rate of return, correlation coefficient, Credit Default Swap, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, dogs of the Dow, Edward Thorp, Elliott wave, Eugene Fama: efficient market hypothesis, experimental subject, feminist movement, financial engineering, financial innovation, fixed income, framing effect, hindsight bias, Home mortgage interest deduction, index fund, invisible hand, Isaac Newton, Japanese asset price bubble, John Bogle, junk bonds, Long Term Capital Management, loss aversion, low interest rates, margin call, market bubble, Mary Meeker, money market fund, mortgage tax deduction, new economy, Own Your Own Home, PalmPilot, passive investing, Paul Samuelson, pets.com, Ponzi scheme, price stability, profit maximization, publish or perish, purchasing power parity, RAND corporation, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, short selling, Silicon Valley, South Sea Bubble, stock buybacks, stocks for the long run, sugar pill, survivorship bias, The Myth of the Rational Market, the rule of 72, The Wisdom of Crowds, transaction costs, Vanguard fund, zero-coupon bond

To the extent that stocks tend to suffer as interest rates go up, equities are a risky investment, and those stocks that are particularly vulnerable to increases in the general level of interest rates are especially risky. Thus, some stocks and fixed-income investments tend to move in parallel, and these stocks will not be helpful in reducing the risk of a bond portfolio. Because fixed-income securities are a major part of the portfolios of many institutional investors, this systematic risk factor is particularly important for some of the largest investors in the market. Changes in the rate of inflation will similarly tend to have a systematic influence on the returns from common stocks.

THE DO-IT-YOURSELF METHOD Many retirees will prefer to keep control of at least a portion of the assets they have saved for a retirement nest egg. Let’s suppose the assets are invested in accordance with the bottom pie chart Late Sixties and Beyond, that is, a bit more than half in equities and the rest in fixed-income investments. Now that you are ready to crack open the nest egg for living expenses in retirement, how much can you spend if you want to be sure that your money will last as long as you do? My suggestion is that you use “the 4 percent solution.”* Under the “4 percent solution,” you should spend no more than 4 percent of the total value of your nest egg annually.


pages: 386 words: 116,233

The Millionaire Fastlane: Crack the Code to Wealth and Live Rich for a Lifetime by Mj Demarco

8-hour work day, Albert Einstein, AltaVista, back-to-the-land, Bernie Madoff, bounce rate, business logic, business process, butterfly effect, buy and hold, cloud computing, commoditize, dark matter, delayed gratification, demand response, do what you love, Donald Trump, drop ship, fear of failure, financial engineering, financial independence, fixed income, housing crisis, Jeff Bezos, job-hopping, Lao Tzu, Larry Ellison, low interest rates, Mark Zuckerberg, multilevel marketing, passive income, passive investing, payday loans, planned obsolescence, Ponzi scheme, price anchoring, Ronald Reagan, subscription business, upwardly mobile, wealth creators, white picket fence, World Values Survey, zero day

Stock Market, I'm tired of 8% returns, can you give me 250% this year? Funny stuff! Can you control anything in this equation other than a furious, labor-intensive search for the best investments to ensure you eek out another marginal 1%? You can't. Why Mutual Funds and 401(k)s Won't Make You Rich In 2008, I went to a fixed-income investment seminar given by a major brokerage house. Fixed-income investments are instruments like municipal and corporate bonds. Approximately 50 people attended the standing-room-only seminar. I sat in the back and surveyed the crowd. Remove the gray hair, the socks-n-sandals combos, the canes, and the wheelchairs and what was left?

Fastlaners aren't using compound interest to build wealth, because it's not in their wealth equation. The heavy lifting of wealth creation is left to their Fastlane business. When a rich politician or public figure comes forth and discloses his finances, notice the common themes. The source of their wealth comes from their business interests, while their liquid cash reserves are tied into fixed-income securities like municipal bonds, treasuries, and other highly liquid and safe investments. The rich aren't using the markets to create wealth; they're increasing their existing wealth with leveraged business assets. Remember, that 25-year-old multimillionaire who got rich investing in mutual funds is a fairy tale.


pages: 192 words: 72,822

Freedom Without Borders by Hoyt L. Barber

accounting loophole / creative accounting, Affordable Care Act / Obamacare, Albert Einstein, banking crisis, diversification, El Camino Real, estate planning, fiat currency, financial engineering, financial independence, fixed income, high net worth, illegal immigration, interest rate swap, money market fund, obamacare, offshore financial centre, passive income, quantitative easing, reserve currency, road to serfdom, selective serotonin reuptake inhibitor (SSRI), subprime mortgage crisis, too big to fail

And, last but not least but maybe most important, right after your ballast is full, you may wish to consider the following stocks. There are some gold and silver mining firms that are producing great returns nowadays, and they stand to do even better with the upward pressure on them coming from currency depreciation, the poor economic outlook, political unrest in many places, poor fixed-income returns, the uncertainty of America’s future in the world and at home, and war and threats of more wars—these things are making precious metals and precious metals-related investments rise. Possibilities include precious metals stocks, not bullion or coins; securities 48 Freedom Without Borders in precious metals mining firms, such as major and secondary gold mining stocks; silver mining companies; gold exchange-traded funds (GETFs), copper, zinc, and uranium mining stocks; platinum and palladium mining stocks; and strategic metals stocks.

And, you don’t want to find yourself in a Mexican prison, which could happen fairly easily under the country’s Napoleonic law and sometimes corrupt policing activities, so the stability of the country you choose should be a high priority. On a lighter side, and the reason why there are many expatriate Americans and Canadians living in Mexico, the country boasts a relatively nice climate and has made it easy for non-Mexican retirees on fixed incomes to live inexpensively and obtain legal residency. There is also the incentive to invest in government-approved projects and receive a special residency permit. Mexico favors new immigration and has multiple plans to choose from, although many people living there just get a new tourist permit every 180 days.


The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk by William J. Bernstein

asset allocation, backtesting, book value, buy and hold, capital asset pricing model, commoditize, computer age, correlation coefficient, currency risk, diversification, diversified portfolio, Eugene Fama: efficient market hypothesis, financial engineering, fixed income, index arbitrage, index fund, intangible asset, John Bogle, junk bonds, Long Term Capital Management, p-value, passive investing, prediction markets, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, South Sea Bubble, stocks for the long run, survivorship bias, the rule of 72, the scientific method, time value of money, transaction costs, Vanguard fund, Wayback Machine, Yogi Berra, zero-coupon bond

However, this relationship changes from month to month and over varying maturities. At the present time the situation with respect to foreign bond funds is highly unsatisfactory. For starters, because of Chairman Emeritus Bogle’s dislike of currency exposure, Vanguard offers no low-expense international bond funds. Probably the best is Standish, International Fixed-Income Fund, but this has a minimum of $100,000, or $10,000 152 The Intelligent Asset Allocator when bought through certain supermarkets. It is fully hedged and has a reasonable expense ratio of 0.53%. American Century and T. Rowe Price offer largely unhedged funds with lower minimums but higher expenses (about 0.8%).

For this convenience, you are probably sacrificing 1% to 2% of long-term return for a given degree of risk. Another compromise would be to split your stock component equally into six Vanguard index funds (Value, 500 Index, Small-Cap, European, Pacific, and Emerging Markets) for your stock component and use one of their short-term bond funds for the fixed-income component. Even simpler, Vanguard offers a Total International Index Fund. For those who value the convenience of simple portfolios, these compromises may be worthwhile. (One caveat about the Vanguard Total International Fund: It is a “fund of funds” and thus not eligible for the foreign tax credit.


pages: 232 words: 70,835

A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan by Ben Carlson

Albert Einstein, asset allocation, backtesting, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, book value, business cycle, buy and hold, buy low sell high, commodity super cycle, corporate governance, delayed gratification, discounted cash flows, diversification, diversified portfolio, do what you love, endowment effect, family office, financial independence, fixed income, Gordon Gekko, high net worth, index fund, John Bogle, junk bonds, loss aversion, market bubble, medical residency, Occam's razor, paper trading, passive investing, Ponzi scheme, price anchoring, Reminiscences of a Stock Operator, Richard Thaler, risk tolerance, Robert Shiller, robo advisor, South Sea Bubble, sovereign wealth fund, stocks for the long run, technology bubble, Ted Nelson, transaction costs, Vanguard fund, Vilfredo Pareto

Bonds also act as liquidity for those that need to use their portfolio for spending purposes. The last thing you want to do is become a forced seller of stocks after they have fallen in value. Second, bonds act as an emotional hedge. Bonds are steadier than stocks the majority of the time. A down year in bonds could be a bad day in the stock market. Fixed-income securities can serve as an emotional support system in the portfolio for those investors who are unwilling or unable to fully handle the periodic bouts of volatility seen in the stock market. If bonds can provide that mental barrier from making a big mistake at the wrong time from having too high of an equity allocation, then they will have served their purpose.

You can see the risks involved in those income-producing assets outside of high quality bonds. How far out you want to go on the risk spectrum depends on your risk tolerance, time horizon, and the amount of psychological pain you're able to withstand during a correction or crash situation. There's nothing wrong with allocating to a riskier portion of the fixed income universe of investments. Just understand the risks ahead of time. For some, the added risk will outweigh the rewards. For others, they can withstand the higher risk for the potentially higher reward. Investors need to understand themselves to be able choose wisely among the assets they include in a portfolio.


pages: 478 words: 126,416

Other People's Money: Masters of the Universe or Servants of the People? by John Kay

Affordable Care Act / Obamacare, Alan Greenspan, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, behavioural economics, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Monday: stock market crash in 1987, Black Swan, Bonfire of the Vanities, bonus culture, book value, Bretton Woods, buy and hold, call centre, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, cognitive dissonance, Cornelius Vanderbilt, corporate governance, Credit Default Swap, cross-subsidies, currency risk, dematerialisation, disinformation, disruptive innovation, diversification, diversified portfolio, Edward Lloyd's coffeehouse, Elon Musk, Eugene Fama: efficient market hypothesis, eurozone crisis, financial engineering, financial innovation, financial intermediation, financial thriller, fixed income, Flash crash, forward guidance, Fractional reserve banking, full employment, George Akerlof, German hyperinflation, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Greenspan put, Growth in a Time of Debt, Ida Tarbell, income inequality, index fund, inflation targeting, information asymmetry, intangible asset, interest rate derivative, interest rate swap, invention of the wheel, Irish property bubble, Isaac Newton, it is difficult to get a man to understand something, when his salary depends on his not understanding it, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", Jim Simons, John Meriwether, junk bonds, light touch regulation, London Whale, Long Term Capital Management, loose coupling, low cost airline, M-Pesa, market design, Mary Meeker, megaproject, Michael Milken, millennium bug, mittelstand, Money creation, money market fund, moral hazard, mortgage debt, Myron Scholes, NetJets, new economy, Nick Leeson, Northern Rock, obamacare, Occupy movement, offshore financial centre, oil shock, passive investing, Paul Samuelson, Paul Volcker talking about ATMs, peer-to-peer lending, performance metric, Peter Thiel, Piper Alpha, Ponzi scheme, price mechanism, proprietary trading, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, railway mania, Ralph Waldo Emerson, random walk, reality distortion field, regulatory arbitrage, Renaissance Technologies, rent control, risk free rate, risk tolerance, road to serfdom, Robert Shiller, Ronald Reagan, Schrödinger's Cat, seminal paper, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, sovereign wealth fund, Spread Networks laid a new fibre optics cable between New York and Chicago, Steve Jobs, Steve Wozniak, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Tobin tax, too big to fail, transaction costs, tulip mania, Upton Sinclair, Vanguard fund, vertical integration, Washington Consensus, We are the 99%, Yom Kippur War

The new commission would be performing its task well if it facilitated the issue of securities and promoted exchange. As the agency increased the scope of its activity, if not necessarily its effectiveness or authority, that philosophy permeated the regulation of finance. And not just in the USA: the SEC would become a model for the regulation of financial markets around the world. In the 1980s fixed-income trading was added to the list of active markets. Bond trading had previously been a backwater for the likes of Nick Carraway: in London it was an activity in which success depended largely on being born into the right family. Lew Ranieri had been born in Brooklyn, and not to the right family – he had begun his Wall Street career in the mailroom of Salomon Bros.

The banks that created asset-backed securities paid the rating agencies – which appreciated that there was a competitive business in supplying such accreditation – and banks ‘reverse-engineered’ their products to fit the agencies’ models. Many investors and traders did not care much what was in the package so long as it achieved the required credit rating. The collapse of the asset-backed securities market would be at the centre of the global financial crisis. The elements of the new trading culture – based around fixed income, currency and commodities, and turbo-charged by derivatives – were now in place. Markets in shares were no longer the centre of speculative activity. Fixed interest, currency and, later, commodities (FICC) were central to the new trading culture. Sherman McCoy, the vainglorious anti-hero of Wolfe’s 1987 novel The Bonfire of the Vanities, was, like Nick Carraway, a bond trader.

Nick Carraway had given way to Sherman McCoy, and the Halifax was lusting after its share of the action. In the years that followed, many financial institutions continued (and still continue) to report profits from their trading activities. The mainspring of investment banking profits in recent years has been trading in fixed income, currency and commodities (FICC). But the aggregate value of debt securities and currencies is fixed, and although commodity prices fluctuate, the long-run trend has been downward. Individual businesses and traders can make profits at the expense of each other, but this cannot be true for the activity taken as a whole.


pages: 425 words: 122,223

Capital Ideas: The Improbable Origins of Modern Wall Street by Peter L. Bernstein

Albert Einstein, asset allocation, backtesting, Benoit Mandelbrot, Black Monday: stock market crash in 1987, Black-Scholes formula, Bonfire of the Vanities, Brownian motion, business cycle, buy and hold, buy low sell high, capital asset pricing model, corporate raider, debt deflation, diversified portfolio, Eugene Fama: efficient market hypothesis, financial innovation, financial intermediation, fixed income, full employment, Glass-Steagall Act, Great Leap Forward, guns versus butter model, implied volatility, index arbitrage, index fund, interest rate swap, invisible hand, John von Neumann, Joseph Schumpeter, junk bonds, Kenneth Arrow, law of one price, linear programming, Louis Bachelier, mandelbrot fractal, martingale, means of production, Michael Milken, money market fund, Myron Scholes, new economy, New Journalism, Paul Samuelson, Performance of Mutual Funds in the Period, profit maximization, Ralph Nader, RAND corporation, random walk, Richard Thaler, risk free rate, risk/return, Robert Shiller, Robert Solow, Ronald Reagan, stochastic process, Thales and the olive presses, the market place, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, transfer pricing, zero-coupon bond, zero-sum game

Traditionally, pension funds and other institutional investors, like individual investors, hired a single portfolio management organization, usually a bank. This overall manager had total responsibility for bonds as well as stocks, for determining the mix between the two, and for selecting the securities in each sector. After a time it became common to have one manager for equities and another for fixed-income securities, but in the early 1970s the idea of having a bevy of equity managers was still a novelty. Rosenberg could see no reason why Markowitz’s ideas about individual stocks would not apply equally well to a stable of individual portfolio managers. A properly diversified portfolio of risky stocks would have a high expected return but would be far less risky than any of the single holdings considered alone.

To justify the fees they charged, managers should be willing to take on more risk, to have the courage of their convictions—just as long as the client employed a diversified group of managers. The idea took hold. Today, it is a rare fund that has only one equity manager, and many have multiple managers for fixed-income investments and international securities as well. Clients ride herd on their active managers to stick to their appointed style and show a willingness to take on higher risks to bring in improved rates of return. When I reminded Rosenberg that MULMAN had changed the world, he replied, with typical understatement, “That’s interesting.

The experience of October 1987 has increased the market for products that offer precision in the control of investment risk. Many other purveyors have entered this market, some with offerings more unfamiliar and complex than anything on the menu at LOR. And the strategy has been applied with considerable success in the market for fixed-income securities. The most interesting applications derive from the essential promise of portfolio insurance: Over time and on the average, portfolio insurance allows the investor to enjoy the return on the better-performing of two assets, stocks and cash, while reducing the exposure to the asset with the lower rate of return.


pages: 460 words: 122,556

The End of Wall Street by Roger Lowenstein

"World Economic Forum" Davos, Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, Bear Stearns, benefit corporation, Berlin Wall, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, break the buck, Brownian motion, Carmen Reinhart, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, fear of failure, financial deregulation, financial engineering, fixed income, geopolitical risk, Glass-Steagall Act, Greenspan put, high net worth, Hyman Minsky, interest rate derivative, invisible hand, junk bonds, Ken Thompson, Kenneth Rogoff, London Interbank Offered Rate, Long Term Capital Management, low interest rates, margin call, market bubble, Martin Wolf, Michael Milken, money market fund, moral hazard, mortgage debt, negative equity, Northern Rock, Ponzi scheme, profit motive, race to the bottom, risk tolerance, Ronald Reagan, Rubik’s Cube, Savings and loan crisis, savings glut, short selling, sovereign wealth fund, statistical model, the payments system, too big to fail, tulip mania, Y2K

Accounting problems or no, the mortgage giants Fannie and Freddie were the bulwarks of the American housing industry. Thanks to them, millions of Americans got mortgages at, it was supposed, lower interest rates than they otherwise would have. The companies had the implicit backing of the U.S. government, which allowed them to borrow at cheaper rates than other financial firms. Every fixed-income manager in the business owned their bonds. From Washington, D.C., to Beijing to Rome, a vast array of investors including top-drawer institutions and many national governments owned $5 trillion of their paper. The implicit government backing satisfied most investors, but it did not satisfy Rodriguez, who scrutinized securities with the same care that his father, a jeweler who had emigrated from Mexico, had exercised in picking over gems.

Not so many years ago, Lehman had been a private firm that guarded its partners’ capital and mainly brokered deals for clients. Now it deployed its capital while barely seeming to notice. Gregory and Fuld each viewed dissenters as disloyal. Both were irritated by Michael Gelband, a twenty-four-year veteran who ran the fixed-income division. Gelband tried to brake the flow of leveraged loans and also opposed the Australian deal. Gregory told him he needed to take more risk, but it became clear that the Fuld-Gregory duo and Gelband had differing visions of the future. In May ’07, Gelband left the firm, depriving Lehman of its most outspoken advocate for reducing risk.

During a conference call in mid-October with Wall Street analysts, Michael Mayo of Deutsche Bank boldly called for a change at the top:Chuck [Prince] said this was the year of no excuses. You guys say the results are disappointing. So what are the repercussions at the level of the office of the chairman? Prince, in seeming denial, insisted that the bank was on track. Well, Mike . . . if you look at our results this quarter, no one can be happy with the results in our fixed-income business or with the results that relate to that. But I think if you are able to look at the other parts of our business, if you look at the strategic plan that we are executing on, I think any fair-minded person would say that strategic plan is working.7 In another striking display of optimism, Ben Bernanke proclaimed, in a speech in mid-October, that “the banking system is healthy.”


pages: 482 words: 121,672

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing (Eleventh Edition) by Burton G. Malkiel

accounting loophole / creative accounting, Alan Greenspan, Albert Einstein, asset allocation, asset-backed security, beat the dealer, Bernie Madoff, bitcoin, book value, butter production in bangladesh, buttonwood tree, buy and hold, capital asset pricing model, compound rate of return, correlation coefficient, Credit Default Swap, Daniel Kahneman / Amos Tversky, Detroit bankruptcy, diversification, diversified portfolio, dogs of the Dow, Edward Thorp, Elliott wave, equity risk premium, Eugene Fama: efficient market hypothesis, experimental subject, feminist movement, financial engineering, financial innovation, financial repression, fixed income, framing effect, George Santayana, hindsight bias, Home mortgage interest deduction, index fund, invisible hand, Isaac Newton, Japanese asset price bubble, John Bogle, junk bonds, Long Term Capital Management, loss aversion, low interest rates, margin call, market bubble, Mary Meeker, money market fund, mortgage tax deduction, new economy, Own Your Own Home, PalmPilot, passive investing, Paul Samuelson, pets.com, Ponzi scheme, price stability, profit maximization, publish or perish, purchasing power parity, RAND corporation, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Salesforce, short selling, Silicon Valley, South Sea Bubble, stock buybacks, stocks for the long run, sugar pill, survivorship bias, Teledyne, the rule of 72, The Wisdom of Crowds, transaction costs, Vanguard fund, zero-coupon bond, zero-sum game

To the extent that stocks tend to suffer as interest rates go up, equities are a risky investment, and those stocks that are particularly vulnerable to increases in the general level of interest rates are especially risky. Thus, some stocks and fixed-income investments tend to move in parallel, and these stocks will not be helpful in reducing the risk of a bond portfolio. Because fixed-income securities are a major part of the portfolios of many institutional investors, this systematic risk factor is particularly important for some of the largest investors in the market. Changes in the rate of inflation will similarly tend to have a systematic influence on the returns from common stocks.

But many emerging economies have lower debt-to-GDP ratios and better government fiscal balances than are found in the developed world. The emerging economies are also growing faster. Hence, a diversified portfolio of higher-yielding foreign bonds, including those from emerging markets, can be a useful part of a fixed-income portfolio in a period of very low interest rates. EXERCISE 7A: USE BOND SUBSTITUTES FOR PART OF THE AGGREGATE BOND PORTFOLIO DURING ERAS OF FINANCIAL REPRESSION Extremely low interest rates present a daunting challenge for bond investors. All the developed countries of the world are burdened with excessive amounts of debt.


pages: 471 words: 124,585

The Ascent of Money: A Financial History of the World by Niall Ferguson

Admiral Zheng, Alan Greenspan, An Inconvenient Truth, Andrei Shleifer, Asian financial crisis, asset allocation, asset-backed security, Atahualpa, bank run, banking crisis, banks create money, Bear Stearns, Black Monday: stock market crash in 1987, Black Swan, Black-Scholes formula, Bonfire of the Vanities, Bretton Woods, BRICs, British Empire, business cycle, capital asset pricing model, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, classic study, collateralized debt obligation, colonial exploitation, commoditize, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, deglobalization, diversification, diversified portfolio, double entry bookkeeping, Edmond Halley, Edward Glaeser, Edward Lloyd's coffeehouse, equity risk premium, financial engineering, financial innovation, financial intermediation, fixed income, floating exchange rates, Fractional reserve banking, Francisco Pizarro, full employment, Future Shock, German hyperinflation, Greenspan put, Herman Kahn, Hernando de Soto, high net worth, hindsight bias, Home mortgage interest deduction, Hyman Minsky, income inequality, information asymmetry, interest rate swap, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, iterative process, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", John Meriwether, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour mobility, Landlord’s Game, liberal capitalism, London Interbank Offered Rate, Long Term Capital Management, low interest rates, market bubble, market fundamentalism, means of production, Mikhail Gorbachev, Modern Monetary Theory, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, Naomi Klein, National Debt Clock, negative equity, Nelson Mandela, Nick Bostrom, Nick Leeson, Northern Rock, Parag Khanna, pension reform, price anchoring, price stability, principal–agent problem, probability theory / Blaise Pascal / Pierre de Fermat, profit motive, quantitative hedge fund, RAND corporation, random walk, rent control, rent-seeking, reserve currency, Richard Thaler, risk free rate, Robert Shiller, rolling blackouts, Ronald Reagan, Savings and loan crisis, savings glut, seigniorage, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spice trade, stocks for the long run, structural adjustment programs, subprime mortgage crisis, tail risk, technology bubble, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Malthus, Thorstein Veblen, tontine, too big to fail, transaction costs, two and twenty, undersea cable, value at risk, W. E. B. Du Bois, Washington Consensus, Yom Kippur War

But, perhaps most importantly of all, the social constituency with an interest in positive real returns on bonds has grown. In the developed world a rising share of wealth is held in the form of private pension funds and other savings institutions that are required, or at least expected, to hold a high proportion of their assets in the form of government bonds and other fixed income securities. In 2007 a survey of pension funds in eleven major economies revealed that bonds accounted for more than a quarter of their assets, substantially lower than in past decades, but still a substantial share.71 With every passing year, the proportion of the population living off the income from such funds goes up, as the share of retirees increases.

Which brings us back to Italy, the land where the bond market was born. In 1965, on the eve of the Great Inflation, just 10 per cent of Italians were aged 65 or over. Today the proportion is twice that: around a fifth. And by 2050 it is projected by the United Nations to be just under a third. In such a greying society, there is a huge and growing need for fixed income securities, and for low inflation to ensure that the interest they pay retains its purchasing power. As more and more people leave the workforce, recurrent public sector deficits ensure that the bond market will never be short of new bonds to sell. And the fact that Italy has surrendered its monetary sovereignty to the European Central Bank means that there should never be another opportunity for Italian politicians to print money and set off the inflationary spiral.

See also David Wessel, ‘Housing Bust Offers Insights’, Wall Street Journal, 10 April 2008. 59 Henry Louis Gates Jr., ‘Forty Acres and a Gap in Wealth’, New York Times, 18 November 2007. 60 Andy Meek, ‘Frayser Foreclosures Revealed’, Daily News, 21 September 2006. 61 http://www.responsiblelending.org/page.jsp?itemID=32032031. 62 Credit Suisse, ‘Foreclosure Trends - A Sobering Reality’, Fixed Income Research (23 April 2008). 63 See Prabha Natarajan, ‘Fannie, Freddie Could Hurt U.S. Credit’, Wall Street Journal, 15 April 2008. 64 Economic Report of the President 2007, tables B-77 and B-76: http:// www.gpoaccess.gov/eop/. 65 George Magnus, ‘Managing Minsky’, UBS research paper, 27 March 2008. 66 Hernando de Soto, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (London, 2001). 67 Idem, ‘Interview: Land and Freedom’, New Scientist, 27 April 2002. 68 Idem, The Other Path (New York, 1989). 69 Rafael Di Tella, Sebastian Galiani and Ernesto Schargrodsky, ‘The Formation of Beliefs: Evidence from the Allocation of Land Titles to Squatters’, Quarterly Journal of Economics, 122, 1 (February 2007), pp. 209-41. 70 ‘The Mystery of Capital Deepens’, The Economist, 26 August 2006. 71 See John Gravois, ‘The De Soto Delusion’, Slate, 29 January 2005: http://state.msn.com/id/2112792/. 72 The entire profit is transferred to a Rehabilitation Fund created to cope with emergency situations, in return for an exemption from corporate income tax. 73 Connie Black, ‘Millions for Millions’, New Yorker, 30 October 2006, pp. 62-73. 74 Shiller, ‘Recent Trends in House Prices’. 75 Edward L.


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I.O.U.: Why Everyone Owes Everyone and No One Can Pay by John Lanchester

Alan Greenspan, asset-backed security, bank run, banking crisis, Bear Stearns, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Monday: stock market crash in 1987, Black-Scholes formula, Blythe Masters, Celtic Tiger, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, Daniel Kahneman / Amos Tversky, diversified portfolio, double entry bookkeeping, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, financial engineering, financial innovation, fixed income, George Akerlof, Glass-Steagall Act, greed is good, Greenspan put, hedonic treadmill, hindsight bias, housing crisis, Hyman Minsky, intangible asset, interest rate swap, invisible hand, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", Jane Jacobs, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, junk bonds, Kickstarter, laissez-faire capitalism, light touch regulation, liquidity trap, Long Term Capital Management, loss aversion, low interest rates, Martin Wolf, money market fund, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, negative equity, new economy, Nick Leeson, Norman Mailer, Northern Rock, off-the-grid, Own Your Own Home, Ponzi scheme, quantitative easing, reserve currency, Right to Buy, risk-adjusted returns, Robert Shiller, Ronald Reagan, Savings and loan crisis, shareholder value, South Sea Bubble, statistical model, Tax Reform Act of 1986, The Great Moderation, the payments system, too big to fail, tulip mania, Tyler Cowen, value at risk

This is what the math looks like:* I have absolutely no idea what any of that means, but in plain English it is a way of modeling lots of different things happening in different ways at the same time. The formula was already much used in statistics; Li found a way of applying it to the world of CDOs and published the result in The Journal of Fixed Income (which is basically Zoo or Heat for the CDO market), in a paper called “On Default Correlation: A Copula Function Approach.” He had found the Great White Whale of the CDO market, a way to correlate the apparently uncorrelatable—and thus had opened up the whole field of subprime loans as a source of CDOs.

The power to set interest rates had been something of a Holy Grail for those economists who argued that the management of inflation was too important a matter to be left to politicians. I’ve been writing about interest rates and inflation in the way that economists usually do, as if they were matters of technical management of the economy, but another way of thinking of them is in terms of whom they directly benefit and whom they directly punish. For people on fixed incomes, inflation is a disaster, whereas for government employees and others with incomes protected against inflation it is much more neutral; for middle-class savers, it can be catastrophic; for people in debt, it can bring either ruin or—if their debt is of a fixed amount, one whose real value will go down as inflation eats it up—it can be a godsend.


pages: 469 words: 132,438

Taming the Sun: Innovations to Harness Solar Energy and Power the Planet by Varun Sivaram

"World Economic Forum" Davos, accelerated depreciation, addicted to oil, Albert Einstein, An Inconvenient Truth, asset light, asset-backed security, autonomous vehicles, bitcoin, blockchain, carbon footprint, carbon tax, clean tech, collateralized debt obligation, Colonization of Mars, currency risk, decarbonisation, deep learning, demand response, disruptive innovation, distributed generation, diversified portfolio, Donald Trump, electricity market, Elon Musk, energy security, energy transition, financial engineering, financial innovation, fixed income, gigafactory, global supply chain, global village, Google Earth, hive mind, hydrogen economy, index fund, Indoor air pollution, Intergovernmental Panel on Climate Change (IPCC), Internet of things, low interest rates, M-Pesa, market clearing, market design, Masayoshi Son, mass immigration, megacity, Michael Shellenberger, mobile money, Negawatt, ocean acidification, off grid, off-the-grid, oil shock, peer-to-peer lending, performance metric, renewable energy transition, Richard Feynman, ride hailing / ride sharing, rolling blackouts, Ronald Reagan, Silicon Valley, Silicon Valley startup, smart grid, smart meter, SoftBank, Solyndra, sovereign wealth fund, Ted Nordhaus, Tesla Model S, time value of money, undersea cable, vertical integration, wikimedia commons

From 2013 to 2016, distributed solar providers, led by SolarCity, raised more than $1 billion by selling securities backed by residential solar assets on bond markets.34 In a securitization, a solar provider bundles a diverse portfolio of loans for rooftop solar installations into a special-purpose vehicle, which is a way to protect the loans even if the solar provider were to go bankrupt (figure 4.3). Then the provider issues securities to fixed-income investors, who receive interest payments funded by the cash flow from the underlying loans. And with the loans off the solar provider’s books, the provider is free to finance new solar installations. Figure 4.3 How solar securitization works. (Note that the ratings of the securities on the right side are aspirational—through 2016, no solar securitization has resulted in the issuance of AA- or higher-rated bonds.)

By contrast, the latter has no assets or credit score and might live outside the reach of the law. Existing microfinance offerings have had only limited success at bringing financial services to those outside the global financial system.25,26 Even so, start-ups have figured out how to make a portfolio of leases to low-income Africans seem attractive to international fixed-income investors. In late 2015, the British start-up BBOXX announced the world’s first securitization of off-grid solar assets, raising a half-million dollars at a 21 percent interest rate. It was a modest start, but more recent offerings have improved those terms.27 And it’s not just off-grid solar providers jumping into the financing fray.

For example, by increasing its production of solar panels, a factory can spread its fixed costs over more units, thereby decreasing the cost per solar panel. Economies of scale also apply to the downstream deployment of solar projects; a larger solar project can spread overhead costs over a larger power-generating capacity, reducing the cost per watt of the project. Green bond (or climate bond)    Fixed-income financial instrument comprising assets, such as renewable energy projects, that are helpful for reducing greenhouse gas emissions or adapting to climate change. Institutional investor    An entity that pools money to purchase assets. Institutional investors include banks, insurance companies, pension funds, hedge funds, sovereign wealth funds, and endowments.


pages: 1,066 words: 273,703

Crashed: How a Decade of Financial Crises Changed the World by Adam Tooze

"there is no alternative" (TINA), "World Economic Forum" Davos, Affordable Care Act / Obamacare, Alan Greenspan, Apple's 1984 Super Bowl advert, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bond market vigilante , book value, Boris Johnson, bread and circuses, break the buck, Bretton Woods, Brexit referendum, BRICs, British Empire, business cycle, business logic, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, collateralized debt obligation, company town, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, currency risk, dark matter, deindustrialization, desegregation, Detroit bankruptcy, Dissolution of the Soviet Union, diversification, Doha Development Round, Donald Trump, Edward Glaeser, Edward Snowden, en.wikipedia.org, energy security, eurozone crisis, Fall of the Berlin Wall, family office, financial engineering, financial intermediation, fixed income, Flash crash, forward guidance, friendly fire, full employment, global reserve currency, global supply chain, global value chain, Goldman Sachs: Vampire Squid, Growth in a Time of Debt, high-speed rail, housing crisis, Hyman Minsky, illegal immigration, immigration reform, income inequality, interest rate derivative, interest rate swap, inverted yield curve, junk bonds, Kenneth Rogoff, large denomination, light touch regulation, Long Term Capital Management, low interest rates, margin call, Martin Wolf, McMansion, Mexican peso crisis / tequila crisis, military-industrial complex, mittelstand, money market fund, moral hazard, mortgage debt, mutually assured destruction, negative equity, new economy, Nixon triggered the end of the Bretton Woods system, Northern Rock, obamacare, Occupy movement, offshore financial centre, oil shale / tar sands, old-boy network, open economy, opioid epidemic / opioid crisis, paradox of thrift, Peter Thiel, Ponzi scheme, Post-Keynesian economics, post-truth, predatory finance, price stability, private sector deleveraging, proprietary trading, purchasing power parity, quantitative easing, race to the bottom, reserve currency, risk tolerance, Ronald Reagan, Savings and loan crisis, savings glut, secular stagnation, Silicon Valley, South China Sea, sovereign wealth fund, special drawing rights, Steve Bannon, structural adjustment programs, tail risk, The Great Moderation, Tim Cook: Apple, too big to fail, trade liberalization, upwardly mobile, Washington Consensus, We are the 99%, white flight, WikiLeaks, women in the workforce, Works Progress Administration, yield curve, éminence grise

It is barely too much to say that the new, deregulated world of national and international finance was made for the investment banks.26 Through their business of trading on their clients’ behalf and launching debt and other securities, they enjoyed an “edge” over all other participants in the market.27 In 1975 the abolition of fixed fees charged by Wall Street brokers for trading stocks led to fierce competition, wiped out smaller firms and forced the integration of trading, research and investment banking. In the 1980s, with interest rates coming down and bonds beginning their long bull run, trading in so-called fixed-income securities—as opposed to equities—became ever more important. Drexel Burnham Lambert pioneered the market in high-yield corporate bonds, also known as junk bonds. Meanwhile, Salomon Brothers helped the GSEs devise the securitization model and launch each new batch of mortgage-backed securities.

Leaving behind the GSE-centered model of the 1990s, they deprioritized conforming mortgages in favor of private label “unconventional” lending—subprime, slightly better Alt-A and oversized jumbo loans. What the private issuers discovered was that if scrutinizing conventional mortgages was profitable, subprime was even more so.40 The financial engineering was more elaborate and one could charge more money for the services. The techniques of the fixed-income investment bankers were now brought fully into play. A surprisingly large share even of nonconforming private label MBS could still attract an AAA rating once combined in structured products. To manage the risks, the production of credit default swaps (CDS), once the preserve of bespoke investment banks, was industrialized.

In the 1980s City of London insider Hoare Govett sold out to Security Pacific before being snapped up by the expansive Dutch bank ABN AMRO, which would become the leading European issuer of ABCP before being acquired and dismembered by a pan-European consortium. The Swiss bank UBS-SBC acquired S. G. Warburg in London in 1995. In 1997 it followed this with the purchase of Dillon, Read & Co., an investment bank in New York. After abortive merger talks with Merrill Lynch in 1999, UBS bought out the asset manager PaineWebber. With its fixed-income and currency businesses booming, in June 2004 UBS’s CEO, Marcel Ospel, announced that his ambition was to make the Swiss bank into not only the premier wealth manager but the leading investment bank in the world.32 UBS never reached that objective, but its giant Connecticut-based office did manage to make the bank into the third-largest issuer of CDO based on private label MBS after Merrill and Citigroup, and the leader in the riskiest mezzanine ABS segment.


When Free Markets Fail: Saving the Market When It Can't Save Itself (Wiley Corporate F&A) by Scott McCleskey

Alan Greenspan, Asian financial crisis, asset-backed security, bank run, barriers to entry, Bear Stearns, Bernie Madoff, break the buck, call centre, collateralized debt obligation, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, financial engineering, financial innovation, fixed income, Glass-Steagall Act, information asymmetry, invisible hand, Isaac Newton, iterative process, junk bonds, Long Term Capital Management, margin call, money market fund, moral hazard, mortgage debt, place-making, Ponzi scheme, prediction markets, proprietary trading, risk tolerance, Savings and loan crisis, shareholder value, statistical model, The Wealth of Nations by Adam Smith, time value of money, too big to fail, web of trust

Whereas in the early or mid-1990s compliance officers were generalized (indeed, compliance was often considered a specialty within the legal field), a glance today at compliance job postings shows few positions for generalists other than those at the highest level. Most of the postings will be for ‘‘fixed income compliance,’’ ‘‘compliance reporting,’’ ‘‘investment adviser compliance,’’ and so on. As regulation is reformed, this trend will only continue and perhaps accelerate, as requirements increase in scope and complexity and as additional sectors are brought under the regulatory umbrella. Monitoring Many of the functions performed by a compliance department are dependent on automated systems that initiate alerts when suspicious activity occurs.

Specialties have developed within the compliance field, so that professionals concentrate in areas such as anti–money laundering, compliance policy and procedures development, and compliance IT systems, in addition to specializing in particular sectors such as equities, options and derivatives, fixed income, and investment advisory and fund management. An entire industry has developed to support the technological and information needs of compliance departments. Though all of these developments imply that compliance is maturing as a separate profession, its place within a firm is a trickier proposition.


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Meltdown: How Greed and Corruption Shattered Our Financial System and How We Can Recover by Katrina Vanden Heuvel, William Greider

Alan Greenspan, Asian financial crisis, banking crisis, Bear Stearns, Bretton Woods, business cycle, buy and hold, capital controls, carried interest, central bank independence, centre right, collateralized debt obligation, conceptual framework, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, declining real wages, deindustrialization, Exxon Valdez, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, fixed income, floating exchange rates, full employment, Glass-Steagall Act, green new deal, guns versus butter model, housing crisis, Howard Zinn, Hyman Minsky, income inequality, information asymmetry, It's morning again in America, John Meriwether, junk bonds, kremlinology, Long Term Capital Management, low interest rates, margin call, market bubble, market fundamentalism, McMansion, Michael Milken, Minsky moment, money market fund, mortgage debt, Naomi Klein, new economy, Nixon triggered the end of the Bretton Woods system, offshore financial centre, payday loans, pets.com, plutocrats, Ponzi scheme, price stability, pushing on a string, race to the bottom, Ralph Nader, rent control, Robert Shiller, Ronald Reagan, Savings and loan crisis, savings glut, sovereign wealth fund, structural adjustment programs, subprime mortgage crisis, The Great Moderation, too big to fail, trade liberalization, transcontinental railway, trickle-down economics, union organizing, wage slave, Washington Consensus, women in the workforce, working poor, Y2K

Two months later there’s a package of two more loans, totaling about $125,000 and owed to California-based IndyMac Bank. The IndyMac loan package is a classic subprime product—interest-only payments for five years, at a fixed rate of just over 6 percent, then adjusting upward to about 9 percent plus the principal. “That is just not an appropriate loan product for someone who’s 76 years old and who’s on a fixed income,” says Atlanta Legal Aid Society attorney Sarah Bolling, who’s representing the Mitchells in their effort to keep their house. “The only calculation that would make this make sense is to say, ‘Well, we’ll give him a low rate and in five years he won’t be alive.’ But that’s pretty cynical.” Not that it mattered: George managed to pay the loan for only two months before falling behind.

The pain of homeowners has now spread throughout the economy. We must challenge plans that bail out the rich, put out the poor and put down the middle class. We can’t just bail out Wall Street and ignore Main Street. The bailout must be bottom up, not just top down. The poor—the unemployed poor, the working poor and the fixed-income poor—must benefit from the investment of their tax dollars. Any “solution” or remedy must be judged by how it affects “the least of these.” The oversight committees and the overseers must come off the payroll of Wall Street. They cannot eat from the same trough and retain any credibility as regulators.


pages: 274 words: 81,008

The New Tycoons: Inside the Trillion Dollar Private Equity Industry That Owns Everything by Jason Kelly

"World Economic Forum" Davos, activist fund / activist shareholder / activist investor, antiwork, barriers to entry, Bear Stearns, Berlin Wall, call centre, Carl Icahn, carried interest, collective bargaining, company town, corporate governance, corporate raider, Credit Default Swap, diversification, eat what you kill, Fall of the Berlin Wall, family office, financial engineering, fixed income, Goldman Sachs: Vampire Squid, Gordon Gekko, housing crisis, income inequality, junk bonds, Kevin Roose, late capitalism, margin call, Menlo Park, Michael Milken, military-industrial complex, Occupy movement, place-making, proprietary trading, Rod Stewart played at Stephen Schwarzman birthday party, rolodex, Ronald Reagan, Rubik’s Cube, San Francisco homelessness, Sand Hill Road, Savings and loan crisis, shareholder value, side project, Silicon Valley, sovereign wealth fund, two and twenty

The strategy was born largely of necessity. In the early 1990s, Teachers’ saw what most every pension that was paying attention did—that leveraged buyout firms were delivering amazing returns to their small clutch of existing investors, far outstripping what those investors could get from public equities and fixed income. With a bias toward domestic managers, they looked around Canada for private-equity funds and found not very many. So they started their own effort. It barely survived its infancy because the first deal was a disaster. In 1991, Teachers’ paid $15.75 million for White Rose Crafts & Nursery Sales, a company that promptly went bankrupt within a year.

Sterba said, “It’s like cutting off your nose to spite your face. You gotta give the incentives for the workforce to stay with you.” For him, the upshot was that seemingly small difference in his monthly check. “I’m missing a hundred bucks a month. It may not seem like a lot, but to someone on a fixed income, it sure feels like it.” Officials at TPG and Nexio declined to comment about the situation. A person familiar with the transaction said that Nexeo had in fact gone to great lengths to ensure that those who switched from pensions to the defined benefits plan got a deal that ultimately would have similar benefits and without the risk of an underfunded pension.


pages: 303 words: 84,023

Heads I Win, Tails I Win by Spencer Jakab

Alan Greenspan, Asian financial crisis, asset allocation, backtesting, Bear Stearns, behavioural economics, Black Monday: stock market crash in 1987, book value, business cycle, buy and hold, collapse of Lehman Brothers, correlation coefficient, crowdsourcing, Daniel Kahneman / Amos Tversky, diversification, dividend-yielding stocks, dogs of the Dow, Elliott wave, equity risk premium, estate planning, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, fear index, fixed income, geopolitical risk, government statistician, index fund, Isaac Newton, John Bogle, John Meriwether, Long Term Capital Management, low interest rates, Market Wizards by Jack D. Schwager, Mexican peso crisis / tequila crisis, money market fund, Myron Scholes, PalmPilot, passive investing, Paul Samuelson, pets.com, price anchoring, proprietary trading, Ralph Nelson Elliott, random walk, Reminiscences of a Stock Operator, risk tolerance, risk-adjusted returns, Robert Shiller, robo advisor, Savings and loan crisis, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, statistical model, Steve Jobs, subprime mortgage crisis, survivorship bias, technology bubble, transaction costs, two and twenty, VA Linux, Vanguard fund, zero-coupon bond, zero-sum game

Another company called Asset Builder maintains several free model portfolios with differing amounts of risk, from “capital preservation” and “stable” at one end to “growth” and “aggressive growth” at the other. For a fee they’ll offer frequent updates much like MyPlanIQ. One of the portfolios listed under aggressive growth looks like this: U.S. small-capitalization stocks 20% U.S. large-capitalization stocks 10% Real estate investment trusts 11% International stocks 13% Fixed income (bonds) 30% Emerging-market stocks 16% The standard deviation of this portfolio over the last five years (as of March 2015) was higher than stocks alone, though not by too much. But one dollar invested in the portfolio in 2000 would have grown to $3.17, compared to $2.01 in the S&P 500 Total Return Index.

There was still time to get out, though. A Bear Stearns analyst upgraded New Century on March 1, a week before it plunged another 90 percent and trading was halted. (His own firm would need rescuing a year later, also a victim of the subprime loan crisis.) All investors, but particularly those such as people living on a fixed income who can’t easily bounce back from a reduction in principal, have an irrational aversion to realizing a loss. Many held on until New Century’s bitter end or close to it. New Century is an extreme tale, of course. But plenty of income investments with very high yields have risks that aren’t apparent to the unsophisticated.


Investment: A History by Norton Reamer, Jesse Downing

activist fund / activist shareholder / activist investor, Alan Greenspan, Albert Einstein, algorithmic trading, asset allocation, backtesting, banking crisis, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, book value, break the buck, Brownian motion, business cycle, buttonwood tree, buy and hold, California gold rush, capital asset pricing model, Carmen Reinhart, carried interest, colonial rule, Cornelius Vanderbilt, credit crunch, Credit Default Swap, Daniel Kahneman / Amos Tversky, debt deflation, discounted cash flows, diversified portfolio, dogs of the Dow, equity premium, estate planning, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, family office, Fellow of the Royal Society, financial innovation, fixed income, flying shuttle, Glass-Steagall Act, Gordon Gekko, Henri Poincaré, Henry Singleton, high net worth, impact investing, index fund, information asymmetry, interest rate swap, invention of the telegraph, James Hargreaves, James Watt: steam engine, John Bogle, joint-stock company, Kenneth Rogoff, labor-force participation, land tenure, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, low interest rates, managed futures, margin call, means of production, Menlo Park, merger arbitrage, Michael Milken, money market fund, moral hazard, mortgage debt, Myron Scholes, negative equity, Network effects, new economy, Nick Leeson, Own Your Own Home, Paul Samuelson, pension reform, Performance of Mutual Funds in the Period, Ponzi scheme, Post-Keynesian economics, price mechanism, principal–agent problem, profit maximization, proprietary trading, quantitative easing, RAND corporation, random walk, Renaissance Technologies, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Sand Hill Road, Savings and loan crisis, seminal paper, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spinning jenny, statistical arbitrage, survivorship bias, tail risk, technology bubble, Teledyne, The Wealth of Nations by Adam Smith, time value of money, tontine, too big to fail, transaction costs, two and twenty, underbanked, Vanguard fund, working poor, yield curve

Despite the difficulty of categorizing hedge funds based on their strategies—many funds deploy a variety of approaches—the following list gives a broad overview of the relative composition of approaches. ASSETS UNDER MANAGEMENT IN 2014 Hedge Funds $2508.4 Billion Funds of Funds $455.3 Billion sectors: Convertible Arbitrage Distressed Securities Emerging Markets Equity Long Bias Equity Long/Short Equity Long-Only Equity Market Neutral Event Driven Fixed Income Macro Merger Arbitrage Multi-Strategy Other Sector Specific $29.5 Billion $184.9 Billion $277.6 Billion $203.8 Billion $202.3 Billion $132.5 Billion $42.6 Billion $291.2 Billion $396.7 Billion $204.0 Billion $30.4 Billion $273.8 Billion $96.6 Billion $142.5 Billion Source: “Hedge Fund Industry—Assets Under Management,” BarclayHedge Alternative Investment Databases, accessed 2015, http://www.barclayhedge.com/research/indices/ghs/mum/HF_Money_Under_Management .html.

In May 2005, Kirk Kerkorian made a tender offer for the equity of General Motors, offering about 15 percent above the previous day’s close. The very next day, S&P issued a downgrade on the debt of General Motors.22 This caused convertible arbitrage investors 266 Investment: A History to endure losses on the equity side (which they had shorted), but also on the debt (which they were long). Fixed income hedge funds differ fairly widely in the riskiness of the strategies employed. Some are rather risk averse, seeking to buy attractive debt securities that deliver healthy and uninterrupted payments. Others have far more complicated schemes to garner returns, such as exploiting aberrations in yield curves.

Institutions increasingly became owners of timber, purchasing from operators and owners in the foresting industry.52 Farmland (the land itself) and agriculture (the productive activity conducted on that land, such as the planting and harvesting of crops and grazing of livestock) are in much the same category. With most of the capital asset value deriving, likewise, from the real estate involved in these sectors, the history of alternative investment in agriculture and farmland is closely tied to the history of alternative investment in real estate, as discussed previously. infrastructure, fixed income, and other alternatives Investments in infrastructure projects, around the United States and the world, are a small piece of the alternative investment asset class. These can take the form of investments by retail and institutional investors in listed infrastructure equities, which may be publicly traded, master limited partnerships, and open-ended funds.53 More New Investment Forms 283 These infrastructure projects are often directed by local, state, or even the federal government.


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Be Your Own Financial Adviser: The Comprehensive Guide to Wealth and Financial Planning by Jonquil Lowe

AltaVista, asset allocation, banking crisis, BRICs, buy and hold, correlation coefficient, cross-subsidies, diversification, diversified portfolio, estate planning, fixed income, high net worth, money market fund, mortgage debt, mortgage tax deduction, negative equity, offshore financial centre, Own Your Own Home, passive investing, place-making, Right to Buy, risk/return, short selling, zero-coupon bond

Inflation risk v liquidity, income and capital risks One of the most challenging investment goals is to produce income over a long period of time. The ideal would be to make a single investment at the outset that would produce a stable, adequate income for as long as you need it. A traditional way to do this, much favoured in the nineteenth century, was to invest in government stocks. But both the fixed income these provide and the fixed capital you tie up in them until redemption are eroded by inflation. A stable income has to be one that is capable of maintaining its buying power as time goes by. A choice not open to nineteenth century investors was the index-linked government bonds discussed above, which were introduced in the UK in 1981.

Table 10.8 Main types of investment fund Type of fund Description Particularly useful for Specialised funds (in roughly ascending order of risk) Money market Short-terms loans to banks, companies and government. Broadly equivalent to a bank savings account. Liquidity. Preserving capital. Income. Temporary store awaiting reinvestment. Asset mix. Fixed income Government and corporate bonds. Income. Asset mix. Equity income Equity – UK Shares that have a track record of paying high dividends. Income with growth. Shares in UK companies. Growth. Asset mix. M10_LOWE7798_01_SE_C10.indd 323  Asset mix. 05/03/2010 14:31 324 Part 3 n Building and managing your wealth Table 10.8 Main types of investment fund continued Type of fund Description Particularly useful for Property Shares in companies in the property sector (usually commercial property).

Triodos bank www.triodos.co.uk Yahoo Finance http://uk.finance.yahoo.com Z01_LOWE7798_01_SE_APP.indd 408 05/03/2010 09:51 Index 130/30 funds 329 absolute return funds 328–9 active funds 309–11 additional voluntary contribution (AVC) in defined benefit pensions 195 mis-selling of 52 in ocupational pensions 201–2 adjustable excess in PMI premiums 124 advisory investments advice 48 all-in-one mortgage 165 annual management charge on investment funds 308–9 Annual Percentage Rate (APR) 33 annuities capital protection 238–9 choice of 232–40 in defined contribution scheme 231 income drawdown 241–3 increasing 235–7, 243 investment-linked 237–8, 244 level annuities 233 and pension schemes 185 rates 233–5 short-term 232, 239 staggered buying of 243 annuity with guarantee 101, 239 aspirations of financial planning 6–9 asset allocation 299–304 correlations 301 Z01_LOWE7798_01_SE_INDX.indd 409 funds 324 rebalancing 303–4 Association of Tax Technicians 52 attitudes to financial planning 8–9 balance sheet, household 17–21 Bank of England base rate (1984–2009) 172 bankruptcy 35 beliefs and financial planning 8–9 benefits advice 53 bereavement benefits 95–7 after retirement 96–7 before retirement 95–6 beta 299 Beveridge system 177 bonds 285–9 as asset 300 confusion over 254 interest rates 285–6 redemption 286 risk 287–8 borrowing 31–5 APR 33 BSE Sensex 298 buying power, inflation on 29 capital gain or loss on shares 289 capital gains, taxation of 263 capital gains tax 347–8 in UK tax system 371–80 05/03/2010 09:50 410 Index capital outlay on mortgages 150–3 capital protection annuity 238–9 capital risk in investments 253, 255–9 on residential property 330 capital shares 316 capitation schemes for dental treatment 128–9 capped-rate mortgage 162, 164 cash and carry investments 314 cash as asset 300 cashback mortgage 164 chargeable gain 268 Chartered Institute of Taxation 52 child tax credit 97 child trust funds (CTF) 274–6 children, and intestacy 339 circumstances and financial planning 8–9 Citizens Advice 53 civil partner, and intestacy 339 co-payment of PMI premiums 124 cohabitees, protecting 354 collaborative financial planning 38 collectibles 332–3 commercial property as income source 303 commission payments 42 in DIY financial planning 53–4 commodities 324 compensation from financial advisers 59–60 Competition Commission 44 on payment protection insurance 84–5 complaints against financial advisers 58–9 complete DIY financial planning 37 complex investment funds 327–9 guaranteed products 327–8 protected products 327–8 Z01_LOWE7798_01_SE_INDX.indd 410 comprehensive state provision of longterm care 137 Consumer Price Index (CPI) 28 contributory employment and support allowance (ESA) 73 council rented housing security 105 council tax benefit 98 covered call funds 329 critical illness insurance 80–3 core conditions 81 and term insurance 108–9 cross-holdings, return on 318 Crown, and intestacy 339 DAX index 298 dealing charges 288 death in service 99 debt 13, 31–5 debt relief orders 35 decreasing term insurance 110 deferred-care plans 139 deferred period in IP insurance 78 defined benefit pension schemes 99 in occupational pensions 195–7 other choices 230–1 tax-free cash 228–30 defined contribution pension schemes 99 new scheme from 2012 205 in occupational pensions 197–8 other choices 231 personal pensions 206 tax-free cash 227–8 delegated financial planning 38 dental treatment 126–30 capitation schemes 128–9 insurance 129 private, costs 128 resources for 126–7 self-paying 127–8 stress testing and review 129–30 05/03/2010 09:50 Index derivatives 325–7 disability, protection from 72–88 employer, help from 75 plan for 75–85 critical illness insurance 80–3 Holloway plans 79–80 income protection insurance 76–9 state, help from 72–4 state provision of long-term care 133 stress testing and review 86–8 disclosure of material facts 82 discounted-rate mortgage 161, 163–4 discretionary management investments 48 discretionary trusts 340 diversification of investments 295–9 amount needed 296–9 and risk 296–7 dividends and income tax 266 on shares 289 DIY financial planning 37 and commission 53–4 Dow Jones Industrial Average 298 downsizing 246 emergency funds 84, 279 employer, help from disability protection 75 family protection 99–102 lump sum payments 99–100 survivor pensions 100–2 unemployment protection 69–70 employer contributions to pension schemes 186 employment and support allowance (ESA) 68 sickness or disability protection 72–3 endowment mis-selling 51 Z01_LOWE7798_01_SE_INDX.indd 411 411 endowment mortgage 158, 159, 160 energy saving measures 16 equities as assets 300 equity – emerging markets 324 equity – sector funds 324 equity – UK shares 323 equity global shares 324 equity income shares 323 equity release 46, 247–9 choosing 251 home reversion 249 and inheritance planning 354 lifetime mortgages 247–8 stress test and review 249–50 and tax 250 escalating annuity 236 estate, reducing inheritance tax on bypassing the estate 350–1 limiting growth of 352–3 estate planning advice 52–3 ethical savings products 284–5 ethical investment funds 323 European Economic Area (EEA) 116, 118 European Health Insurance Card (EHIC) 118 exchange-traded funds 319–20 execution-only investments advice 48 extra pension option 221–3, 224–5 family, provision for assessing needs 89–105 employer, help from 99–102 housing security 104–5 protection calculator 94–5 protection level 91–5 protection period 91 savings, pensions, insurances 103–4 state, help from 95–8 assessing protection gap 105–6 05/03/2010 09:50 412 Index family, provision for (continued) budget template 92–3 implementation 106–12 family income benefit 109 life insurance 112 maximum policy protection 111–12 term insurance 107–11 stress testing and review 112–13 financial advisers commission payments 42 expectations of 38–53 on benefits 53 equity release 46 estate planning 52–3 on insurance 44–5 on investments 47–50 money guidance 42–4 on mortgages 45–6 overall planning 41–2 on pensions 46–7 Retail Distribution Review 50–2 summary 39–41 taxation 52–3 protection under 54–61 compensation 59–60 complaints 58–9 financial planning 4–27 approaches to 37–8 aspirations 6–9 building the plan 22 execution of 24–6 framework for 5 resources for 10–21 review of 27 stress test of 22–3 Financial Services Authority and Money Guidance 42–4 on mortgages 166–7 product comparisons 25, 166 Retail Distribution Review 50–2 fixed-income bonds 323 Z01_LOWE7798_01_SE_INDX.indd 412 fixed-rate (long term) mortgage 162 fixed-rate (short term) mortgage 162, 163 flexible mortgage 164 frequency of payment of PMI premiums 123 friendly society plans 276–7 FTSE100 index 298 full underwriting of private medical insurance 121 fund-of-funds 324 futures 325–7 gearing 315 genetic tests for IP insurance 79 for life insurance 108 goals of financial planning 6–8 gold 331–2 grossing up 265 group discounts in PMI premiums 124 group personal pension scheme (GPPS) 203 guaranteed equity bonds 282–3 guaranteed investment products 327–8 health discount in PMI premiums 124 hedge funds 328–9 hedging with options 326–7 high income, taxation of 9 Holloway plans 79–80, 84 home reversion 249 Homeowners Mortgage Support Scheme 169 household budget 10–13 balance sheet 17–21 improvements to 13–16 template for 11–12 housing equity, using 244–51 05/03/2010 09:50 Index equity release schemes 247–9 resources 246 price inflation 147 rent or buy 146–9 rented 146–9 see also own home housing benefits 98 housing costs, help with 98 housing security and family protection 104–5 and intestacy 339 hurdle rate 317 hybrid pension schemes 199 Icelandic banks 55 immediate-care plan, long-term 138–9 In-the-driving-seat financial planning 38 income fall in and mortgages 168–70 protecting from sickness or disability 72–88 from unemployment 67–72 see also high income; low income income-based employment and support allowance (ESA) 73 income-based jobseeker’s allowance 98 income drawdown 102 in defined contribution scheme 231 for retirement 241–3, 244 income protection insurance 76–9, 84 exclusions 77 income risk and investments 253, 259–60 on residential property 231 income shares 316 income support 98 income tax and dividends 266 on inheritance 348–9 Z01_LOWE7798_01_SE_INDX.indd 413 413 gifts to minor children 348–9 gifts you still benefit from 349 and life insurance 266–9 and savings 264–6 in UK tax system 358–69 tax-free and taxable income 359–60 increasable term insurance 110 increasing annuities 235–7, 243 increasing term insurance 110 independent advisers 49, 50 Independent financial advisers (IFAs) 41 index-linked gilts 258 Indian banks 55 individual savings accounts (ISAs) 272–4 and pension schemes 275 Individual Voluntary Agreement (IVA) 35 inflation and buying power 29 impact of 28–31 and income protection 86 inflation risk 255–60 inheritance capital gains tax 347–8 income tax 348–9 gifts to minor children 348–9 gifts you still benefit from 349 reducing tax 350–4 bypassing the estate 350–1 cohabitees, protecting 354 equity release 354 estate, limiting growth of 352–3 lifetime gifts 351–2 tax-free bequests 351 using nil-rate band 351 stress testing and review 355 and tax 341–9 basics 342–4 05/03/2010 09:50 414 Index inheritance (continued) on estate 344 gifts with reservation 346–7 lifetime gifts 344–6 workings of 343 trusts 340–1 who inherits 335–40 intestacy 338–9 wills if there is no will 337 reasons for 339–40 Institute of Financial Planning 41 insurance choosing and buying 87–8 costs 87 for dental treatment 129 and family protection 103–4 life insurance 112 term insurance 107–11 for long-term care 139–40 insurance advice 44–5 insurance policies 103 interest-in-possession trusts 340 interest-only mortgage 158, 246 interest rate decisions on mortgages 160–4 intestacy 338–9 in Scotland 338 investing in new companies 277–8 investment advice 47–50 investment clubs 314 investment element in Holloway plans 80 investment funds 307–24 active and passive 309–11 choice of 323–4 complex 327–9 forms 312–22 information about 311 pros and cons of using 307–9 investment-linked annuities 237–8, 244 Z01_LOWE7798_01_SE_INDX.indd 414 investment trusts 314–16 investment-type life insurance 106 investments bonds 285–9 buying and selling 288–9 collectibles as 332–3 diversification of 295–9 amount needed 296–9 and risk 296–7 gold as 331–2 ‘low-risk’ 23 mis-selling of 51–2 ranked by risk and return 256 real return since 1908 257 residential property as 330–1 in shares 289–91 taxation of 260–78 Irish banks 55 Islam Shariah-compliant mortgages 168 Shariah-compliant products 284–5 Islamic insurance 80 Jobcentre Plus 68 Jobseeker’s allowance (JSA) 67–8 joint-life-last-survivor annuity 101–2, 239–40 joint ownership of savings 103–4 LAUTRO 45 Lehman Brothers 23 level annuities 233 leverage 20–1, 315, 316 effects of 21 life insurance 106–7 buying 112 and income tax 266–9 regular-premium policies 267 single-premium policies 267–9 as investment 320–2 life-of-another insurance 111 life savings, lost 23 05/03/2010 09:50 Index lifestyling funds 306, 324 lifetime annuity 232 lifetime gifts, reducing inheritance tax 351–2 lifetime mortgages 247–8 liquidity risk 253, 255–9 on residential property 330 loan-to-valuation mortgages 153 lodgers 246 long-term care 130–41 choosing 141 deferred-care plans 139 and housing equity 245 immediate-care plan 138–9 insurance for 139–40 and pension schemes 211 self-paying 138 state provision 131–7 stress testing and review 141 low income and debt 32–3 housing grants and loans 246 income-based ESA 73 NI credits 189 saving for retirement 206 sickness or disability protection 84 and state benefits 15, 95 and support for mortgages 169 unemployment, protection from 68 lump sum payments from deferred state pension 221, 223–5 for family protection 99–100 after retirement 100 death in service 99 means-tested benefits 98 method of payment of PMI premiums 123 Money Guidance 42–4 money guidance advice 42–4 Money Management 82 money market funds 323 monthly outlay on mortgages 154–6 moratorium underwriting of private medical insurance 121 mortgage advice 45–6 mortgage indemnity guarantee 153 mortgage payment protection insurance 84 Mortgage Rescue Scheme 169 mortgage-to-rent schemes 170 mortgages 150–75 capital outlay 150–3 choosing 156–65 all-in-one mortgage 165 interest rate decisions 160–4 types 158–60 monthly outlay 154–6 resources 156, 157 review 173–5 and secured loans 45–6, 145 Shariah-compliant mortgages 168 shopping around 166–7 stress testing 168–73 income, fall in 168–70 negative equity 173 payments, rise in 171–3 multi-tied advisers 49 mutual principle in Holloway plans 79 market risk 297 market value reduction on insurance policies 322 maximum policy family protection 111–12 National Health Service 114 dental treatment charges 127 waiting times 116 National Insurance 67 and pension contributions 177 Z01_LOWE7798_01_SE_INDX.indd 415 415 05/03/2010 09:50 416 Index National Insurance (continued) and credits 188–9 to state pension 190 in UK tax system 370–71 National Savings and Investments (NS&I) 257–8 negative equity 20, 173, 248 NHS continuing care, long-term 135 nil-rate band in inheritance 342–3 reducing tax 351 no claims discount PMI premiums 123 no-negative equity guarantee 247 non-priority debts 34 non-taxpayers 264 and ISAs 273 nursing home, long-term care in 134–5 occupational pensions 47, 194–206 amount of pension 199–201 compensation 61, 215 complaints 61 closure of 214–15 defined benefit schemes 195–7 defined contribution schemes 197–8 hybrid schemes 199 increasing deferring retirement 203 extra contributions 201–2 salary sacrifice 202–3, 204 other schemes 203–5 tax-free cash 227–30 when eligible 199 when starting 225–6 open-ended investment companies (OEIC) 313–14 options 325–7 hedging with 326–7 speculating with 327 ordinary shares 291 Z01_LOWE7798_01_SE_INDX.indd 416 own home advantages and disadvantages 149 long-term care in 131–4 mortgage for 150–75 owner occupied housing security 104 partnership in state provision of long-term care 137 unmarried, and intestacy 338–9 passive funds 309–11 pay-out in Holloway plans 78 in IP insurance 78 payment protection insurance for sickness or disability protection 83–5 for unemployment 70–1 payments, rise in and mortgages 171–3 pension calculator 180, 182, 183 pension credit 98 pension schemes 99 and changing jobs 213–14 and ISAs 275 joining 196 and long-term care 211 new scheme from 2012 205–6 tax treatment of 184 as tax wrappers 184, 210 see also occupational pensions; personal pensions; state pensions pensions advice on 46–7 and family protection 103–4 and housing equity 245 increasing deferring pension 194 deferring retirement 203 extra contributions 192–3, 201–2 05/03/2010 09:50 Index salary sacrifice 202–3, 204 switching from married women’s reduced rate 193–4 resources 182–7 review 213–15 changing jobs 213–14 pension scheme closure 214–15 saving for 177–82 before-tax income 179 and spending 179 targets 179–83 stress testing 211–12 see also occupational pensions; personal pensions pensions, mis-selling of 51 pensions funds 103 as investment 320–2 personal pensions 47, 206–11 amount of pension 211 tax-free cash 227–30 tax relief and contributions 185–6, 207 when eligible 211 when starting 225–6 planned debt 13 polarisation 49 potentially exempt transfers (PETs) in inheritance 342–3 pre-owned assets tax 349 precipice bonds mis-selling 52 preference shares 290 premium bonds 282–3 premiums in IP insurance 78 in private medical insurance 122–3 in term insurance 107–8 priority debts 34 private health care 115–26 costs 120 medical insurance 120–5 Z01_LOWE7798_01_SE_INDX.indd 417 417 resources for 118–19 self-paying 119–20 stress testing and review 125–6 private medical insurance 120–5 choosing 124–5 cost of 122–4 coverage 121 how it works 121–2 switching policies 124–5 private rented housing security 105 property as asset 300, 324 protected investment products 327–8 protection-only life insurance 106 protection under financial advisers 54–61 compensation 59–60 complaints 58–9 public sector pension schemes 99 reducing balance loan 158, 159 redundancy 69–70 relationship breakdown and pension schemes 212 relatives, and intestacy 339 renewable term insurance 110–11 Rent-a-Room Relief 15, 359 rented housing 146–9 advantages and disadvantages 149 repayment mortgage 158 repossession 169 residential home, long-term care in 134–6 residential property as investment 330–1 Retail Distribution Review 50–2 Retail Prices Index (RPI) 28 retirement before-tax income 179 bereavement benefits after retirement 96–7 05/03/2010 09:50 418 Index retirement (continued) before retirement 95–6 and carrying on working 218–19 changing nature of 216–19 choices 220–44 deferring state pension 220–5 extra pension option 221–3 starting occupational pension 225–6 tax-free cash 226–30 deferring 203 lump sum payments after 100 spending in 179 stress testing and review 243–4 tax-free lump sum 186 retirement income 187–211 occupational pensions 194–206 see under own entry personal pensions 206–11 see under own entry state retirement pensions 187–94 see under own entry return on cross-holdings 318 risk balancing 256–60 in diversification 296–7 and return 254–6 timeframe and 253–4 risk aversion 8 RPI-linked annuity 236 salary sacrifice in ocupational pensions 202–3, 204 sale-and-rent-back schemes 170 savings bonds 285–9 and family protection 103–4 and income tax 264–6 products 280–2 premium bonds 282–3 savings accounts and bonds 279–82 Z01_LOWE7798_01_SE_INDX.indd 418 Shariah-compliant products 284–5 structured products 282–3 taxation of 260–78 for unemployment protection 70 savings accounts and bonds 279–82 savings CTF 275 savings Gateway 277 savings income, tax-free 264 savings income paid gross 265–6 savings income paid net 264 Scotland dying intestate 338 personal care in 134 secured loans and mortgages 45–6, 145 self-invested personal pensions 210– 11 self-pay route for dental treatment 127–8 for long-term care 138 for private health care 119–20 separated spouse, and intestacy 339 shared equity scheme on mortgages 169–70 shares 289–91 preference or ordinary 290 Shariah-compliant mortgages 168 Shariah-compliant products 284–5 short-term annuity 232, 239 shortfall risk 260 sickness, protection from 72–88 main statutory benefits 74 see also under disability, protection from single-life annuity 101 social fund grants and loans 98 Society of Trust and Estate Practitioners (STEP) 53 specific risk 297 speculation with options 327 split-capital investment trusts 316–19 05/03/2010 09:50 Index spread 288 stakeholder CTF 276 stakeholder pension schemes 205, 208–10 stamp duty land tax 150, 152 standard-variable rate mortgage 161, 164 starting-rate taxpayers 264 and ISAs 274 state, help from disability protection 72–4 family protection 95–8 bereavement benefits 95–7 means-tested benefits 98 tax credits 97–8 low income 15, 84 unemployment protection 67–8 state earnings-related pension scheme (SERPS) 189, 191 state provision of long-term care 131–7 capital limits for assistance 136 changes to 136–7 in own home 131–4 in residential home 134–6 state retirement pensions 187–94 additional pension scheme 189–92 amount of pension 192 basic pension 187–8 couples, rules for 189 increasing deferring pension 194 extra contributions 192–3 switching from married women’s reduced rate 193–4 NI contributions and credits 188–9 state second pension scheme (S2P) 189–90, 191–2 statutory sick pay 75 stock-and-shares CTF 276 structured products 283–4 Z01_LOWE7798_01_SE_INDX.indd 419 419 student loans 31–2 survivor pensions 100–2 taper relief in CGT 345 target dating funds 306, 324 tax credits and family protection 97–8 in UK tax system 381–6 tax-free bequests 351 ‘tax-free’ investments 271 tax-free lump sum at retirement 186 in defined benefit pension 228–30 in defined contribution pension schemes 227–8 tax-free savings income 264 tax relief on pension contributions 185 tax wrappers incentive schemes 270–8 child trust funds 274–6 friendly society plans 276–7 individual savings accounts 272–4 investing in new companies 277–8 savings Gateway 277 for investments 261 pension schemes as 185–6, 210 taxation advice on 52–3 of capital gains 263 on inheritance 347–8 income tax on inheritance 348–9 gifts to minor children 348–9 gifts you still benefit from 349 and inheritance tax 342–7 basics 342–4 on estate 344 gifts with reservation 346–7 lifetime gifts 344–6 reducing 350–4 workings of 343 on residential property 231 05/03/2010 09:50 420 Index taxation (continued) of savings and investments 260–78 taxpayers and ISAs 274 types 262–3 term insurance 106–11 and critical illness insurance 108–9 family income benefit 109 premiums 107–8 types 107–11 terminal bonus in insurance policies 322 third-way products 243 tied advisers 49, 50 time and diversification 304–7 total expense ratio of investment funds 309 tracker funds 319–20 tracker rate mortgage 161, 164 transaction-only debt 13 transparency, lack of in insurance policies 322 trusts, inheritance 340–1 UK tax system capital gains tax 371–80 income tax 358–69 tax-free and taxable income 359–60 National Insurance 370–1 tax collection 380 tax credits 381–6 unemployment, protection from 67–72 Z01_LOWE7798_01_SE_INDX.indd 420 employer, help from 69–70 plan for 70–1 payment protection insurance 70–1 savings 70 state, help from 67–8 stress testing and review 71–2 unit-linked fund 238 unit trusts as investment fund 313–14 unmarried partner, and intestacy 338–9 value-for-money in pension schemes 211, 212 wealth, managing derivatives 325–7 diversification 295–307 asset allocation 299–304 of investments 295–9 over time 304–7 investment funds 307–24 stress testing and review 333–4 whole-of-life insurance fund 321 widowed parent’s allowance 96 wills 104 if there is no will 337 reasons for 339–40 with-profits fund 238, 321 working tax credit 97 zeros 316–17 05/03/2010 09:50


pages: 467 words: 154,960

Trend Following: How Great Traders Make Millions in Up or Down Markets by Michael W. Covel

Albert Einstein, Alvin Toffler, Atul Gawande, backtesting, Bear Stearns, beat the dealer, Bernie Madoff, Black Swan, buy and hold, buy low sell high, California energy crisis, capital asset pricing model, Carl Icahn, Clayton Christensen, commodity trading advisor, computerized trading, correlation coefficient, Daniel Kahneman / Amos Tversky, delayed gratification, deliberate practice, diversification, diversified portfolio, Edward Thorp, Elliott wave, Emanuel Derman, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, fiat currency, fixed income, Future Shock, game design, global macro, hindsight bias, housing crisis, index fund, Isaac Newton, Jim Simons, John Bogle, John Meriwether, John Nash: game theory, linear programming, Long Term Capital Management, managed futures, mandelbrot fractal, margin call, market bubble, market fundamentalism, market microstructure, Market Wizards by Jack D. Schwager, mental accounting, money market fund, Myron Scholes, Nash equilibrium, new economy, Nick Leeson, Ponzi scheme, prediction markets, random walk, Reminiscences of a Stock Operator, Renaissance Technologies, Richard Feynman, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, shareholder value, Sharpe ratio, short selling, South Sea Bubble, Stephen Hawking, survivorship bias, systematic trading, Teledyne, the scientific method, Thomas L Friedman, too big to fail, transaction costs, upwardly mobile, value at risk, Vanguard fund, William of Occam, zero-sum game

Hedge-Fund Benchmarks: Information Content and Biases, Financial Analyst Journal (2002). Fung, William and David A. Hsieh. Pricing Trend Following Trading Strategies: Theory and Empirical Evidence (1998). Fung, William, and David A. Hsieh. The Risk in Hedge Fund Strategies: Theory and Evidence from Fixed Income Funds. Journal of Fixed Income, 14 (2002). Gadsden, Stephen. Managed the Future. The MoneyLetter, Vol. 25, No. 20 (October 2001). Gallacher, William R. Winner Take All. New York: McGraw-Hill, 1994. Gann, W.D. How to Make Profits Trading in Commodities. Pomeroy: Library of Gann Publishing Co. Inc., 1951. Garber, Peter M.

Trend trader John W. Henry has long made the case for his absolute return strategy: “JWH’s overall objective is to provide absolute returns. JWH is an absolute return manager, insofar as it does not manage against a natural benchmark. Relative return managers, such as most traditional equity or fixed income managers, are measured on how they perform relative to some predetermined benchmark. JWH has no such investment benchmark, so its aim is to achieve returns in all market conditions, and is thus considered an absolute return manager.”3 Shoot for a benchmark in return, and you run with the crowd.


The End of Accounting and the Path Forward for Investors and Managers (Wiley Finance) by Feng Gu

active measures, Affordable Care Act / Obamacare, Alan Greenspan, barriers to entry, book value, business cycle, business process, buy and hold, carbon tax, Claude Shannon: information theory, Clayton Christensen, commoditize, conceptual framework, corporate governance, creative destruction, Daniel Kahneman / Amos Tversky, discounted cash flows, disruptive innovation, diversified portfolio, double entry bookkeeping, Exxon Valdez, financial engineering, financial innovation, fixed income, geopolitical risk, hydraulic fracturing, index fund, information asymmetry, intangible asset, inventory management, Joseph Schumpeter, junk bonds, Kenneth Arrow, knowledge economy, moral hazard, new economy, obamacare, quantitative easing, quantitative trading / quantitative finance, QWERTY keyboard, race to the bottom, risk/return, Robert Shiller, Salesforce, shareholder value, Steve Jobs, tacit knowledge, The Great Moderation, value at risk

These entities profit from underwriting (selling) insurance to customers, and given the generally long time between receipt of premium from customers and payment of claims, they also gain from investing the substantial funds they accumulate (about 65 percent of insurers’ total assets, mostly invested in fixed income securities). These investments provide a major source of income for insurance companies, often surpassing the insurance income. The PC business risk is high relative to other insurance segments, particularly due to catastrophic risks (earthquakes, terrorism, floods, asbestos claims). That’s where reinsurance comes handy.

Reinsurance, however, is the major means of risk management, where part or all of the risk of an insurance portfolio is transferred to a reinsurance company for a portion of the premium received from customers.16 Some reinsurance contracts involve an “excess-of-loss” clause, where the reinsurance kicks in when the company’s loss exceeds a predetermined limit. Traditional tools of investment risk diversification come into play when managing the risk of the investment portfolio: avoiding high-risk investments (junk bonds), using financial derivatives (hedging), and investing in insured bonds (most of insurance companies’ investments are in fixed-income securities). Finally, regulatory risk is largely managed through lobbying the regulators and legislators. Strategic Resources & Consequences Report: Case No. 2 159 The Resource Preservation part of the Resources & Consequences Report (mid-column) should accordingly provide sufficient information enabling investors to evaluate the effectiveness of the company’s risk management, and the extent of risk exposure.


pages: 262 words: 93,987

The Buy Side: A Wall Street Trader's Tale of Spectacular Excess by Turney Duff

asset-backed security, Bear Stearns, Berlin Wall, buy low sell high, collateralized debt obligation, fixed income, Gordon Gekko, high net worth, proprietary trading, urban sprawl, white picket fence

I can’t talk to anyone for more than a few seconds before feeling a tug at my back or a hand on my shoulder. I can see people across the room flashing a nod or toasting me with their drink. It seems all of Wall Street is here, at least all of Wall Street that matters. Every brokerage firm is represented: other buy side traders, sell siders, bankers, fixed income traders, and the rest. On the stage the group Naughty by Nature begins their hip-hop version of the Jackson 5 hit “ABC.” It takes just a few notes for the entire crowd to erupt, realizing they’re hearing the song “OPP.” Multiple rotating strobe lights frantically stripe the fist-pumping revelers.

I look around our office. The analysts are sitting silently, glued to their screens. Heather, the other trader, has a worried look on her face as she slumps low in her chair. Jeff looks like he hasn’t slept in months. I imagine all of Wall Street looks the same. It doesn’t matter: sell side, buy side, fixed income, equity, or private equity, we’re all screwed. I send an IM to James, with whom I started trading a few months ago. Let’s meet at 4:15, it says. Our code. Since 4:20 is synonymous with smoking weed, we thought meeting at 4:15 was only appropriate for cocaine. I trade a ton with James today, all day.


pages: 293 words: 88,490

The End of Theory: Financial Crises, the Failure of Economics, and the Sweep of Human Interaction by Richard Bookstaber

asset allocation, bank run, Bear Stearns, behavioural economics, bitcoin, business cycle, butterfly effect, buy and hold, capital asset pricing model, cellular automata, collateralized debt obligation, conceptual framework, constrained optimization, Craig Reynolds: boids flock, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, dark matter, data science, disintermediation, Edward Lorenz: Chaos theory, epigenetics, feminist movement, financial engineering, financial innovation, fixed income, Flash crash, geopolitical risk, Henri Poincaré, impact investing, information asymmetry, invisible hand, Isaac Newton, John Conway, John Meriwether, John von Neumann, Joseph Schumpeter, Long Term Capital Management, margin call, market clearing, market microstructure, money market fund, Paul Samuelson, Pierre-Simon Laplace, Piper Alpha, Ponzi scheme, quantitative trading / quantitative finance, railway mania, Ralph Waldo Emerson, Richard Feynman, risk/return, Robert Solow, Saturday Night Live, self-driving car, seminal paper, sovereign wealth fund, the map is not the territory, The Predators' Ball, the scientific method, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transaction costs, tulip mania, Turing machine, Turing test, yield curve

When Bear took the funds’ exposures onto its own book, the market dislocations passed through to it. So it sat in the crosshairs of its lenders. And Bear Stearns was already heavily exposed to the same subprime garbage that had led to the demise of the two hedge funds. Mortgage securitization was the biggest piece of the Bear Stearns fixed-income operation, and the firm was one of the top underwriters of CDOs. After the two BSAM hedge funds declared bankruptcy, the credit rating firm Standard & Poor’s placed Bear Stearns on a “negative outlook,” citing the failed funds, the company’s mortgage-related investments (many of which S&P had blithely rated AAA), and its relatively small capital base.

To keep from getting too far into the weeds, I haven’t included some of the details of the flows of funding and collateral through other intermediary agents, such as triparty agents like Bank of New York Mellon Corporation, JP Morgan, and Euroclear (though JP Morgan and BNY Mellon will appear when I discuss the 2008 crisis); repo central counterparties like Fixed Income Clearing Corporation, LCH. Clearnet Group Limited, and Eurex Repo; and clearing exchanges like CME Group Inc., Intercontinental Exchange Group, Inc., and Eurex Clearing. 18. We are asking not about trading strategies but rather about contingency plans in the face of a crisis. Early applications of agent-based models to finance focused on the market dynamics of trading firms as agents.


pages: 512 words: 162,977

New Market Wizards: Conversations With America's Top Traders by Jack D. Schwager

backtesting, beat the dealer, Benoit Mandelbrot, Berlin Wall, Black-Scholes formula, book value, butterfly effect, buy and hold, commodity trading advisor, computerized trading, currency risk, Edward Thorp, Elliott wave, fixed income, full employment, implied volatility, interest rate swap, Louis Bachelier, margin call, market clearing, market fundamentalism, Market Wizards by Jack D. Schwager, money market fund, paper trading, pattern recognition, placebo effect, prediction markets, proprietary trading, Ralph Nelson Elliott, random walk, Reminiscences of a Stock Operator, risk tolerance, risk/return, Saturday Night Live, Sharpe ratio, the map is not the territory, transaction costs, uptick rule, War on Poverty

PART II The World’s Biggest Market Bill Lipschutz THE SULTAN OF CURRENCIES Q uick, what is the world’s largest financial market? Stocks? No, not even if you aggregate all the world’s equity markets. Of course, it must be bonds. Just think of the huge government debt that has been generated worldwide. Good guess, but wrong again, even if you combine all the world’s fixed-income markets. The correct answer is currencies. In the scope of all financial trading, stocks and bonds are peanuts compared with currencies. It is estimated that, on average, $1 trillion is traded each day in the world currency markets. The vast majority of this currency trading does not take place on any organized exchange but rather is transacted in the interbank currency market.

Also, I worked for Salomon Brothers, which at that time provided an element of mystique: “We don’t know what they do, but they make a lot of money.” Another factor in my favor was that, although I worked for an 30 / The New Market Wizard investment bank, I tried not to act like a pompous investment banker. The typical guys in investment banks who were doing foreign exchange back then were fixed-income types. They were prissy in the eyes of the FX [foreign exchange] guys. They wore suspenders and Hermés ties; they were white-wine-and-arugula-salad type of guys. They were not the go-out-for-pasta-and-dribble-marinara-sauce-all-over-yourself type of guys, which is what the foreign exchange traders basically were.

I wanted to run trading and let someone else run the administrative side. That’s not the style of Salomon Brothers, however. Instead they brought in someone from above me. Initially, I thought that it might work out, but the person they picked had no foreign exchange background at all. He came from the fixed-income department and saw everything in the eyes of the bond world. He would frequently ask, “Gee, isn’t that just like the government bond market?” The answer in my mind was, “No, it’s nothing like the government bond market. Forget the government bond market.” How does your current trading for your own management firm differ from your trading at Salomon?


pages: 342 words: 99,390

The greatest trade ever: the behind-the-scenes story of how John Paulson defied Wall Street and made financial history by Gregory Zuckerman

1960s counterculture, Alan Greenspan, banking crisis, Bear Stearns, collapse of Lehman Brothers, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, financial engineering, financial innovation, fixed income, index fund, Isaac Newton, Jim Simons, junk bonds, Larry Ellison, Long Term Capital Management, low interest rates, margin call, Mark Zuckerberg, Menlo Park, merger arbitrage, Michael Milken, mortgage debt, mortgage tax deduction, Ponzi scheme, Renaissance Technologies, rent control, Robert Shiller, rolodex, short selling, Silicon Valley, statistical arbitrage, Steve Ballmer, Steve Wozniak, technology bubble, zero-sum game

He was immediately taken with her. Boklan’'s grandparents had come to New York’'s Lower East Side at the turn of the century, part of a wave of Jewish immigrants fleeing Lithuania and Romania in search of opportunity. Jacqueline was born in 1926, and after her father, Arthur, was hired to manage fixed-income sales for a bank, the Boklan family moved to Manhattan’'s Upper West Side. They rented an apartment in the Turin, a stately building on 93rd Street and Central Park West, across from Central Park, and enjoyed a well-to-do lifestyle for several years, with servants and a nanny to care for Jacqueline.7 But Boklan lost his job during the Great Depression and spent the rest of his life unable to return the family to its former stature.

My work is an echo of his research and writing, his guidance as close as the keyboard in front of me. The greatest trade ever brought John Paulson billions of dollars. The opportunity to write about it gave me my own fortune—--precious extra time with my father, of blessed memory. notes Chapter 11. Greenwich Associates, “"In U.S. Fixed Income, Hedge Funds Are the Biggest Game in Town,”" August 30, 2007; Mark Jickling and Alison A. Raab, “"Hedge Fund Failures,”" Congressional Research Service Report for Congress, December 4, 2006. 2. Dr. David DeBoskey, Charles W. Lamden School of Accountancy, San Diego State University College of Business Administration. 3.


One Up on Wall Street by Peter Lynch

air freight, Apple's 1984 Super Bowl advert, Boeing 747, book value, buy and hold, Carl Icahn, corporate raider, cuban missile crisis, Donald Trump, fixed income, index fund, Irwin Jacobs, Isaac Newton, junk bonds, large denomination, money market fund, prediction markets, random walk, shareholder value, Silicon Valley, Teledyne, vertical integration, Y2K, Yom Kippur War, zero-sum game

As to whether they’re going to be higher or lower in two or three years, you might as well flip a coin to decide. Blue chips can fall down and stay down over a three-year period or even a five-year period, so if the market hits a banana peel, then Dexter’s going to night school. Maybe you’re an older person who needs to live off a fixed income, or a younger person who can’t stand working and wants to live off a fixed income from the family inheritance. Either way, you should stay out of the stock market. There are all kinds of complicated formulas for figuring out what percentage of your assets should be put into stocks, but I have a simple one, and it’s the same for Wall Street as it is for the racetrack.


pages: 304 words: 22,886

Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard H. Thaler, Cass R. Sunstein

Al Roth, Albert Einstein, asset allocation, availability heuristic, behavioural economics, call centre, carbon tax, Cass Sunstein, choice architecture, continuous integration, currency risk, Daniel Kahneman / Amos Tversky, desegregation, diversification, diversified portfolio, do well by doing good, endowment effect, equity premium, feminist movement, financial engineering, fixed income, framing effect, full employment, George Akerlof, index fund, invisible hand, late fees, libertarian paternalism, loss aversion, low interest rates, machine readable, Mahatma Gandhi, Mason jar, medical malpractice, medical residency, mental accounting, meta-analysis, Milgram experiment, money market fund, pension reform, presumed consent, price discrimination, profit maximization, rent-seeking, Richard Thaler, Right to Buy, risk tolerance, Robert Shiller, Saturday Night Live, school choice, school vouchers, systems thinking, Tragedy of the Commons, transaction costs, Vanguard fund, Zipcar

Instead … I split my contributions fifty-fifty between bonds and equities.”2 Markowitz was not alone. In the mid-1980s most educators had a defined-contribution pension plan provided by a company that goes by its initials, tiaa-cref. At that time the plan had only two options—TIAA, which invests in fixed-income securities such as bonds, and CREF, which invests mostly in stocks. More than half of the participants in this plan, many of them professors of some sort, selected exactly a 50–50 split between these two options. One of these 50–50 investors was Sunstein. Notwithstanding his long-standing friendship with Thaler, who many years ago told him that over the long haul CREF was a better bet thanTIAA, he hasn’t changed a thing.

But we can nonetheless learn a lot by comparing the portfolios people actively constructed with the default fund on dimensions that sensible investors should value—such as fees, risk, and performance. To make a long story short, the active choosers didn’t do so great. The default fund appears to have been chosen with some care (see Table 9.1). The asset allocation is 65 percent foreign (that is, non-Swedish) stocks, 17 percent Swedish stocks, 10 percent fixed-income securities (bonds), 4 percent hedge funds, and 4 percent private equity. Across all asset classes, 60 percent of the funds are managed passively, meaning that the portfolio managers are simply buying an index of stocks and not trying to beat the market. One good thing about index funds is that they are cheap.


pages: 306 words: 97,211

Value Investing: From Graham to Buffett and Beyond by Bruce C. N. Greenwald, Judd Kahn, Paul D. Sonkin, Michael van Biema

Andrei Shleifer, barriers to entry, Berlin Wall, book value, business cycle, business logic, capital asset pricing model, corporate raider, creative destruction, Daniel Kahneman / Amos Tversky, discounted cash flows, diversified portfolio, Eugene Fama: efficient market hypothesis, Fairchild Semiconductor, financial engineering, fixed income, index fund, intangible asset, junk bonds, Long Term Capital Management, naked short selling, new economy, place-making, price mechanism, quantitative trading / quantitative finance, Richard Thaler, risk free rate, search costs, shareholder value, short selling, Silicon Valley, stocks for the long run, Telecommunications Act of 1996, time value of money, tulip mania, Y2K, zero-sum game

Price started his career there in 1975, directly out of college. When Heine died in an automobile accident in 1988, Price assumed direction and control of Mutual and its smaller fund siblings. In 1996 Price sold his fund business to Franklin Resources for a great deal of money. Franklin was prompted by corporate imperatives: They were strong in fixed income funds and wanted to expand their offerings of equity products. Price had both institutional and personal reasons for selling: His funds had grown so large that they required enormous physical and human overhead to manage, and a lot of that human overhead was coming from him. These complementary goals brought Franklin and Heine Securities (the corporate name for the Mutual series of funds) to an agreement between professionals.

They don't try to time the market, although they do let the market tell them which stocks are cheap. At some points in their careers, the Schlosses did invest in bankrupt bonds, and if the situation presented itself to them, they might again. But that field has become more crowded over the years, and like most value investors, they don't want too much company. As for ordinary fixed income investments, they steer clear. The potential returns are limited, and they can be negative if interest rates rise. Their business is making money for their partners by investing in cheap stocks. When they find a cheap stock, they may start to buy even before they have completed their research.


pages: 328 words: 96,678

MegaThreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them by Nouriel Roubini

"World Economic Forum" Davos, 2021 United States Capitol attack, 3D printing, 9 dash line, AI winter, AlphaGo, artificial general intelligence, asset allocation, assortative mating, autonomous vehicles, bank run, banking crisis, basic income, Bear Stearns, Big Tech, bitcoin, Bletchley Park, blockchain, Boston Dynamics, Bretton Woods, British Empire, business cycle, business process, call centre, carbon tax, Carmen Reinhart, cashless society, central bank independence, collateralized debt obligation, Computing Machinery and Intelligence, coronavirus, COVID-19, creative destruction, credit crunch, crony capitalism, cryptocurrency, currency manipulation / currency intervention, currency peg, data is the new oil, David Ricardo: comparative advantage, debt deflation, decarbonisation, deep learning, DeepMind, deglobalization, Demis Hassabis, democratizing finance, Deng Xiaoping, disintermediation, Dogecoin, Donald Trump, Elon Musk, en.wikipedia.org, energy security, energy transition, Erik Brynjolfsson, Ethereum, ethereum blockchain, eurozone crisis, failed state, fake news, family office, fiat currency, financial deregulation, financial innovation, financial repression, fixed income, floating exchange rates, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, future of work, game design, geopolitical risk, George Santayana, Gini coefficient, global pandemic, global reserve currency, global supply chain, GPS: selective availability, green transition, Greensill Capital, Greenspan put, Herbert Marcuse, high-speed rail, Hyman Minsky, income inequality, inflation targeting, initial coin offering, Intergovernmental Panel on Climate Change (IPCC), Internet of things, invention of movable type, Isaac Newton, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, junk bonds, Kenneth Rogoff, knowledge worker, Long Term Capital Management, low interest rates, low skilled workers, low-wage service sector, M-Pesa, margin call, market bubble, Martin Wolf, mass immigration, means of production, meme stock, Michael Milken, middle-income trap, Mikhail Gorbachev, Minsky moment, Modern Monetary Theory, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Mustafa Suleyman, Nash equilibrium, natural language processing, negative equity, Nick Bostrom, non-fungible token, non-tariff barriers, ocean acidification, oil shale / tar sands, oil shock, paradox of thrift, pets.com, Phillips curve, planetary scale, Ponzi scheme, precariat, price mechanism, price stability, public intellectual, purchasing power parity, quantitative easing, race to the bottom, Ralph Waldo Emerson, ransomware, Ray Kurzweil, regulatory arbitrage, reserve currency, reshoring, Robert Shiller, Ronald Reagan, Salesforce, Satoshi Nakamoto, Savings and loan crisis, Second Machine Age, short selling, Silicon Valley, smart contracts, South China Sea, sovereign wealth fund, Stephen Hawking, TED Talk, The Great Moderation, the payments system, Thomas L Friedman, TikTok, too big to fail, Turing test, universal basic income, War on Poverty, warehouse robotics, Washington Consensus, Watson beat the top human players on Jeopardy!, working-age population, Yogi Berra, Yom Kippur War, zero-sum game, zoonotic diseases

More to the point, if inflation continues to be higher than it was over the past few decades (the “Great Moderation”), a traditional portfolio invested 60 percent in equities and 40 percent in fixed income (a 60/40 split) would induce massive long-term losses.16 The task for investors, then, is twofold: first, to figure out another way to hedge the 40 percent of their portfolio that is in bonds, and second, what to do with risky stocks. There are at least three options for hedging the fixed-income component of a 60/40 portfolio. The first is to invest in inflation-indexed bonds or in short-term government bonds whose yields reprice rapidly in response to higher inflation.


pages: 117 words: 31,221

Fred Schwed's Where Are the Customers' Yachts?: A Modern-Day Interpretation of an Investment Classic by Leo Gough

Albert Einstein, banking crisis, Bernie Madoff, book value, corporate governance, discounted cash flows, disinformation, diversification, fixed income, index fund, John Bogle, junk bonds, Long Term Capital Management, Michael Milken, Northern Rock, passive investing, Ralph Waldo Emerson, random walk, short selling, South Sea Bubble, The Nature of the Firm, the rule of 72, The Wealth of Nations by Adam Smith, transaction costs, young professional

No one really knows exactly how much riskier it is, of course, but if you are trying to keep your capital as safe as possible so that it can go on paying out an income for many years into the future, don’t increase your risk, and DON’T move your capital into riskier investments! HERE’S AN IDEA FOR YOU… At the time of writing, interest rates are lower than they have been for generations. The pundits keep telling us that this is good news for borrowers and bad news for savers. If you are living on your investment income, though, you will have been enduring low fixed income rates for many years already. Yes, they are even lower now, but don’t succumb to the temptation of investing in riskier things in order to increase your income. Look for other ways of coping, such as: tightening your belt, getting a part-time job, or selling a few things you have in the house.


pages: 139 words: 33,246

Money Moments: Simple Steps to Financial Well-Being by Jason Butler

Albert Einstein, asset allocation, behavioural economics, buy and hold, Cass Sunstein, Cornelius Vanderbilt, diversified portfolio, estate planning, financial independence, fixed income, happiness index / gross national happiness, index fund, intangible asset, John Bogle, longitudinal study, loss aversion, Lyft, Mark Zuckerberg, mortgage debt, Mr. Money Mustache, passive income, placebo effect, Richard Thaler, ride hailing / ride sharing, Steve Jobs, time value of money, traffic fines, Travis Kalanick, Uber and Lyft, uber lyft, Vanguard fund, Yogi Berra

So because the return from equities (part ownership in businesses) vary so much, that makes them one of the most risky type of investments. This risk, in the form of a wide range of potential return outcomes, is actually the source of their higher expected return over the long-term compared to cash deposits and fixed income securities. You therefore need to get used to seeing your capital fall in value on a regular basis if you want to earn a higher return. But this is easier said than done, mainly because people prefer avoiding losses to acquiring gains – a phenomenon known as loss aversion.29 Research shows that people give twice the weight to the pain of loss than they do the pleasure of gain.


pages: 354 words: 105,322

The Road to Ruin: The Global Elites' Secret Plan for the Next Financial Crisis by James Rickards

"World Economic Forum" Davos, Affordable Care Act / Obamacare, Alan Greenspan, Albert Einstein, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, Bayesian statistics, Bear Stearns, behavioural economics, Ben Bernanke: helicopter money, Benoit Mandelbrot, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Black Monday: stock market crash in 1987, Black Swan, blockchain, Boeing 747, Bonfire of the Vanities, Bretton Woods, Brexit referendum, British Empire, business cycle, butterfly effect, buy and hold, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, cellular automata, cognitive bias, cognitive dissonance, complexity theory, Corn Laws, corporate governance, creative destruction, Credit Default Swap, cuban missile crisis, currency manipulation / currency intervention, currency peg, currency risk, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, disintermediation, distributed ledger, diversification, diversified portfolio, driverless car, Edward Lorenz: Chaos theory, Eugene Fama: efficient market hypothesis, failed state, Fall of the Berlin Wall, fiat currency, financial repression, fixed income, Flash crash, floating exchange rates, forward guidance, Fractional reserve banking, G4S, George Akerlof, Glass-Steagall Act, global macro, global reserve currency, high net worth, Hyman Minsky, income inequality, information asymmetry, interest rate swap, Isaac Newton, jitney, John Meriwether, John von Neumann, Joseph Schumpeter, junk bonds, Kenneth Rogoff, labor-force participation, large denomination, liquidity trap, Long Term Capital Management, low interest rates, machine readable, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, Minsky moment, Money creation, money market fund, mutually assured destruction, Myron Scholes, Naomi Klein, nuclear winter, obamacare, offshore financial centre, operational security, Paul Samuelson, Peace of Westphalia, Phillips curve, Pierre-Simon Laplace, plutocrats, prediction markets, price anchoring, price stability, proprietary trading, public intellectual, quantitative easing, RAND corporation, random walk, reserve currency, RFID, risk free rate, risk-adjusted returns, Robert Solow, Ronald Reagan, Savings and loan crisis, Silicon Valley, sovereign wealth fund, special drawing rights, stock buybacks, stocks for the long run, tech billionaire, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transfer pricing, value at risk, Washington Consensus, We are all Keynesians now, Westphalian system

Acquisitions engineered by Fink including State Street Research, Merrill Lynch Investment Management, and Barclays Global Investors, combined with internal growth and new products, pushed BlackRock to the top of the heap among asset managers. BlackRock’s $5 trillion of assets were spread across equities, fixed income, commodities, foreign exchange, and derivatives in markets on five continents. No other asset management firm has its sheer size and breadth. BlackRock was the new financial Leviathan. Fink is obsessively driven by asset growth, and the financial power that comes with it. He typically rises early, devours news, keeps a grueling schedule punctuated by power lunches and dinners, and is asleep by 10:30 p.m., ready to do it all again the next day.

Banks could book LTCM trades, then lay off the risk in the marketplace, making their own risk-free profits. Often this risk was laid off with banks that had other swaps with LTCM. It was a merry-go-round of risk passed around and around, ending up in the same place—the banks. It seemed the carousel music would never stop. LTCM’s financial technology was not limited to the fixed income arbitrage Meriwether invented in the 1980s. New structures were discovered. LTCM coinvented the sovereign credit default swap market in 1994 around the same time as a better-known initiative by JPMorgan bankers on a lost weekend in Miami, as recounted in Gillian Tett’s brilliant book Fool’s Gold.


The Permanent Portfolio by Craig Rowland, J. M. Lawson

Alan Greenspan, Andrei Shleifer, asset allocation, automated trading system, backtesting, bank run, banking crisis, Bear Stearns, Bernie Madoff, buy and hold, capital controls, correlation does not imply causation, Credit Default Swap, currency risk, diversification, diversified portfolio, en.wikipedia.org, fixed income, Flash crash, high net worth, High speed trading, index fund, inflation targeting, junk bonds, low interest rates, margin call, market bubble, money market fund, new economy, passive investing, Ponzi scheme, prediction markets, risk tolerance, stocks for the long run, survivorship bias, technology bubble, transaction costs, Vanguard fund

In normal times, however, stocks, bonds, or gold will be the best performing assets in the portfolio. The goal with the Permanent Portfolio's cash is to make sure that it is always there when you need it. Interest Rate Risk and Volatility As described in Chapter 7 on Bonds, interest rate risk is the danger a fixed income investment such as bonds face when interest rates are rising. Like bonds, cash can be vulnerable to rising interest rates depending on how it is invested. Avoiding the potential for interest rate risk is one of the goals of the Permanent Portfolio's cash allocation. One way of viewing the Permanent Portfolio's cash allocation is that it represents the opposite end of the interest rate risk spectrum from long-term bonds.

This is an investment that can be converted at any time into currency that an investor can use immediately. The criteria for the Permanent Portfolio's cash are: Be very liquid (can be bought and sold instantly at any time). Have no interest rate risk. Have no default, credit, call, currency, counterparty, or other common types of fixed income risk. Suitable Investment Options for Cash For a U.S. investor the primary asset that meets these criteria is very short-term debt issued by the United States government in the form of T-Bills with 12 months or less to maturity. There are three primary ways to purchase T-Bills: 1. At auction from the Treasury 2.


pages: 440 words: 108,137

The Meritocracy Myth by Stephen J. McNamee

Abraham Maslow, affirmative action, Affordable Care Act / Obamacare, American ideology, antiwork, Bernie Madoff, British Empire, business cycle, classic study, collective bargaining, computer age, conceptual framework, corporate governance, deindustrialization, delayed gratification, demographic transition, desegregation, deskilling, Dr. Strangelove, equal pay for equal work, estate planning, failed state, fixed income, food desert, Gary Kildall, gender pay gap, Gini coefficient, glass ceiling, helicopter parent, income inequality, informal economy, invisible hand, job automation, joint-stock company, junk bonds, labor-force participation, longitudinal study, low-wage service sector, marginal employment, Mark Zuckerberg, meritocracy, Michael Milken, mortgage debt, mortgage tax deduction, new economy, New Urbanism, obamacare, occupational segregation, old-boy network, pink-collar, plutocrats, Ponzi scheme, post-industrial society, prediction markets, profit motive, race to the bottom, random walk, Savings and loan crisis, school choice, Scientific racism, Steve Jobs, The Bell Curve by Richard Herrnstein and Charles Murray, The Spirit Level, the strength of weak ties, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, too big to fail, trickle-down economics, upwardly mobile, We are the 99%, white flight, young professional

Until the mid-1970s, poverty rates for those over sixty-five were substantially higher than for other age groups. Many retirees were faced with small and fixed incomes and the erosion of purchasing power as prices increased. The longer they lived, the poorer they became. In 1965, however, Congress passed Medicare, which provided guaranteed access to health care for Americans over sixty-five. This greatly reduced the individual costs of health care for this population. In addition, in the mid-1970s, Social Security payments were automatically adjusted to the Consumer Price Index, eliminating a major source of “fixed incomes” for the elderly. These benefits, combined with post–World War II economic prosperity, greatly improved the economic condition of elderly Americans, who now have a rate of poverty significantly below the national average.


pages: 376 words: 109,092

Paper Promises by Philip Coggan

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, Alan Greenspan, balance sheet recession, bank run, banking crisis, barriers to entry, Bear Stearns, Berlin Wall, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, bond market vigilante , Bretton Woods, British Empire, business cycle, call centre, capital controls, Carmen Reinhart, carried interest, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, currency risk, debt deflation, delayed gratification, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, falling living standards, fear of failure, financial innovation, financial repression, fixed income, floating exchange rates, full employment, German hyperinflation, global reserve currency, Goodhart's law, Greenspan put, hiring and firing, Hyman Minsky, income inequality, inflation targeting, Isaac Newton, John Meriwether, joint-stock company, junk bonds, Kenneth Rogoff, Kickstarter, labour market flexibility, Les Trente Glorieuses, light touch regulation, Long Term Capital Management, low interest rates, manufacturing employment, market bubble, market clearing, Martin Wolf, Minsky moment, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Myron Scholes, negative equity, Nick Leeson, Northern Rock, oil shale / tar sands, paradox of thrift, peak oil, pension reform, plutocrats, Ponzi scheme, price stability, principal–agent problem, purchasing power parity, quantitative easing, QWERTY keyboard, railway mania, regulatory arbitrage, reserve currency, Robert Gordon, Robert Shiller, Ronald Reagan, savings glut, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, Suez crisis 1956, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, time value of money, too big to fail, trade route, tulip mania, value at risk, Washington Consensus, women in the workforce, zero-sum game

European exporters to the US could build up dollar balances. The Eurodollar market flourished as a result of various US regulations, including the Interest Equalization Tax, which restricted the scale of borrowing in New York. Borrowers found it attractive to tap the pool of European capital, particularly in the form of fixed income issues known as Eurobonds. Investors were happy to buy the issues, particularly as interest was paid tax-free. Of course, bond buyers were supposed to declare the tax received but many did not. The archetypal Eurobond investor was deemed to be the Belgian dentist, attempting to escape his home country’s high taxes.

Free capital movements and floating exchange rates changed the financial sector in two big ways. First, they created the need for companies and investors to protect themselves against currency risk. The result was the development of financial futures markets, pioneered in Chicago, which traded first currencies, then fixed-income instruments, then equities. A vast, and profitable, derivatives market was born. Secondly, these huge capital movements created the need for bigger financial institutions. Stockbrokers had traditionally linked asset buyers and sellers, in return for a commission. But the big investment institutions – pension funds, insurance companies and the like – found the service too expensive.


pages: 576 words: 105,655

Austerity: The History of a Dangerous Idea by Mark Blyth

"there is no alternative" (TINA), accounting loophole / creative accounting, Alan Greenspan, balance sheet recession, bank run, banking crisis, Bear Stearns, Black Swan, book value, Bretton Woods, business cycle, buy and hold, capital controls, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, collateralized debt obligation, correlation does not imply causation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, deindustrialization, disintermediation, diversification, en.wikipedia.org, ending welfare as we know it, Eugene Fama: efficient market hypothesis, eurozone crisis, financial engineering, financial repression, fixed income, floating exchange rates, Fractional reserve banking, full employment, German hyperinflation, Gini coefficient, global reserve currency, Greenspan put, Growth in a Time of Debt, high-speed rail, Hyman Minsky, income inequality, information asymmetry, interest rate swap, invisible hand, Irish property bubble, Joseph Schumpeter, Kenneth Rogoff, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, Long Term Capital Management, low interest rates, market bubble, market clearing, Martin Wolf, Minsky moment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Occupy movement, offshore financial centre, paradox of thrift, Philip Mirowski, Phillips curve, Post-Keynesian economics, price stability, quantitative easing, rent-seeking, reserve currency, road to serfdom, Robert Solow, savings glut, short selling, structural adjustment programs, tail risk, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, Two Sigma, unorthodox policies, value at risk, Washington Consensus, zero-sum game

As they further note, “The very countries that have insisted on wrenching economic adjustments in the debtor countries have often been the ones that have done the most to conceal the fragility of their own banks,” ibid., 8. 60. LCH Clearnet in London was the venue of choice. According to its website LCH Clearnet handles $12 trillion of repo trades each month by notional value. See “Fixed Income,” LCH Clearnet, http://www.lchclearnet.com/fixed_income/. 61. Hyun Song Shin, “The Global Banking Glut and Loan Risk Premium,” paper presented at the Mundell-Fleming Lecture, 2011 IMF Annual Research Conference, November 10–11, 2011, 17. Available at http://www.princeton.edu/~hsshin/www/mundell_fleming_lecture.pdf. 62.


pages: 121 words: 36,908

Four Futures: Life After Capitalism by Peter Frase

Aaron Swartz, Airbnb, Anthropocene, basic income, bitcoin, business cycle, call centre, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, carbon tax, congestion pricing, cryptocurrency, deindustrialization, do what you love, Dogecoin, Donald Shoup, Edward Snowden, emotional labour, Erik Brynjolfsson, Ferguson, Missouri, fixed income, full employment, future of work, green new deal, Herbert Marcuse, high net worth, high-speed rail, income inequality, industrial robot, informal economy, Intergovernmental Panel on Climate Change (IPCC), iterative process, Jevons paradox, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kim Stanley Robinson, litecoin, mass incarceration, means of production, military-industrial complex, Occupy movement, pattern recognition, peak oil, plutocrats, post-work, postindustrial economy, price mechanism, private military company, Ray Kurzweil, Robert Gordon, Second Machine Age, self-driving car, sharing economy, Silicon Valley, smart meter, TaskRabbit, technoutopianism, The future is already here, The Future of Employment, Thomas Malthus, Tyler Cowen, Tyler Cowen: Great Stagnation, universal basic income, Wall-E, warehouse robotics, Watson beat the top human players on Jeopardy!, We are the 99%, Wolfgang Streeck

The owner of this type of property is not what we traditionally think of as a capitalist, but rather a “rentier,” a term that first came into widespread use to describe the owners of government bonds in nineteenth-century France, who were able to live off interest payments; these people were neither workers nor bosses. In his 1893 book Old and New Paris, the English journalist Henry Sutherland Edwards compared the rentier to “the man retired from business.”3 The old-fashioned rentier was generally portrayed as someone of modest wealth. This image survives today as the coupon-clipping retiree surviving on a fixed income, a figure commonly invoked by those who decry low government and bank interest rates. In reality, however, income from rents is largely monopolized by a small number of rich people, as becomes clear when the full range of rent-bearing assets is examined. Rents accrue not just to land and government bonds but to distributed stock portfolios and, increasingly, to intellectual property, to which we will return.


pages: 134 words: 39,353

The Bridge: The Building of the Verrazano-Narrows Bridge by Gay Talese, Bruce Davidson

delayed gratification, fixed income, New Journalism, Tacoma Narrows Bridge, transcontinental railway

One woman pointed out that her husband, never ill before, suddenly had a heart attack and died after a "Save Bay Ridge"rally, and another woman blamed the bridge for her faltering eyesight, saying she never had to wear glasses until the announcement that her home would be destroyed by "that bridge/ Most of the older people who had owned their homes, particularly those on pensions or small fixed incomes, said that the relocation caused them financial hardships because they could not match the price of a new home of comparable size in a comparable neighborhood. There were, to be sure, a minority who said they were happy that the bridge had forced them to move, or who felt that they had been unjustifiably pessimistic about the changes the Verrazano-Narrows Bridge would bring.


pages: 399 words: 116,828

When Work Disappears: The World of the New Urban Poor by William Julius Wilson

affirmative action, business cycle, citizen journalism, classic study, collective bargaining, conceptual framework, declining real wages, deindustrialization, deliberate practice, desegregation, Donald Trump, edge city, ending welfare as we know it, fixed income, full employment, George Gilder, ghettoisation, glass ceiling, Gunnar Myrdal, income inequality, informal economy, jobless men, labor-force participation, longitudinal study, low skilled workers, low-wage service sector, manufacturing employment, mass immigration, new economy, New Urbanism, pink-collar, race to the bottom, RAND corporation, school choice, The Bell Curve by Richard Herrnstein and Charles Murray, The Chicago School, upwardly mobile, urban decay, urban renewal, War on Poverty, work culture , working poor, working-age population, Works Progress Administration

Edin’s interviews were conducted in Chicago in 1990, and in Cambridge (Massachusetts), San Antonio (Texas), and Charleston (South Carolina) in 1992. 51 Similar findings were reported in a study by LaDonna Pavetti: Pavetti (1993). 52 Respondents in the UPFLS also pointed out the difficulty of subsisting on welfare: Comments by a woman from a poor West Side neighborhood suggest that the level of welfare benefits is also problematic for an unemployed and childless single person on welfare. “They tell you to get a job, but there ain’t no jobs. They say you’re on a fixed income, but they fail to realize that food and clothes are a lot with kids. Even someone without kids, they give them a fixed income—rent starts at $200. They give them, people on general assistance, they give them $158 and $70 or $80 in food stamps to last them a month. How you do that? When your rent starts at $200?” 53 Edin points out that in order to keep their families together: Edin (1994). 54 For many families, a shelter provides their last hope of staying together: Edin (1994). 55 quotations from Edin: Edin (1994), pp. 11, 15. 56 the typical AFDC recipient contemplates the following: Edin (1994). 57 quotation from Tienda and Stier: Tienda and Stier (1991).


pages: 426 words: 115,150

Your Money or Your Life: 9 Steps to Transforming Your Relationship With Money and Achieving Financial Independence: Revised and Updated for the 21st Century by Vicki Robin, Joe Dominguez, Monique Tilford

asset allocation, book value, Buckminster Fuller, buy low sell high, classic study, credit crunch, disintermediation, diversification, diversified portfolio, fiat currency, financial independence, fixed income, fudge factor, full employment, Gordon Gekko, high net worth, index card, index fund, intentional community, job satisfaction, junk bonds, Menlo Park, money market fund, Parkinson's law, passive income, passive investing, profit motive, Ralph Waldo Emerson, retail therapy, Richard Bolles, risk tolerance, Ronald Reagan, Silicon Valley, software patent, strikebreaker, The Theory of the Leisure Class by Thorstein Veblen, Thorstein Veblen, Vanguard fund, zero-coupon bond

A balanced approach would be to use the Life-Strategy Conservative Growth Fund. This balanced approach literally balances your need for long-term growth of capital along with your need for income. The fund is allocated approximately as follows: 40 percent of the fund’s assets to bonds, 20 percent to short-term fixed income reserves and 40 percent to common stocks. This choice would be well suited for investors at all stages of their journey to FI. An additional balanced approach would be to use the Life-Strategy Moderate Growth Fund. This fund offers a higher allocation to stocks, which means more potential for growth.

Step 9: Managing Your Finances The final step to financial independence: become knowledgeable and sophisticated about long-term income-producing investments so that you can manage your finances for a steady income sufficient to your needs over the long term. HOW:◆Empower yourself to make your own investment decisions. ◆U.S. treasury bonds meet the criteria for safe, non-speculative, long term, fixed-income securities. ◆If you can tolerate greater risk, explore other conservative, low-fee investments. ◆Temper the prevailing irrational fears about inflation with clear thinking and increased consciousness. Think for yourself. ◆Set up your financial plan using the three pillars:Capital: The income-producing core of your Financial Independence.


pages: 406 words: 113,841

The American Way of Poverty: How the Other Half Still Lives by Sasha Abramsky

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, American Legislative Exchange Council, bank run, basic income, benefit corporation, big-box store, collective bargaining, deindustrialization, fixed income, Francis Fukuyama: the end of history, full employment, ghettoisation, Gini coefficient, government statistician, guns versus butter model, housing crisis, illegal immigration, immigration reform, income inequality, indoor plumbing, job automation, Kickstarter, land bank, Mark Zuckerberg, Maui Hawaii, microcredit, military-industrial complex, mortgage debt, mortgage tax deduction, new economy, Occupy movement, off-the-grid, offshore financial centre, payday loans, plutocrats, Ponzi scheme, Potemkin village, profit motive, Ronald Reagan, school vouchers, upwardly mobile, War on Poverty, Washington Consensus, women in the workforce, working poor, working-age population, Works Progress Administration

“The need has increased and the surplus food given has decreased,” Wallace explained, holding open the lids of the large freezers to emphasize their emptiness. “The only thing in here is frost building up. Three years ago, we used to have to turn down deliveries.” Many of the men and women who were helped by food pantries such as this were elderly people on fixed incomes who increasingly found they couldn’t stretch meager monthly checks to pay all their bills, buy all their medicines, and also feed themselves. People such as 86-year-old widow Mary, a onetime factory worker and bookkeeper of Polish immigrant stock, whose $592 Social Security check didn’t come close to covering all her costs.

Or, worse, we fail to even begin to discuss reforms that would be easy and affordable to implement if we only had a better understanding of the needs of poor Americans, and a better sense of empathy for the plight they too often find themselves in. For example: Over the past decade, we have regularly had oil price spikes that have been nothing more than a nuisance to the affluent, but have been cataclysmic to the poor—especially to retirees on fixed incomes and to the working poor in rural areas, who tend to work minimum-wage jobs and to drive long distances for those jobs, or who are more likely to heat their homes using old-fashioned oil-based heating systems. Witness, for example, the damage caused the precarious finances of John and Stephanie France, grandparents living off the grid on the edge of the rainforest on Hawaii’s Big Island, when gas prices in the state veered near $5 a gallon in the winter and early spring of 2012.


pages: 402 words: 110,972

Nerds on Wall Street: Math, Machines and Wired Markets by David J. Leinweber

"World Economic Forum" Davos, AI winter, Alan Greenspan, algorithmic trading, AOL-Time Warner, Apollo 11, asset allocation, banking crisis, barriers to entry, Bear Stearns, Big bang: deregulation of the City of London, Bob Litterman, book value, business cycle, butter production in bangladesh, butterfly effect, buttonwood tree, buy and hold, buy low sell high, capital asset pricing model, Charles Babbage, citizen journalism, collateralized debt obligation, Cornelius Vanderbilt, corporate governance, Craig Reynolds: boids flock, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Danny Hillis, demand response, disintermediation, distributed generation, diversification, diversified portfolio, electricity market, Emanuel Derman, en.wikipedia.org, experimental economics, fake news, financial engineering, financial innovation, fixed income, Ford Model T, Gordon Gekko, Hans Moravec, Herman Kahn, implied volatility, index arbitrage, index fund, information retrieval, intangible asset, Internet Archive, Ivan Sutherland, Jim Simons, John Bogle, John Nash: game theory, Kenneth Arrow, load shedding, Long Term Capital Management, machine readable, machine translation, Machine translation of "The spirit is willing, but the flesh is weak." to Russian and back, market fragmentation, market microstructure, Mars Rover, Metcalfe’s law, military-industrial complex, moral hazard, mutually assured destruction, Myron Scholes, natural language processing, negative equity, Network effects, optical character recognition, paper trading, passive investing, pez dispenser, phenotype, prediction markets, proprietary trading, quantitative hedge fund, quantitative trading / quantitative finance, QWERTY keyboard, RAND corporation, random walk, Ray Kurzweil, Reminiscences of a Stock Operator, Renaissance Technologies, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Metcalfe, Ronald Reagan, Rubik’s Cube, Savings and loan crisis, semantic web, Sharpe ratio, short selling, short squeeze, Silicon Valley, Small Order Execution System, smart grid, smart meter, social web, South Sea Bubble, statistical arbitrage, statistical model, Steve Jobs, Steven Levy, stock buybacks, Tacoma Narrows Bridge, the scientific method, The Wisdom of Crowds, time value of money, tontine, too big to fail, transaction costs, Turing machine, two and twenty, Upton Sinclair, value at risk, value engineering, Vernor Vinge, Wayback Machine, yield curve, Yogi Berra, your tax dollars at work

Hans Moravec, Mind Children:The Future of Human and Robot Intelligence (Cambridge, MA: Harvard University Press, 1988). 5. Steve Snider, Fidelity Pyramis quantitative portfolio manager, personal communication. 6. Emanuel Derman, My Life as a Quant: Reflections on Physics and Finance (Hoboken, NJ: John Wiley & Sons, 2007). This excellent book’s primary focus is on the use of quantitative methods applied to fixed income securities, but many of the insights have wider applicability. 7. “America’s Top 300 Money Managers,” Institutional Investor, July 2008. 8. Robert Schwartz and David Whitcomb, Transaction Costs and Institutional Investor Trading Strategies, Monograph 1988-23 (New York: New York University Stern School of Business, 1988). 9.

Proprietary traders and arbitrageurs look for short-term mispricings among related securities. Market surveillance officers look for indications of illegal insider transactions. In all cases, there are a lot of relationships to examine. There are over 7,000 stocks traded on the major U.S. markets, and over 3,000 options. Ignore fixed income securities for now since the market data still has a long way to go. Can anyone possibly digest all this information by paging through thousands of charts? No, as the illustration in Figure 7.1 shows; this road leads to madness, or at least a vicious headache. Virtual Charting The central idea behind MarketMind was to build an assistant to take over all this mind-numbing screening.


pages: 362 words: 116,497

Palace Coup: The Billionaire Brawl Over the Bankrupt Caesars Gaming Empire by Sujeet Indap, Max Frumes

Airbnb, Bear Stearns, Blythe Masters, book value, business cycle, Carl Icahn, coronavirus, corporate governance, corporate raider, Credit Default Swap, data science, deal flow, Donald Trump, family office, fear of failure, financial engineering, fixed income, Jeffrey Epstein, junk bonds, lockdown, low interest rates, Michael Milken, mortgage debt, NetJets, power law, ride hailing / ride sharing, Right to Buy, Robert Solow, Savings and loan crisis, shareholder value, super pumped, Travis Kalanick

It was becoming clear to him that Apollo was executing a meticulous plan to grab value from OpCo and daring the creditors to stop them. Miller belonged, however, to a firm that relished such a fight. Elliott Management had been formed in 1977 by Paul Singer, then a Harvard-educated corporate lawyer. For years Singer’s focus had been trading convertible bonds, instruments that combined fixed income securities and equity options. Elliott took on distressed investing in the 1980s and the analytical, legally intensive nature of the work made it a natural fit for Elliott. Singer was not afraid of messy situations that even other smart investors did not have the patience for. His firm was willing to make a big bet to make money but also confirm its philosophy on how capital market should function.

In 1978, after years as an equity analyst at Citigroup, the bank asked Marks to look into the nascent junk bond market that Michael Milken was creating in Los Angeles. Marks eventually moved to LA in the late 1970s to start up within Citigroup what was thought to be the first institutional junk bond fund. In 1985, Marks jumped to Trust Company of the West, also in Los Angeles, one of the largest fixed income investors in the world. Marks would sour on TWC. In 1993, Marks and a handful of top TCW executives and dozens of employees left to form Oaktree Capital Management (Marks chose the name because the vacation home near Santa Barbara was in an area called Robles, the Spanish word for “oak trees”).


pages: 706 words: 206,202

Den of Thieves by James B. Stewart

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", Bear Stearns, Black Monday: stock market crash in 1987, book value, Carl Icahn, corporate raider, creative destruction, deal flow, discounted cash flows, diversified portfolio, fixed income, fudge factor, George Gilder, index arbitrage, Internet Archive, Irwin Jacobs, junk bonds, margin call, Michael Milken, money market fund, Oscar Wyatt, Ponzi scheme, rolodex, Ronald Reagan, Savings and loan crisis, shareholder value, South Sea Bubble, Tax Reform Act of 1986, The Predators' Ball, walking around money, zero-coupon bond

Starting with $2 million in capital in 1973, he was generating astounding 100% rates of return, earning bonus pools for himself and his people that were approaching $1 million a year. And he was doing it in an area that Joseph knew little about and considered distasteful: high-yield, unrated bonds. The American bond market is dominated by two giant bond-rating agencies, Moody's and Standard & Poor's, who for generations have guided investors seeking to gauge the risk in fixed-income investments. The value of these investments depends on an issuer's ability to make promised interest payments until the bond matures, and then repay the principal. Top blue-chip corporate debt for companies like AT&T or IBM is rated Triple A by S&P, Companies with weaker balance sheets or other problems have correspondingly lower ratings.

For years to come, his colleagues on the trading desk would watch in amazement at the pleasure, even glee, that Milken displayed when he squeezed an extra fraction of a point out of an unwitting trader. Only in trading could superior knowledge be wielded to extract profits with such immediate satisfaction. Few ever got the better of Milken, because he gambled only with superior knowledge; when someone did, Milken went out and tried to hire him. Warren Trepp, for example, was the head fixed-income trader at Dean Witter when he sold short some real estate investment trust securities. One of Milken's people was on the other side of the trades. The REIT values dropped severely, causing serious losses for Milken and generating a big profit for Trepp. Milken ordered his people to get the name of the Dean Witter trader, then went out and lured him to Drexel.

He was prepared to cash in his large stock position for enormous profits. But he was blocked by DeNunzio, who over the years had shrewdly bestowed stock on his own allies. He had recognized early on that a man like Gordon would almost inevitably clash with his hand-picked successor. Others at the firm favored other solutions. Max Chapman, Jr., the head of fixed income and financial futures, had turned Kidder, Peabody into a major player in the field of index arbitrage and program trading (using options on broad market indices traded in Chicago and computer-driven trading strategies). He had become DeNunzio's heir apparent. DeNunzio had tried to set up a rivalry between Chapman and Siegel, but Siegel had told DeNunzio that he wasn't interested in administering the firm.


pages: 695 words: 194,693

Money Changes Everything: How Finance Made Civilization Possible by William N. Goetzmann

Albert Einstein, Andrei Shleifer, asset allocation, asset-backed security, banking crisis, Benoit Mandelbrot, Black Swan, Black-Scholes formula, book value, Bretton Woods, Brownian motion, business cycle, capital asset pricing model, Cass Sunstein, classic study, collective bargaining, colonial exploitation, compound rate of return, conceptual framework, Cornelius Vanderbilt, corporate governance, Credit Default Swap, David Ricardo: comparative advantage, debt deflation, delayed gratification, Detroit bankruptcy, disintermediation, diversified portfolio, double entry bookkeeping, Edmond Halley, en.wikipedia.org, equity premium, equity risk premium, financial engineering, financial independence, financial innovation, financial intermediation, fixed income, frictionless, frictionless market, full employment, high net worth, income inequality, index fund, invention of the steam engine, invention of writing, invisible hand, James Watt: steam engine, joint-stock company, joint-stock limited liability company, laissez-faire capitalism, land bank, Louis Bachelier, low interest rates, mandelbrot fractal, market bubble, means of production, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, new economy, passive investing, Paul Lévy, Ponzi scheme, price stability, principal–agent problem, profit maximization, profit motive, public intellectual, quantitative trading / quantitative finance, random walk, Richard Thaler, Robert Shiller, shareholder value, short selling, South Sea Bubble, sovereign wealth fund, spice trade, stochastic process, subprime mortgage crisis, Suez canal 1869, Suez crisis 1956, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, time value of money, tontine, too big to fail, trade liberalization, trade route, transatlantic slave trade, tulip mania, wage slave

The Fosses a Charbon de Monsieur Le Marquise de Traisnel was a closed company, and equity investing in the wake of the bubble of 1720 went back to being an insider’s game. 22 SECURITIZATION AND DEBT Wheat Row, the first brick houses built in Washington, DC. They date to 1794, when James Greenleaf and his partners financed the purchase of lots in Washington by issuing bonds in the Netherlands backed by title to property. Their enterprise failed. If the equity markets took a step back after the bubble of 1720, the fixed income markets took a step forward. The eighteenth century in Europe and America was a period of extraordinary financial innovation that took a turn away from equities—at least until nearly the end of the century—and instead focused on a financial architecture built on credit. By the end of the eighteenth century, paper money had made a comeback in many different forms, and financiers had developed ways of collateralizing paper money and complicated bonds of all sorts.

The financial historian Ben Chabot, who has collected and analyzed an extraordinary amount of data about the British market in the nineteenth century, took a close look at the performance of the first British investment funds and concluded that, while they generally lagged the market as a whole, they provided stability, and better still, broad diversification for ordinary investors.9 Stable indeed. The F&C is still around today, managing billions of pounds of investor assets—a survivor of two world wars, the Great Depression, and of course the financial crisis of 2008. The firm’s portfolio is a living thing—long since changed to focus on equities rather than fixed income. However, the essential feature that made it work from the start is that it held people’s money in trust, spread it across securities, passed through dividends, and allowed investors to cash out by selling shares. Formed a year after the first volume of Das Kapital appeared in print, F&C removed as much as possible the element of speculative risk from investing.

Together with Elroy Dimson of London Business School, a long-time friend and mentor, David dove into the King’s College archives to reconstruct the history of Keynes’s investments. What they found was that, as with everything else in his life, Keynes was an iconoclast in his investment behavior. He deviated immediately from a centuries’ old tradition of Cambridge college endowment management by turning away from real estate and fixed income toward stocks. Even in his stock portfolio he took chances—focusing on a few stocks rather than diversifying broadly. The strategy paid off. Over the whole period, Keynes’s portfolio handily beat an equal-weighted portfolio of UK stocks. He was a true pioneer in what became a rush to switch from bond investing to stock investing.


pages: 840 words: 202,245

Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present by Jeff Madrick

Abraham Maslow, accounting loophole / creative accounting, Alan Greenspan, AOL-Time Warner, Asian financial crisis, bank run, Bear Stearns, book value, Bretton Woods, business cycle, capital controls, Carl Icahn, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, desegregation, disintermediation, diversified portfolio, Donald Trump, financial deregulation, fixed income, floating exchange rates, Frederick Winslow Taylor, full employment, George Akerlof, Glass-Steagall Act, Greenspan put, Hyman Minsky, income inequality, index fund, inflation targeting, inventory management, invisible hand, John Bogle, John Meriwether, junk bonds, Kitchen Debate, laissez-faire capitalism, locking in a profit, Long Term Capital Management, low interest rates, market bubble, Mary Meeker, Michael Milken, minimum wage unemployment, MITM: man-in-the-middle, Money creation, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, new economy, Nixon triggered the end of the Bretton Woods system, North Sea oil, Northern Rock, oil shock, Paul Samuelson, Philip Mirowski, Phillips curve, price stability, quantitative easing, Ralph Nader, rent control, road to serfdom, Robert Bork, Robert Shiller, Ronald Coase, Ronald Reagan, Ronald Reagan: Tear down this wall, scientific management, shareholder value, short selling, Silicon Valley, Simon Kuznets, tail risk, Tax Reform Act of 1986, technology bubble, Telecommunications Act of 1996, The Chicago School, The Great Moderation, too big to fail, union organizing, V2 rocket, value at risk, Vanguard fund, War on Poverty, Washington Consensus, Y2K, Yom Kippur War

It also requested that its banks honor contracts in rubles, making LTCM’s hedges almost worthless; they would not be paid off. But the Russian investments themselves did not bring LTCM down. It was the domino effect they precipitated in an investment community that was now tightly coupled. Almost all fixed income assets fell sharply in value; diversification, it turned out, did not matter. The finely calculated relationships on which LTCM was built and which the firm always believed would hold started to come apart. VAR could not account for such an unlikely but sweeping event—an event in which everyone wanted out at the same time and almost all investments fell significantly in price.

But Shearson Smith Barney had only a minor investment banking operation. It also had little international business, even though capital flowed in ever greater volumes across borders. Since investment and corporate clients were now located all over the globe, securities firms like Salomon and Goldman were earning enormous profits trading global fixed income and equity securities and currencies. They also had aggressive trading departments that specialized in derivatives, turning themselves into virtual hedge funds. The stock market delivered the message. Travelers was missing out on major sources of growth; its price-earnings multiple was low compared to other major financial services operations.

Fuld’s dream had come true, to run his own independent firm. Fuld’s ambition could now be fully unleashed. He wanted to invest aggressively in mortgage underwriting and securities trading to catch up to Goldman or Morgan in size and influence. His inattention to risk drew internal criticism. As early as 2005, Mike Gelband, the respected head of fixed income securities at the firm, warned him to reverse exposure in mortgages. Fuld thought Gelband was a naysayer, ignored him, and Gelband eventually left the firm. At a management meeting, Madelyn Antonic, the firm’s risk manager, criticized the aggressive risk being taken by the mortgage department and Fuld told her outright to shut up.


pages: 440 words: 128,813

Heat Wave: A Social Autopsy of Disaster in Chicago by Eric Klinenberg

carbon footprint, citizen journalism, classic study, deindustrialization, digital rights, fixed income, gentrification, ghettoisation, informal economy, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, longitudinal study, loose coupling, mass immigration, megacity, New Urbanism, Oklahoma City bombing, postindustrial economy, smart grid, smart meter, social distancing, The Chicago School, The Death and Life of Great American Cities, The Structural Transformation of the Public Sphere, urban renewal, War on Poverty

In Chicago, the combination of cuts to the budget of the federally sponsored Low Income Home Energy Assistance Program (LIHEAP) and a market-model managerial strategy for punishing consumers who are delinquent on their bills has placed the poor elderly in a permanent energy crisis. Facing escalating energy costs (even before prices soared in 2000), declining government subsidies, and fixed incomes, seniors throughout the city express great concern about the cost of their utility bills and take pains to keep their fees down. While the average Illinois family spends roughly 6 percent of its income on heat-related utilities during winter months, for low-income families the costs constitute nearly 35 percent.52 Poor seniors I got to know understood that their utility costs in the summer would be unaffordable if they had air conditioners.

Courtesy of WLS-TV. What no one in Chicago could anticipate was that, long after the city had restored its capacity to supply water, the local government would begin a policy of turning off the taps of Chicago residents who were unable to pay their water bills. Impoverished and ill seniors whose fixed incomes were too low to cover their water bills were not spared from such treatment. In the pure spirit of the entrepreneurial state, by the late 1990s the Chicago Water Department had decided that the most effective way to handle delinquent customers was to cut off their supply and punish them with heavy fees.


pages: 386 words: 122,595

Naked Economics: Undressing the Dismal Science (Fully Revised and Updated) by Charles Wheelan

affirmative action, Alan Greenspan, Albert Einstein, Andrei Shleifer, barriers to entry, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, Boeing 747, Bretton Woods, business cycle, buy and hold, capital controls, carbon tax, Cass Sunstein, central bank independence, classic study, clean water, collapse of Lehman Brothers, congestion charging, creative destruction, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, currency risk, Daniel Kahneman / Amos Tversky, David Brooks, demographic transition, diversified portfolio, Doha Development Round, Exxon Valdez, financial innovation, fixed income, floating exchange rates, George Akerlof, Gini coefficient, Gordon Gekko, Great Leap Forward, greed is good, happiness index / gross national happiness, Hernando de Soto, income inequality, index fund, interest rate swap, invisible hand, job automation, John Markoff, Joseph Schumpeter, junk bonds, Kenneth Rogoff, libertarian paternalism, low interest rates, low skilled workers, Malacca Straits, managed futures, market bubble, microcredit, money market fund, money: store of value / unit of account / medium of exchange, Network effects, new economy, open economy, presumed consent, price discrimination, price stability, principal–agent problem, profit maximization, profit motive, purchasing power parity, race to the bottom, RAND corporation, random walk, rent control, Richard Thaler, rising living standards, Robert Gordon, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, Sam Peltzman, school vouchers, seminal paper, Silicon Valley, Silicon Valley startup, South China Sea, Steve Jobs, tech worker, The Market for Lemons, the rule of 72, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, transaction costs, transcontinental railway, trickle-down economics, urban sprawl, Washington Consensus, Yogi Berra, young professional, zero-sum game

Even savings accounts and certificates of deposit, which are considered “safe” investments because the principal is insured, are vulnerable to the less obvious risk that their low interest rates may not keep up with inflation. It is a sad irony that unsophisticated investors eschew the “risky” stock market only to have their principal whittled away through the back door. Inflation can be particularly pernicious for individuals who are retired or otherwise living on fixed incomes. If that income is not indexed for inflation, then its purchasing power will gradually fade away. A monthly check that made for a comfortable living in 1985 becomes inadequate to buy the basic necessities in 2010. Inflation also redistributes wealth arbitrarily. Suppose I borrow $1,000 from you and promise to pay back the loan, plus interest of $100, next year.

One very prominent economist went so far as to encourage the Bank of Japan to do “anything short of dropping bank notes out of helicopters.”5 To hark back to the politics of organized interests covered in Chapter 8, one theory for why Japanese officials have not done more to fight falling prices is that Japan’s aging population, many of whom live on fixed incomes or savings, see deflation as a good thing despite its dire consequences for the economy as a whole. The United States has had its own encounters with deflation. There is a consensus among economists that botched monetary policy was at the heart of the Great Depression. From 1929 to 1933, America’s money supply fell by 28 percent.6 The Fed did not deliberately turn off the credit tap; rather, it stood idly by as the money supply fell of its own volition.


pages: 316 words: 117,228

The Code of Capital: How the Law Creates Wealth and Inequality by Katharina Pistor

Andrei Shleifer, Asian financial crisis, asset-backed security, barriers to entry, Bear Stearns, Bernie Madoff, Big Tech, bilateral investment treaty, bitcoin, blockchain, Bretton Woods, business cycle, business process, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collateralized debt obligation, colonial rule, conceptual framework, Corn Laws, corporate governance, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, digital rights, Donald Trump, double helix, driverless car, Edward Glaeser, Ethereum, ethereum blockchain, facts on the ground, financial innovation, financial intermediation, fixed income, Francis Fukuyama: the end of history, full employment, global reserve currency, Gregor Mendel, Hernando de Soto, income inequality, initial coin offering, intangible asset, investor state dispute settlement, invisible hand, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, land reform, land tenure, London Interbank Offered Rate, Long Term Capital Management, means of production, money market fund, moral hazard, offshore financial centre, phenotype, Ponzi scheme, power law, price mechanism, price stability, profit maximization, railway mania, regulatory arbitrage, reserve currency, Robert Solow, Ronald Coase, Satoshi Nakamoto, secular stagnation, self-driving car, seminal paper, shareholder value, Silicon Valley, smart contracts, software patent, sovereign wealth fund, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, too big to fail, trade route, Tragedy of the Commons, transaction costs, Wolfgang Streeck

According to the prospectus, CMRC (the sponsor) had already securitized assets worth $50 billion, and US Bank N.A. disclosed that it acted as trustee for “667 issuances of MBS/Prime securities with an outstanding aggregate principal balance of approximately $292,570,800,000.00.” The trust administrator, another affiliate of Citigroup by the name of Citibank N.A., was reported to manage “in excess of $3.5 trillion in fixed income and equity investments on behalf of approximately 2,500 corporations worldwide.”8 Securitization became a fee-based business. The servicer of the NC2 trust, for example, was paid 0.5 percent multiplied by the principal balance of the mortgage loans on the day it was established, and the credit risk manager, 0.015 percent.9 This may not sound like much, but even small percentages add up, provided, of course, that the business is humming.

This marked the birth of collateral debt obligations, or CDOs. The now largely defunct CDOs were financial assets that were issued by yet another SPV, which was created for the sole purpose of buying lower ranked tranches from NC2 and its likes.52 This new vehicle funded the purchases of these tranches by issuing fixed-income interests to investors who were seeking high returns and who were willing to believe that by repackaging mezzanine tranches in MBS structures, some tranches could be designated as safe enough to obtain a AAA or AA rating. Of course, this left lower rated tranches, but if they could not be placed either, the scheme of cloning the missing buyers could be repeated by setting up yet another trust or corporate entity that would repackage the leftover CDOs, tranche them again, and sell tranches off to investors; and so forth.


pages: 416 words: 124,469

The Lords of Easy Money: How the Federal Reserve Broke the American Economy by Christopher Leonard

2021 United States Capitol attack, Affordable Care Act / Obamacare, Airbnb, Alan Greenspan, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, collateralized debt obligation, coronavirus, corporate governance, COVID-19, Donald Trump, Dutch auction, financial engineering, financial innovation, fixed income, Ford Model T, forensic accounting, forward guidance, full employment, glass ceiling, Glass-Steagall Act, global reserve currency, Greenspan put, hydraulic fracturing, income inequality, inflation targeting, Internet Archive, inverted yield curve, junk bonds, lockdown, long and variable lags, Long Term Capital Management, low interest rates, manufacturing employment, market bubble, Money creation, mortgage debt, new economy, obamacare, pets.com, power law, proprietary trading, quantitative easing, reserve currency, risk tolerance, Robinhood: mobile stock trading app, Ronald Reagan, Silicon Valley, stock buybacks, too big to fail, yield curve

Fisher echoed Hoenig’s warnings that the plan would primarily benefit big banks and financial speculators, while punishing people who saved their money for retirement. “I see considerable risk in conducting policy with the consequence of transferring income from the poor, those most dependent on fixed income, and the saver to the rich,” he said. It was widely believed that it would be disastrous if three or four members of the FOMC voted against any given plan. This level of dissent would telegraph to the world that the Fed was divided, even uncertain, and maybe liable to reverse course. Bernanke, however, didn’t face the risk of three dissents in November.

Instead, he delivered a warning about the dangers and distortions of quantitative easing that was blunt, and even horrifying in its way. Powell said that the Fed was potentially creating an asset bubble in the markets for debt like corporate bonds and leveraged loans. And the correction, when it came, could be deeply damaging. “Many fixed-income securities are now trading well above fundamental value, and the eventual correction could be large and dynamic,” he said. The language was restrained but the message was not. Powell was clearly saying that the Fed might be laying the foundation for another financial crash (or a “large and dynamic” event, as he put it).


pages: 466 words: 116,165

American Kleptocracy: How the U.S. Created the World's Greatest Money Laundering Scheme in History by Casey Michel

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", Bellingcat, Berlin Wall, Bernie Sanders, bitcoin, clean water, coronavirus, corporate governance, cross-border payments, cryptocurrency, deindustrialization, Donald Trump, en.wikipedia.org, estate planning, Fall of the Berlin Wall, fixed income, forensic accounting, Global Witness, high net worth, hiring and firing, income inequality, Internet Archive, invention of the telegraph, Jeffrey Epstein, joint-stock company, Kickstarter, Maui Hawaii, McMansion, megaproject, Mikhail Gorbachev, New Journalism, offshore financial centre, opioid epidemic / opioid crisis, Ponzi scheme, race to the bottom, Ronald Reagan, Silicon Valley, Silicon Valley startup, Steve Jobs, too big to fail

Shulman; Bracha Foundation v. Igor Valeryevich Kolomoisky; Gennadiy Borisovich Bogolyubov; Mordechai Korf; Panikos Symeou; Joint Stock Company Commercial Bank PrivatBank; Warren Steel Holdings, LLC; Optima Acquisitions, LLC; Optima Group, LLC; Optima International; CC Metals and Alloys, LLC; Felman Trading, Inc.; Optima Fixed Income, LLC; Optima Ventures, LLC; Querella Holdings, Ltd.; Optima International of Miami, Inc.; 5251 36th Street, LLC; Georgian American Alloys, Inc.; Halliwel Assets, Inc.,” https://www.scribd.com/document/456427613/Vadim-Shulman-August-2019-Delaware-Lawsuit-Against-Ihor-Kolomoisky. 16. Ibid. 17. 

Shulman; Bracha Foundation v. Igor Valeryevich Kolomoisky; Gennadiy Borisovich Bogolyubov; Mordechai Korf; Panikos Symeou; Joint Stock Company Commercial Bank PrivatBank; Warren Steel Holdings, LLC; Optima Acquisitions, LLC; Optima Group, LLC; Optima International; CC Metals and Alloys, LLC; Felman Trading, Inc.; Optima Fixed Income, LLC; Optima Ventures, LLC; Querella Holdings, Ltd.; Optima International of Miami, Inc.; 5251 36th Street, LLC; Georgian American Alloys, Inc.; Halliwel Assets, Inc.” 20. Kovensky and Vikhrov, “The Spectacular Rise and Fall of Ihor Kolomoisky’s Steel Empire.” 21. Ibid. 22. “Felman Production Employee Reviews in New Haven, WV,” Indeed, https://www.indeed.com/cmp/Felman-Production/reviews?


pages: 161 words: 44,488

The Business Blockchain: Promise, Practice, and Application of the Next Internet Technology by William Mougayar

Airbnb, airport security, Albert Einstein, altcoin, Amazon Web Services, bitcoin, Black Swan, blockchain, business logic, business process, centralized clearinghouse, Clayton Christensen, cloud computing, cryptocurrency, decentralized internet, disintermediation, distributed ledger, Edward Snowden, en.wikipedia.org, Ethereum, ethereum blockchain, fault tolerance, fiat currency, fixed income, Ford Model T, global value chain, Innovator's Dilemma, Internet of things, Kevin Kelly, Kickstarter, market clearing, Network effects, new economy, peer-to-peer, peer-to-peer lending, prediction markets, pull request, QR code, ride hailing / ride sharing, Satoshi Nakamoto, sharing economy, smart contracts, social web, software as a service, too big to fail, Turing complete, Vitalik Buterin, web application, Yochai Benkler

In February 2016, Clearmatics announced it was developing a new clearing platform for over-the-counter derivatives that it calls a Decentralized Clearing Network (DCN). It allows a consortium of clearing members to automate contract valuation, margining, trade compression, and close-out without a central clearing counterparty (CCP), or third-party intermediation.8 In March 2016, forty of the world’s largest banks demonstrated a test system for trading fixed income, using five different blockchain technologies (as part of the R3 CEV consortium). In March 2016, Cambridge Blockchain designed a catastrophe bond transaction process that included counterparty validation on the blockchain, and an automated workflow enabling users to maintain privacy while selectively revealing limited attributes of their identities required for pre-trade authentication and compliance.


pages: 466 words: 127,728

The Death of Money: The Coming Collapse of the International Monetary System by James Rickards

"World Economic Forum" Davos, Affordable Care Act / Obamacare, Alan Greenspan, Asian financial crisis, asset allocation, Ayatollah Khomeini, bank run, banking crisis, Bear Stearns, Ben Bernanke: helicopter money, bitcoin, Black Monday: stock market crash in 1987, Black Swan, Boeing 747, Bretton Woods, BRICs, business climate, business cycle, buy and hold, capital controls, Carmen Reinhart, central bank independence, centre right, collateralized debt obligation, collective bargaining, complexity theory, computer age, credit crunch, currency peg, David Graeber, debt deflation, Deng Xiaoping, diversification, Dr. Strangelove, Edward Snowden, eurozone crisis, fiat currency, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, Flash crash, floating exchange rates, forward guidance, G4S, George Akerlof, global macro, global reserve currency, global supply chain, Goodhart's law, Growth in a Time of Debt, guns versus butter model, Herman Kahn, high-speed rail, income inequality, inflation targeting, information asymmetry, invisible hand, jitney, John Meriwether, junk bonds, Kenneth Rogoff, labor-force participation, Lao Tzu, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, low interest rates, mandelbrot fractal, margin call, market bubble, market clearing, market design, megaproject, Modern Monetary Theory, Money creation, money market fund, money: store of value / unit of account / medium of exchange, mutually assured destruction, Nixon triggered the end of the Bretton Woods system, obamacare, offshore financial centre, oil shale / tar sands, open economy, operational security, plutocrats, Ponzi scheme, power law, price stability, public intellectual, quantitative easing, RAND corporation, reserve currency, risk-adjusted returns, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Satoshi Nakamoto, Silicon Valley, Silicon Valley startup, Skype, Solyndra, sovereign wealth fund, special drawing rights, Stuxnet, The Market for Lemons, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, too big to fail, trade route, undersea cable, uranium enrichment, Washington Consensus, working-age population, yield curve

This new gold standard would not cause inflation, but it would be a candid recognition of the inflation that has already occurred in paper money since 1971. This one-time price jump would be society’s reckoning with the distortions caused by the abuse of fiat currencies in the past forty years. Participating nations would need legislation to nominally adjust fixed-income payments to the neediest in forms such as pensions, annuities, social welfare, and savings accounts up to the insured level. Nominal values of debt would be left unchanged, instantaneously solving the global-sovereign-debt-and-deleveraging conundrum. Banks and rentiers would be ruined—a healthy step toward future growth.

. : Scott Patterson, Jenny Strasburg, and Jacob Bunge, “Knight Upgrade Triggered Old Trading System, Big Losses,” Wall Street Journal, August 14, 2012, http://online.wsj.com/news/articles/SB10000872396390444318104577589694289838100. bailout of the hedge fund Long-Term Capital Management . . . : The author was general counsel of Long-Term Capital Management and the principal negotiator of the 1998 bailout arranged by the Federal Reserve Bank of New York. While LTCM was a well-known trader in fixed-income and derivatives markets, the extent of its trading in equity markets was not well known. LTCM was the largest risk arbitrageur in the world, with over $15 billion in equity positions on pending deals. Upon reviewing the books and records of LTCM with the author and CEO John Meriwether on September 20, 1998, Peter R.


pages: 455 words: 138,716

The Divide: American Injustice in the Age of the Wealth Gap by Matt Taibbi

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", Alan Greenspan, banking crisis, Bear Stearns, Bernie Madoff, book value, butterfly effect, buy and hold, collapse of Lehman Brothers, collateralized debt obligation, company town, Corrections Corporation of America, Credit Default Swap, credit default swaps / collateralized debt obligations, Edward Snowden, ending welfare as we know it, fake it until you make it, fixed income, forensic accounting, Glass-Steagall Act, Gordon Gekko, greed is good, illegal immigration, information retrieval, London Interbank Offered Rate, London Whale, Michael Milken, naked short selling, off-the-grid, offshore financial centre, Ponzi scheme, profit motive, regulatory arbitrage, Savings and loan crisis, short selling, social contagion, telemarketer, too big to fail, two and twenty, War on Poverty

It was more or less exactly at this moment that Lehman decided to double down on subprime. “Right when Goldman and all those guys were having those meetings to get rid of this stuff, Dick and Joe were making the opposite decision,” says McDonald. One executive, Michael Gelband, a managing director and head of global fixed income, stood on the table and begged Fuld to reconsider. As far back as 2005, Gelband had given a presentation warning of the dangers of subprime and had been mostly ignored. By late 2006, at exactly the moment Viniar was persuading Goldman to reverse course, Gelband pleaded with Fuld to do the same.

There were about a dozen of these insiders. They included McDade, who replaced Fuld as president, plus head of investment banking Hugh “Skip” McGee, equities chief Jerry Donini, CFO Ian Lowitt, Lowitt’s deputy (and the highest-ranking actual accountant at Lehman) Martin Kelly, the treasurer Paolo Tonucci, the fixed-income chief Eric Felder, the restructuring head Mark Shapiro, and a managing director named Alex Kirk. Collectively, just the nine men listed above would be offered an astonishing $302.9 million that week. Technically, much of that compensation was supposed to cover other work done in 2008 and 2009 and beyond.


pages: 461 words: 128,421

The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street by Justin Fox

"Friedman doctrine" OR "shareholder theory", Abraham Wald, activist fund / activist shareholder / activist investor, Alan Greenspan, Albert Einstein, Andrei Shleifer, AOL-Time Warner, asset allocation, asset-backed security, bank run, beat the dealer, behavioural economics, Benoit Mandelbrot, Big Tech, Black Monday: stock market crash in 1987, Black-Scholes formula, book value, Bretton Woods, Brownian motion, business cycle, buy and hold, capital asset pricing model, card file, Carl Icahn, Cass Sunstein, collateralized debt obligation, compensation consultant, complexity theory, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, democratizing finance, Dennis Tito, discovery of the americas, diversification, diversified portfolio, Dr. Strangelove, Edward Glaeser, Edward Thorp, endowment effect, equity risk premium, Eugene Fama: efficient market hypothesis, experimental economics, financial innovation, Financial Instability Hypothesis, fixed income, floating exchange rates, George Akerlof, Glass-Steagall Act, Henri Poincaré, Hyman Minsky, implied volatility, impulse control, index arbitrage, index card, index fund, information asymmetry, invisible hand, Isaac Newton, John Bogle, John Meriwether, John Nash: game theory, John von Neumann, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Arrow, libertarian paternalism, linear programming, Long Term Capital Management, Louis Bachelier, low interest rates, mandelbrot fractal, market bubble, market design, Michael Milken, Myron Scholes, New Journalism, Nikolai Kondratiev, Paul Lévy, Paul Samuelson, pension reform, performance metric, Ponzi scheme, power law, prediction markets, proprietary trading, prudent man rule, pushing on a string, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Richard Thaler, risk/return, road to serfdom, Robert Bork, Robert Shiller, rolodex, Ronald Reagan, seminal paper, shareholder value, Sharpe ratio, short selling, side project, Silicon Valley, Skinner box, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, statistical model, stocks for the long run, tech worker, The Chicago School, The Myth of the Rational Market, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, Thorstein Veblen, Tobin tax, transaction costs, tulip mania, Two Sigma, Tyler Cowen, value at risk, Vanguard fund, Vilfredo Pareto, volatility smile, Yogi Berra

In the aftermath of the stock market bust, Alan Greenspan and his colleagues on the Federal Reserve’s open-market committee worried that the United States might fall into a deflationary spiral. As good disciples of Irving Fisher, they brought short-term interest rates down to 1 percent and kept them there from mid-2003 to mid-2004 to stave off that dire possibility. The lack of any inflation threat, and high demand from overseas for fixed-income securities, kept rates on long-term debt down as well. Rates on both adjustable and fixed-rate mortgages hit historic lows. These were the fundamental reasons for an above-trend increase in house prices, but eventually those rising house prices became a self-fulfilling prophecy. They rose so fast along the coasts that, even with low interest rates, fewer and fewer people could afford homes under traditional underwriting standards.

Journal of the American Statistical Association (June 1925): 248–49; the specifics of how Macaulay put together his chart come from Benjamin Graham and David L. Dodd, Security Analysis (New York: McGraw-Hill, 1934), 608n. 3. Geoffrey Poitras, “Frederick R. Macaulay, Frank M. Redington and the Emergence of Modern Fixed Income Analysis,” in Geoffrey Poitras and Franck Jovanovic, eds., Pioneers of Financial Economics, vol. 2 (London: Edward Elgar, 2007), 60–82. 4. Investor Allen Bernstein hired Macaulay as his partner, not so much to make investment decisions as to reassure investors with his academic credentials and his non-Jewish surname.


pages: 181 words: 50,196

The Rich and the Rest of Us by Tavis Smiley

"there is no alternative" (TINA), affirmative action, Affordable Care Act / Obamacare, An Inconvenient Truth, back-to-the-land, benefit corporation, Bernie Madoff, Bernie Sanders, Buckminster Fuller, Corrections Corporation of America, Credit Default Swap, death of newspapers, deindustrialization, ending welfare as we know it, F. W. de Klerk, fixed income, full employment, housing crisis, Howard Zinn, income inequality, job automation, liberation theology, Mahatma Gandhi, mass incarceration, mega-rich, military-industrial complex, Nelson Mandela, new economy, obamacare, Occupy movement, plutocrats, profit motive, Ralph Waldo Emerson, Ronald Reagan, shareholder value, Silicon Valley, Steve Jobs, traffic fines, trickle-down economics, War on Poverty, We are the 99%, white flight, women in the workforce, working poor

If they are parents, they are fretting and worrying about how they’re going to feed their children. If they are little kids, they’re at school and they come in oftentimes on Monday mornings with not enough to eat; they’re fidgety and not learning in classrooms. There are senior citizens that are living on a fixed income and they are too modest and embarrassed to ask for help.” Feeding America has been recognized for its outstanding research and programs on hunger in America. The numbers of poor people going to food banks and into food stamp offices for the first time has grown by 30 percent, Escarra said, adding: “That 30 percent are people visiting that have never been there, so it is the middle class.


pages: 177 words: 50,167

The Populist Explosion: How the Great Recession Transformed American and European Politics by John B. Judis

affirmative action, Affordable Care Act / Obamacare, Albert Einstein, anti-communist, back-to-the-land, Bernie Sanders, Boris Johnson, Bretton Woods, capital controls, carbon tax, centre right, Charlie Hebdo massacre, collapse of Lehman Brothers, deindustrialization, desegregation, Donald Trump, eurozone crisis, financial deregulation, first-past-the-post, fixed income, full employment, ghettoisation, glass ceiling, Glass-Steagall Act, hiring and firing, illegal immigration, immigration reform, income inequality, invisible hand, Jeremy Corbyn, laissez-faire capitalism, Les Trente Glorieuses, mass immigration, means of production, neoliberal agenda, obamacare, Occupy movement, open borders, plutocrats, Post-Keynesian economics, post-materialism, rolodex, Ronald Reagan, Silicon Valley, War on Poverty, We are the 99%, white flight, Winter of Discontent

The German electorate, along with the Finns and Dutch, loudly protested any bailout. Second, they could leave the Eurozone entirely and accept radical devaluation of their new currency. But voters in these countries didn’t want to leave the Eurozone. They feared chaos and, particularly among the elderly, the loss of savings and of fixed incomes. Or third, these countries could undertake a severe version of what Mitterrand had to do in 1982—curtail spending and raise taxes resulting in even higher unemployment, but also a reduced demand for imports, and eventually and hopefully, by lowering wage costs, more competitive exports. Greece was one of the first countries unable to service its debts.


pages: 172 words: 49,890

The Dhandho Investor: The Low-Risk Value Method to High Returns by Mohnish Pabrai

asset allocation, backtesting, beat the dealer, Black-Scholes formula, book value, business intelligence, call centre, cuban missile crisis, discounted cash flows, Edward Thorp, Exxon Valdez, fixed income, hiring and firing, index fund, inventory management, John Bogle, Mahatma Gandhi, merger arbitrage, passive investing, price mechanism, Silicon Valley, time value of money, transaction costs, two and twenty, zero-sum game

There are well over a hundred thousand publicly traded companies on dozens of exchanges around the world. In addition, at any given time, there are hundreds of thousands of privately held businesses around the globe that are also available to be bought or sold. Add to this the tens of thousands of fixed-income securities, currencies, commodities, real estate, put and call options, mutual funds, hedge funds, treasuries—the list is endless. The range and sheer number of investment targets available to any investor are daunting. The Dhandho investor only invests in simple, well-understood businesses. That requirement alone likely eliminates 99 percent of possible investment alternatives.


pages: 1,242 words: 317,903

The Man Who Knew: The Life and Times of Alan Greenspan by Sebastian Mallaby

airline deregulation, airport security, Alan Greenspan, Alvin Toffler, Andrei Shleifer, anti-communist, Asian financial crisis, balance sheet recession, bank run, barriers to entry, Bear Stearns, behavioural economics, Benoit Mandelbrot, Black Monday: stock market crash in 1987, bond market vigilante , book value, Bretton Woods, business cycle, central bank independence, centralized clearinghouse, classic study, collateralized debt obligation, conceptual framework, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, Dr. Strangelove, energy security, equity premium, fiat currency, financial deregulation, financial engineering, financial innovation, fixed income, Flash crash, forward guidance, full employment, Future Shock, Glass-Steagall Act, Greenspan put, Hyman Minsky, inflation targeting, information asymmetry, interest rate swap, inventory management, invisible hand, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", junk bonds, Kenneth Rogoff, Kickstarter, Kitchen Debate, laissez-faire capitalism, Lewis Mumford, Long Term Capital Management, low interest rates, low skilled workers, market bubble, market clearing, Martin Wolf, Money creation, money market fund, moral hazard, mortgage debt, Myron Scholes, Neil Armstrong, new economy, Nixon shock, Nixon triggered the end of the Bretton Woods system, Northern Rock, paper trading, paradox of thrift, Paul Samuelson, Phillips curve, plutocrats, popular capitalism, price stability, RAND corporation, Reminiscences of a Stock Operator, rent-seeking, Robert Shiller, Robert Solow, rolodex, Ronald Reagan, Saturday Night Live, Savings and loan crisis, savings glut, secular stagnation, short selling, stock buybacks, subprime mortgage crisis, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, Tipper Gore, too big to fail, trade liberalization, unorthodox policies, upwardly mobile, We are all Keynesians now, WikiLeaks, women in the workforce, Y2K, yield curve, zero-sum game

In the years before Volcker’s Saturday Night Special, in other words, deficits had meant inflation that penalized savers; after Volcker’s policy revolution, deficits meant high interest rates that penalized borrowers. And that shift was troubling for a reason that Greenspan was supremely qualified to diagnose: high borrowing costs threatened to destabilize finance. Savings and loans were being forced to pay more for deposits, raising their cost of funding above the fixed income they received on their mortgage portfolios. As Greenspan put it to the New York Times in March, “The most important thing at the moment is to get interest rates down and avoid what I think is a potentially very dangerous financial problem in the thrift institutions.”24 While Greenspan urged deficit reduction to bring down interest rates, the supply-siders advanced a different remedy.

“Bankers are willing to take on more risk than I have heard them admit to in recent years,” added Governor Mark Olson, who was himself a former banker. Vice Chairman Roger Ferguson pushed the argument further, linking the financial exuberance with the Fed’s forward guidance about future interest rates. “Perhaps we are anchoring the yield curve more than we’d like,” he suggested. “The fixed-income markets in particular are not in fact doing the appropriate job of pricing risks.” He was suggesting that the Fed’s forward guidance had made life too predictable, lulling speculators into complacency. “We need in some sense to remove the anchor that we have placed on those markets,” he concluded.

Greenspan repeatedly expressed this hope that financiers would learn from errors. In a speech on June 20, 1995, he assured his audience at the Economic Club of New York that “risk-management systems were exposed to a very real life stress test in 1994, when sharp increases in interest rates created large losses in fixed income markets. As a consequence, firms’ models and judgments should be sounder today than those that prevailed in early 1994.” Alan Greenspan, remarks (Economic Club of New York, New York, N.Y., June 20, 1995), https://fraser.stlouisfed.org/docs/historical/greenspan/Greenspan_19950620.pdf. 11. In Age of Turbulence, published in 2007, Greenspan stuck to the view that financiers would learn from their errors.


Working the Street: What You Need to Know About Life on Wall Street by Erik Banks

accounting loophole / creative accounting, borderless world, business cycle, corporate governance, deal flow, estate planning, fixed income, greed is good, junk bonds, old-boy network, PalmPilot, risk/return, rolodex, Savings and loan crisis, telemarketer

Exchange-Traded Derivatives. John Wiley, 2003. The Simple Rules of Risk. John Wiley, 2002. e-Finance. John Wiley, 2000. The Rise and Fall of the Merchant Banks. Kogan Page, 1999. The Credit Risk of Complex Derivatives, 2nd edition. Macmillan, 1997. Asia Pacific Derivative Markets. Macmillan, 1996. Emerging Asian Fixed Income Markets. Macmillan, 1995. The Credit Risk of Complex Derivatives. Macmillan, 1994. The Credit Risk of Financial Instruments. Macmillan, 1993. AS CO-AUTHOR Practical Risk Management (co-written with R. Dunn). John Wiley, 2003. Weather Risk Management (edited/co-written with XL/Element Re). Palgrave Macmillan, 2001.


pages: 182 words: 53,802

The Production of Money: How to Break the Power of Banks by Ann Pettifor

Alan Greenspan, Ben Bernanke: helicopter money, Bernie Madoff, Bernie Sanders, bitcoin, blockchain, bond market vigilante , borderless world, Bretton Woods, capital controls, Carmen Reinhart, central bank independence, clean water, credit crunch, Credit Default Swap, cryptocurrency, David Graeber, David Ricardo: comparative advantage, debt deflation, decarbonisation, distributed ledger, Donald Trump, eurozone crisis, fiat currency, financial deregulation, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, Fractional reserve banking, full employment, Glass-Steagall Act, green new deal, Hyman Minsky, inflation targeting, interest rate derivative, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, land bank, Leo Hollis, light touch regulation, London Interbank Offered Rate, low interest rates, market fundamentalism, Martin Wolf, mobile money, Money creation, Naomi Klein, neoliberal agenda, offshore financial centre, Paul Samuelson, Ponzi scheme, Post-Keynesian economics, pushing on a string, quantitative easing, rent-seeking, Satyajit Das, savings glut, secular stagnation, The Chicago School, the market place, Thomas Malthus, Tobin tax, too big to fail

Their unconstrained (‘liberalised’) financial euphoria would expand the money supply, much as a euphoric Sorcerer’s Apprentice might fill a studio with pails, brushes and an overflow of water. ‘Too much money chasing too few goods and services’ would lead to inflation – which raises prices, but erodes the value of assets, including fixed incomes such as pensions and benefits. So public authorities have to manage credit creation by the private sector to prevent inflation, and the central bank can use its powers and leverage over the private banking system to discourage such lending. In 2014, for the first time in thirty years, the Bank of England restricted the amount that bankers could lend against property, and that home buyers could borrow, relative to their income.


pages: 198 words: 53,264

Big Mistakes: The Best Investors and Their Worst Investments by Michael Batnick

activist fund / activist shareholder / activist investor, Airbnb, Albert Einstein, AOL-Time Warner, asset allocation, Bear Stearns, behavioural economics, bitcoin, Bretton Woods, buy and hold, buy low sell high, Carl Icahn, cognitive bias, cognitive dissonance, Credit Default Swap, cryptocurrency, Daniel Kahneman / Amos Tversky, endowment effect, financial engineering, financial innovation, fixed income, global macro, hindsight bias, index fund, initial coin offering, invention of the wheel, Isaac Newton, Jim Simons, John Bogle, John Meriwether, Kickstarter, Long Term Capital Management, loss aversion, low interest rates, Market Wizards by Jack D. Schwager, mega-rich, merger arbitrage, multilevel marketing, Myron Scholes, Paul Samuelson, Pershing Square Capital Management, quantitative easing, Reminiscences of a Stock Operator, Renaissance Technologies, Richard Thaler, Robert Shiller, short squeeze, Snapchat, Stephen Hawking, Steve Jobs, Steve Wozniak, stocks for the long run, subprime mortgage crisis, transcontinental railway, two and twenty, value at risk, Vanguard fund, Y Combinator

Other skills are required. Genius and its limitations are exemplified in no better way than by studying John Meriwether and his band of Einsteins at Long‐Term Capital Management. John Meriwether founded Long‐Term Capital Management in 1994 and before that he enjoyed a legendary two‐decade career as head of the fixed‐income arbitrage group and vice chairman at Salomon Brothers. At Salomon, he surrounded himself with some of the brightest minds in the industry. Michael Lewis, who began his career at Salomon Brothers, wrote in the New York Times, “Meriwether was like a gifted editor or a brilliant director: he had a nose for unusual people and the ability to persuade them to run with their talents…Meriwether had taken it upon himself to set up a sort of underground railroad that ran from the finest graduate finance and math programs directly onto the Salomon trading floor.


pages: 190 words: 56,531

Where We Are: The State of Britain Now by Roger Scruton

bitcoin, blockchain, Brexit referendum, business cycle, Corn Laws, Donald Trump, Downton Abbey, Fellow of the Royal Society, fixed income, garden city movement, George Akerlof, housing crisis, invention of the printing press, invisible hand, Jeremy Corbyn, Khartoum Gordon, mass immigration, Naomi Klein, New Journalism, old-boy network, open borders, payday loans, Peace of Westphalia, sceptred isle, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, Tragedy of the Commons, web of trust

Such is precisely what is implied in the name of the National Trust. We should also recognize that the extent of economic globalization has been exaggerated. Less than 25 per cent of global economic activity is international, and foreign direct investment accounts for less than 10 per cent of all fixed income worldwide. Following the financial crisis, global connectedness has yet to return to pre-2007 levels.12 And some argue that, with the spread of automation, the economy will become less rather than more global.13 Whatever the truth about that, it seems to me that we have been massively misinformed by propaganda from the politicians and the lobbyists, who wish us to accept as inevitable something that is not inevitable at all, but merely one input into the compromise that will do justice to our many interests.


pages: 205 words: 55,435

The End of Indexing: Six Structural Mega-Trends That Threaten Passive Investing by Niels Jensen

Alan Greenspan, Basel III, Bear Stearns, declining real wages, deglobalization, disruptive innovation, diversification, Donald Trump, driverless car, eurozone crisis, falling living standards, fixed income, full employment, Greenspan put, income per capita, index fund, industrial robot, inflation targeting, job automation, John Nash: game theory, liquidity trap, low interest rates, moral hazard, offshore financial centre, oil shale / tar sands, old age dependency ratio, passive investing, Phillips curve, purchasing power parity, pushing on a string, quantitative easing, regulatory arbitrage, rising living standards, risk free rate, risk tolerance, Robert Solow, secular stagnation, South China Sea, total factor productivity, working-age population, zero-sum game

Rising living standards throughout Asia in the years to come will put the growth rate of this industry at par with the growth we went through in mature economies back in the 1970s and 1980s, when flying became standard practice. Moreover, it is an investment strategy that generates a respectable amount of regular income. Fixed income investors should therefore treat the investment strategy as a proxy for corporate bonds. Secondly, agriculture. As per capita income rises, the protein intake also rises. That has always been, and always will be, the case. As far as Asian consumers are concerned, if history were to repeat itself, meat will increasingly become part of the daily diet.


pages: 514 words: 152,903

The Best Business Writing 2013 by Dean Starkman

Alvin Toffler, Asperger Syndrome, bank run, Basel III, Bear Stearns, call centre, carbon tax, clean water, cloud computing, collateralized debt obligation, Columbine, computer vision, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, Erik Brynjolfsson, eurozone crisis, Evgeny Morozov, Exxon Valdez, Eyjafjallajökull, factory automation, fixed income, fulfillment center, full employment, Future Shock, gamification, Goldman Sachs: Vampire Squid, hiring and firing, hydraulic fracturing, Ida Tarbell, income inequality, jimmy wales, job automation, John Markoff, junk bonds, Kickstarter, late fees, London Whale, low interest rates, low skilled workers, Mahatma Gandhi, market clearing, Maui Hawaii, Menlo Park, Occupy movement, oil shale / tar sands, One Laptop per Child (OLPC), Parag Khanna, Pareto efficiency, price stability, proprietary trading, Ray Kurzweil, San Francisco homelessness, Silicon Valley, Skype, sovereign wealth fund, stakhanovite, Stanford prison experiment, Steve Jobs, Stuxnet, synthetic biology, tail risk, technological determinism, the payments system, too big to fail, Vanguard fund, wage slave, warehouse automation, warehouse robotics, Y2K, zero-sum game

In January 2011, I ran out of deferment with my private student loans. The banks began chasing my father as the cosigner. They have wrecked his line of credit and called in his home equity loan on which he never missed any payments. In June 2011, my father saw a lawyer to try to get the payments reduced to something proportionate to his fixed income. In October 2011, he got word that the lawyer failed to get payments reduced enough. My dad wrote me a letter saying he had to sell his life insurance and rearrange his will to protect my sister and stepmom. The letter arrived last Saturday. He had a stroke on Sunday. Now Wells Fargo is harassing him for payment of another student loan.

He started his career at the Wall Street Journal, worked as a freelancer in Mexico City, and was a staff writer at SmartMoney magazine. JAKE BERNSTEIN is a Pulitzer Prize–winning business reporter for ProPublica. Before joining ProPublica, Bernstein served as the executive editor of the investigative biweekly The Texas Observer. BRIAN BLACKSTONE joined Dow Jones in 1997. He has covered the Federal Reserve, fixed-income markets, telecommunications, and antitrust and currently reports on European monetary and economic policy. PATRICIA CALLAHAN is an investigative reporter on the Chicago Tribune’s Watchdog Team and was part of a team that won the 2008 Pulitzer Prize for Investigative Reporting. Before joining the Tribune in 2006, she was a beat reporter at the Wall Street Journal in Chicago.


Creatures of a Day: And Other Tales of Psychotherapy by Irvin D. Yalom

fixed income, place-making, pre–internet, Silicon Valley, Skype

“So Paul, if we may use first names—” He nodded. “Of course.” “All I know about you comes from your short email. You wrote that you were a fellow writer, you’ve read my Nietzsche novel, and you have a writing block.” “Yes, and I’m requesting a single consultation. That’s all. I’m on a fixed income and can’t afford more.” “I’ll do what I can. Let’s start immediately and be as efficient as possible. Tell me what I should know about the block.” “If it’s all right with you, I’ll give you some personal history.” “That’s fine.” “I have to go back to my grad school days. I was in philosophy at Princeton writing my doctorate on the incompatibility between Nietzsche’s ideas on determinism and his espousal of self-transformation.


pages: 215 words: 55,212

The Mesh: Why the Future of Business Is Sharing by Lisa Gansky

"World Economic Forum" Davos, Airbnb, Amazon Mechanical Turk, Amazon Web Services, banking crisis, barriers to entry, Bear Stearns, bike sharing, business logic, carbon footprint, carbon tax, Chuck Templeton: OpenTable:, clean tech, cloud computing, credit crunch, crowdsourcing, diversification, Firefox, fixed income, Google Earth, impact investing, industrial cluster, Internet of things, Joi Ito, Kickstarter, late fees, Network effects, new economy, peer-to-peer lending, planned obsolescence, recommendation engine, RFID, Richard Florida, Richard Thaler, ride hailing / ride sharing, sharing economy, Silicon Valley, smart grid, social web, software as a service, TaskRabbit, the built environment, the long tail, vertical integration, walkable city, yield management, young professional, Zipcar

In this way the Mesh clearly enables sharing when some of the parties may not own a thing. Ownership is not a prerequisite to sharing. A Mesh business can help retired people spend less money while getting the same quality of life. They also travel—they’re looking for lots of experiences, and to cover a lot of terrain without a lot of risk or cost. Since many are living on a fixed income, most of them definitely want lower costs. Maybe they want to stay in their home, but use it as a base camp. Their friends are still there. They identify with the community. They are a ripe market for home sharing and other services. Likewise, younger people are moving toward medium- or high-density locations.


pages: 232 words: 60,093

Makeshift Metropolis: Ideas About Cities by Witold Rybczynski

benefit corporation, big-box store, carbon footprint, Celebration, Florida, City Beautiful movement, classic study, company town, cross-subsidies, David Brooks, death of newspapers, deindustrialization, edge city, Edward Glaeser, fixed income, Frank Gehry, garden city movement, General Motors Futurama, gentrification, global village, Guggenheim Bilbao, Jane Jacobs, Lewis Mumford, megaproject, megastructure, New Urbanism, Peter Eisenman, Seaside, Florida, The Death and Life of Great American Cities, upwardly mobile, urban planning, urban renewal, urban sprawl, Victor Gruen, working poor, Works Progress Administration, young professional

While downtown multifamily housing has traditionally targeted high-income empty nesters, more demand for downtown living may now come from middle-income, aging suburban homeowners who are nervous about rising gas and heating-oil prices. While the majority of lifelong suburbanites are unlikely to suddenly become urbanites, some suburbanites on fixed incomes would see city living as a hedge against rising prices. Higher energy costs also produce negative effects on cities. Part of the downtown housing boom of the last two decades was fueled by so-called reverse commuters, people whose jobs were in the suburbs but who lived in the city. Reverse commuting has been the fastest growing segment of all commuting trips, especially in large cites, although suburb-to-suburb commuting still constitutes the majority of all commuting trips.2 The easiest way for reverse commuters to save money is to move closer to their jobs—that is, back to the suburbs.


pages: 240 words: 60,660

Models. Behaving. Badly.: Why Confusing Illusion With Reality Can Lead to Disaster, on Wall Street and in Life by Emanuel Derman

Albert Einstein, Asian financial crisis, Augustin-Louis Cauchy, Black-Scholes formula, British Empire, Brownian motion, capital asset pricing model, Cepheid variable, creative destruction, crony capitalism, currency risk, diversified portfolio, Douglas Hofstadter, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial engineering, Financial Modelers Manifesto, fixed income, Ford Model T, Great Leap Forward, Henri Poincaré, I will remember that I didn’t make the world, and it doesn’t satisfy my equations, Isaac Newton, Johannes Kepler, law of one price, low interest rates, Mikhail Gorbachev, Myron Scholes, quantitative trading / quantitative finance, random walk, Richard Feynman, riskless arbitrage, savings glut, Schrödinger's Cat, Sharpe ratio, stochastic volatility, the scientific method, washing machines reduced drudgery, yield curve

He started out as a theoretical physicist, doing research on unified theories of elementary particle interactions. At AT&T Bell Laboratories in the 1980s he developed programming languages for business modeling. From 1985 to 2002 he worked on Wall Street, running quantitative strategies research groups in fixed income, equities, and risk management, and he was appointed a managing director at Goldman Sachs & Co. in 1997. The financial models he developed there, the Black-Derman-Toy interest rate model and the local volatility model, have become widely used industry standards. In his 1996 article “Model Risk” Derman pointed out the dangers that inevitably accompany the use of models, a theme he developed in My Life as a Quant.


pages: 227 words: 62,177

Numbers Rule Your World: The Hidden Influence of Probability and Statistics on Everything You Do by Kaiser Fung

Alan Greenspan, American Society of Civil Engineers: Report Card, Andrew Wiles, behavioural economics, Bernie Madoff, Black Swan, business cycle, call centre, correlation does not imply causation, cross-subsidies, Daniel Kahneman / Amos Tversky, edge city, Emanuel Derman, facts on the ground, financial engineering, fixed income, Gary Taubes, John Snow's cholera map, low interest rates, moral hazard, p-value, pattern recognition, profit motive, Report Card for America’s Infrastructure, statistical model, the scientific method, traveling salesman

In the meantime, take heart that modelers are looking out for our health and wealth. 3 Item Bank / Risk Pool The Dilemma of Being Together I can define it, but I can’t recognize it when I see it. —LLOYD BOND, EDUCATION SCHOLAR Millionaires living in mansions on the water are being subsidized by grandmothers on fixed incomes in trailer parks. —BOB HARTWIG, INSURANCE INDUSTRY ECONOMIST The late CEO of Golden Rule Insurance, J. Patrick Rooney, made his name in the 1990s as the father of the health savings account. For this political cause, he spent $2.2 million of his own fortune and partnered with conservative icon Newt Gingrich.


pages: 292 words: 62,575

97 Things Every Programmer Should Know by Kevlin Henney

A Pattern Language, active measures, Apollo 11, business intelligence, business logic, commoditize, continuous integration, crowdsourcing, database schema, deliberate practice, domain-specific language, don't repeat yourself, Donald Knuth, fixed income, functional programming, general-purpose programming language, Grace Hopper, index card, inventory management, job satisfaction, level 1 cache, loose coupling, machine readable, Silicon Valley, sorting algorithm, The Wisdom of Crowds

Chapter 8 Chapter 67 Chapter 76 Rod Begbie Rod Begbie originally hails from Scotland, but currently leaves his heart in San Francisco. His day job is engineering lead and panda wrangler at Slide, Inc. Previously, he was employed as an API architect at Current TV, lurked in the R&D labs of Bose Corporation, consulted with Sapient, and ducked out the (first) dot-com bubble-burst in the basement of a bank, building systems for fixed-income annuity analysis, which is as dull as it sounds. Chapter 25 Russel Winder Russel Winder is a partner in Concertant LLP, which provides analysis and consultancy on all aspects of parallelism, concurrency, and multicore systems. He is also an independent consultant, author, and trainer on programming, programming languages (Java, Groovy, and Python), version control systems (Subversion, Bazaar, and Git) and build frameworks (Gant, SCons, Gradle, Ant, and Maven).


pages: 218 words: 62,889

Sabotage: The Financial System's Nasty Business by Anastasia Nesvetailova, Ronen Palan

Alan Greenspan, algorithmic trading, bank run, banking crisis, barriers to entry, Basel III, Bear Stearns, Bernie Sanders, big-box store, bitcoin, Black-Scholes formula, blockchain, Blythe Masters, bonus culture, Bretton Woods, business process, collateralized debt obligation, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, critique of consumerism, cryptocurrency, currency risk, democratizing finance, digital capitalism, distributed ledger, diversification, Double Irish / Dutch Sandwich, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, gig economy, Glass-Steagall Act, global macro, Gordon Gekko, high net worth, Hyman Minsky, independent contractor, information asymmetry, initial coin offering, interest rate derivative, interest rate swap, Joseph Schumpeter, junk bonds, Kenneth Arrow, litecoin, London Interbank Offered Rate, London Whale, Long Term Capital Management, margin call, market fundamentalism, Michael Milken, mortgage debt, new economy, Northern Rock, offshore financial centre, Paul Samuelson, peer-to-peer lending, plutocrats, Ponzi scheme, Post-Keynesian economics, price mechanism, regulatory arbitrage, rent-seeking, reserve currency, Ross Ulbricht, shareholder value, short selling, smart contracts, sovereign wealth fund, Thorstein Veblen, too big to fail

Chincarini, The Crisis of Crowding: Quant Copycats, Ugly Models, and the New Crash Normal, John Wiley and Sons, 2012, p. 150. 30. Boyd, ‘The last days of Bear Stearns’. 31. Burrough, ‘Bringing Down Bear Stearns’. 32. Ibid. 33. Paul Friedman, managing director and in charge of refinancing operations (Fixed Income Division) recalls that ‘the loss of confidence had three related consequences: prime brokerage clients withdrew their cash and unencumbered securities at a rapid and increasing rate; repo market lenders declined to roll over or renew repo loans, even when the loans were supported by high-quality collateral such as agency securities; and counterparties to non-simultaneous settlements of foreign exchange trades refused to pay until Bear Stearns paid first.


Phil Thornton by The Great Economists Ten Economists whose thinking changed the way we live-FT Publishing International (2014)

Alan Greenspan, availability heuristic, behavioural economics, Berlin Wall, bitcoin, Bretton Woods, British Empire, business cycle, business process, call centre, capital controls, Cass Sunstein, choice architecture, cognitive bias, collapse of Lehman Brothers, Corn Laws, creative destruction, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, double helix, endogenous growth, endowment effect, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, fiat currency, financial deregulation, fixed income, Ford Model T, full employment, hindsight bias, income inequality, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Kenneth Arrow, Kenneth Rogoff, Kickstarter, liquidity trap, loss aversion, mass immigration, means of production, mental accounting, Myron Scholes, paradox of thrift, Pareto efficiency, Paul Samuelson, Post-Keynesian economics, price mechanism, pushing on a string, quantitative easing, Richard Thaler, road to serfdom, Ronald Coase, Ronald Reagan, school vouchers, Simon Kuznets, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, Toyota Production System, trade route, transaction costs, unorthodox policies, Vilfredo Pareto, women in the workforce

In 1924 Keynes became Bursar of King’s College, Cambridge, managing its endowment funds. His performance lagged behind the market in the 1920s, when he used a complicated economic model and a ‘top–down’ strategy that used monetary and economic indicators to direct his decisions to switch between equities, fixed income and cash. It did not work, and he failed to spot the Great Crash coming and the sharp fall in equities after September 1929. He admitted this approach needed ‘phenomenal skill to make much out of it’. However, as we shall see, in this case the long-term was good to Keynes, as was the decision to embrace one of his best-known mantras and to change his mind when the facts changed.


pages: 559 words: 169,094

The Unwinding: An Inner History of the New America by George Packer

"World Economic Forum" Davos, Affordable Care Act / Obamacare, Alan Greenspan, Apple's 1984 Super Bowl advert, bank run, Bear Stearns, big-box store, citizen journalism, clean tech, collateralized debt obligation, collective bargaining, company town, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, DeepMind, deindustrialization, diversified portfolio, East Village, El Camino Real, electricity market, Elon Musk, Fairchild Semiconductor, family office, financial engineering, financial independence, financial innovation, fixed income, Flash crash, food desert, gentrification, Glass-Steagall Act, global macro, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, high-speed rail, housing crisis, income inequality, independent contractor, informal economy, intentional community, Jane Jacobs, Larry Ellison, life extension, Long Term Capital Management, low skilled workers, Marc Andreessen, margin call, Mark Zuckerberg, market bubble, market fundamentalism, Maui Hawaii, Max Levchin, Menlo Park, military-industrial complex, Neal Stephenson, Neil Kinnock, new economy, New Journalism, obamacare, Occupy movement, off-the-grid, oil shock, PalmPilot, Patri Friedman, paypal mafia, peak oil, Peter Thiel, Ponzi scheme, proprietary trading, public intellectual, Richard Florida, Robert Bork, Ronald Reagan, Ronald Reagan: Tear down this wall, Savings and loan crisis, shareholder value, side project, Silicon Valley, Silicon Valley billionaire, Silicon Valley startup, single-payer health, smart grid, Snow Crash, Steve Jobs, strikebreaker, tech worker, The Death and Life of Great American Cities, the scientific method, too big to fail, union organizing, uptick rule, urban planning, vertical integration, We are the 99%, We wanted flying cars, instead we got 140 characters, white flight, white picket fence, zero-sum game

In 1981 he was part of a small group that persuaded the firm to make its first major acquisition—J. Aron, a commodities trading house. When the new division ran into trouble, he turned it around by taking on more risk, which he found very interesting. (Over half the people at Aron had to be fired, a delicate undertaking.) From there he rose to the top of Goldman’s huge fixed-income division, where he and his partner, Steve Friedman, had to stanch large losses on illiquid positions. To raise more capital they wanted to take Goldman public, following the other big Wall Street firms, but the younger partners with smaller stakes said no. With Friedman, Rubin became vice chairman of the firm in 1987, and in 1990 he reached the top.

Without the juice of Wall Street behind it, something like Silicon Valley couldn’t have exploded the way it did. But when the private partnerships like Salomon started going public in the eighties, and boutique investment banks became huge trading houses, and dopey European banks like UBS got big into fixed income, and the repeal of Glass-Steagall erased the clear lines that had kept things in check, and the pay incentives were thrown out of whack, and the money got crazy—then people on Wall Street became greedy. Some of the worst were criminals, others were doing what they knew was just fucking wrong. Kevin didn’t know if the answer was reregulation or a moral housecleaning.


pages: 540 words: 168,921

The Relentless Revolution: A History of Capitalism by Joyce Appleby

1919 Motor Transport Corps convoy, agricultural Revolution, Alan Greenspan, An Inconvenient Truth, anti-communist, Asian financial crisis, asset-backed security, Bartolomé de las Casas, Bear Stearns, Bernie Madoff, Bretton Woods, BRICs, British Empire, call centre, Charles Lindbergh, classic study, collateralized debt obligation, collective bargaining, Columbian Exchange, commoditize, Cornelius Vanderbilt, corporate governance, cotton gin, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, deskilling, Doha Development Round, double entry bookkeeping, epigenetics, equal pay for equal work, European colonialism, facts on the ground, failed state, Firefox, fixed income, Ford Model T, Ford paid five dollars a day, Francisco Pizarro, Frederick Winslow Taylor, full employment, General Magic , Glass-Steagall Act, Gordon Gekko, Great Leap Forward, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, Hernando de Soto, hiring and firing, Ida Tarbell, illegal immigration, informal economy, interchangeable parts, interest rate swap, invention of movable type, invention of the printing press, invention of the steam engine, invisible hand, Isaac Newton, James Hargreaves, James Watt: steam engine, Jeff Bezos, John Bogle, joint-stock company, Joseph Schumpeter, junk bonds, knowledge economy, land bank, land reform, Livingstone, I presume, Long Term Capital Management, low interest rates, Mahatma Gandhi, Martin Wolf, military-industrial complex, moral hazard, Nixon triggered the end of the Bretton Woods system, PalmPilot, Parag Khanna, pneumatic tube, Ponzi scheme, profit maximization, profit motive, race to the bottom, Ralph Nader, refrigerator car, Ronald Reagan, scientific management, Scramble for Africa, Silicon Valley, Silicon Valley startup, South China Sea, South Sea Bubble, special economic zone, spice trade, spinning jenny, strikebreaker, Suez canal 1869, the built environment, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thorstein Veblen, total factor productivity, trade route, transatlantic slave trade, transcontinental railway, two and twenty, union organizing, Unsafe at Any Speed, Upton Sinclair, urban renewal, vertical integration, War on Poverty, working poor, Works Progress Administration, Yogi Berra, Yom Kippur War

Trade and Society Because sixteenth-century trade created new wealth and reached deeper into the countryside with its monetary exchanges, it had a more pervasive impact than had earlier commercial enterprises. The flood of silver that the conquistadors stole from the Incas and Aztecs precipitated a century-long inflation in Europe. This inflation didn’t fall, like the rain that Shakespeare’s Portia described, impartially on everyone. It hurt those with fixed incomes, like landlords tied to old leases. Wages too lagged behind price rises, but inflation gave a boost to entrepreneurs. The profits of merchants in the East Indian trade were enhanced too. Merchants from England, France, and the Netherlands sailed forth on their yearlong voyages with goods and currency to pay for them and returned to find their cargoes of silks, precious stones, spices, and perfumed woods selling at substantially higher prices than when they left.

A University of Chicago economist, Friedman wrote extensively on consumer behavior and public policy, often in partnership with his wife, Rose. Friedman analyzed the new data and explained why a volatile inflation rate actually contributed to unemployment because it increased uncertainty. Its harm to creditors and those on fixed incomes also put pressure on governments to do something—wise or not. Friedman advised cutting back on government activity in the economy so that the market could do what it does best: communicate simple, unadulterated information through its prices to market participants, who could then make the soundest decisions with their resources.


Digital Accounting: The Effects of the Internet and Erp on Accounting by Ashutosh Deshmukh

accounting loophole / creative accounting, AltaVista, book value, business continuity plan, business intelligence, business logic, business process, call centre, computer age, conceptual framework, corporate governance, currency risk, data acquisition, disinformation, dumpster diving, fixed income, hypertext link, information security, interest rate swap, inventory management, iterative process, late fees, machine readable, money market fund, new economy, New Journalism, optical character recognition, packet switching, performance metric, profit maximization, semantic web, shareholder value, six sigma, statistical model, supply chain finance, supply-chain management, supply-chain management software, telemarketer, transaction costs, value at risk, vertical integration, warehouse automation, web application, Y2K

Currently, FinXML supports interest rates, foreign exchange and commodity derivatives, bonds, money markets, loans and deposits, and exchange-traded futures and options. Research Information Exchange Markup Language (RIXML) is an industrystandard dialect of XML that deals with management of research information, which includes equity research, fixed-income research, and events and calendars. This specification is targeted toward financial services firms such as brokerage houses, asset management companies, mutual fund managers and securities houses. Interactive Financial exchange (IFX) specification is a framework for transfer of financial data, which is developed by major financial institutions.

Treasury functions Cash Management •Liquidity Management •Payments and Collections •Electronic Banking Treasury Functions Investment and Debt Management •Bank Borrowings •Stock and Bond Issuance •Dividend Policies Financial Risk Management •Liquidity Risk •Credit Risk •Interest Rate Risk •Currency Risk •Share Value Risk Investor Relations Financial Intermediaries Foreign Exchange Markets Interest Rate Changes Investment and debt management deals with investments in marketable securities, issuance debt and security instruments, and sale and redemption of these instruments. These activities require access to stock market information, money markets, fixed-income securities markets, foreign exchange rates and derivatives. The treasurer also needs a view of market positions, ability to track, check and complete transactions, and back-end connections to the accounting system. Accounting standards such as Financial Accounting Standard (FAS) 133, FAS 138 and IAS 39, which provide authoritative guidance for measurement and valuation of transactions in these areas, need to be supported by accounting and treasury systems.


pages: 257 words: 64,763

The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street by Robert Scheer

Alan Greenspan, banking crisis, Bear Stearns, Bernie Madoff, Bernie Sanders, business cycle, California energy crisis, collateralized debt obligation, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, do well by doing good, facts on the ground, financial deregulation, fixed income, Glass-Steagall Act, housing crisis, invisible hand, Long Term Capital Management, low interest rates, mega-rich, mortgage debt, new economy, old-boy network, Ponzi scheme, profit motive, Ralph Nader, rolling blackouts, Ronald Reagan, Savings and loan crisis, too big to fail, trickle-down economics

As the Times’ Eric Dash and Julie Creswell reported, in 2005 Rubin helped draft the blueprints for large internal expansions at Citigroup. According to current and former colleagues, he worried that Citigroup was lagging behind competitors like Goldman Sachs, so he advocated for the company to take on more high-growth fixed-income trading, including more collateralized debt obligations. Dash and Creswell’s sources said Rubin wanted Citigroup to take on more and more risk—with the vague notion that this was contingent on increased oversight as well; after the fact, the Federal Reserve concluded that oversight had been woefully inadequate.


pages: 233 words: 66,446

Bitcoin: The Future of Money? by Dominic Frisby

3D printing, Alan Greenspan, altcoin, bank run, banking crisis, banks create money, barriers to entry, bitcoin, Bitcoin Ponzi scheme, blockchain, capital controls, Chelsea Manning, cloud computing, computer age, cryptocurrency, disintermediation, Dogecoin, Ethereum, ethereum blockchain, fiat currency, financial engineering, fixed income, friendly fire, game design, Hacker News, hype cycle, Isaac Newton, John Gilmore, Julian Assange, land value tax, litecoin, low interest rates, M-Pesa, mobile money, Money creation, money: store of value / unit of account / medium of exchange, Occupy movement, Peter Thiel, Ponzi scheme, prediction markets, price stability, printed gun, QR code, quantitative easing, railway mania, Ronald Reagan, Ross Ulbricht, Satoshi Nakamoto, Silicon Valley, Skype, slashdot, smart contracts, Snapchat, Stephen Hawking, Steve Jobs, Ted Nelson, too big to fail, transaction costs, Turing complete, Twitter Arab Spring, Virgin Galactic, Vitalik Buterin, War on Poverty, web application, WikiLeaks

Other markets just look like they’re in trouble – Japan and so on. China has got its own difficulties with maintaining this high growth rate, which seems to be unsustainable, and other emerging markets are feeding off that. And so it’s hard to see how the case for global growth is a good one. When you look at fixed income markets, yields have not been this low in living memory. So there’s no return, there’s low nominal GDP growth, there’s no inflation. Put it all together it’s pretty hard to find some good investments. ‘The world is looking for something – for a new trick. I think that crypto may well be that thing.’


pages: 225 words: 64,008

The Secret Lives of Hoarders: True Stories of Tackling Extreme Clutter by Matt Paxton, Phaedra Hise

big-box store, dumpster diving, fixed income, retail therapy

But many of the aspects of a hoarder cleanup are beyond the capabilities of this core group, which means experts and professionals will need to be engaged in order to deal effectively with the emotional, psychological, legal, and physical issues. A CONCERNED—AND PERSISTENT—NEIGHBOR Daisy was an eighty-five-year-old retired schoolteacher who had been living by herself on a fixed income for many years. As frugal as she was tiny, she had spent the last two decades hoarding everything and anything in her efforts to save money, and with the secret hope that some of what she saved might be valuable or useful someday. Someone once told her that she could turn her old newspapers in for cash, but the piles of paper had become unmanageable.


pages: 218 words: 63,471

How We Got Here: A Slightly Irreverent History of Technology and Markets by Andy Kessler

Albert Einstein, Andy Kessler, animal electricity, automated trading system, bank run, Big bang: deregulation of the City of London, Black Monday: stock market crash in 1987, Bletchley Park, Bob Noyce, Bretton Woods, British Empire, buttonwood tree, Charles Babbage, Claude Shannon: information theory, Corn Laws, cotton gin, Dennis Ritchie, Douglas Engelbart, Edward Lloyd's coffeehouse, Fairchild Semiconductor, fiat currency, fixed income, floating exchange rates, flying shuttle, Fractional reserve banking, full employment, GPS: selective availability, Grace Hopper, invention of the steam engine, invention of the telephone, invisible hand, Isaac Newton, Jacquard loom, James Hargreaves, James Watt: steam engine, John von Neumann, joint-stock company, joint-stock limited liability company, Joseph-Marie Jacquard, Ken Thompson, Kickstarter, Leonard Kleinrock, Marc Andreessen, Mary Meeker, Maui Hawaii, Menlo Park, Metcalfe's law, Metcalfe’s law, military-industrial complex, Mitch Kapor, Multics, packet switching, pneumatic tube, price mechanism, probability theory / Blaise Pascal / Pierre de Fermat, profit motive, proprietary trading, railway mania, RAND corporation, Robert Metcalfe, Silicon Valley, Small Order Execution System, South Sea Bubble, spice trade, spinning jenny, Steve Jobs, Suez canal 1869, supply-chain management, supply-chain management software, systems thinking, three-martini lunch, trade route, transatlantic slave trade, tulip mania, Turing machine, Turing test, undersea cable, UUNET, Wayback Machine, William Shockley: the traitorous eight

It used to be said that to find the best traders with “street smarts,” take a taxi into Queens until the meter reads $20 and then load up the back seat. Today, the ticket to the dance requires an MBA. Typically, there is a division between bond trading and stock trading, or to make it sound important, fixed income and equity. At first, Wall Street would just buy and sell shares as an agent for money managers like Chase Bank or Fidelity. But they noticed that these firms were making .8 percent to 1.5 percent fees, year in and year out, for picking stocks. Not a bad business. So almost without exception, Wall Street firms have built asset management arms, and filled them with cerebral types, who either were good at picking stocks or got sent back to the trading floor.


pages: 227 words: 71,675

Rules for Revolutionaries: How Big Organizing Can Change Everything by Becky Bond, Zack Exley

battle of ideas, Bernie Sanders, Black Lives Matter, call centre, centre right, cognitive dissonance, crowdsourcing, declining real wages, digital rights, Donald Trump, family office, fixed income, full employment, hiring and firing, hydraulic fracturing, immigration reform, income inequality, Kickstarter, mass incarceration, Naomi Klein, Occupy movement, oil shale / tar sands, plutocrats, randomized controlled trial, Skype, telemarketer, union organizing

Our problems are big, so our solutions must be big as well. To achieve them we need a new kind of organizing, and that is big organizing. Big organizing rarely works around a single issue. Our struggles are all connected. We can’t achieve universal health care until we have immigration reform. We can’t fix income equality until we deal with structural racism and the historical legacy of slavery. We can’t resolve national and global security issues or reach full employment without working as hard as possible to stop climate change. Big organizing also needs to have a clear and credible theory of change that explains why organizing matters.


Day One Trader: A Liffe Story by John Sussex

algorithmic trading, Boris Johnson, credit crunch, fixed income, John Meriwether, Long Term Capital Management, Neil Kinnock, Nick Leeson, offshore financial centre, proprietary trading, Reminiscences of a Stock Operator, statistical arbitrage

Needless to say his brightly polished black shoes were well trodden on before the day’s trading was done. Locals on the Liffe floor could be just as vulnerable to cannons firing financial bombs out of America as the rest of the world’s economies when the excesses of US capitalism come unstuck. John Meriwether was in his prime as head of the domestic fixed income arbitrage group at Salomon Brothers when the Liffe market started to take off in the early eighties. Meriwether would often call dealers at Liffe to execute trades for him. During his tenure as Salomon’s floor manager in London, Ersser regularly spoke to Meriwether. The pair shared a love of horse racing and would often talk about their interest in the sport.


pages: 278 words: 74,880

A World of Three Zeros: The New Economics of Zero Poverty, Zero Unemployment, and Zero Carbon Emissions by Muhammad Yunus

"Friedman doctrine" OR "shareholder theory", active measures, Bernie Sanders, biodiversity loss, Capital in the Twenty-First Century by Thomas Piketty, clean water, conceptual framework, crony capitalism, data science, distributed generation, Donald Trump, financial engineering, financial independence, fixed income, full employment, high net worth, income inequality, Indoor air pollution, Internet of things, invisible hand, Jeff Bezos, job automation, Lean Startup, Marc Benioff, Mark Zuckerberg, megacity, microcredit, new economy, Occupy movement, profit maximization, Silicon Valley, the market place, The Wealth of Nations by Adam Smith, too big to fail, Tragedy of the Commons, unbanked and underbanked, underbanked, urban sprawl, young professional

The shareholders and employees of Danone contributed an initial sum of 65 million euros for the find. Now money continues to flow into the fund from Danone employees as well as from outside investors who want to participate. As currently structured, the fund invests 90 percent of its assets in fixed-income securities (bonds) that generate traditional investment income. The remaining 10 percent is invested in a venture capital fund that supports social businesses. The Danone Communities fund’s current investments include the following: • NutriGo, a company that fights infant malnutrition in China through sales of YingYangBao, a fortified supplement


pages: 267 words: 74,296

Unhappy Union: How the Euro Crisis - and Europe - Can Be Fixed by John Peet, Anton La Guardia, The Economist

"World Economic Forum" Davos, bank run, banking crisis, Berlin Wall, Bretton Woods, business cycle, capital controls, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, credit crunch, Credit Default Swap, debt deflation, Doha Development Round, electricity market, eurozone crisis, Fall of the Berlin Wall, financial engineering, fixed income, Flash crash, illegal immigration, labour market flexibility, labour mobility, light touch regulation, low interest rates, market fundamentalism, Money creation, moral hazard, Northern Rock, oil shock, open economy, pension reform, price stability, quantitative easing, special drawing rights, supply-chain management, The Great Moderation, too big to fail, transaction costs, éminence grise

Investors started to walk away from vulnerable sovereigns and, within days, to run after a spate of bad news. A statistical revision raised Greece’s 2009 deficit above 15% of GDP, and its overall debt by about 12 percentage points to 127% of GDP; Greece admitted it was having problems collecting taxes; and PIMCO, one of the biggest fixed-income managers, predicted that Greece was likely to default within three years. The mood at the next EU summit on October 28th was grim. Leaders of smaller countries were annoyed by the Franco-German diktat and the pressure to reopen the treaties. And Trichet, who had demanded that the Van Rompuy report formally note his reservations over weakened sanctions, warned leaders over dinner that the threat of debt restructuring would spook markets.


pages: 275 words: 82,640

Money Mischief: Episodes in Monetary History by Milton Friedman

Bretton Woods, British Empire, business cycle, classic study, currency peg, double entry bookkeeping, fiat currency, financial innovation, fixed income, floating exchange rates, foreign exchange controls, full employment, German hyperinflation, income per capita, law of one price, Money creation, money market fund, oil shock, price anchoring, price stability, Savings and loan crisis, systematic bias, Tax Reform Act of 1986, transaction costs

Referring to the period after the abandonment of the gold standard by Britain in 1931, he wrote: "Falling prices greatly aggravated conditions, as farmers and manufacturers found their income steadily decreasing, while such expenditures as interest on loans, taxes, etc., remained high, and rent, wages, etc., declined more slowly than prices. The conditions of workers in steady employment on fixed incomes improved through the fall in prices, but great numbers of wage-earners had been thrown out of employment by the crisis, more than cancelling the benefit to those who retained their positions. The economic situation steadily worsened" (p. 51). With respect to conditions a few years later, T'ang wrote: "The effect of the slump upon industry in 1932/3 was registered by a great increase in unemployment....In 1934 conditions became still worse.


pages: 280 words: 73,420

Crapshoot Investing: How Tech-Savvy Traders and Clueless Regulators Turned the Stock Market Into a Casino by Jim McTague

Alan Greenspan, algorithmic trading, automated trading system, Bear Stearns, Bernie Madoff, Bernie Sanders, Black Monday: stock market crash in 1987, Bretton Woods, buttonwood tree, buy and hold, computerized trading, corporate raider, creative destruction, credit crunch, Credit Default Swap, financial innovation, fixed income, Flash crash, High speed trading, housing crisis, index arbitrage, junk bonds, locking in a profit, Long Term Capital Management, machine readable, margin call, market bubble, market fragmentation, market fundamentalism, Myron Scholes, naked short selling, Nixon triggered the end of the Bretton Woods system, pattern recognition, Ponzi scheme, proprietary trading, quantitative trading / quantitative finance, Renaissance Technologies, Ronald Reagan, Sergey Aleynikov, short selling, Small Order Execution System, statistical arbitrage, technology bubble, transaction costs, uptick rule, Vanguard fund, Y2K

For those investors who’d rather have a professional handle their portfolios, McCaughan recommends life-cycle funds, also known in some quarters as target date funds. These are an increasingly popular way to save for retirement. The funds have a term based on the investor’s expected date of retirement. For younger investors with a time horizon of ten or more years, the bias now is on equities. The bias switches toward less risky fixed-income investments as the target date draws near. The funds invest in domestic and foreign equities and real estate. McCaughan adds that if you hope to retire in, say, 5 years but expect to hang around for another 20 or so years, equities also should be part of your portfolio. David Hartzell, the CEO of Cornell Capital Management in Buffalo, New York, recommends a strategy called dividend capture, which was pioneered by Japanese insurance companies.


pages: 276 words: 71,950

Antisemitism: Here and Now by Deborah E. Lipstadt

anti-communist, Ayatollah Khomeini, belling the cat, Black Lives Matter, Boycotts of Israel, Cass Sunstein, Donald Trump, en.wikipedia.org, epigenetics, fixed income, ghettoisation, Jeremy Corbyn, microaggression, Oklahoma City bombing, Stephen Hawking, Steve Bannon, Steven Pinker, The Bell Curve by Richard Herrnstein and Charles Murray, Timothy McVeigh, union organizing, WikiLeaks, zero-sum game

Prejudice is the act of negatively prejudging or assessing someone’s personal characteristics and behaviors based on stereotypical beliefs about the racial, ethnic, religious, cultural, political, or geographic group to which she belongs.1 And regardless of how many people a prejudiced person may encounter who do not conform to their group stereotype, this person continues to hold his racist beliefs. Are there Jews who are obsessed with money? Are there feminists who are perpetually angry and shrill? Yes, just as there are Jews on fixed incomes who spend time doing volunteer work and feminists who are mellow and laid-back. But that doesn’t interest the racist, who is often an insecure and/or angry person who needs to deprecate groupings of people who are different from his group in order to feel good about himself. In the best of all worlds, antisemites would be pitied for their ludicrous ideas.


pages: 277 words: 80,703

Revolution at Point Zero: Housework, Reproduction, and Feminist Struggle by Silvia Federici

"World Economic Forum" Davos, Alan Greenspan, Community Supported Agriculture, declining real wages, equal pay for equal work, feminist movement, financial independence, fixed income, gentrification, global village, illegal immigration, informal economy, invisible hand, labor-force participation, land tenure, mass incarceration, means of production, microcredit, military-industrial complex, neoliberal agenda, new economy, Occupy movement, planetary scale, Scramble for Africa, statistical model, structural adjustment programs, the market place, tontine, trade liberalization, UNCLOS, wages for housework, Washington Consensus, women in the workforce, World Values Survey

40 Even before the crisis, however, for years policy makers had been orchestrating a generational war, incessantly warning that that the growth of the sixty-five-plus population would bankrupt the Social Security system, leaving a heavy mortgage on the shoulders of the younger generations. Now, as the crisis deepens, the assault on assistance to old age and elder care is bound to escalate, whether in the form of a hyperinflation decimating fixed incomes, or the partial privatization of social security systems, or the rising retirement age. What is certain is that no one is arguing for an increase in government funding for elder care.41 It is urgent, then, that social justice movements, including radical scholars and activists, intervene on this terrain to prevent a triage solution to the crisis at the expense of the old, and to formulate initiatives capable of bringing together the different social subjects who are implicated in the question of elder care—care workers, the families of the elders, and first of all the elders themselves—who are now often placed in an antagonistic relation with each other.


pages: 247 words: 74,612

For the Love of Money: A Memoir by Sam Polk

Bear Stearns, carried interest, Credit Default Swap, eat what you kill, fixed income, food desert, hiring and firing, Northern Rock, nuclear winter, Rosa Parks, SimCity

“He’s thirty-five and the boss of the whole floor.” Jared told me how Jack had organized a walkout when the traders thought they were being underpaid; to entice them to return, management had given all the traders three-year multi-million-dollar bonus guarantees. Jack was guaranteed $15 million per year and named head of fixed income. I looked at Jack, reclined in his office, and bristled with envy. I imagined myself in his position, my feet propped on the desk. The boss of the whole floor. The next day I was sitting with Jared again when Jack ­DiMaio called him. I looked to Jared to see if he wanted privacy, but he motioned for me to listen.


Raw Data Is an Oxymoron by Lisa Gitelman

23andMe, collateralized debt obligation, computer age, continuous integration, crowdsourcing, disruptive innovation, Drosophila, Edmond Halley, Filter Bubble, Firefox, fixed income, folksonomy, Google Earth, Howard Rheingold, index card, informal economy, information security, Isaac Newton, Johann Wolfgang von Goethe, knowledge worker, Large Hadron Collider, liberal capitalism, lifelogging, longitudinal study, Louis Daguerre, Menlo Park, off-the-grid, optical character recognition, Panopticon Jeremy Bentham, peer-to-peer, RFID, Richard Thaler, Silicon Valley, social graph, software studies, statistical model, Stephen Hawking, Steven Pinker, text mining, time value of money, trade route, Turing machine, urban renewal, Vannevar Bush, WikiLeaks

A “simple formula,” which allowed market participants to compare two rates of change on a compound basis, enabled borrowers and lenders to calculate such relations between standards.16 The second calculation essential to understanding the relationship between interest rates and monetary appreciation (or depreciation) involved the “present value” of the future sum that would be returned on money put out at interest. As Fisher explained, “The ordinary definition of the ‘present value’ of a given sum due at a future date is ‘that sum which put at interest to-day will “amount” to the given sum at that future date.’”17 Present-value calculations, which had been used routinely in insurance, annuity, and fixed-income (bond) transactions since the seventeenth century, allow market participants who foresee changes in the value of money to make rational business and investment decisions, based on the effects these changes will have on costs and income. Instead of requiring complex, on-the-spot calculations, present value is based on 67 68 Kevin R.


pages: 318 words: 77,223

The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse by Mohamed A. El-Erian

"World Economic Forum" Davos, activist fund / activist shareholder / activist investor, Airbnb, Alan Greenspan, balance sheet recession, bank run, barriers to entry, Bear Stearns, behavioural economics, Black Monday: stock market crash in 1987, break the buck, Bretton Woods, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, collapse of Lehman Brothers, corporate governance, currency peg, disruptive innovation, driverless car, Erik Brynjolfsson, eurozone crisis, fear index, financial engineering, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, fixed income, Flash crash, forward guidance, friendly fire, full employment, future of work, geopolitical risk, Hyman Minsky, If something cannot go on forever, it will stop - Herbert Stein's Law, income inequality, inflation targeting, Jeff Bezos, Kenneth Rogoff, Khan Academy, liquidity trap, low interest rates, Martin Wolf, megacity, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, Norman Mailer, oil shale / tar sands, price stability, principal–agent problem, quantitative easing, risk tolerance, risk-adjusted returns, risk/return, Second Machine Age, secular stagnation, sharing economy, Sheryl Sandberg, sovereign wealth fund, The Great Moderation, The Wisdom of Crowds, too big to fail, University of East Anglia, yield curve, zero-sum game

In a paper published at the end of 2013, researchers at the McKinsey Global Institute estimated $1.6 trillion of savings between 2007 and 2012 for governments in the Eurozone, United Kingdom, and United States, and $710 billion of savings for nonfinancial companies there.11 Households have done less well in those countries. The hardest-hit segment has been savers—typically older households—relying on income from short-dated fixed-income securities (such as certificates of deposit) and those looking to purchase new annuities from insurance companies to protect their retirement. Indeed, the drop in interest rates has driven insurance companies to do more than lower their guaranteed payouts; some have abandoned the annuity business altogether.


pages: 248 words: 72,174

The $100 Startup: Reinvent the Way You Make a Living, Do What You Love, and Create a New Future by Chris Guillebeau

Airbnb, big-box store, clean water, digital nomad, do what you love, fixed income, follow your passion, if you build it, they will come, index card, informal economy, Kevin Kelly, Kickstarter, knowledge economy, late fees, messenger bag, Nelson Mandela, price anchoring, Ralph Waldo Emerson, side project, Silicon Valley, Skype, solopreneur, Steve Jobs, Tony Hsieh, web application

Moving back to the studio three days a week was the right fit. When she had left six months earlier, she had a lot of responsibility as the lead designer; there was no way she could stick around in a lesser role without first leaving for a while. Coming back in under the radar gave her the security of having a certain amount of fixed income while retaining the freedom of working half-time on her other projects. Also, Tsilli now worked as a contractor instead of an employee, and that gave her an unexpected but important sense of still earning all her income “on her own,” with roughly half coming from the studio and half from her business.


China's Superbank by Henry Sanderson, Michael Forsythe

"World Economic Forum" Davos, addicted to oil, Asian financial crisis, Bretton Woods, BRICs, Carmen Reinhart, Credit Default Swap, deindustrialization, Deng Xiaoping, Dutch auction, failed state, financial innovation, financial repression, fixed income, Great Leap Forward, high-speed rail, if you build it, they will come, income inequality, invisible hand, joint-stock company, junk bonds, Kenneth Rogoff, land bank, London Interbank Offered Rate, low interest rates, megacity, new economy, New Urbanism, price mechanism, race to the bottom, reserve currency, Ronald Reagan, Shenzhen special economic zone , Shenzhen was a fishing village, Silicon Valley, Solyndra, South Sea Bubble, sovereign wealth fund, special drawing rights, special economic zone, too big to fail, urban renewal, urban sprawl, work culture

To appreciate how little impact the bond market, domestically or overseas, has had on CDB’s transparency, it is worth looking at its 2010 annual report, a glossy production audited by PricewaterhouseCoopers.74 The report says that fully 23 percent of its lending goes to sectors classified as “other.” That’s a total of over 1 trillion yuan that the public, let alone the international and domestic investors who buy its bonds, has no right to know about. Buying CDB bonds, as Fan Wei, a young fixed-income analyst at Hongyuan Securities in Beijing, said, is “a political duty.” The banks could earn more by lending their money out. But if banks stopped buying the bonds, CDB would be out of business in a matter of days, and it is too big to fail. The West Self-Destructs: The Financial Crisis Chen wanted to be more than just a lender for overseas ventures.


pages: 348 words: 83,490

More Than You Know: Finding Financial Wisdom in Unconventional Places (Updated and Expanded) by Michael J. Mauboussin

Alan Greenspan, Albert Einstein, Andrei Shleifer, Atul Gawande, availability heuristic, beat the dealer, behavioural economics, Benoit Mandelbrot, Black Swan, Brownian motion, butter production in bangladesh, buy and hold, capital asset pricing model, Clayton Christensen, clockwork universe, complexity theory, corporate governance, creative destruction, Daniel Kahneman / Amos Tversky, deliberate practice, demographic transition, discounted cash flows, disruptive innovation, diversification, diversified portfolio, dogs of the Dow, Drosophila, Edward Thorp, en.wikipedia.org, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, fixed income, framing effect, functional fixedness, hindsight bias, hiring and firing, Howard Rheingold, index fund, information asymmetry, intangible asset, invisible hand, Isaac Newton, Jeff Bezos, John Bogle, Kenneth Arrow, Laplace demon, Long Term Capital Management, loss aversion, mandelbrot fractal, margin call, market bubble, Menlo Park, mental accounting, Milgram experiment, Murray Gell-Mann, Nash equilibrium, new economy, Paul Samuelson, Performance of Mutual Funds in the Period, Pierre-Simon Laplace, power law, quantitative trading / quantitative finance, random walk, Reminiscences of a Stock Operator, Richard Florida, Richard Thaler, Robert Shiller, shareholder value, statistical model, Steven Pinker, stocks for the long run, Stuart Kauffman, survivorship bias, systems thinking, The Wisdom of Crowds, transaction costs, traveling salesman, value at risk, wealth creators, women in the workforce, zero-sum game

Said differently, investors pay attention to the narrow frame.3 If prospect theory does indeed explain investor behavior, the probabilities of a stock (or portfolio) rising and the investment-evaluation period become paramount. I want to shine a light on the policies regarding these two variables. Explaining the Equity-Risk Premium One of finance’s big puzzles is why equity returns have been so much higher than fixed-income returns over time, given the respective risk of each asset class. From 1900 through 2006, stocks in the United States have earned a 5.7 percent annual premium over treasury bills (geometric returns). Other developed countries around the world have seen similar results.4 In a trailblazing 1995 paper, Shlomo Benartzi and Richard Thaler suggested a solution to the equity risk premium puzzle based on what they called “myopic loss aversion.”


Crisis and Dollarization in Ecuador: Stability, Growth, and Social Equity by Paul Ely Beckerman, Andrés Solimano

banking crisis, banks create money, barriers to entry, business cycle, capital controls, Carmen Reinhart, carried interest, central bank independence, centre right, clean water, currency peg, declining real wages, disintermediation, financial intermediation, fixed income, floating exchange rates, Future Shock, Gini coefficient, income inequality, income per capita, labor-force participation, land reform, London Interbank Offered Rate, Mexican peso crisis / tequila crisis, microcredit, Money creation, money: store of value / unit of account / medium of exchange, offshore financial centre, old-boy network, open economy, pension reform, price stability, rent-seeking, school vouchers, seigniorage, trade liberalization, women in the workforce

In late 1993 and 1994, following the introduction of the float-within-acrawling-band exchange-rate policy, Ecuador experienced a short-term, financial-capital inflow (see Jaramillo 1994). Unlike other economies, where capital flows tended primarily to go to the stock markets, these inflows went mostly to short-term, fixed-income applications, since high, short-term interest rates were now available on sucre deposits. The placements were made mostly by Ecuadoran nationals, repatriating holdings taken abroad in the 1980s. The inflows themselves increased foreignexchange reserves and so seemed to reduce exchange-rate risk, encouraging further inflows.


pages: 280 words: 82,623

What Got You Here Won't Get You There: How Successful People Become Even More Successful by Marshall Goldsmith, Mark Reiter

AOL-Time Warner, business process, cognitive dissonance, financial independence, fixed income, Gordon Gekko, high net worth, knowledge worker, loss aversion, shareholder value, zero-sum game

If Michael Jordan, a preternaturally superb athlete and competitor—in fact, the benchmark for other basketball players—could only excel at one sport, what makes you think you can do better? It’s not just sports. I work with a lot of clients in the financial services sector. When I check the annual rankings of how the firms are doing against their rivals, one firm is ranked #1 at investment banking, a different firm is #1 at mergers and acquisitions, yet another is #1 at fixed income securities, and so on through a dozen categories. No firm is #1 at everything, and very few firms are even tops in two categories. In an environment where all the big firms are loaded with the best and brightest out of the top business schools, the competition is too stiff for one firm to dominate all categories.


pages: 261 words: 81,802

The Trouble With Billionaires by Linda McQuaig

"World Economic Forum" Davos, battle of ideas, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, British Empire, Build a better mousetrap, carried interest, Charles Babbage, collateralized debt obligation, computer age, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, Douglas Engelbart, Douglas Engelbart, employer provided health coverage, financial deregulation, fixed income, full employment, Gary Kildall, George Akerlof, Gini coefficient, Glass-Steagall Act, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of the telephone, invention of the wheel, invisible hand, Isaac Newton, Jacquard loom, John Bogle, Joseph-Marie Jacquard, laissez-faire capitalism, land tenure, lateral thinking, low interest rates, Mark Zuckerberg, market bubble, Martin Wolf, mega-rich, minimum wage unemployment, Mont Pelerin Society, Naomi Klein, neoliberal agenda, Northern Rock, offshore financial centre, Paul Samuelson, plutocrats, Ponzi scheme, pre–internet, price mechanism, proprietary trading, purchasing power parity, RAND corporation, rent-seeking, rising living standards, road to serfdom, Robert Solow, Ronald Reagan, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, trickle-down economics, Vanguard fund, very high income, wealth creators, women in the workforce

What is striking is the much greater height discrepancies in today’s parade, reflecting the fact that income inequality is now considerably more extreme than it was some three hundred years ago. For the first six minutes of today’s parade we see nothing but very tiny people – less than thirty centimetres tall. This low-income crowd, all earning less than £4500 a year, includes people on government assistance, part-time workers and senior citizens on fixed incomes. The height of the marchers rises ever so gradually. After about fifteen minutes, there are fast-food workers, retail shop workers and parking attendants, all less than ninety centimetres tall Eventually, slightly taller receptionists, factory workers and lorry drivers appear, but they’re still awfully short, generally measuring less than 130 centimetres high.


pages: 263 words: 84,410

Tulipomania: The Story of the World's Most Coveted Flower & the Extraordinary Passions It Aroused by Mike Dash

fixed income, Ponzi scheme, random walk, South Sea Bubble, spice trade, trade route, tulip mania

Probably the first florists thought of establishing themselves as growers. The idea of taking a simple bulb and turning it into cash in the course of a single winter must have been a very attractive one, and naturally it appealed particularly to the itinerant, the indolent, and the chancers in Dutch society—people with no fixed employment and no fixed income, who welcomed what seemed a fine opportunity to earn some easy money. Many honest artisans who worked enormously hard to make a fraction of what some tulip growers earned found the flower trade increasingly attractive as well. Equally naturally, it was less enticing to the better off and those fixed in stable professions, who were already living a reasonably comfortable life.


Culture Shock! Costa Rica 30th Anniversary Edition by Claire Wallerstein

anti-communist, bilateral investment treaty, call centre, card file, Day of the Dead, Easter island, fixed income, Kickstarter, liberal capitalism, out of africa, Silicon Valley, sustainable-tourism, trade route, urban sprawl

It has 126 CultureShock! Costa Rica started to apply economic criteria to those hoping to obtain residency, stating in some cases that an applicant ‘would not add any input to the economy of Costa Rica or create employment for Costa Ricans’. Currently, a rentista applicant must demonstrate a permanent fixed income from investments of at least US$ 2,500 per month. Pensionados must show investment income of US$ 1,000 per month while inversionistas must invest a minimum of US$ 200,000. However, these limits could well increase if new laws are passed. What to Bring on Your Nature Holiday If you’re only coming for a short trip to the country and are heading straight out to the wilds for a nature holiday, the following items would be very useful: A good pair of binoculars.


pages: 299 words: 83,854

Shortchanged: Life and Debt in the Fringe Economy by Howard Karger

Alan Greenspan, big-box store, blue-collar work, book value, corporate social responsibility, credit crunch, delayed gratification, financial deregulation, fixed income, illegal immigration, independent contractor, labor-force participation, late fees, London Interbank Offered Rate, low interest rates, low skilled workers, microcredit, mortgage debt, negative equity, New Journalism, New Urbanism, offshore financial centre, payday loans, predatory finance, race to the bottom, Silicon Valley, Telecommunications Act of 1996, telemarketer, underbanked, working poor

Assuming an average yearly appreciation of 2.5%, a $100,000 house will be worth $204,640 in 30 years. With a 50% SAM, a homeowner must come up with $52,320 when the loan matures. SAM contracts often state that the shared equity is due upon the maturation of the loan, with no extensions. Homeowners who face retirement on a fixed income would therefore be forced to initiate a new mortgage. SAM lenders also claim their equity share if the homeowner refinances, sells the house, or otherwise terminates the loan. The full loan amount, plus any appreciation, may become due immediately if the homeowner fails to live in the house for at least a year.


pages: 290 words: 84,375

China's Great Wall of Debt: Shadow Banks, Ghost Cities, Massive Loans, and the End of the Chinese Miracle by Dinny McMahon

"World Economic Forum" Davos, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, American Society of Civil Engineers: Report Card, Andrei Shleifer, Asian financial crisis, bank run, business cycle, California gold rush, capital controls, crony capitalism, dark matter, Deng Xiaoping, Donald Trump, Edward Glaeser, eurozone crisis, financial innovation, fixed income, Gini coefficient, Global Witness, Great Leap Forward, high-speed rail, if you build it, they will come, income inequality, industrial robot, invisible hand, low interest rates, megacity, middle-income trap, military-industrial complex, money market fund, mortgage debt, new economy, peer-to-peer lending, Ponzi scheme, Ronald Reagan, short selling, Silicon Valley, subprime mortgage crisis, too big to fail, trickle-down economics, urban planning, working-age population, zero-sum game

In the United States, trust companies help rich families preserve their wealth from one generation to the next, but in China trusts have become the second-biggest class of financial institution after the banks, facilitating loans to everyone from property developers to local governments. And whereas in the United States most households own shares in publicly traded companies, whether in a 401(k) or a mutual fund, in China families are most likely to hold short-term, fixed-income investments called wealth-management products, which are sold by banks as a no-risk, higher-return alternative to deposits. The curious shape of China’s financial institutions is not the result of some grand design hatched in Beijing. Rather, it’s the result of unprecedented tolerance by the Chinese authorities of financial innovation and experimentation.


pages: 304 words: 80,965

What They Do With Your Money: How the Financial System Fails Us, and How to Fix It by Stephen Davis, Jon Lukomnik, David Pitt-Watson

activist fund / activist shareholder / activist investor, Admiral Zheng, banking crisis, Basel III, Bear Stearns, behavioural economics, Bernie Madoff, Black Swan, buy and hold, Carl Icahn, centralized clearinghouse, clean water, compensation consultant, computerized trading, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, crowdsourcing, David Brooks, Dissolution of the Soviet Union, diversification, diversified portfolio, en.wikipedia.org, financial engineering, financial innovation, financial intermediation, fixed income, Flash crash, Glass-Steagall Act, income inequality, index fund, information asymmetry, invisible hand, John Bogle, Kenneth Arrow, Kickstarter, light touch regulation, London Whale, Long Term Capital Management, moral hazard, Myron Scholes, Northern Rock, passive investing, Paul Volcker talking about ATMs, payment for order flow, performance metric, Ponzi scheme, post-work, principal–agent problem, rent-seeking, Ronald Coase, seminal paper, shareholder value, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, Steve Jobs, the market place, The Wealth of Nations by Adam Smith, transaction costs, Upton Sinclair, value at risk, WikiLeaks

First and most familiar are the banks. People make deposits and loans to banks (a bank account is a loan to a bank) on which they expect to receive interest. Fund managers also provide banks with money, either in the form of partial ownership, which we call shares or equity, or in loans, which we call debt or fixed income investing. So, too, do central banks, though those loans are very short term. In turn, banks lend that money to individuals or companies that have need of it. They charge the borrowers interest and fees on those loans, which in turn pay for the bank’s operations.6 Banks also provide safekeeping for money and offer a payment system.


pages: 353 words: 81,436

Buying Time: The Delayed Crisis of Democratic Capitalism by Wolfgang Streeck

"there is no alternative" (TINA), "World Economic Forum" Davos, activist fund / activist shareholder / activist investor, air traffic controllers' union, Alan Greenspan, banking crisis, basic income, Bretton Woods, business cycle, capital controls, Carmen Reinhart, central bank independence, collective bargaining, corporate governance, creative destruction, currency risk, David Graeber, deindustrialization, Deng Xiaoping, Eugene Fama: efficient market hypothesis, financial deregulation, financial engineering, financial repression, fixed income, full employment, Garrett Hardin, Gini coefficient, Growth in a Time of Debt, income inequality, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, knowledge economy, labour market flexibility, labour mobility, late capitalism, liberal capitalism, low interest rates, means of production, moral hazard, Myron Scholes, Occupy movement, open borders, open economy, Plutonomy: Buying Luxury, Explaining Global Imbalances, profit maximization, risk tolerance, shareholder value, too big to fail, Tragedy of the Commons, union organizing, winner-take-all economy, Wolfgang Streeck

In the psychologistic worldview of labour economics, the distinction between residual capital income and contractually fixed labour income – between profits and wages – is associated with different ‘risk propensities’: ‘risk-averse’ individuals prefer to be workers, with a low but secure labour income, while the more ‘risk-tolerant’ become entrepreneurs, with a less secure but potentially high capital income. Whereas recipients of residual income seek the highest possible yield on their capital investment, earners of fixed income try to keep as low as possible the input required of them.41 Distribution conflicts arise from the fact that, other things being equal, higher residual income for the profit-dependent entails lower wages for the wage-dependent, and vice versa.42 For a theory of political economy in which capital is an actor and not just machinery, the seemingly technical ‘functioning’ of the ‘economy’ – above all, growth and full employment – is in reality a political matter.


pages: 561 words: 87,892

Losing Control: The Emerging Threats to Western Prosperity by Stephen D. King

"World Economic Forum" Davos, Admiral Zheng, Alan Greenspan, asset-backed security, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, BRICs, British Empire, business cycle, capital controls, Celtic Tiger, central bank independence, collateralized debt obligation, corporate governance, credit crunch, crony capitalism, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, demographic dividend, demographic transition, Deng Xiaoping, Diane Coyle, Fall of the Berlin Wall, financial deregulation, financial innovation, fixed income, foreign exchange controls, Francis Fukuyama: the end of history, full employment, G4S, George Akerlof, German hyperinflation, Gini coefficient, Great Leap Forward, guns versus butter model, hiring and firing, income inequality, income per capita, inflation targeting, invisible hand, Isaac Newton, junk bonds, knowledge economy, labour market flexibility, labour mobility, liberal capitalism, low interest rates, low skilled workers, market clearing, Martin Wolf, mass immigration, Meghnad Desai, Mexican peso crisis / tequila crisis, Naomi Klein, new economy, old age dependency ratio, Paul Samuelson, Ponzi scheme, price mechanism, price stability, purchasing power parity, rent-seeking, reserve currency, rising living standards, Ronald Reagan, Savings and loan crisis, savings glut, Silicon Valley, Simon Kuznets, sovereign wealth fund, spice trade, statistical model, technology bubble, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, trade route, transaction costs, Washington Consensus, We are all Keynesians now, women in the workforce, working-age population, Y2K, Yom Kippur War

I tell you in all candour that that option no longer exists, and in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step.3 Put another way, if everyone knew a government was prepared to guarantee full employment through demand-management policies, it no longer mattered how far individual prices and wages rose. With everyone thinking along similar lines, inflation was bound to take off. Meanwhile, if some prices and wages rose faster than others, there would be an arbitrary and unfair redistribution of income and wealth. Those on fixed incomes – savers, pensioners – would lose out. Others – debtors, unionized workers able to demand annual wage increases – would gain. Meanwhile, increasingly volatile movements in prices and wages would make life impossible for businesses. They would not easily be able to single out profitable investment opportunities, leaving capital spending unnecessarily depressed, as proved to be the case in many countries during the 1970s.


Girlfriend in a coma by Douglas Coupland

Berlin Wall, Fall of the Berlin Wall, fixed income, kremlinology

You have to tell us what a Leaker is." "With pleasure," Hamilton said. "I first discovered Leakers maybe fifteen years ago - back when I was living down in that Gastown apartment building. Eighty-one? Eighty-two? I forget. Anyway, my neighbors were mostly a mixture of poor arty types and senior citizens on fixed incomes." "Get to the Leakers, Hamilton!" Tina said. "Okay. All right, already. Well, what would happen is this: I lived there for two years, and each August during the annual heat wave, a senior citizen on an upper floor would pay his rent, lock all of his doors and windows, watch TV, and promptly die.


pages: 266 words: 85,265

Suggestible You: The Curious Science of Your Brain's Ability to Deceive, Transform, and Heal by Erik Vance

classic study, fixed income, Frances Oldham Kelsey, hive mind, impulse control, Isaac Newton, meta-analysis, nocebo, personalized medicine, placebo effect, randomized controlled trial, Ronald Reagan, side project, stem cell, Steve Jobs, sugar pill, Yogi Berra

She says patients regularly come to her broke and near death after chasing placebos that haven’t worked out. “People [come in] emaciated. They have been robbed physically and financially of their resources,” she says. “And the more money you spend on these things, the more defensive you become about it.” One of Srivastava’s patients, a retired man on a fixed income and savings, came to her after months of $350 sessions for vitamin infusions. It was his second time fighting prostate cancer, and he just couldn’t face the pain and instability of another grueling barrage of chemotherapy. So he spent about $40,000 on promises of miracle cures until the discomfort became so strong that he swallowed his pride and went to a doctor in time to undergo a treatment that worked.


pages: 438 words: 84,256

The Great Demographic Reversal: Ageing Societies, Waning Inequality, and an Inflation Revival by Charles Goodhart, Manoj Pradhan

asset-backed security, banks create money, Berlin Wall, bonus culture, Boris Johnson, Branko Milanovic, Brexit referendum, business cycle, capital controls, carbon tax, central bank independence, commodity super cycle, coronavirus, corporate governance, COVID-19, deglobalization, demographic dividend, demographic transition, Deng Xiaoping, en.wikipedia.org, Fall of the Berlin Wall, financial independence, financial repression, fixed income, full employment, gig economy, Gini coefficient, Greta Thunberg, housing crisis, income inequality, inflation targeting, interest rate swap, job automation, Kickstarter, long term incentive plan, longitudinal study, low interest rates, low skilled workers, manufacturing employment, Martin Wolf, mass immigration, middle-income trap, non-tariff barriers, offshore financial centre, oil shock, old age dependency ratio, open economy, paradox of thrift, Pearl River Delta, pension reform, Phillips curve, price stability, private sector deleveraging, quantitative easing, rent control, savings glut, secular stagnation, shareholder value, special economic zone, The Great Moderation, The Wealth of Nations by Adam Smith, total factor productivity, working poor, working-age population, yield curve, zero-sum game

See Diagrams 11.3 and 11.4.1 Diagram 11.3The share of BBB-rated corporate bonds reached record highs in 2019 (Source Bank of England, Financial Stability Report, July 2019) Diagram 11.4The leveraged loan market has been growing rapidly in recent years, although it has slowed since its peak in 2018 (Source Bank of England, Financial Stability Report, July 2019) Fundamentally, a regime of low and falling interest rates makes default on fixed income obligations less likely even if revenue growth slows down. Financially, the low risk of default makes the purchase of high-yielding securities far more attractive when the ‘search for yield’ dominates investment strategies. A combination of the two naturally led to the rapid growth of the issuance of relatively more risky assets.


pages: 312 words: 84,421

This Chair Rocks: A Manifiesto Against Ageism by Ashton Applewhite

affirmative action, Affordable Care Act / Obamacare, Airbnb, Albert Einstein, Atul Gawande, Buckminster Fuller, clean water, cognitive dissonance, crowdsourcing, Day of the Dead, desegregation, Downton Abbey, fixed income, follow your passion, ghettoisation, Google Hangouts, hiring and firing, income inequality, informal economy, Internet of things, invention of the printing press, job satisfaction, labor-force participation, life extension, longitudinal study, Mark Zuckerberg, Naomi Klein, obamacare, old age dependency ratio, radical life extension, RAND corporation, Ronald Reagan, Rosa Parks, sensible shoes, Silicon Valley, Skype, smart cities, Snapchat, stem cell, the built environment, urban decay, urban planning, white picket fence, women in the workforce

Hallmarks of this process include less fear of death and disease, deeper relationships with fewer people, coupled with an increased desire for solitude, and diminished commitment to old habits, routines, and principles. The assumption that older people become “set in their ways” is an ageist cliché. Lives can indeed become constrained by disability or living on a fixed income or conforming to an institutional schedule. But the ultimate creatures of habit are children, and odds are that people who find comfort in routine were always like that. If I had a nickel for every story I’ve been sent about olders doing the limbo or DJing or skipping rope, I’d be rich. I don’t post them because they get plenty of press without my help, and because it reinforces the notion that the older people to admire are those who can look and behave like younger ones.


pages: 263 words: 80,594

Stolen: How to Save the World From Financialisation by Grace Blakeley

"Friedman doctrine" OR "shareholder theory", activist fund / activist shareholder / activist investor, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Basel III, basic income, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, Big Tech, bitcoin, bond market vigilante , Bretton Woods, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, capitalist realism, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collective bargaining, corporate governance, corporate raider, credit crunch, Credit Default Swap, cryptocurrency, currency peg, David Graeber, debt deflation, decarbonisation, democratizing finance, Donald Trump, emotional labour, eurozone crisis, Extinction Rebellion, extractivism, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, fixed income, full employment, G4S, gender pay gap, gig economy, Gini coefficient, global reserve currency, global supply chain, green new deal, Greenspan put, housing crisis, Hyman Minsky, impact investing, income inequality, inflation targeting, Intergovernmental Panel on Climate Change (IPCC), Jeremy Corbyn, job polarisation, junk bonds, Kenneth Rogoff, Kickstarter, land value tax, light touch regulation, low interest rates, low skilled workers, market clearing, means of production, Modern Monetary Theory, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, neoliberal agenda, new economy, Nixon triggered the end of the Bretton Woods system, Northern Rock, offshore financial centre, paradox of thrift, payday loans, pensions crisis, Phillips curve, Ponzi scheme, Post-Keynesian economics, post-war consensus, price mechanism, principal–agent problem, profit motive, quantitative easing, race to the bottom, regulatory arbitrage, reserve currency, Right to Buy, rising living standards, risk-adjusted returns, road to serfdom, Robert Solow, savings glut, secular stagnation, shareholder value, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, the built environment, The Great Moderation, too big to fail, transfer pricing, universal basic income, Winter of Discontent, working-age population, yield curve, zero-sum game

A claim is a contract that entitles the holder to an amount of income at some point in the future. For example, a loan made by a bank to an individual or company is a claim on being paid back at a later date. Financial securities are claims that are traded in financial markets, and include equities (stakes in the ownership of a corporation, also called stocks or shares), fixed-income securities (securities based on underlying agreements to repay a certain amount of money over a certain period of time), and derivatives (bets on the future value of other securities or commodities). For example, a bank with some mortgages on its books may want to sell those mortgages now rather than waiting a few decades for the debt to be repaid.


pages: 278 words: 82,771

Built on a Lie: The Rise and Fall of Neil Woodford and the Fate of Middle England’s Money by Owen Walker

activist fund / activist shareholder / activist investor, bank run, banking crisis, barriers to entry, Big bang: deregulation of the City of London, Black Monday: stock market crash in 1987, Brexit referendum, British Empire, buy and hold, call centre, carbon footprint, clean water, coronavirus, corporate governance, COVID-19, fixed income, G4S, Kickstarter, knowledge economy, liquidity trap, lockdown, mass affluent, popular capitalism, profit motive, regulatory arbitrage, shareholder value, short selling, Silicon Valley, sovereign wealth fund, stem cell, Steve Jobs, Winter of Discontent

Woodford had rediscovered his Midas touch and his funds were among the best performers over a ten-year period. He now controlled more than £6 billion – a third of the group’s UK assets – and had established himself as one of Britain’s best-known investors. Business was good in Henley. Invesco Perpetual’s funds – led by Woodford’s Income and High Income products, as well as fixed income funds run by the bond double act of Paul Causer and Paul Reed – were the most popular in Britain, with strong performance records to match. As financial advisers continued to recommend them to clients, Invesco Perpetual’s sales teams and fund managers received bumper bonuses. Oxfordshire’s luxury car dealerships did brisk trade as the company’s staff bought Porsches, McLarens and Audis.


pages: 304 words: 86,028

Bootstrapped: Liberating Ourselves From the American Dream by Alissa Quart

2021 United States Capitol attack, 3D printing, affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, Bernie Sanders, Black Lives Matter, Burning Man, Capital in the Twenty-First Century by Thomas Piketty, carried interest, coronavirus, COVID-19, critical race theory, crowdsourcing, Daniel Kahneman / Amos Tversky, David Graeber, defund the police, Donald Trump, Elon Musk, financial independence, fixed income, George Floyd, gig economy, glass ceiling, high net worth, housing justice, hustle culture, illegal immigration, impact investing, income inequality, independent contractor, invisible hand, Jeff Bezos, lockdown, longitudinal study, loss aversion, Lyft, Marc Benioff, Mark Zuckerberg, meta-analysis, microaggression, Milgram experiment, minimum wage unemployment, multilevel marketing, obamacare, Overton Window, payday loans, post-work, Ralph Waldo Emerson, ride hailing / ride sharing, Ronald Reagan, Salesforce, Scientific racism, sharing economy, Sheryl Sandberg, side hustle, Silicon Valley, Silicon Valley ideology, Snapchat, social distancing, Steve Jobs, Steve Wozniak, tech worker, TED Talk, Travis Kalanick, trickle-down economics, Uber and Lyft, uber lyft, union organizing, W. E. B. Du Bois, wealth creators, women in the workforce, working poor, Works Progress Administration

The group then used Google sign-up sheets and five hundred more people signed up. Founder Crystal Hudson wanted people who had never heard the phrase mutual aid to know about their group and for able-bodied volunteers to be at the ready. “Black women from the Caribbean haven’t been able to buy culturally relevant foods on their fixed incomes for years,” said Hudson, who is Black herself. That’s why the group worked to find the people most in need—the mutual aid-ers left flyers on the floors of the few coffee shops that were still open or slid them under doors in apartment buildings. The people in the greatest need, Hudson reasoned, might not have access to a Google form.


pages: 324 words: 92,805

The Impulse Society: America in the Age of Instant Gratification by Paul Roberts

"Friedman doctrine" OR "shareholder theory", 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, Abraham Maslow, accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Alan Greenspan, American Society of Civil Engineers: Report Card, AOL-Time Warner, asset allocation, business cycle, business process, carbon tax, Carl Icahn, Cass Sunstein, centre right, choice architecture, classic study, collateralized debt obligation, collective bargaining, computerized trading, corporate governance, corporate raider, corporate social responsibility, creative destruction, crony capitalism, David Brooks, delayed gratification, disruptive innovation, double helix, Evgeny Morozov, factory automation, financial deregulation, financial engineering, financial innovation, fixed income, Ford Model T, full employment, game design, Glass-Steagall Act, greed is good, If something cannot go on forever, it will stop - Herbert Stein's Law, impulse control, income inequality, inflation targeting, insecure affluence, invisible hand, It's morning again in America, job automation, John Markoff, Joseph Schumpeter, junk bonds, knowledge worker, late fees, Long Term Capital Management, loss aversion, low interest rates, low skilled workers, mass immigration, Michael Shellenberger, new economy, Nicholas Carr, obamacare, Occupy movement, oil shale / tar sands, performance metric, postindustrial economy, profit maximization, Report Card for America’s Infrastructure, reshoring, Richard Thaler, rising living standards, Robert Shiller, Rodney Brooks, Ronald Reagan, shareholder value, Silicon Valley, speech recognition, Steve Jobs, stock buybacks, technological determinism, technological solutionism, technoutopianism, Ted Nordhaus, the built environment, the long tail, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, total factor productivity, Tyler Cowen, Tyler Cowen: Great Stagnation, value engineering, Walter Mischel, winner-take-all economy

“David Frum on GOP: Now We Work for Fox.” ABCNews, March 23, 2010. Accessed November 18, 2013. Doi: http://abcnews.go.com/blogs/headlines/2010/03/david-frum-on-gop-now-we-work-for-fox/. Senft, Dexter. “Impact of Technology of the Investment Process.” Conference Proceedings of the CFA Institute Seminar “Fixed-Income Management 2004.” CFA Institute, 85–90. Smaghi, Lorenzo Bini (member of the Executive Board of the European Central Bank). “The Paradigm Shift after the Financial Crisis.” Speech at the Nomura Seminar.Kyoto, April 15, 2010. http://www.ecb.europa.eu/press/key /date/2010/html/sp100415.en.html. Smith, Hedrick.


pages: 287 words: 92,118

The Blue Cascade: A Memoir of Life After War by Mike Scotti

Bear Stearns, call centre, collateralized debt obligation, Donald Trump, fixed income, friendly fire, index card, information security, London Interbank Offered Rate, military-industrial complex, rent control

Both of the men sitting across from me were legends on Wall Street. Both were veterans of combat in Vietnam. Both had spent three or four decades climbing the ranks at the bank. Bob O’Brien was awarded a Purple Heart after he was wounded serving as a platoon commander. Doug Paul, the vice chairman of the Fixed Income Division, had been a Green Beret. On the wall of the corner office where we sat—between Bob’s desk and one of the windows that looked out high over Madison Square Park and the Flatiron Building—hung the signs with the names and logos of each version of the bank as it changed hands over the years.


pages: 263 words: 89,368

925 Ideas to Help You Save Money, Get Out of Debt and Retire a Millionaire So You Can Leave Your Mark on the World by Devin D. Thorpe

asset allocation, buy and hold, call centre, diversification, estate planning, fixed income, Home mortgage interest deduction, index fund, junk bonds, knowledge economy, low interest rates, money market fund, mortgage tax deduction, payday loans, random walk, risk tolerance, Skype, Steve Jobs, transaction costs, women in the workforce, zero-sum game

On the other hand, if you have a mortgage or don’t own your home, social security may not provide sufficient income for you to rent a place to live, cover all of your medical expenses and leave you with enough money for food and clothing. Owning a car would almost be out of the question. Many communities provide subsidized housing options for people on fixed incomes. In my community, for instance, public housing for seniors is available at a cost of one third of a retiree’s income, making it affordable. A senior receiving just $600 per month, pays rent of just $200. In that situation, Medicaid picks up more of the medical expenses so much of the remaining $400 per month can be used for food and incidentals.


pages: 310 words: 90,817

Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown by Detlev S. Schlichter

bank run, banks create money, British Empire, business cycle, capital controls, Carmen Reinhart, central bank independence, currency peg, fixed income, Fractional reserve banking, German hyperinflation, global reserve currency, inflation targeting, Kenneth Rogoff, Kickstarter, Long Term Capital Management, low interest rates, market clearing, Martin Wolf, means of production, Money creation, money market fund, moral hazard, mortgage debt, open economy, Ponzi scheme, price discovery process, price mechanism, price stability, pushing on a string, quantitative easing, reserve currency, rising living standards, risk tolerance, savings glut, the market place, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, We are all Keynesians now, Y2K

But of particular interest will undoubtedly be the precious metals, gold and silver, which are the most essential self-defense assets in any paper money crisis. At the same time the public will try to reduce economic exposure to the government and to the banking sector, both of which have in the decades of the paper money–induced credit boom become the dominant issuers in fixed income markets, and to which insurance companies, pension funds, and other investors consequently have substantial exposure. Government bonds and bank bonds are going to come under pressure. The public will also reduce bank deposits, and try to minimize their holdings of paper money. This will, of course, undermine the financial position of states and banks even further.


pages: 291 words: 88,879

Going Solo: The Extraordinary Rise and Surprising Appeal of Living Alone by Eric Klinenberg

big-box store, carbon footprint, classic study, David Brooks, deindustrialization, deskilling, employer provided health coverage, equal pay for equal work, estate planning, fear of failure, financial independence, fixed income, Joseph Schumpeter, knowledge economy, longitudinal study, mass incarceration, New Urbanism, public intellectual, Ralph Waldo Emerson, rent control, Richard Florida, San Francisco homelessness, selection bias, Silicon Valley, Skype, speech recognition, women in the workforce, work culture , working poor, young professional

Practically every neighborhood has a senior center that serves lunches, organizes social events, and helps senior citizens enroll in public programs. Community groups and neighborhood organizations encourage people to age in naturally occurring retirement communities, which keep them from losing touch with friends, family, and local institutions; rent control policies, while weaker than they once were, allow retired people on fixed incomes to stay in their homes. Volunteer programs connect the retired healthy elderly with their less mobile counterparts, so that the visitors maintain a sense of purpose while the visited get a break from the monotony of long, solitary days. The Office of Emergency Management does special outreach for the elderly when the weather is dangerously hot or cold, and local postal workers check in with residents when mail accumulates in the box of an older person.


pages: 292 words: 92,588

The Water Will Come: Rising Seas, Sinking Cities, and the Remaking of the Civilized World by Jeff Goodell

"World Economic Forum" Davos, Airbnb, Anthropocene, carbon footprint, centre right, clean water, climate change refugee, creative destruction, data science, desegregation, Donald Trump, Dr. Strangelove, Elon Musk, failed state, fixed income, Frank Gehry, global pandemic, Google Earth, Higgs boson, illegal immigration, Intergovernmental Panel on Climate Change (IPCC), Large Hadron Collider, megacity, Murano, Venice glass, negative emissions, New Urbanism, ocean acidification, Paris climate accords, Pearl River Delta, Peter Thiel, planetary scale, Ray Kurzweil, Richard Florida, risk tolerance, Ronald Reagan, Silicon Valley, smart cities, South China Sea, space junk, urban planning, urban renewal, wikimedia commons

While Briceño collected his water samples, I hopped and skipped over dry ground to a nearby apartment complex, where I found a woman named Maria Toubes staring at the incoming water from her second-floor doorstep. She was sixty-five and disabled, a hard life etched in her face. Inside, she had an eight-year-old niece whom she wouldn’t let out of the house because of the high waters. Toubes explained that she lived on a fixed income and had moved into this neighborhood a few months earlier because it allowed her to save $200 a month on rent. As we talked, the water continued to rise, pushing up the street in front of her house and into her driveway. It felt like we were about to float away. “Have you seen the water this high before?”


pages: 294 words: 89,406

Lying for Money: How Fraud Makes the World Go Round by Daniel Davies

Alan Greenspan, bank run, banking crisis, Bernie Madoff, bitcoin, Black Swan, Bretton Woods, business cycle, business process, collapse of Lehman Brothers, compound rate of return, cryptocurrency, fake it until you make it, financial deregulation, fixed income, Frederick Winslow Taylor, Gordon Gekko, high net worth, illegal immigration, index arbitrage, junk bonds, Michael Milken, multilevel marketing, Nick Leeson, offshore financial centre, Peter Thiel, Ponzi scheme, price mechanism, principal–agent problem, railway mania, Ronald Coase, Ronald Reagan, Savings and loan crisis, scientific management, short selling, social web, South Sea Bubble, tacit knowledge, tail risk, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, time value of money, vertical integration, web of trust

By owning property in their own right rather than through their husbands, they were unusual and vulnerable, particularly if they had been brought up to be ‘provided for’ rather than to work for a living. It was possible to live off an inheritance or a capital sum, but usually not to live well, and if you used the interest on your savings to live on, you would have a fixed income in a period of modest but meaningful inflation. This meant that a woman in this position would tend to find it difficult to maintain her social standing if she stuck to safe investments, and any unforeseen expenses might see her having to ‘dip into capital’, and sacrifice permanently a proportion of her future income.* For this reason, widows and spinsters tended to be surprisingly willing to make risky investments in search of a higher dividend.


pages: 324 words: 90,253

When the Money Runs Out: The End of Western Affluence by Stephen D. King

Alan Greenspan, Albert Einstein, Apollo 11, Asian financial crisis, asset-backed security, banking crisis, Basel III, Bear Stearns, Berlin Wall, Bernie Madoff, bond market vigilante , British Empire, business cycle, capital controls, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, congestion charging, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cross-subsidies, currency risk, debt deflation, Deng Xiaoping, Diane Coyle, endowment effect, eurozone crisis, Fall of the Berlin Wall, financial innovation, financial repression, fixed income, floating exchange rates, Ford Model T, full employment, George Akerlof, German hyperinflation, Glass-Steagall Act, Hyman Minsky, income inequality, income per capita, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, junk bonds, Kickstarter, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, London Interbank Offered Rate, loss aversion, low interest rates, market clearing, mass immigration, Minsky moment, moral hazard, mortgage debt, Neil Armstrong, new economy, New Urbanism, Nick Leeson, Northern Rock, Occupy movement, oil shale / tar sands, oil shock, old age dependency ratio, price mechanism, price stability, quantitative easing, railway mania, rent-seeking, reserve currency, rising living standards, risk free rate, Savings and loan crisis, seminal paper, South Sea Bubble, sovereign wealth fund, technology bubble, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, trickle-down economics, Washington Consensus, women in the workforce, working-age population

In that sense, the commitment to higher inflation would be credible because the costs of not delivering higher inflation would be politically costly.17 Yet today, it's difficult to see what the political rationale in favour of higher inflation might be. Those who would object most vociferously to higher inflation – pensioners and would-be pensioners on fixed incomes – are the boomers who typically cast the largest number of votes in elections. In the 2010 UK General Election, for example, only 44 per cent of 18–24 year olds voted, while well over 70 per cent of those aged above 55 popped down to the polling stations.18 It would be a brave politician indeed who sought power promising higher inflation as a means to solve our economic problems.


pages: 292 words: 81,699

More Joel on Software by Joel Spolsky

a long time ago in a galaxy far, far away, AOL-Time Warner, barriers to entry, Black Swan, Build a better mousetrap, business process, call centre, Danny Hillis, David Heinemeier Hansson, Dennis Ritchie, failed state, Firefox, fixed income, functional programming, George Gilder, Larry Ellison, Larry Wall, lolcat, low cost airline, Mars Rover, Network effects, Paradox of Choice, Paul Graham, performance metric, place-making, price discrimination, prisoner's dilemma, Ray Oldenburg, Ruby on Rails, Salesforce, Sand Hill Road, Silicon Valley, slashdot, social software, Steve Ballmer, Steve Jobs, Superbowl ad, The Great Good Place, The Soul of a New Machine, Tragedy of the Commons, type inference, unpaid internship, wage slave, web application, Y Combinator

All these customers are happy because we’re asking them to pay the amount they were willing to pay already, so it’s not like we’re ripping anyone off. Kind of. Here are some examples of segmentation you’re probably familiar with: Camels and Rubber Duckies 271 • Senior citizen discounts, since older people tend to be living on a “fixed income” and are willing to pay less than working-age adults. • Cheap afternoon movie matinees (useful only to people without jobs). • Bizarre airfares, where everyone seems to be paying a different price. The secret about airfares is that people who are flying on business get their company to reimburse them, so they couldn’t care less how much the ticket costs, while leisure travelers are spending their own money, and they won’t go if it costs too much.


I Love Capitalism!: An American Story by Ken Langone

activist fund / activist shareholder / activist investor, Bear Stearns, Berlin Wall, Bernie Madoff, Bernie Sanders, business climate, corporate governance, East Village, fixed income, glass ceiling, income inequality, Paul Samuelson, Ronald Reagan, short selling, Silicon Valley, single-payer health, six sigma, VA Linux, Y2K, zero-sum game

It was a collective decision. Stocks were headed toward fully negotiated commissions; if we kept selling equities, our profit margins were going to be smaller and less dependable. But all the partners were strong in bonds, particularly railroad bonds, and we felt we could make a go of it if we refocused ourselves on fixed-income securities. We did it, and we got the ship righted. But it took a while, and it was a scary ride. * * * In the fall of 1969, when I still had a hot hand, I met a San Diego entrepreneur named Richard Cramer, who’d started a company called IVAC Corporation. IVAC invented the electronic thermometer and developed the medical-infusion pump: both devices are in wide use today but were brand-new then.


Deep Value by Tobias E. Carlisle

activist fund / activist shareholder / activist investor, Andrei Shleifer, availability heuristic, backtesting, behavioural economics, book value, business cycle, buy and hold, Carl Icahn, corporate governance, corporate raider, creative destruction, Daniel Kahneman / Amos Tversky, discounted cash flows, financial engineering, fixed income, Henry Singleton, intangible asset, John Bogle, joint-stock company, low interest rates, margin call, passive investing, principal–agent problem, Richard Thaler, risk free rate, riskless arbitrage, Robert Shiller, Rory Sutherland, shareholder value, Sharpe ratio, South Sea Bubble, statistical model, Teledyne, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Tim Cook: Apple

There are two considerations when valuing a business—the quantitative and the qualitative—and each informs the other. The quantitative leg of a theoretical valuation employing Buffett’s insight is relatively simple:37 The economic case justifying equity investment is that, in aggregate, additional earnings above passive investment returns—interest on fixed-income securities—will be derived through the employment of managerial and entrepreneurial skills in conjunction with that equity capital. Furthermore, the case says that since the equity capital position is associated with greater risk than passive forms of investment, it is “entitled” to higher returns.


Learn Algorithmic Trading by Sebastien Donadio

active measures, algorithmic trading, automated trading system, backtesting, Bayesian statistics, behavioural economics, buy and hold, buy low sell high, cryptocurrency, data science, deep learning, DevOps, en.wikipedia.org, fixed income, Flash crash, Guido van Rossum, latency arbitrage, locking in a profit, market fundamentalism, market microstructure, martingale, natural language processing, OpenAI, p-value, paper trading, performance metric, prediction markets, proprietary trading, quantitative trading / quantitative finance, random walk, risk tolerance, risk-adjusted returns, Sharpe ratio, short selling, sorting algorithm, statistical arbitrage, statistical model, stochastic process, survivorship bias, transaction costs, type inference, WebSocket, zero-sum game

Finally, they close communication. The protocol we will be using in this chapter is called the Financial Information eXchange (FIX) protocol. It was created in 1992 for international real-time exchanges to handle securities between Fidelity Investments and Salomon Brothers. It expanded to foreign exchange (FX), fixed income (FI), derivatives, and clearing. This protocol is a string-based protocol, which means humans can read it. It is platform-independent, is an open protocol, and has many versions. The most widely used versions are versions 4.2, 4.4, 5, and 1. There are two types of messages: The administrative messages, which do not carry any financial data The application messages, which are used to get price updates and orders The content of these messages is like a Python dictionary: it is a list of key-value pairs.


pages: 304 words: 90,084

Net Zero: How We Stop Causing Climate Change by Dieter Helm

3D printing, autonomous vehicles, Berlin Wall, biodiversity loss, blockchain, Boris Johnson, carbon credits, carbon footprint, carbon tax, clean water, congestion charging, coronavirus, COVID-19, CRISPR, decarbonisation, deindustrialization, demand response, Deng Xiaoping, Donald Trump, electricity market, Extinction Rebellion, fixed income, food miles, Ford Model T, Francis Fukuyama: the end of history, general purpose technology, Great Leap Forward, green new deal, Greta Thunberg, Haber-Bosch Process, high-speed rail, hydrogen economy, Intergovernmental Panel on Climate Change (IPCC), Internet of things, Jevons paradox, lockdown, market design, means of production, microplastics / micro fibres, North Sea oil, ocean acidification, off grid, off-the-grid, oil shale / tar sands, oil shock, peak oil, planetary scale, precautionary principle, price mechanism, quantitative easing, remote working, reshoring, rewilding, Ronald Reagan, smart meter, South China Sea, sovereign wealth fund, statistical model, systems thinking, Thomas Malthus

What is needed is an inversion of the market, from wholesale marginal costs to fixed capacity costs, and therefore from a wholesale to a capacity market. The Helm Review set out how this would work. There would be a single central capacity market, based on firm power. The bidders would offer what they can guarantee to supply when called upon. They would be paid the clearing price in the auction for their capacity offered to the system. It is a fixed income, against a fixed cost, and therefore properly backs the financing of the new investments. The way this integrates the intermittent renewables is critical to the market design. Renewables bidders would offer equivalent firm power (EFP). This would be less than 100 per cent firm power because they cannot always guarantee to deliver.


pages: 259 words: 87,875

Orange Sunshine: The Brotherhood of Eternal Love and Its Quest to Spread Peace, Love, and Acid to the World by Nicholas Schou

airport security, Electric Kool-Aid Acid Test, fixed income, Golden Gate Park, Haight Ashbury, index card, Mahatma Gandhi, mass immigration, Maui Hawaii, no-fly zone, old-boy network, RAND corporation, Ronald Reagan, Silicon Valley, South China Sea

The agent told him he fit the profile of a coke dealer, but at the last minute an airport security officer who knew Stubby told the fed he was a television producer. He now lives penniless in a senior citizen’s home in Newport Beach. Stubby’s friend Oden Fong stopped dealing or using drugs in the mid-1970s and became a Christian rock musician. He is now a pastor with Calvary Chapel in Orange County. Robert Ackerly also is living on a fixed income in Santa Cruz, where he’s the lead vocalist and songwriter for the Reefer Man Blues Band, and host of “Santa Cruzin’,” a cable-access television show that Ackerly uses to espouse his homeless advocacy, drug legalization, and antigovernment views. “I wanna say ‘what’s up’ to all my homeboys in the Brotherhood,” Ackerly told viewers during one recent show.


pages: 295 words: 89,441

Aiming High: Masayoshi Son, SoftBank, and Disrupting Silicon Valley by Atsuo Inoue

Adam Neumann (WeWork), air freight, Apple II, bitcoin, Black Lives Matter, business climate, cloud computing, coronavirus, COVID-19, fixed income, game design, George Floyd, hive mind, information security, interest rate swap, Internet of things, Jeff Bezos, Kickstarter, Kōnosuke Matsushita, Larry Ellison, lateral thinking, Masayoshi Son, off grid, popular electronics, self-driving car, shareholder value, sharing economy, Silicon Valley, social distancing, SoftBank, Steve Ballmer, Steve Jobs, Steve Wozniak, TikTok, Vision Fund, WeWork

As this pessimistic tendency is normally quite strong in bankers it made sense to put someone like him – who only sees the risk involved – in charge of the fund. That side of him is very much fully formed but in the end he’s a dreamer like myself and can also see the positive side of things.’ Son first met Misra in 2003, whilst he was working for Deutsche Bank, in charge of fixed-income securities and lending; Misra assisted with financial arrangements as part of the Japan Telecom landline and Yahoo! BB projects. Mirsa looks back at that time. ‘Back then, I had an enjoyable time in SoftBank’s Tokyo office. Good food. It was good times.’ On one such trip Son gave a presentation on what he wanted to achieve with SoftBank over the next 10 years and, whilst Misra was somewhat sceptical – hedging risks for his employer – in the end he signed off on the loan.


pages: 301 words: 90,276

Sunbelt Blues: The Failure of American Housing by Andrew Ross

8-hour work day, Airbnb, barriers to entry, Bernie Sanders, Big Tech, carbon footprint, Celebration, Florida, clean water, climate change refugee, company town, coronavirus, corporate raider, COVID-19, do what you love, Donald Trump, drive until you qualify, edge city, El Camino Real, emotional labour, financial innovation, fixed income, gentrification, gig economy, global supply chain, green new deal, Hernando de Soto, Home mortgage interest deduction, housing crisis, Housing First, housing justice, industrial cluster, informal economy, Jeff Bezos, land bank, late fees, lockdown, Lyft, megaproject, military-industrial complex, minimum wage unemployment, mortgage tax deduction, New Urbanism, open immigration, opioid epidemic / opioid crisis, Peter Calthorpe, pill mill, rent control, rent gap, rent stabilization, restrictive zoning, Richard Florida, San Francisco homelessness, sharing economy, Silicon Valley, smart cities, social distancing, starchitect, tech bro, the built environment, traffic fines, uber lyft, urban planning, urban renewal, urban sprawl, working poor

The moralizing is so pervasive that it is easily internalized by those struggling with poverty, and it was clearly reflected in the comments I heard among people in and out of the motels. The least likely to identify as homeless are elderly singles, living on Social Security, disability, or other forms of public assistance. Motel life to some extent makes economic sense for such people on a fixed income. Wayne, a grizzled, thrice-divorced septuagenarian who lives in a motel opposite the landmark turreted attraction of Medieval Times, explains the motel’s appeal to him: “I have no utility bills, insurance, or other overheads, my room gets cleaned once a week, my light bulbs get replaced, and best of all I don’t have a yard to mow.”


pages: 270 words: 88,213

Rough Sleepers: Dr. Jim O'Connell's Urgent Mission to Bring Healing to Homeless People by Tracy Kidder

Abraham Maslow, Affordable Care Act / Obamacare, bank run, coronavirus, feminist movement, fixed income, gentrification, income inequality, Jane Jacobs, medical residency, meta-analysis, military-industrial complex, obamacare, San Francisco homelessness, The Death and Life of Great American Cities, The Soul of a New Machine, War on Poverty

The thickets of luxury housing, both new and renovated, had replaced a mostly bleak landscape of industrial warehouses and factories and vacant lots, of bars and boardinghouses and Victorian brownstones chopped up into single-room-occupancy units. Back in the 1920s, Boston had 35,000 of those SROs for rent. They had served as homes for immigrants and low-wage workers, elderly people on fixed incomes, and, more recently, for struggling Vietnam veterans and former residents of mental hospitals. In 1965, the city and South End residents had overwhelmingly approved a plan to turn the neighborhood into “an economically, socially and racially integrated community,” with rental housing for “all displaced low-income residents wishing to remain.”


pages: 976 words: 235,576

The Meritocracy Trap: How America's Foundational Myth Feeds Inequality, Dismantles the Middle Class, and Devours the Elite by Daniel Markovits

8-hour work day, activist fund / activist shareholder / activist investor, affirmative action, algorithmic management, Amazon Robotics, Anton Chekhov, asset-backed security, assortative mating, basic income, Bernie Sanders, big-box store, business cycle, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, Carl Icahn, carried interest, collateralized debt obligation, collective bargaining, compensation consultant, computer age, corporate governance, corporate raider, crony capitalism, David Brooks, deskilling, Detroit bankruptcy, disruptive innovation, Donald Trump, Edward Glaeser, Emanuel Derman, equity premium, European colonialism, everywhere but in the productivity statistics, fear of failure, financial engineering, financial innovation, financial intermediation, fixed income, Ford paid five dollars a day, Frederick Winslow Taylor, fulfillment center, full employment, future of work, gender pay gap, gentrification, George Akerlof, Gini coefficient, glass ceiling, Glass-Steagall Act, Greenspan put, helicopter parent, Herbert Marcuse, high net worth, hiring and firing, income inequality, industrial robot, interchangeable parts, invention of agriculture, Jaron Lanier, Jeff Bezos, job automation, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, junk bonds, Kevin Roose, Kiva Systems, knowledge economy, knowledge worker, Kodak vs Instagram, labor-force participation, Larry Ellison, longitudinal study, low interest rates, low skilled workers, machine readable, manufacturing employment, Mark Zuckerberg, Martin Wolf, mass incarceration, medical residency, meritocracy, minimum wage unemployment, Myron Scholes, Nate Silver, New Economic Geography, new economy, offshore financial centre, opioid epidemic / opioid crisis, Paul Samuelson, payday loans, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, precariat, purchasing power parity, rent-seeking, Richard Florida, Robert Gordon, Robert Shiller, Robert Solow, Ronald Reagan, Rutger Bregman, savings glut, school choice, shareholder value, Silicon Valley, Simon Kuznets, six sigma, Skype, stakhanovite, stem cell, Stephen Fry, Steve Jobs, stock buybacks, supply-chain management, telemarketer, The Bell Curve by Richard Herrnstein and Charles Murray, The Theory of the Leisure Class by Thorstein Veblen, Thomas Davenport, Thorstein Veblen, too big to fail, total factor productivity, transaction costs, traveling salesman, universal basic income, unpaid internship, Vanguard fund, War on Poverty, warehouse robotics, Winter of Discontent, women in the workforce, work culture , working poor, Yochai Benkler, young professional, zero-sum game

The securities boom was overwhelmingly propelled by the growth of asset management services—with especially rapid growth in private equity firms, venture capital firms, and hedge funds—which by nature serve the wealthy whose assets they manage. Indeed, the most rapid growth within asset management came from fixed-income assets, typically produced by securitizing loans—securitized home mortgages alone accounted for roughly half of all asset-backed securities issued between 2000 and 2008—which show the flip side of rising household borrowing. (By contrast, the functions that traditionally generated the securities industry’s profits in the more equal midcentury—trading fees and commissions, trading gains, and securities underwriting fees—actually all generated declining shares of GDP over this period.)

Guy Stuart, Discriminating Risk: The U.S. Mortgage Lending Industry in the Twentieth Century (Ithaca, NY: Cornell University Press, 2003), 21–22, 68. shadow banks and other investors: See Greenwood and Sharfstein, “The Growth of Finance,” 7. many with PhDs: The Financial Strategies Group at the Fixed Income Division of Goldman Sachs is a prime example. See Derman, My Life as a Quant, 123. “talent is the most precious commodity”: Duff McDonald, “Please, Sir, I Want Some More. How Goldman Sachs Is Carving Up Its $11 Billion Money Pie,” New York Magazine, December 5, 2005. a typical Wall Street firm’s net revenue: “The standard portion of net revenue (total revenue minus interest expense) earmarked for compensation at Wall Street firms stands at a staggering 50 percent.”


pages: 308 words: 99,298

Brexit, No Exit: Why in the End Britain Won't Leave Europe by Denis MacShane

"World Economic Forum" Davos, 3D printing, Alan Greenspan, Alvin Toffler, banking crisis, battle of ideas, Big bang: deregulation of the City of London, Boris Johnson, Bretton Woods, Brexit referendum, British Empire, centre right, Corn Laws, deindustrialization, Doha Development Round, Donald Trump, Etonian, European colonialism, fake news, financial engineering, first-past-the-post, fixed income, Gini coefficient, greed is good, illegal immigration, information security, James Dyson, Jeremy Corbyn, labour mobility, liberal capitalism, low cost airline, low interest rates, Martin Wolf, mass immigration, military-industrial complex, Mont Pelerin Society, negative equity, Neil Kinnock, new economy, non-tariff barriers, offshore financial centre, open borders, open economy, post-truth, price stability, purchasing power parity, quantitative easing, reshoring, road to serfdom, secular stagnation, Silicon Valley, Thales and the olive presses, trade liberalization, transaction costs, women in the workforce

Meanwhile in the Dordogne in France and other regions of southern Europe that had been colonised by British citizens taking advantage of the freedom to live and work anywhere in Europe, there were earnest conversations as British locals decided whether to put their homes on sale as they had no guarantees that once Brexit was fully consummated they would retain the right to live and travel freely. Those who depended on fixed-income pensions from the UK also found themselves poorer following the decision of their compatriots to leave Europe. The NHS sends £250 million each year to Spanish health care authorities to cover the cost of looking after ageing ex-pat Brits. It is unlikely such transfer payments to foreign governments will continue, leaving elderly British citizens with the choice of taking out expensive personal health insurance or returning to Britain to add to NHS waiting lists.


pages: 345 words: 100,135

Snakes in Suits: When Psychopaths Go to Work by Dr. Paul Babiak, Dr. Robert Hare

business process, computer age, dark triade / dark tetrad, disinformation, fixed income, greed is good, job satisfaction, laissez-faire capitalism, Neil Armstrong, Norman Mailer, old-boy network, risk tolerance, twin studies

Some psychopaths enjoy a strong challenge, such as that posed by a confident, well-insulated celebrity or an astute professional with a strong ego. Others prefer to prey on people who are in a weakened or vulnerable state. These might include people who are lonely or in need of emotional support and companionship, the elderly on fixed incomes, the underage and naive, or those who have recently been hurt or victimized by others. Although the usefulness of this latter group may not appear to be obvious from a strictly monetary standpoint, their perceived “ease” of approach makes them attractive to the criminal psychopath who weighs the investment in time and energy.


The Power Surge: Energy, Opportunity, and the Battle for America's Future by Michael Levi

addicted to oil, American energy revolution, Berlin Wall, British Empire, business cycle, carbon tax, Carmen Reinhart, crony capitalism, deglobalization, energy security, Exxon Valdez, fixed income, Ford Model T, full employment, geopolitical risk, global supply chain, hiring and firing, hydraulic fracturing, Induced demand, Intergovernmental Panel on Climate Change (IPCC), It's morning again in America, Jevons paradox, Kenneth Rogoff, manufacturing employment, off-the-grid, oil shale / tar sands, oil shock, peak oil, RAND corporation, Ronald Reagan, Silicon Valley, Solyndra, South China Sea, stock buybacks

It’s the mix of winners and losers that often makes gas development so fraught. You don’t need to be employed in the industry or own gasrich land to cash in on the bonanza; everyone from restaurant owners to dentists in places that are booming have seen payoffs. But for some, like retirees on fixed incomes, the local inflation that accompanies an influx of shale money can be tough. Even more galling to some is the fact that lots of property owners in certain states (particularly in Pennsylvania) don’t hold title to the gas under their property. Because shale gas involves horizontal drilling, it’s possible for the industry to drill deep under people’s homes without paying the homeowners a cent.74 This would all be bad enough if industry were doing a good job of managing inevitable frictions.


pages: 314 words: 101,452

Liar's Poker by Michael Lewis

barriers to entry, Bear Stearns, Bonfire of the Vanities, business cycle, Carl Icahn, cognitive dissonance, corporate governance, corporate raider, disinformation, financial independence, financial innovation, fixed income, Glass-Steagall Act, Home mortgage interest deduction, interest rate swap, Irwin Jacobs, John Meriwether, junk bonds, London Interbank Offered Rate, low interest rates, margin call, Michael Milken, mortgage tax deduction, nuclear winter, Ponzi scheme, risk free rate, The Predators' Ball, yield curve

Although it was not widely known, while Smith was poaching profits from the mortgage arbitrage books, Ranieri was, in his mind anyway, no longer officially in charge of mortgage trading. "In December 1986 John came to me and said, 'I want to dismantle the mortgage department. I want you to help manage the firm as a whole,' " says Ranieri. "The department didn't exist as a separate entity. It was a part of fixed income trading," he says. In May 1987 John Gutfreund told Salomon's 112 managing directors at the annual managing directors' weekend in New York, "We created an Office of the Chairman because running Salomon Brothers is beyond the scope of any one man. As with any team, the challenge is to share the tasks, bring a diversity of opinions and insights, and yet work with a singularity of purpose.


pages: 347 words: 97,721

Only Humans Need Apply: Winners and Losers in the Age of Smart Machines by Thomas H. Davenport, Julia Kirby

"World Economic Forum" Davos, AI winter, Amazon Robotics, Andy Kessler, Apollo Guidance Computer, artificial general intelligence, asset allocation, Automated Insights, autonomous vehicles, basic income, Baxter: Rethink Robotics, behavioural economics, business intelligence, business process, call centre, carbon-based life, Clayton Christensen, clockwork universe, commoditize, conceptual framework, content marketing, dark matter, data science, David Brooks, deep learning, deliberate practice, deskilling, digital map, disruptive innovation, Douglas Engelbart, driverless car, Edward Lloyd's coffeehouse, Elon Musk, Erik Brynjolfsson, estate planning, financial engineering, fixed income, flying shuttle, follow your passion, Frank Levy and Richard Murnane: The New Division of Labor, Freestyle chess, game design, general-purpose programming language, global pandemic, Google Glasses, Hans Lippershey, haute cuisine, income inequality, independent contractor, index fund, industrial robot, information retrieval, intermodal, Internet of things, inventory management, Isaac Newton, job automation, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joi Ito, Khan Academy, Kiva Systems, knowledge worker, labor-force participation, lifelogging, longitudinal study, loss aversion, machine translation, Mark Zuckerberg, Narrative Science, natural language processing, Nick Bostrom, Norbert Wiener, nuclear winter, off-the-grid, pattern recognition, performance metric, Peter Thiel, precariat, quantitative trading / quantitative finance, Ray Kurzweil, Richard Feynman, risk tolerance, Robert Shiller, robo advisor, robotic process automation, Rodney Brooks, Second Machine Age, self-driving car, Silicon Valley, six sigma, Skype, social intelligence, speech recognition, spinning jenny, statistical model, Stephen Hawking, Steve Jobs, Steve Wozniak, strong AI, superintelligent machines, supply-chain management, tacit knowledge, tech worker, TED Talk, the long tail, transaction costs, Tyler Cowen, Tyler Cowen: Great Stagnation, Watson beat the top human players on Jeopardy!, Works Progress Administration, Zipcar

The process we’re describing, of machines taking the high-end cognitive parts of work and turning people into a sort of human user interface, is occurring across many professional realms. Actual decision-making roles have been ceded to computers—and they are doing pretty well in those roles, despite some occasional hiccups. “Program trading” (also known as high-frequency, algorithmic, or quantitative trading) of equities and fixed-income investments, for example, is widespread on Wall Street and around the financial world. It’s one of the reasons why the New York Stock Exchange is so quiet today. Decisions about which stocks and bonds to buy for what price used to be made by human traders but are now largely made by computer. Likewise, decisions that used to be made by human pricing analysts are now arrived at automatically.


pages: 111 words: 1

Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets by Nassim Nicholas Taleb

Alan Greenspan, Antoine Gombaud: Chevalier de Méré, availability heuristic, backtesting, behavioural economics, Benoit Mandelbrot, Black Swan, commoditize, complexity theory, corporate governance, corporate raider, currency peg, Daniel Kahneman / Amos Tversky, discounted cash flows, diversified portfolio, endowment effect, equity premium, financial engineering, fixed income, global village, hedonic treadmill, hindsight bias, junk bonds, Kenneth Arrow, Linda problem, Long Term Capital Management, loss aversion, mandelbrot fractal, Mark Spitznagel, Market Wizards by Jack D. Schwager, mental accounting, meta-analysis, Michael Milken, Myron Scholes, PalmPilot, Paradox of Choice, Paul Samuelson, power law, proprietary trading, public intellectual, quantitative trading / quantitative finance, QWERTY keyboard, random walk, Richard Feynman, risk free rate, road to serfdom, Robert Shiller, selection bias, shareholder value, Sharpe ratio, Steven Pinker, stochastic process, survivorship bias, too big to fail, Tragedy of the Commons, Turing test, Yogi Berra

Long periods of stability draw hordes of bank currency traders and hedge fund operators to the calm waters of the Mexican peso; they enjoy owning the currency because of the high interest rate it commands. Then they “unexpectedly” blow up, lose money for investors, lose their jobs, and switch careers. Then a new period of stability sets in. New currency traders come in with no memory of the bad event. They are drawn to the Mexican peso, and the story repeats itself. It is an oddity that most fixed-income financial instruments present rare events. In the spring of 1998, I spent two hours explaining to a then-important hedge fund operator the notion of the peso problem. I went to great lengths to explain to him that the concept was generalized to every form of investment that was based on a naive interpretation of the volatility of past time series.


pages: 363 words: 98,024

Keeping at It: The Quest for Sound Money and Good Government by Paul Volcker, Christine Harper

Alan Greenspan, anti-communist, Ayatollah Khomeini, banking crisis, Bear Stearns, behavioural economics, Black Monday: stock market crash in 1987, Bretton Woods, business cycle, central bank independence, corporate governance, Credit Default Swap, Donald Trump, fiat currency, financial engineering, financial innovation, fixed income, floating exchange rates, forensic accounting, full employment, Glass-Steagall Act, global reserve currency, income per capita, inflation targeting, liquidationism / Banker’s doctrine / the Treasury view, low interest rates, margin call, money market fund, Nixon shock, oil-for-food scandal, Paul Samuelson, price stability, proprietary trading, quantitative easing, reserve currency, Right to Buy, risk-adjusted returns, Ronald Reagan, Rosa Parks, Savings and loan crisis, secular stagnation, Sharpe ratio, Silicon Valley, special drawing rights, too big to fail, traveling salesman, urban planning

Maintaining that expectation, that confidence, is a fundamental responsibility of monetary policy. Once lost, the consequences can be severe and stability hard to restore. Interest rates rise, savings are squeezed, the currency declines in foreign-exchange markets. Some traders and speculators may win but wage earners and those on fixed incomes, like most retired people, will fall behind. The United States had a taste of that in the “stagflation” of the 1970s, culminating in the highest rate of price increases in our peacetime history. As is typically the case, the inflation process came to feed on itself as expectations of price increases contributed to more inflation.


pages: 414 words: 101,285

The Butterfly Defect: How Globalization Creates Systemic Risks, and What to Do About It by Ian Goldin, Mike Mariathasan

air freight, air traffic controllers' union, Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, barriers to entry, Basel III, Bear Stearns, behavioural economics, Berlin Wall, biodiversity loss, Bretton Woods, BRICs, business cycle, butterfly effect, carbon tax, clean water, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, connected car, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, digital divide, discovery of penicillin, diversification, diversified portfolio, Douglas Engelbart, Douglas Engelbart, Edward Lorenz: Chaos theory, energy security, eurozone crisis, Eyjafjallajökull, failed state, Fairchild Semiconductor, Fellow of the Royal Society, financial deregulation, financial innovation, financial intermediation, fixed income, Gini coefficient, Glass-Steagall Act, global pandemic, global supply chain, global value chain, global village, high-speed rail, income inequality, information asymmetry, Jean Tirole, John Snow's cholera map, Kenneth Rogoff, light touch regulation, Long Term Capital Management, market bubble, mass immigration, megacity, moral hazard, Occupy movement, offshore financial centre, open economy, precautionary principle, profit maximization, purchasing power parity, race to the bottom, RAND corporation, regulatory arbitrage, reshoring, risk free rate, Robert Solow, scientific management, Silicon Valley, six sigma, social contagion, social distancing, Stuxnet, supply-chain management, systems thinking, tail risk, TED Talk, The Great Moderation, too big to fail, Toyota Production System, trade liberalization, Tragedy of the Commons, transaction costs, uranium enrichment, vertical integration

Systemic risk is no longer an abstract concept but is now something that every investor, every small business in search of funding, and every person with a savings account can relate to. Tragically, so can the unemployed, those concerned about their job security, and those searching for new employment opportunities. The same applies to those on fixed-income pensions and other benefits. A heightened sense of awareness and an improved safety culture have already been achieved following the failure to manage financial risk. Although the lingering crisis has deepened the dialogue between the private (financial) sector and public institutions, trust has not been restored.


Mathematics for Finance: An Introduction to Financial Engineering by Marek Capinski, Tomasz Zastawniak

Black-Scholes formula, Brownian motion, capital asset pricing model, cellular automata, delta neutral, discounted cash flows, discrete time, diversified portfolio, financial engineering, fixed income, interest rate derivative, interest rate swap, locking in a profit, London Interbank Offered Rate, margin call, martingale, quantitative trading / quantitative finance, random walk, risk free rate, short selling, stochastic process, time value of money, transaction costs, value at risk, Wiener process, zero-coupon bond

J. (1995), Modern Portfolio Theory and Investment Analysis, John Wiley & Sons, New York. Haugen, R. A. (1993), Modern Investment Theory, Prentice Hall, Englewood Cliffs, N.J. Hull, J. (2000), Options, Futures and Other Derivatives, Prentice Hall, Upper Saddle River, N.J. Jarrow, R. A. (1995), Modelling Fixed Income Securities and Interest Rate Options, McGraw-Hill, New York. Jarrow, R. A. and Turnbull, S. M., Derivative Securities, South-Western College, Cincinnati, Ohio. Karatzas, I. and Shreve, S. (1998), Methods of Mathematical Finance, SpringerVerlag, Berlin. Korn, R. (1997), Optimal Portfolios, World Scientific, Singapore.


pages: 371 words: 98,534

Red Flags: Why Xi's China Is in Jeopardy by George Magnus

"World Economic Forum" Davos, 3D printing, 9 dash line, Admiral Zheng, AlphaGo, Asian financial crisis, autonomous vehicles, balance sheet recession, banking crisis, Bear Stearns, Bretton Woods, Brexit referendum, BRICs, British Empire, business process, capital controls, carbon footprint, Carmen Reinhart, cloud computing, colonial exploitation, corporate governance, crony capitalism, currency manipulation / currency intervention, currency peg, demographic dividend, demographic transition, Deng Xiaoping, Doha Development Round, Donald Trump, financial deregulation, financial innovation, financial repression, fixed income, floating exchange rates, full employment, general purpose technology, Gini coefficient, global reserve currency, Great Leap Forward, high net worth, high-speed rail, hiring and firing, Hyman Minsky, income inequality, industrial robot, information security, Internet of things, invention of movable type, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, labour market flexibility, labour mobility, land reform, Malacca Straits, means of production, megacity, megaproject, middle-income trap, Minsky moment, money market fund, moral hazard, non-tariff barriers, Northern Rock, offshore financial centre, old age dependency ratio, open economy, peer-to-peer lending, pension reform, price mechanism, purchasing power parity, regulatory arbitrage, rent-seeking, reserve currency, rising living standards, risk tolerance, Shenzhen special economic zone , smart cities, South China Sea, sovereign wealth fund, special drawing rights, special economic zone, speech recognition, The Wealth of Nations by Adam Smith, total factor productivity, trade route, urban planning, vertical integration, Washington Consensus, women in the workforce, working-age population, zero-sum game

Xi led the five-yearly National Financial Work Conference in July 2017, at the end of which he said that ‘China must strengthen the leadership of the Communist Party of China over financial work’.30 The conference set up a new body, the State Council Financial Stability and Development Committee, to coordinate the work and activities of the regulatory agencies with the People’s Bank of China at the heart. It also agreed that priorities would henceforth be to make finance serve the real economy, pay close attention to financial stability risks, and promote ‘direct financing’ (meaning a greater role for equity and fixed income markets). Pressing issues for the committee will be to dampen down leverage and arbitrage in the $15 trillion asset management industry, and to try and end the ubiquitous practice of guaranteeing capital and interest payments to investors, which speak to a low level of confidence in the security or value of contracts.


pages: 330 words: 99,044

Reimagining Capitalism in a World on Fire by Rebecca Henderson

"Friedman doctrine" OR "shareholder theory", Airbnb, asset allocation, behavioural economics, benefit corporation, Berlin Wall, Bernie Sanders, business climate, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, carbon tax, circular economy, collaborative economy, collective bargaining, commoditize, corporate governance, corporate social responsibility, crony capitalism, dark matter, decarbonisation, disruptive innovation, double entry bookkeeping, Elon Musk, Erik Brynjolfsson, export processing zone, Exxon Valdez, Fall of the Berlin Wall, family office, fixed income, George Akerlof, Gini coefficient, global supply chain, greed is good, Greta Thunberg, growth hacking, Hans Rosling, Howard Zinn, Hyman Minsky, impact investing, income inequality, independent contractor, index fund, Intergovernmental Panel on Climate Change (IPCC), joint-stock company, Kickstarter, Lyft, Marc Benioff, Mark Zuckerberg, Max Levchin, means of production, meta-analysis, microcredit, middle-income trap, Minsky moment, mittelstand, Mont Pelerin Society, Neil Armstrong, Nelson Mandela, opioid epidemic / opioid crisis, Paris climate accords, passive investing, Paul Samuelson, Philip Mirowski, plant based meat, profit maximization, race to the bottom, ride hailing / ride sharing, Ronald Reagan, Rosa Parks, Salesforce, scientific management, Second Machine Age, shareholder value, sharing economy, Silicon Valley, Snapchat, sovereign wealth fund, Steven Pinker, stocks for the long run, Tim Cook: Apple, total factor productivity, Toyota Production System, uber lyft, urban planning, Washington Consensus, WeWork, working-age population, Zipcar

“The Global Gender Gap Report 2013,” World Economic Forum, 236, http://www3.weforum.org/docs/WEF_GenderGap_Report_2013.pdf; “The Global Gender Gap Report 2017,” World Economic Forum, 90, http://www3.weforum.org/docs/WEF_GGGR_2017.pdf. 43. GPIF was allowed to directly invest in bonds and mutual funds; 15 percent of GPIF’s fixed-income assets were managed internally. 44. “The Benefits and Risks of Passive Investing,” Barclays, www.barclays.co.uk/smart-investor/investments-explained/funds-etfs-and-investment-trusts/the-benefits-and-risks-of-passive-investing/. 45. See GPIF’s 2018 Annual Report. 46. The Nikkei Telecon Database, accessed December 2018. 47.


pages: 337 words: 96,666

Practical Doomsday: A User's Guide to the End of the World by Michal Zalewski

accounting loophole / creative accounting, AI winter, anti-communist, artificial general intelligence, bank run, big-box store, bitcoin, blockchain, book value, Buy land – they’re not making it any more, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carrington event, clean water, coronavirus, corporate governance, COVID-19, cryptocurrency, David Graeber, decentralized internet, deep learning, distributed ledger, diversification, diversified portfolio, Dogecoin, dumpster diving, failed state, fiat currency, financial independence, financial innovation, fixed income, Fractional reserve banking, Francis Fukuyama: the end of history, Haber-Bosch Process, housing crisis, index fund, indoor plumbing, information security, inventory management, Iridium satellite, Joan Didion, John Bogle, large denomination, lifestyle creep, mass immigration, McDonald's hot coffee lawsuit, McMansion, medical bankruptcy, Modern Monetary Theory, money: store of value / unit of account / medium of exchange, moral panic, non-fungible token, nuclear winter, off-the-grid, Oklahoma City bombing, opioid epidemic / opioid crisis, paperclip maximiser, passive investing, peak oil, planetary scale, ransomware, restrictive zoning, ride hailing / ride sharing, risk tolerance, Ronald Reagan, Satoshi Nakamoto, Savings and loan crisis, self-driving car, shareholder value, Silicon Valley, supervolcano, systems thinking, tech worker, Ted Kaczynski, TED Talk, Tunguska event, underbanked, urban sprawl, Wall-E, zero-sum game, zoonotic diseases

Assuming inflation below 4 percent and perfectly steady market conditions, around $1.5 million is theoretically enough to generate this annual income without depleting the principal in real terms. But in practice, recessions and inflation spikes would throw a wrench in the works; a portfolio of at least twice that size would be needed to have a reasonable chance of long-term success. And if reasonably safe fixed-income securities are preferred to stocks, current conditions in the bond market probably call for $10 million or more. (Of course, the math is better for folks approaching retirement age, as they’re usually operating on shorter time horizons and may be willing to burn their savings along the way.) 9 Staying Alive In Chapter 2, we considered the surprisingly high odds of suffering serious injury due to falls, burns, accidental poisonings, and other seemingly prosaic mishaps that tend to happen around the home.


pages: 331 words: 95,582

Golden Gates: Fighting for Housing in America by Conor Dougherty

Airbnb, bank run, basic income, Bay Area Rapid Transit, Bernie Sanders, Big Tech, big-box store, business logic, California gold rush, carbon footprint, commoditize, death of newspapers, desegregation, do-ocracy, don't be evil, Donald Trump, edge city, Edward Glaeser, El Camino Real, emotional labour, fixed income, fixed-gear, gentrification, Golden Gate Park, Google bus, Haight Ashbury, Home mortgage interest deduction, housing crisis, illegal immigration, income inequality, Joan Didion, Marc Andreessen, Marc Benioff, mass immigration, new economy, New Urbanism, passive income, Paul Buchheit, Peter Thiel, rent control, rent-seeking, Richard Florida, Ronald Reagan, Salesforce, San Francisco homelessness, self-driving car, sharing economy, side hustle, side project, Silicon Valley, single-payer health, software is eating the world, South of Market, San Francisco, The Rise and Fall of American Growth, universal basic income, urban planning, urban renewal, vertical integration, white flight, winner-take-all economy, working poor, Y Combinator, Yom Kippur War, young professional

In San Francisco, where affordable housing projects were almost universally built by nonprofit developers with union labor and help from the city, Wiener’s proposal to eliminate the need for affordable housing projects to seek a conditional use permit amounted to a giveaway to labor-friendly organizations that built homes for people like teachers, social workers, and seniors on fixed incomes. During one of the bill’s early hearings, homeowners showed up to give defensive speeches about how they didn’t like the idea but also weren’t NIMBYs and had no problem with affordable housing so long as it was built “in the right place.” The weird part was that they were joined by The Council of Community Housing Organizations, a politically influential group that was known locally as “Choo Choo” and had branded itself as “the voice of San Francisco’s affordable housing movement.”


pages: 426 words: 105,423

The 4-Hour Workweek: Escape 9-5, Live Anywhere, and Join the New Rich by Timothy Ferriss

Abraham Maslow, Albert Einstein, Amazon Mechanical Turk, Apollo 13, call centre, clean water, digital nomad, Donald Trump, drop ship, en.wikipedia.org, Firefox, fixed income, follow your passion, Ford Model T, fulfillment center, game design, global village, Iridium satellite, knowledge worker, language acquisition, late fees, lateral thinking, Maui Hawaii, oil shock, paper trading, Paradox of Choice, Parkinson's law, passive income, peer-to-peer, pre–internet, Ralph Waldo Emerson, remote working, risk tolerance, Ronald Reagan, side project, Silicon Valley, Silicon Valley startup, Skype, Steve Jobs, Vilfredo Pareto, wage slave, William of Occam

Therefore, I manipulate the environmental causes of poor responses instead of depending on error-prone self-discipline. I should not invest in public stocks where I cannot influence outcomes. Once realizing that almost no one can predict risk tolerance and response to losses, I moved all of my investments into fixed-income and cashlike instruments in July 2008 for this reason, setting aside 10% of pretax income for angel investments where I can contribute significant UI/design, PR, and corporate partnership help. (Suggested reading: Rethinking Investing—Part 1, Rethinking Investing—Part 2 on www.fourhourblog.com.)


pages: 397 words: 109,631

Mindware: Tools for Smart Thinking by Richard E. Nisbett

affirmative action, Albert Einstein, availability heuristic, behavioural economics, big-box store, Cass Sunstein, choice architecture, cognitive dissonance, confounding variable, correlation coefficient, correlation does not imply causation, cosmological constant, Daniel Kahneman / Amos Tversky, dark matter, do well by doing good, Edward Jenner, endowment effect, experimental subject, feminist movement, fixed income, fundamental attribution error, Garrett Hardin, glass ceiling, Henri Poincaré, if you see hoof prints, think horses—not zebras, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, job satisfaction, Kickstarter, lake wobegon effect, libertarian paternalism, longitudinal study, loss aversion, low skilled workers, Menlo Park, meta-analysis, Neil Armstrong, quantitative easing, Richard Thaler, Ronald Reagan, selection bias, Shai Danziger, Socratic dialogue, Steve Jobs, Steven Levy, tacit knowledge, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Tragedy of the Commons, William of Occam, Yitang Zhang, Zipcar

Second, whereas the default fund invested 82 percent in equities, the average percent chosen by other participants was 96. Sweden’s economy is 1 percent of the world’s economy, but the default fund chose to invest 17 percent of its equities in Swedish corporations. That’s a lot of eggs to put in one small basket. But the other participants ended up with 48 percent Swedish stocks. The default fund had 10 percent fixed-income securities, the others an average of 4 percent. The default fund had 4 percent in both hedge funds and private equities. The others put nothing into those types of investments. Finally, technology stocks had been soaring in the period just prior to the pension plan rollout. A great many investors put most or all of their investments in a fund consisting solely of ill-fated technology stocks.


pages: 274 words: 93,758

Phishing for Phools: The Economics of Manipulation and Deception by George A. Akerlof, Robert J. Shiller, Stanley B Resor Professor Of Economics Robert J Shiller

Andrei Shleifer, asset-backed security, Bear Stearns, behavioural economics, Bernie Madoff, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carl Icahn, collapse of Lehman Brothers, compensation consultant, corporate raider, Credit Default Swap, Daniel Kahneman / Amos Tversky, dark matter, David Brooks, desegregation, en.wikipedia.org, endowment effect, equity premium, financial intermediation, financial thriller, fixed income, full employment, George Akerlof, greed is good, income per capita, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, junk bonds, Kenneth Arrow, Kenneth Rogoff, late fees, loss aversion, market bubble, Menlo Park, mental accounting, Michael Milken, Milgram experiment, money market fund, moral hazard, new economy, Pareto efficiency, Paul Samuelson, payday loans, Ponzi scheme, profit motive, publication bias, Ralph Nader, randomized controlled trial, Richard Thaler, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, short selling, Silicon Valley, stock buybacks, the new new thing, The Predators' Ball, the scientific method, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, theory of mind, Thorstein Veblen, too big to fail, transaction costs, Unsafe at Any Speed, Upton Sinclair, Vanguard fund, Vilfredo Pareto, wage slave

Such a story—although about a lot more than the purchase of an avocado—lies at the heart of the continuing financial crisis that dominates the economics of our times. The reputation mining in question involved the reputations of a variety of our financial institutions, and, notably among them, the subversion of the system for rating fixed-income securities. The reputations of the great US credit ratings agencies had been built up over the course of almost a century in rating bonds. The public used these ratings as an indicator of the likelihood of default. In the late 1990s and early 2000s, the ratings agencies took on themselves a new task: not just of rating bonds, but also of rating more complex securities, the new (complex) financial derivatives.


pages: 452 words: 110,488

The Cheating Culture: Why More Americans Are Doing Wrong to Get Ahead by David Callahan

1960s counterculture, affirmative action, Alan Greenspan, business cycle, Cornelius Vanderbilt, corporate governance, corporate raider, creative destruction, David Brooks, deindustrialization, East Village, eat what you kill, fixed income, forensic accounting, full employment, game design, greed is good, high batting average, housing crisis, illegal immigration, income inequality, job satisfaction, junk bonds, mandatory minimum, market fundamentalism, Mary Meeker, McMansion, Michael Milken, microcredit, moral hazard, multilevel marketing, new economy, New Urbanism, offshore financial centre, oil shock, old-boy network, PalmPilot, plutocrats, postindustrial economy, profit maximization, profit motive, RAND corporation, Ray Oldenburg, rent stabilization, Robert Bork, rolodex, Ronald Reagan, Savings and loan crisis, shareholder value, Shoshana Zuboff, Silicon Valley, Steve Jobs, The Bell Curve by Richard Herrnstein and Charles Murray, The Chicago School, The Theory of the Leisure Class by Thorstein Veblen, Thorstein Veblen, War on Poverty, winner-take-all economy, World Values Survey, young professional, zero-sum game

They also believed leading telecom analyst Jack Grubman, who kept his "buy" recommendation for WorldCom stock almost to the end—and whose huge compensation packages at Salomon Smith Barney were made possible, in part, by the large fees that WorldCom paid that firm. Many victims will pay the price of WorldCom's crimes over decades. They include workers who will be forced to delay retirement and retirees who must now make do on a smaller fixed income. Unwittingly, these Americans—and the 17,000 WorldCom employees who lost their jobs—found themselves near ground zero of one of the greatest corporate implosions of all time. "WorldCom is the single biggest scandal of them all," comments James Glassman of the American Enterprise Institute. "WorldCom is it."


pages: 358 words: 106,729

Fault Lines: How Hidden Fractures Still Threaten the World Economy by Raghuram Rajan

"World Economic Forum" Davos, accounting loophole / creative accounting, Alan Greenspan, Andrei Shleifer, Asian financial crisis, asset-backed security, assortative mating, bank run, barriers to entry, Bear Stearns, behavioural economics, Bernie Madoff, Bretton Woods, business climate, business cycle, carbon tax, Clayton Christensen, clean water, collapse of Lehman Brothers, collateralized debt obligation, colonial rule, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, currency risk, diversification, Edward Glaeser, financial innovation, fixed income, floating exchange rates, full employment, Glass-Steagall Act, global supply chain, Goldman Sachs: Vampire Squid, Greenspan put, illegal immigration, implied volatility, income inequality, index fund, interest rate swap, Joseph Schumpeter, Kaizen: continuous improvement, Kenneth Rogoff, knowledge worker, labor-force participation, Long Term Capital Management, longitudinal study, low interest rates, machine readable, market bubble, Martin Wolf, medical malpractice, microcredit, money market fund, moral hazard, new economy, Northern Rock, offshore financial centre, open economy, Phillips curve, price stability, profit motive, proprietary trading, Real Time Gross Settlement, Richard Florida, Richard Thaler, risk tolerance, Robert Shiller, Ronald Reagan, Savings and loan crisis, school vouchers, seminal paper, short selling, sovereign wealth fund, tail risk, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, upwardly mobile, Vanguard fund, women in the workforce, World Values Survey

Needless to say, this practice of picking up pennies in front of a steamroller was successful only until the subprime catastrophe rolled all over UBS’s profits. Some smart traders in a number of banks understood and grew increasingly concerned by the risks that were being taken by the units creating and holding asset-backed securities. At Lehman, for example, fixed-income traders started selling these securities short, even while the real estate and mortgage unit loaded up on them.5 Clearly, any unit that is focused on creating and holding a certain kind of asset is naturally reluctant to declare an end to the boom it has ridden. The unit’s size, power, and reputation become too closely related to the asset class, and its head becomes an interested booster.


pages: 571 words: 106,255

The Bitcoin Standard: The Decentralized Alternative to Central Banking by Saifedean Ammous

"World Economic Forum" Davos, Airbnb, Alan Greenspan, altcoin, bank run, banks create money, bitcoin, Black Swan, blockchain, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, Charles Babbage, conceptual framework, creative destruction, cryptocurrency, currency manipulation / currency intervention, currency peg, delayed gratification, disintermediation, distributed ledger, Elisha Otis, Ethereum, ethereum blockchain, fiat currency, fixed income, floating exchange rates, Fractional reserve banking, full employment, George Gilder, Glass-Steagall Act, global reserve currency, high net worth, initial coin offering, invention of the telegraph, Isaac Newton, iterative process, jimmy wales, Joseph Schumpeter, low interest rates, market bubble, market clearing, means of production, military-industrial complex, Money creation, money: store of value / unit of account / medium of exchange, moral hazard, Network effects, Paul Samuelson, peer-to-peer, Peter Thiel, price mechanism, price stability, profit motive, QR code, quantum cryptography, ransomware, reserve currency, Richard Feynman, risk tolerance, Satoshi Nakamoto, scientific management, secular stagnation, smart contracts, special drawing rights, Stanford marshmallow experiment, The Nature of the Firm, the payments system, too big to fail, transaction costs, Walter Mischel, We are all Keynesians now, zero-sum game

As the money is spent more, the price level rises, until the later recipients suffer a reduction in their real purchasing power. This is the best explanation for why inflation hurts the poorest and helps the richest in the modern economy. Those who benefit from it most are the ones with the best access to government credit, and the ones who are hurt the most are those on fixed incomes or minimum wages. 20 “Dollar or Dinar?” Mises Daily. Available at https://mises.org/library/dollar‐or‐dinar 21 J. P. Koning, “Orphaned Currency: Odd Case of Somali Shillings.” Available at https://jpkoning.blogspot.ca/2013/03/orphaned‐currency‐odd‐case‐of‐somali.html?m=1 22 “Regulation of OTC Derivatives.”


pages: 338 words: 106,936

The Physics of Wall Street: A Brief History of Predicting the Unpredictable by James Owen Weatherall

Alan Greenspan, Albert Einstein, algorithmic trading, Antoine Gombaud: Chevalier de Méré, Apollo 11, Asian financial crisis, bank run, Bear Stearns, beat the dealer, behavioural economics, Benoit Mandelbrot, Black Monday: stock market crash in 1987, Black Swan, Black-Scholes formula, Bonfire of the Vanities, book value, Bretton Woods, Brownian motion, business cycle, butterfly effect, buy and hold, capital asset pricing model, Carmen Reinhart, Claude Shannon: information theory, coastline paradox / Richardson effect, collateralized debt obligation, collective bargaining, currency risk, dark matter, Edward Lorenz: Chaos theory, Edward Thorp, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, Financial Modelers Manifesto, fixed income, George Akerlof, Gerolamo Cardano, Henri Poincaré, invisible hand, Isaac Newton, iterative process, Jim Simons, John Nash: game theory, junk bonds, Kenneth Rogoff, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, Market Wizards by Jack D. Schwager, martingale, Michael Milken, military-industrial complex, Myron Scholes, Neil Armstrong, new economy, Nixon triggered the end of the Bretton Woods system, Paul Lévy, Paul Samuelson, power law, prediction markets, probability theory / Blaise Pascal / Pierre de Fermat, quantitative trading / quantitative finance, random walk, Renaissance Technologies, risk free rate, risk-adjusted returns, Robert Gordon, Robert Shiller, Ronald Coase, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, statistical arbitrage, statistical model, stochastic process, Stuart Kauffman, The Chicago School, The Myth of the Rational Market, tulip mania, Vilfredo Pareto, volatility smile

The Legacy of Fischer Black. New York: Oxford University Press. Lehmann, P. J. 1991. La Bourse de Paris. Paris: Dunod. — — — . 1997. Histoire de la Bourse de Paris. Paris: Presses Universitaires France. Li, David X. 2000. “On Default Correlation: A Copula Function Approach.” Journal of Fixed Income 9 (4): 43–54. Li, Tien-Yien, and James A. Yorke. 1975. “Period Three Implies Chaos.” The American Mathematical Monthly 82 (10): 985–92. Lim, Kian-Guan. 2006. “The Efficient Market Hypothesis: A Developmental Perspective.” In Pioneers of Financial Economics, vol. 2., ed. Geoffrey Poitras.


pages: 356 words: 105,533

Dark Pools: The Rise of the Machine Traders and the Rigging of the U.S. Stock Market by Scott Patterson

Alan Greenspan, algorithmic trading, automated trading system, banking crisis, bash_history, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, butterfly effect, buttonwood tree, buy and hold, Chuck Templeton: OpenTable:, cloud computing, collapse of Lehman Brothers, computerized trading, creative destruction, Donald Trump, financial engineering, fixed income, Flash crash, Ford Model T, Francisco Pizarro, Gordon Gekko, Hibernia Atlantic: Project Express, High speed trading, information security, Jim Simons, Joseph Schumpeter, junk bonds, latency arbitrage, Long Term Capital Management, machine readable, Mark Zuckerberg, market design, market microstructure, Michael Milken, military-industrial complex, pattern recognition, payment for order flow, pets.com, Ponzi scheme, popular electronics, prediction markets, quantitative hedge fund, Ray Kurzweil, Renaissance Technologies, seminal paper, Sergey Aleynikov, Small Order Execution System, South China Sea, Spread Networks laid a new fibre optics cable between New York and Chicago, stealth mode startup, stochastic process, three-martini lunch, Tragedy of the Commons, transaction costs, uptick rule, Watson beat the top human players on Jeopardy!, zero-sum game

The banks wanted to control the flow—the rivers of orders sloshing through the market every day. A fierce power grab began. Instinet was in the crosshairs. Doug Atkin, Instinet’s newly appointed, glad-handing CEO, seemed oblivious to the threat he was facing. He spearheaded efforts to throw money at one initiative after another, from retail brokerage services to fixed income trading. He spent a fortune on an advertising campaign and rolled out a new logo for the company (which had never had one), a matador waving a cape around. He even let CNBC broadcast from the Instinet trading floor, an alarming move for a company that had long thought of itself as the best-kept secret on Wall Street.


pages: 350 words: 109,220

In FED We Trust: Ben Bernanke's War on the Great Panic by David Wessel

Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, Bear Stearns, Berlin Wall, Black Swan, break the buck, business cycle, central bank independence, credit crunch, Credit Default Swap, crony capitalism, debt deflation, Fall of the Berlin Wall, financial engineering, financial innovation, financial intermediation, fixed income, full employment, George Akerlof, Glass-Steagall Act, Greenspan put, housing crisis, inflation targeting, information asymmetry, junk bonds, London Interbank Offered Rate, Long Term Capital Management, low interest rates, market bubble, Michael Milken, money market fund, moral hazard, mortgage debt, new economy, Northern Rock, price stability, quantitative easing, Robert Shiller, Ronald Reagan, Saturday Night Live, Savings and loan crisis, savings glut, Socratic dialogue, too big to fail

“He has no idea how bad it is out there! He has no idea! … My people have been in the game for twenty-five years, and they are losing their jobs, and these firms are going to go out of business. …The Fed is asleep Cut the rate! Open the window! Relieve the pressure! … We have Armageddon in the fixed-income markets. …We’ll spend billions in Iraq to build homes … we have thousands of people losing their homes now.” The Fed’s discount window, the way in which it lends directly to banks, was open, though few banks were coming to it. But that was a technicality. Cramer’s red-faced tirade was a plea to Bernanke to cut interest rates, to pump money aggressively into financial markets as Bagehot had recommended, and to shout reassuringly that the Fed understood that Wall Street players were terrified.


pages: 312 words: 35,664

The Mathematics of Banking and Finance by Dennis W. Cox, Michael A. A. Cox

backpropagation, barriers to entry, Brownian motion, call centre, correlation coefficient, fixed income, G4S, inventory management, iterative process, linear programming, meta-analysis, Monty Hall problem, pattern recognition, random walk, traveling salesman, value at risk

Indeed, in practice, this is what the systems you will be using are actually doing; although the mathematics will be embedded and therefore almost invisible. 16.2 PRACTICAL EXAMPLES Your challenge is to find out how to express the problem as a mathematical model, with the elements of the problem becoming variables in a series of linear equations or inequalities. 16.2.1 An example of an optimum investment strategy A fund manager has a small high-risk portfolio that needs to be fully invested and at present £50,000 is sitting in a cash deposit account. The fund manager is keen to change the mix of investments in the fund and has identified two different asset classes that could add value to the portfolio. The first is to invest some or all of the £50,000 in a one-year fixed income debenture paying a rate of 7%. The alternative is to invest in a venture capital transaction with a partial guarantee backing, providing a certain return of 4%, but with the potential of earning a 12% return. The fund manager’s objective is to invest the minimum amount necessary to achieve a potential return of £3,000 and a guaranteed return of at least £1,500.


pages: 357 words: 110,017

Money: The Unauthorized Biography by Felix Martin

Alan Greenspan, bank run, banking crisis, Basel III, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, call centre, capital asset pricing model, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, creative destruction, credit crunch, David Graeber, en.wikipedia.org, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, fixed income, Fractional reserve banking, full employment, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Hyman Minsky, inflation targeting, invention of writing, invisible hand, Irish bank strikes, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kenneth Rogoff, land bank, Michael Milken, mobile money, moral hazard, mortgage debt, new economy, Northern Rock, Occupy movement, Paul Volcker talking about ATMs, plutocrats, private military company, proprietary trading, public intellectual, Republic of Letters, Richard Feynman, Robert Shiller, Savings and loan crisis, Scientific racism, scientific worldview, seigniorage, Silicon Valley, smart transportation, South Sea Bubble, supply-chain management, The Wealth of Nations by Adam Smith, too big to fail

cartoon from Punch © Punch Limited 15.1 Basel © Hiroshi Higuchi/Getty Images A Note About the Author Felix Martin was educated in Britain, Italy and the United States and holds degrees in classics, international relations and economics, including a doctorate in economics from Oxford University. He worked for the World Bank and for the European Stability Initiative think tank, and is currently a partner in the fixed income division at Liontrust Asset Management plc. He lives in London. For more information, please visit www.aaknopf.com


file:///C:/Documents%20and%... by vpavan

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, Alan Greenspan, AOL-Time Warner, asset allocation, Bear Stearns, Berlin Wall, book value, business cycle, buttonwood tree, buy and hold, Carl Icahn, corporate governance, corporate raider, currency risk, disintermediation, diversification, diversified portfolio, Donald Trump, estate planning, financial engineering, fixed income, index fund, intangible asset, interest rate swap, John Bogle, junk bonds, Larry Ellison, margin call, Mary Meeker, money market fund, Myron Scholes, new economy, payment for order flow, price discovery process, profit motive, risk tolerance, shareholder value, short selling, Silicon Valley, Small Order Execution System, Steve Jobs, stocks for the long run, stocks for the long term, tech worker, technology bubble, transaction costs, Vanguard fund, women in the workforce, zero-coupon bond, éminence grise

FASB: Financial Accounting Standards Board, the private-sector body that determines and interprets Generally Accepted Accounting Principles (GAAP), which the SEC requires companies to follow when reporting financial results. fiduciary: Individual entrusted with investment decisions on behalf of another. Is obligated to make decisions in the client's best interests. financial planner: A professionally trained person who helps others determine how to invest, for a fee. fixed-income securities: Another term for bonds; refers to the fact that the interest rate paid on a bond is fixed when the bond is sold. floor broker: Professional who works on the floor of a stock exchange. A "house" floor broker is employed by a brokerage firm (such as Merrill Lynch) to execute the firms' and customers' trades.


pages: 334 words: 109,882

Quit Like a Woman: The Radical Choice to Not Drink in a Culture Obsessed With Alcohol by Holly Glenn Whitaker

BIPOC, Black Lives Matter, cognitive dissonance, deep learning, Donald Trump, Elon Musk, en.wikipedia.org, epigenetics, fake news, fixed income, impulse control, incognito mode, Mahatma Gandhi, mass incarceration, medical residency, microaggression, microbiome, Naomi Klein, Nelson Mandela, opioid epidemic / opioid crisis, Peter Thiel, Rat Park, rent control, Rosa Parks, Silicon Valley, Snapchat, Steve Jobs, TED Talk, Torches of Freedom, twin studies, WeWork, white picket fence, young professional, zero-sum game

In 2011, while my friends were buying homes and having children and my One Who Got Away went and got engaged, I was drunk-buying monogrammed sheets to replace the wine-stained monogrammed sheets I had drunk-bought as the feeblest attempt to establish some sense of having it together. Professionally, I was everything I was supposed to be. Personally, I was a train wreck who had to borrow money from my fixed-income mother to float myself between paychecks from my six-figure job because I had entirely lost my ability to pull off life. On a trip to Costa Rica and Panama in 2012, nine months after that promotion, three months before my first attempt at sobriety, and nine months before I finally quit, I couldn’t stop thinking about how I could stay there and marry a local.


pages: 369 words: 107,073

Madoff Talks: Uncovering the Untold Story Behind the Most Notorious Ponzi Scheme in History by Jim Campbell

algorithmic trading, Bear Stearns, Bernie Madoff, currency risk, delta neutral, family office, fear of failure, financial thriller, fixed income, forensic accounting, full employment, Gordon Gekko, high net worth, index fund, Jim Simons, margin call, merger arbitrage, money market fund, mutually assured destruction, offshore financial centre, payment for order flow, Ponzi scheme, proprietary trading, Renaissance Technologies, risk free rate, riskless arbitrage, Robinhood: mobile stock trading app, Sharpe ratio, short selling, sovereign wealth fund, time value of money, two and twenty, walking around money

Some people did walk away because this just doesn’t make sense. The spectrum of responses ranged from incredibly naive to incredibly responsible.”31 To Pomerantz, Madoff’s strategy was akin to “what a dumb person thinks a smart investment person sounds like.”32 To Pomerantz, establishing a standard 60 percent equities / 40 percent fixed income portfolio mix would have delivered the same as Madoff’s fraud without the manic buying and selling of index equities, options, and Treasuries. Not to mention, without the fraud. A Real SSC Fund’s Results Looked Nothing Like Madoff’s Version One fund did use a legit SSC strategy. It mirrored the market.


pages: 391 words: 106,255

Cheap Land Colorado: Off-Gridders at America's Edge by Ted Conover

autism spectrum disorder, banking crisis, big-box store, bitcoin, Black Lives Matter, carbon footprint, coronavirus, COVID-19, Donald Trump, fixed income, gentrification, George Floyd, McMansion, off grid, off-the-grid, opioid epidemic / opioid crisis, place-making, social distancing, supervolcano

But it wasn’t always sustainable, because though they might be living on their own land they still were poor, with slender margins for surviving if things went wrong. Often, said Tona, they turned up at the shelter once it got cold and they saw how unforgiving the winter could be. The most durable off-gridders often had a fixed income of some sort—veterans’ benefits, for example, or Social Security disability payments—because otherwise it was hard to make a living. The flats were far from jobs, and getting to jobs required reliable transportation, which many lacked. Tona’s partner, Robert, was a former corrections officer and sheriff’s deputy who had spent a year and a half as La Puente’s first Rural Outreach worker.


The Geography of Nowhere: The Rise and Decline of America's Man-Made Landscape by James Howard Kunstler

A Pattern Language, blue-collar work, California gold rush, car-free, City Beautiful movement, corporate governance, Donald Trump, financial independence, fixed income, Ford Model T, Ford paid five dollars a day, Frank Gehry, gentrification, germ theory of disease, indoor plumbing, It's morning again in America, jitney, junk bonds, land tenure, Lewis Mumford, mass immigration, means of production, megastructure, Menlo Park, new economy, oil shock, Peter Calthorpe, place-making, plutocrats, postindustrial economy, Potemkin village, Ronald Reagan, Savings and loan crisis, Skinner box, Southern State Parkway, urban planning, urban renewal, urban sprawl, Whole Earth Review, working poor, Works Progress Administration, yellow journalism

As a matter of fact, the Atlantic City casinos have had what might be politely called a demographic problem from the start. Unlike Las Ve­ gas, which is out in the middle of nowhere, and where most visitors stick around for a few nights, Atlantic City has attracted mostly day­ trippers from the surrounding megalopolis. The majority are people on fixed incomes, retired folks on Social Security, individuals with very little money to throw away and, most important, short lines of credit-for the casinos make most of their money on high rollers who play on credit. The casinos themselves were partly to blame for the bind they were in. To promote business they ran cheap charter bus excursions out of New York and Philadelphia for precisely this type of small fish, gave them free casino chips, meal vouchers, and show tickets.


pages: 373 words: 112,822

The Upstarts: How Uber, Airbnb, and the Killer Companies of the New Silicon Valley Are Changing the World by Brad Stone

Affordable Care Act / Obamacare, Airbnb, Amazon Web Services, Andy Kessler, autonomous vehicles, Ben Horowitz, Benchmark Capital, Boris Johnson, Burning Man, call centre, Chuck Templeton: OpenTable:, collaborative consumption, data science, Didi Chuxing, Dr. Strangelove, driverless car, East Village, fake it until you make it, fixed income, gentrification, Google X / Alphabet X, growth hacking, Hacker News, hockey-stick growth, housing crisis, inflight wifi, Jeff Bezos, John Zimmer (Lyft cofounder), Justin.tv, Kickstarter, Lyft, Marc Andreessen, Marc Benioff, Mark Zuckerberg, Menlo Park, Mitch Kapor, Necker cube, obamacare, PalmPilot, Paul Graham, peer-to-peer, Peter Thiel, power law, race to the bottom, rent control, ride hailing / ride sharing, Ruby on Rails, San Francisco homelessness, Sand Hill Road, self-driving car, semantic web, sharing economy, side project, Silicon Valley, Silicon Valley startup, Skype, SoftBank, South of Market, San Francisco, Startup school, Steve Jobs, TaskRabbit, tech bro, TechCrunch disrupt, Tony Hsieh, transportation-network company, Travis Kalanick, Uber and Lyft, Uber for X, uber lyft, ubercab, Y Combinator, Y2K, Zipcar

It backed an organization called San Francisco for Everyone and contributed more than eight million dollars to the campaign. That fall the group plastered the city with NO ON F posters, outdoor billboards (WHICH NEIGHBOR IS GOING TO SNITCH ON YOU?), and ubiquitous radio and TV ads featuring members of “the good Airbnb,” like an elderly couple who lived on a fixed income and testified sweetly that “home sharing is helping us stay here.” Meanwhile, the pro–Prop F forces trotted out tenants who had been booted from their homes by avaricious landlords eager to use short-term rentals to boost their earnings (“the bad Airbnb”)32 and plastered posters around town that said FIX THE AIRBNB MESS.


pages: 379 words: 113,656

Six Degrees: The Science of a Connected Age by Duncan J. Watts

AOL-Time Warner, Berlin Wall, Bretton Woods, business process, corporate governance, Drosophila, Erdős number, experimental subject, fixed income, Frank Gehry, Geoffrey West, Santa Fe Institute, independent contractor, industrial cluster, invisible hand, it's over 9,000, Long Term Capital Management, market bubble, Milgram experiment, MITM: man-in-the-middle, Murray Gell-Mann, Network effects, new economy, Norbert Wiener, PalmPilot, Paul Erdős, peer-to-peer, power law, public intellectual, rolodex, Ronald Coase, Savings and loan crisis, scientific worldview, Silicon Valley, social contagion, social distancing, Stuart Kauffman, supply-chain management, The Nature of the Firm, the strength of weak ties, The Wealth of Nations by Adam Smith, Toyota Production System, Tragedy of the Commons, transaction costs, transcontinental railway, vertical integration, Vilfredo Pareto, Y2K

Despite (or perhaps because of) the unfathomable trauma they had just suffered, the remaining employees decided by the next day that they would try to keep the firm alive, a decision made all the more incredible by the daunting practical hurdles they needed to overcome. First, unlike the equity markets, the fixed-income markets were not based at the Stock Exchange and had not closed. So if it was to survive, Cantor Fitzgerald needed to be up and running within the next forty-eight hours. Second, while their carefully constructed contingency plan had called for remote backups of all their computer and data systems, there was one eventuality they had not anticipated: every single person who knew the passwords had been lost.


pages: 424 words: 115,035

How Will Capitalism End? by Wolfgang Streeck

"there is no alternative" (TINA), accounting loophole / creative accounting, air traffic controllers' union, Airbnb, Alan Greenspan, basic income, behavioural economics, Ben Bernanke: helicopter money, billion-dollar mistake, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, Clayton Christensen, collective bargaining, conceptual framework, corporate governance, creative destruction, credit crunch, David Brooks, David Graeber, debt deflation, deglobalization, deindustrialization, disruptive innovation, en.wikipedia.org, eurozone crisis, failed state, financial deregulation, financial innovation, first-past-the-post, fixed income, full employment, Gini coefficient, global reserve currency, Google Glasses, haute cuisine, income inequality, information asymmetry, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, junk bonds, Kenneth Rogoff, labour market flexibility, labour mobility, late capitalism, liberal capitalism, low interest rates, market bubble, means of production, military-industrial complex, moral hazard, North Sea oil, offshore financial centre, open borders, pension reform, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, post-industrial society, private sector deleveraging, profit maximization, profit motive, quantitative easing, reserve currency, rising living standards, Robert Gordon, savings glut, secular stagnation, shareholder value, sharing economy, sovereign wealth fund, tacit knowledge, technological determinism, The Future of Employment, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transaction costs, Uber for X, upwardly mobile, Vilfredo Pareto, winner-take-all economy, Wolfgang Streeck

Now governments had to make do with additional money, as yet uncovered by the real economy, as a way of pulling forward future resources into present consumption and distribution. This mode of conflict pacification, effective as it at first was, could not continue indefinitely. As Hayek never tired of pointing out, accelerating inflation is bound to give rise to ultimately unmanageable economic distortions in relative prices, in the relation between contingent and fixed incomes, and in what economists refer to as ‘economic incentives’. In the end, by calling forth Kaleckian reactions from increasingly suspicious capital owners, inflation will produce unemployment, punishing the very workers whose interests it may initially have served. At this point at the latest, governments under democratic capitalism will come under pressure to cease accommodating redistributive wage settlements and restore monetary discipline.


pages: 453 words: 117,893

What Would the Great Economists Do?: How Twelve Brilliant Minds Would Solve Today's Biggest Problems by Linda Yueh

3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bike sharing, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, export processing zone, Fall of the Berlin Wall, fear of failure, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, general purpose technology, Gini coefficient, Glass-Steagall Act, global supply chain, Great Leap Forward, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, low interest rates, low-wage service sector, manufacturing employment, market bubble, means of production, middle-income trap, mittelstand, Money creation, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, technological determinism, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

He also wanted to make people understand the costs of inflation and why its control should matter. Inflation redistributes wealth from savers to borrowers since inflation reduces the quantity of goods those savings can buy while borrowers benefit from a reduction in the real value of what they owe. Also, workers on fixed incomes saw their real wages decline while companies tied to contracts agreed under the false premise of stable prices also suffered. Fisher’s Quantity Theory of Money argued that a stable money supply was the key to stable prices. By stable money he meant money that held a constant purchasing power over goods and services available in the economy.


pages: 374 words: 113,126

The Great Economists: How Their Ideas Can Help Us Today by Linda Yueh

3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bike sharing, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, export processing zone, Fall of the Berlin Wall, fear of failure, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, general purpose technology, Gini coefficient, Glass-Steagall Act, global supply chain, Great Leap Forward, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, low interest rates, manufacturing employment, market bubble, means of production, middle-income trap, mittelstand, Money creation, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, technological determinism, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

He also wanted to make people understand the costs of inflation and why its control should matter. Inflation redistributes wealth from savers to borrowers since inflation reduces the quantity of goods those savings can buy while borrowers benefit from a reduction in the real value of what they owe. Also, workers on fixed incomes saw their real wages decline while companies tied to contracts agreed under the false premise of stable prices also suffered. Fisher’s Quantity Theory of Money argued that a stable money supply was the key to stable prices. By stable money he meant money that held a constant purchasing power over goods and services available in the economy.


pages: 393 words: 115,263

Planet Ponzi by Mitch Feierstein

Affordable Care Act / Obamacare, Alan Greenspan, Albert Einstein, Asian financial crisis, asset-backed security, bank run, banking crisis, barriers to entry, Bear Stearns, Bernie Madoff, book value, break the buck, centre right, collapse of Lehman Brothers, collateralized debt obligation, commoditize, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, disintermediation, diversification, Donald Trump, energy security, eurozone crisis, financial innovation, financial intermediation, fixed income, Flash crash, floating exchange rates, frictionless, frictionless market, Future Shock, Glass-Steagall Act, government statistician, high net worth, High speed trading, illegal immigration, income inequality, interest rate swap, invention of agriculture, junk bonds, light touch regulation, Long Term Capital Management, low earth orbit, low interest rates, mega-rich, money market fund, moral hazard, mortgage debt, negative equity, Neil Armstrong, Northern Rock, obamacare, offshore financial centre, oil shock, pensions crisis, plutocrats, Ponzi scheme, price anchoring, price stability, proprietary trading, purchasing power parity, quantitative easing, risk tolerance, Robert Shiller, Ronald Reagan, tail risk, too big to fail, trickle-down economics, value at risk, yield curve

And at every stage, the original crazy lending decision becomes less and less obvious to the ultimate end investor. That investor would have no way to check out the borrowing capacity of individual borrowers, no way to check the value of the ultimate collateral. The one overridingly crucial job of the fixed income investor is to check the credit quality of the bonds he or she is investing in‌—‌and the whole CDO-squared nonsense made that task impossible to perform. Yet all the slick Wall Street salesmen needed to do to secure their sale was to point to the AAA rating bestowed on these bonds by the ratings agencies.


pages: 398 words: 112,350

Truevine: Two Brothers, a Kidnapping, and a Mother's Quest: A True Story of the Jim Crow South by Beth Macy

affirmative action, Charles Lindbergh, company town, desegregation, fixed income, Glass-Steagall Act, independent contractor, indoor plumbing, market bubble, mass incarceration, Maui Hawaii, New Journalism, strikebreaker, TED Talk, transatlantic slave trade, transcontinental railway, union organizing, urban renewal, W. E. B. Du Bois, white flight

Burkhart, also known as the Anatomical Wonder, was living in a Gibtown trailer with his wife and daughter when we met in 2001. He demonstrated his act with gusto. At age ninety-four, he was still happy to pound a spike up his nose for anyone who asked. (A source who introduced us did suggest we take him and his wife out to lunch for the interview; “they’re on a fixed income,” he said.) When Burkhart was a teen, his nose had been squashed in the boxing ring and twenty-two bone fragments removed, creating a cavity behind one nostril that was just big enough for a thick nail. He could also make the two sides of his face do different things—grimace and laugh—at the same time.


pages: 399 words: 122,688

Shoe Dog by Phil Knight

banking crisis, corporate raider, fail fast, fear of failure, fixed income, index card, intangible asset, Menlo Park, Silicon Valley

First State Bank and the Small Business Administration required that Bowerman and I, as majority shareholders, both personally guarantee the loan. We’d done that at First National and at Bank of California, so I didn’t see a problem. I was in hock up to my neck, what was one more guarantee? Bowerman, however, balked. Retired, living on a fixed income, dispirited after the traumas of the last few years, and greatly weakened by the death of Pre, he didn’t want any more risk. He feared losing his mountain. Rather than give his personal guarantee, he offered to give me two-thirds of his stake in Blue Ribbon, at a discounted price. He was bowing out.


pages: 288 words: 16,556

Finance and the Good Society by Robert J. Shiller

Alan Greenspan, Alvin Roth, bank run, banking crisis, barriers to entry, Bear Stearns, behavioural economics, benefit corporation, Bernie Madoff, buy and hold, capital asset pricing model, capital controls, Carmen Reinhart, Cass Sunstein, cognitive dissonance, collateralized debt obligation, collective bargaining, computer age, corporate governance, Daniel Kahneman / Amos Tversky, democratizing finance, Deng Xiaoping, diversification, diversified portfolio, Donald Trump, Edward Glaeser, eurozone crisis, experimental economics, financial engineering, financial innovation, financial thriller, fixed income, full employment, fundamental attribution error, George Akerlof, Great Leap Forward, Ida Tarbell, income inequality, information asymmetry, invisible hand, John Bogle, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, land reform, loss aversion, Louis Bachelier, Mahatma Gandhi, Mark Zuckerberg, market bubble, market design, means of production, microcredit, moral hazard, mortgage debt, Myron Scholes, Nelson Mandela, Occupy movement, passive investing, Ponzi scheme, prediction markets, profit maximization, quantitative easing, random walk, regulatory arbitrage, Richard Thaler, Right to Buy, road to serfdom, Robert Shiller, Ronald Reagan, selection bias, self-driving car, shareholder value, Sharpe ratio, short selling, Simon Kuznets, Skype, social contagion, Steven Pinker, tail risk, telemarketer, Thales and the olive presses, Thales of Miletus, The Market for Lemons, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, Vanguard fund, young professional, zero-sum game, Zipcar

See also banks; mortgage lenders; regulation, financial financial literacy programs, 84 Financial Stability Board, 157 Financial Stability Oversight Council, 114, 157, 184, 217 financial theory: beauty, 131; conservation laws, 132, 133; Modigliani-Miller theorems, 132; option pricing, 132; portfolio management, 7. See also efficient markets theory FINRA. See Financial Industry Regulatory Authority fiscal policy, 114–16, 117, 133 Fisher, Irving, 156 fixed-income securities. See bonds Forbes 400 list, 188, 194–95, 207, 256n7 foreign direct investment, 229 foreign exchange swaps, 75 forward markets, 75 foundations, 126, 165, 199, 207–8. See also philanthropists Franco-Prussian War, 221–22 Frank, Robert H., 192 Franklin, Benjamin, 104 Franz Ferdinand, Archduke, 183, 223 Freddie Mac (Federal Home Loan Mortgage Corporation), 53 French, Kenneth, 48 Freud, Sigmund, 129 Fried, Jesse, 24, 25 Friedman, Milton, 94, 95 fundamental attribution error, 135 futures markets, 4, 13, 61, 62, 75, 246n6 (Chapter 9) G20.


pages: 602 words: 120,848

Winner-Take-All Politics: How Washington Made the Rich Richer-And Turned Its Back on the Middle Class by Paul Pierson, Jacob S. Hacker

accounting loophole / creative accounting, active measures, affirmative action, air traffic controllers' union, Alan Greenspan, asset allocation, barriers to entry, Bear Stearns, Bonfire of the Vanities, business climate, business cycle, carried interest, Cass Sunstein, clean water, collective bargaining, corporate governance, Credit Default Swap, David Brooks, desegregation, employer provided health coverage, financial deregulation, financial innovation, financial intermediation, fixed income, full employment, Glass-Steagall Act, Home mortgage interest deduction, Howard Zinn, income inequality, invisible hand, John Bogle, knowledge economy, laissez-faire capitalism, Martin Wolf, medical bankruptcy, moral hazard, Nate Silver, new economy, night-watchman state, offshore financial centre, oil shock, Paul Volcker talking about ATMs, Powell Memorandum, Ralph Nader, Ronald Reagan, Savings and loan crisis, shareholder value, Silicon Valley, Tax Reform Act of 1986, The Wealth of Nations by Adam Smith, three-martini lunch, too big to fail, trickle-down economics, union organizing, very high income, War on Poverty, winner-take-all economy, women in the workforce

Are Americans getting better benefits tied to their jobs? Not when it comes to retirement benefits. Employers contribute less to such benefits than they did in the 1970s, and workers are less likely to have an employer-sponsored pension than they were in the late 1970s.19 And many fewer have a guaranteed defined-benefit pension that pays them a fixed income in retirement. Instead, most Americans who have pensions rely on defined-contribution plans that place all the risk of retirement savings on them. This risk has been driven home by the recent stock market drop, which reduced the median balance in 401(k)s by a third between 2007 and 2008.20 As notable as the decline is the end point: the typical amount in a 401(k) in 2008 was a paltry $12,655.


pages: 320 words: 33,385

Market Risk Analysis, Quantitative Methods in Finance by Carol Alexander

asset allocation, backtesting, barriers to entry, Brownian motion, capital asset pricing model, constrained optimization, credit crunch, Credit Default Swap, discounted cash flows, discrete time, diversification, diversified portfolio, en.wikipedia.org, financial engineering, fixed income, implied volatility, interest rate swap, low interest rates, market friction, market microstructure, p-value, performance metric, power law, proprietary trading, quantitative trading / quantitative finance, random walk, risk free rate, risk tolerance, risk-adjusted returns, risk/return, seminal paper, Sharpe ratio, statistical arbitrage, statistical model, stochastic process, stochastic volatility, systematic bias, Thomas Bayes, transaction costs, two and twenty, value at risk, volatility smile, Wiener process, yield curve, zero-sum game

We end this chapter with a case study that examines the historical behaviour of major European equity indices and shows how their returns can be modelled using PCA. We shall be applying PCA quite frequently throughout the later volumes of this book. It is an extremely useful tool for modelling the risk of all types of portfolios, particularly fixed income portfolios and portfolios with positions in many futures of different maturities. Readers are recommended to try to fully understand the Excel spreadsheet for the case study, which computes the principal components with the aid of an Excel add-in freeware program. I.2.2 MATRIX ALGEBRA AND ITS MATHEMATICAL APPLICATIONS This section and Section I.2.3 are similar to an ‘Algebra 101’ course.


pages: 476 words: 124,973

The Desert and the Sea: 977 Days Captive on the Somali Pirate Coast by Michael Scott Moore

Albert Einstein, British Empire, clean water, Columbine, drone strike, European colonialism, Filipino sailors, fixed income, half of the world's population has never made a phone call, military-industrial complex, Nelson Mandela, South China Sea, UNCLOS

IX The bosses’ demand for money tumbled in the first half of 2013, from eight million dollars to six million, then flirted with five. Mom kept track of everything in her notebooks, the FBI saved recordings; there was a sense of progress. She bargained with Fuad, or some proxy for Fuad, by email and phone. “I told them I was a retired person, I was on a fixed income, and I had sold property and I was raising as much as I could,” Mom said. She’d assembled money for my ransom through various circles—family, friends, magazines I had worked for, various U.S. and German institutions. But the fund was limited. Western hostages have a rough price on the world market, but it’s a function of guesswork, of global rumor and bluffs, of sheer illusion and sometimes accurate journalism.* In Somalia, the shipping industry had distorted the hostage calculus, because the largest cargo ships carried massive insurance plans, and every day a vessel full of oil or steel rested at anchor off Somalia represented a dead loss for its owners.


pages: 326 words: 48,727

Hot: Living Through the Next Fifty Years on Earth by Mark Hertsgaard

addicted to oil, An Inconvenient Truth, Berlin Wall, business continuity plan, carbon footprint, clean water, climate change refugee, Climategate, Climatic Research Unit, congestion pricing, corporate governance, cuban missile crisis, decarbonisation, defense in depth, disinformation, en.wikipedia.org, Fall of the Berlin Wall, fixed income, food miles, Great Leap Forward, Intergovernmental Panel on Climate Change (IPCC), Kickstarter, megacity, megaproject, Mikhail Gorbachev, mutually assured destruction, ocean acidification, peak oil, Port of Oakland, precautionary principle, Ronald Reagan, Silicon Valley, smart grid, South China Sea, the built environment, transatlantic slave trade, transit-oriented development, two and twenty, University of East Anglia, urban planning

Companies responded by dramatically increasing prices and reducing coverage. Many policyholders were dropped altogether; those who could still find coverage had to pay much higher premiums. Some homeowners' rates increased roughly 100 percent over two years, which led many people, especially retirees on fixed incomes—a sizable proportion of Florida's population—to give up their insurance altogether, a terrible risk in a state so susceptible to hurricanes. By fall 2006 the insurance crisis was the biggest political issue in the state, with staggering economic implications: without insurance, houses can't sell, businesses can't get loans, commerce falters.


pages: 320 words: 87,853

The Black Box Society: The Secret Algorithms That Control Money and Information by Frank Pasquale

Adam Curtis, Affordable Care Act / Obamacare, Alan Greenspan, algorithmic trading, Amazon Mechanical Turk, American Legislative Exchange Council, asset-backed security, Atul Gawande, bank run, barriers to entry, basic income, Bear Stearns, Berlin Wall, Bernie Madoff, Black Swan, bonus culture, Brian Krebs, business cycle, business logic, call centre, Capital in the Twenty-First Century by Thomas Piketty, Chelsea Manning, Chuck Templeton: OpenTable:, cloud computing, collateralized debt obligation, computerized markets, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, cryptocurrency, data science, Debian, digital rights, don't be evil, drone strike, Edward Snowden, en.wikipedia.org, Evgeny Morozov, Fall of the Berlin Wall, Filter Bubble, financial engineering, financial innovation, financial thriller, fixed income, Flash crash, folksonomy, full employment, Gabriella Coleman, Goldman Sachs: Vampire Squid, Google Earth, Hernando de Soto, High speed trading, hiring and firing, housing crisis, Ian Bogost, informal economy, information asymmetry, information retrieval, information security, interest rate swap, Internet of things, invisible hand, Jaron Lanier, Jeff Bezos, job automation, John Bogle, Julian Assange, Kevin Kelly, Kevin Roose, knowledge worker, Kodak vs Instagram, kremlinology, late fees, London Interbank Offered Rate, London Whale, machine readable, Marc Andreessen, Mark Zuckerberg, Michael Milken, mobile money, moral hazard, new economy, Nicholas Carr, offshore financial centre, PageRank, pattern recognition, Philip Mirowski, precariat, profit maximization, profit motive, public intellectual, quantitative easing, race to the bottom, reality distortion field, recommendation engine, regulatory arbitrage, risk-adjusted returns, Satyajit Das, Savings and loan crisis, search engine result page, shareholder value, Silicon Valley, Snapchat, social intelligence, Spread Networks laid a new fibre optics cable between New York and Chicago, statistical arbitrage, statistical model, Steven Levy, technological solutionism, the scientific method, too big to fail, transaction costs, two-sided market, universal basic income, Upton Sinclair, value at risk, vertical integration, WikiLeaks, Yochai Benkler, zero-sum game

Financial intermediaries also spare small-time investors the trouble of actually understanding the business model and future prospects of what they invest in. “No need to worry if it’s a bit of a black box,” a broker may counsel about a hot tip. “It’s our job to understand the details.” Sadly, many workers who earnestly contribute to 401(k) plans mistake the unglamorous realities of fixed-income arbitrage, algorithmic trading, and mind-numbing derivative contracts for the glitter of venture capital jackpots. Investors like to think of their money supporting brave innovators and entrepreneurs. But how many really 128 THE BLACK BOX SOCIETY know the ultimate destinations of their dollars?


pages: 382 words: 120,064

Bank 3.0: Why Banking Is No Longer Somewhere You Go but Something You Do by Brett King

3D printing, Abraham Maslow, additive manufacturing, Airbus A320, Albert Einstein, Amazon Web Services, Any sufficiently advanced technology is indistinguishable from magic, Apollo 11, Apollo 13, Apollo Guidance Computer, asset-backed security, augmented reality, barriers to entry, behavioural economics, bitcoin, bounce rate, business intelligence, business process, business process outsourcing, call centre, capital controls, citizen journalism, Clayton Christensen, cloud computing, credit crunch, crowdsourcing, disintermediation, en.wikipedia.org, fixed income, George Gilder, Google Glasses, high net worth, I think there is a world market for maybe five computers, Infrastructure as a Service, invention of the printing press, Jeff Bezos, jimmy wales, Kickstarter, London Interbank Offered Rate, low interest rates, M-Pesa, Mark Zuckerberg, mass affluent, Metcalfe’s law, microcredit, mobile money, more computing power than Apollo, Northern Rock, Occupy movement, operational security, optical character recognition, peer-to-peer, performance metric, Pingit, platform as a service, QR code, QWERTY keyboard, Ray Kurzweil, recommendation engine, RFID, risk tolerance, Robert Metcalfe, self-driving car, Skype, speech recognition, stem cell, telepresence, the long tail, Tim Cook: Apple, transaction costs, underbanked, US Airways Flight 1549, web application, world market for maybe five computers

The results below (aggregated from 45 countries globally) show only those products where 40 per cent or more of those surveyed indicated that they would be likely or very likely to use the online channel to purchase or apply for that product type in the future. Figure 2.5: Preference for retail banking products online, by market15 We do see a pattern here. With the exclusion of the investment and trading products, all of the other products are pretty simple, namely credit cards, general insurance products, personal loans, time deposits or fixed income products, and opening a new bank account. These are also things you know work through the online channel. Breaking bad inertia I’ll discuss this more in Chapter 11, on Engagement Banking. However, the key to understanding which channel is the right channel to push a product to a customer is understanding their behaviour around these products.


pages: 428 words: 121,717

Warnings by Richard A. Clarke

"Hurricane Katrina" Superdome, active measures, Albert Einstein, algorithmic trading, anti-communist, artificial general intelligence, Asilomar, Asilomar Conference on Recombinant DNA, Bear Stearns, behavioural economics, Bernie Madoff, Black Monday: stock market crash in 1987, carbon tax, cognitive bias, collateralized debt obligation, complexity theory, corporate governance, CRISPR, cuban missile crisis, data acquisition, deep learning, DeepMind, discovery of penicillin, double helix, Elon Musk, failed state, financial thriller, fixed income, Flash crash, forensic accounting, friendly AI, Hacker News, Intergovernmental Panel on Climate Change (IPCC), Internet of things, James Watt: steam engine, Jeff Bezos, John Maynard Keynes: Economic Possibilities for our Grandchildren, knowledge worker, Maui Hawaii, megacity, Mikhail Gorbachev, money market fund, mouse model, Nate Silver, new economy, Nicholas Carr, Nick Bostrom, nuclear winter, OpenAI, pattern recognition, personalized medicine, phenotype, Ponzi scheme, Ray Kurzweil, Recombinant DNA, Richard Feynman, Richard Feynman: Challenger O-ring, risk tolerance, Ronald Reagan, Sam Altman, Search for Extraterrestrial Intelligence, self-driving car, Silicon Valley, smart grid, statistical model, Stephen Hawking, Stuxnet, subprime mortgage crisis, tacit knowledge, technological singularity, The Future of Employment, the scientific method, The Signal and the Noise by Nate Silver, Tunguska event, uranium enrichment, Vernor Vinge, WarGames: Global Thermonuclear War, Watson beat the top human players on Jeopardy!, women in the workforce, Y2K

Yet even after securities and brokerage firm Bear Stearns ran into serious trouble in the summer of 2007, Citigroup excluded its CDOs from its risk assessment, saying that their share of the bank’s business was small (less than a hundredth of 1 percent). On October 15, 2007, a little more than two weeks before Whitney made her call, Bloomberg reported that Citigroup’s net profit had fallen 57 percent on fixed-income losses during its third quarter and announced that mortgage delinquencies would increase and consumer lending would deteriorate for the rest of the year. Citigroup experienced its biggest share-price drop in two months after its CFO, Crittenden, said on a conference call that borrower defaults were “accelerating,” according to Bloomberg.


pages: 756 words: 120,818

The Levelling: What’s Next After Globalization by Michael O’sullivan

"World Economic Forum" Davos, 3D printing, Airbnb, Alan Greenspan, algorithmic trading, Alvin Toffler, bank run, banking crisis, barriers to entry, Bernie Sanders, Big Tech, bitcoin, Black Swan, blockchain, bond market vigilante , Boris Johnson, Branko Milanovic, Bretton Woods, Brexit referendum, British Empire, business cycle, business process, capital controls, carbon tax, Celtic Tiger, central bank independence, classic study, cloud computing, continuation of politics by other means, corporate governance, credit crunch, CRISPR, cryptocurrency, data science, deglobalization, deindustrialization, disinformation, disruptive innovation, distributed ledger, Donald Trump, driverless car, eurozone crisis, fake news, financial engineering, financial innovation, first-past-the-post, fixed income, gentrification, Geoffrey West, Santa Fe Institute, Gini coefficient, Glass-Steagall Act, global value chain, housing crisis, impact investing, income inequality, Intergovernmental Panel on Climate Change (IPCC), It's morning again in America, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", junk bonds, knowledge economy, liberal world order, Long Term Capital Management, longitudinal study, low interest rates, market bubble, minimum wage unemployment, new economy, Northern Rock, offshore financial centre, open economy, opioid epidemic / opioid crisis, Paris climate accords, pattern recognition, Peace of Westphalia, performance metric, Phillips curve, private military company, quantitative easing, race to the bottom, reserve currency, Robert Gordon, Robert Shiller, Robert Solow, Ronald Reagan, Scramble for Africa, secular stagnation, Silicon Valley, Sinatra Doctrine, South China Sea, South Sea Bubble, special drawing rights, Steve Bannon, Suez canal 1869, supply-chain management, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, total factor productivity, trade liberalization, tulip mania, Valery Gerasimov, Washington Consensus

There have been a few exceptions to this risk dodging. One I recall was the collapse of the Long Term Capital Management (LTCM) hedge fund. In the mid 1990s, LTCM was one of the world’s largest hedge funds, run by a team of high-profile bond traders and famous academics. It had a range of highly leveraged positions in fixed-income markets. In the face of market volatility, it was forced to unwind, in turn crashing financial markets and provoking the rescue of the fund by a consortium of investment banks. I recall witnessing a presentation on the collapse of the fund from one of its principals, whose voice broke as he recounted its demise.


pages: 516 words: 116,875

Greater: Britain After the Storm by Penny Mordaunt, Chris Lewis

"World Economic Forum" Davos, 2021 United States Capitol attack, 3D printing, accelerated depreciation, Ada Lovelace, Airbnb, banking crisis, battle of ideas, behavioural economics, Bernie Madoff, bitcoin, Black Lives Matter, blockchain, Bob Geldof, Boeing 747, Boris Johnson, Bretton Woods, Brexit referendum, British Empire, carbon footprint, Charles Babbage, collective bargaining, Corn Laws, corporate social responsibility, COVID-19, credit crunch, crowdsourcing, data is not the new oil, data is the new oil, David Attenborough, death from overwork, Deng Xiaoping, Diane Coyle, Donald Trump, Downton Abbey, driverless car, Elon Musk, en.wikipedia.org, experimental economics, failed state, fake news, Firefox, fixed income, full employment, gender pay gap, global pandemic, global supply chain, green new deal, happiness index / gross national happiness, high-speed rail, impact investing, Jeremy Corbyn, Khartoum Gordon, lateral thinking, Live Aid, lockdown, loss aversion, low skilled workers, microaggression, mittelstand, moral hazard, Neil Kinnock, Nelson Mandela, Ocado, off-the-grid, offshore financial centre, Panamax, Ponzi scheme, post-truth, quantitative easing, remote working, road to serfdom, Salesforce, Sheryl Sandberg, Skype, smart cities, social distancing, South China Sea, sovereign wealth fund, Steve Jobs, Steven Pinker, surveillance capitalism, transaction costs, transcontinental railway

sh=6cb8f63266ee 50 https://www.coha.org/the-twin-ocean-project-south-americas-transcontinental-railroad/ 51 https://www.reuters.com/article/us-china-arctic/china-unveils-vision-for-polar-silk-road-across-arctic-idUSKBN1FF0J8 52 https://www.eia.gov/todayinenergy/detail.php?id=18011 53 https://www.csis.org/analysis/how-big-chinas-belt-and-road 54 https://www.bloomberg.com/markets/fixed-income 55 https://www.reuters.com/article/us-china-railway-yunnan/china-completes-high-speed-rail-links-from-southwest-yunnan-idUSKBN14I07I?il=0 56 http://oecdobserver.org/news/fullstory.php/aid/5565/The_ascendancy_of_digital_trade:_A_new_world_order_.html 57 https://www.cps.org.uk/media/press-releases/q/date/2020/07/27/the-uk-must-be-the-champion-of-global-entrepreneurship-/ 58 https://www.japantimes.co.jp/news/2009/01/06/reference/lessons-from-when-the-bubble-burst/ 59 https://www.piie.com/commentary/testimonies/some-background-qa-japanese-economic-stagnation 60 https://www.forbes.com/sites/yuwahedrickwong/2019/04/10/japans-richest-2019-pm-abes-aim-is-true/#355e961c77a6 61 https://qz.com/452076/this-just-in-german-capitalism-has-won/ 62 https://www.thelocal.de/20170130/germany-overtakes-china-as-worlds-richest-exporter 63 https://www.foreignaffairs.com/articles/germany/2017-09-11/germany-after-hartz-reforms 64 https://tradingeconomics.com/spain/youth-unemployment-rate 65 https://www.forbes.com/2009/11/03/capitalism-save-us-opinions-forbes_land.html#34045425258c 66 https://www.amazon.com/How-Capitalism-Will-Save-Us/dp/0307463095?


pages: 453 words: 122,586

Samuelson Friedman: The Battle Over the Free Market by Nicholas Wapshott

2021 United States Capitol attack, Alan Greenspan, bank run, basic income, battle of ideas, Bear Stearns, Berlin Wall, Bretton Woods, business cycle, California gold rush, collective bargaining, coronavirus, corporate governance, COVID-19, creative destruction, David Ricardo: comparative advantage, Donald Trump, double helix, en.wikipedia.org, fiat currency, financial engineering, fixed income, floating exchange rates, full employment, God and Mammon, greed is good, Gunnar Myrdal, income inequality, indoor plumbing, invisible hand, John von Neumann, Joseph Schumpeter, Kenneth Arrow, laissez-faire capitalism, light touch regulation, liquidity trap, lockdown, low interest rates, Machinery of Freedom by David Friedman, market bubble, market clearing, mass immigration, military-industrial complex, Money creation, money market fund, Mont Pelerin Society, moral hazard, new economy, Nixon shock, Nixon triggered the end of the Bretton Woods system, paradox of thrift, Paul Samuelson, Philip Mirowski, Phillips curve, price mechanism, price stability, public intellectual, pushing on a string, quantitative easing, rent control, road to serfdom, Robert Bork, Robert Solow, Ronald Coase, Ronald Reagan, school vouchers, seminal paper, Simon Kuznets, social distancing, Tax Reform Act of 1986, The Chicago School, The Great Moderation, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, too big to fail, trickle-down economics, universal basic income, upwardly mobile, urban renewal, War on Poverty, We are all Keynesians now, Works Progress Administration, zero-sum game

Even more ominous is the possibility that prices may begin to shoot up long before full employment is reached.16 He believed that living with persistent, out-of-control inflation invited “dangerous consequences” and warned that governments would be pressed to act, perhaps by setting the price of wages and goods by law. Aside from the unfair burden placed on those living on fixed incomes, such as the elderly on fixed pensions and the poor who had no means of keeping with rising prices, he argued that inflation also raised the relative price of American goods for export, which increased America’s balance-of-payments deficit.17 Of the available remedies for inflation, Samuelson favored raising taxes over the Federal Reserve raising interest rates to check growth.


Unknown Market Wizards by Jack D. Schwager

3D printing, algorithmic trading, automated trading system, backtesting, barriers to entry, Black Monday: stock market crash in 1987, Brexit referendum, buy and hold, commodity trading advisor, computerized trading, COVID-19, cryptocurrency, diversification, Donald Trump, eurozone crisis, family office, financial deregulation, fixed income, forward guidance, index fund, Jim Simons, litecoin, Long Term Capital Management, margin call, market bubble, Market Wizards by Jack D. Schwager, Nick Leeson, performance metric, placebo effect, proprietary trading, quantitative easing, Reminiscences of a Stock Operator, risk tolerance, risk-adjusted returns, Sharpe ratio, short squeeze, side project, systematic trading, tail risk, transaction costs

The program gave me a solid grounding in financial theory. It was where I first learned about the concepts and math behind value at risk and other risk metrics. But there was another memorable and impactful experience that occurred because I was in that program. A professor at my business school was married to the head of global fixed income for Salomon Brothers. At my request, she was generous enough to set me up with a meeting with him. He was a very friendly and personable guy. He asked me how I approached the markets. I told him, “I try to find out what everyone is doing, and I do the opposite because when everyone is in the same trade, they lose money.”


pages: 444 words: 138,781

Evicted: Poverty and Profit in the American City by Matthew Desmond

affirmative action, Cass Sunstein, crack epidemic, Credit Default Swap, deindustrialization, desegregation, dumpster diving, ending welfare as we know it, fixed income, food desert, gentrification, ghettoisation, glass ceiling, Gunnar Myrdal, housing crisis, housing justice, informal economy, Jane Jacobs, jobless men, Kickstarter, late fees, Lewis Mumford, mass incarceration, New Urbanism, payday loans, price discrimination, profit motive, rent control, statistical model, superstar cities, The Chicago School, The Death and Life of Great American Cities, thinkpad, upwardly mobile, working poor, young professional

“Whatever I get is whatever I get,” she figured. She had said, “I’m in a shelter. Please.” Pana answered. “Yeah, so, we checked you out. Everything was what you said it was. So, we gonna work with you.” Arleen jumped up and let out a muffled “Yes!” “But you know, there is no room for error here.” “I know.” “You’re on a fixed income. So you need to pay your rent and not get into trouble.” Arleen thanked Pana. Getting off the phone, she thanked Jesus. She smiled. When she smiled she looked like a different person. The press had loosened its grip. From landlords, she had heard eighty-nine nos but one yes. Jori accepted his mother’s high five.


Everybody's Guide to Small Claims Court by Ralph E. Warner

benefit corporation, estate planning, fixed income, lateral thinking, medical malpractice, rent control

You Want to Pay the Plaintiff in Installments If you do not dispute the amount of the plaintiff’s claim but you want to make payments in installments rather than all at once, your best bet is to show up on the day your case is scheduled and explain your situation to the judge. Tell the judge how much you can afford to pay each month. The judge has the discretion to allow you to pay the judgment in installments. Explain why it would be difficult or impossible to pay any judgment all at once. For example, if you are on a fixed income, have recently been unemployed and have a lot of debts, or have a low or moderate income and chapter 12: The defendant’s options 179 a large family, just state these facts—there is no need to tell a long sob story. (See Chapter 23 for more on paying a judgment in installments.) H. If You, Not the Plaintiff, Were Wronged—.


Mathematical Finance: Theory, Modeling, Implementation by Christian Fries

Black-Scholes formula, Brownian motion, continuous integration, discrete time, financial engineering, fixed income, implied volatility, interest rate derivative, martingale, quantitative trading / quantitative finance, random walk, short selling, Steve Jobs, stochastic process, stochastic volatility, volatility smile, Wiener process, zero-coupon bond

Working paper, 2004. [74] J, M S.; K, D: Rapid computation of prices and deltas of nth to default swaps in the Li Model. Quantitative Finance, volume 4, issue 3, (June 04), p. 266- 275. http://www.quarchome.org/. [75] L,D.: On Default Correlation: a Copula Approach (Journal of Fixed Income, 9, 43-45) [76] L, F A.; S E S.: Valuing American Options by Simulation: A Simple Least-Square Approach. Review of Financial Studies 14:1, 113-147, 2001. [77] M, M.;N, T.: Mersenne twister: A 623-dimensionally equidistributed uniform pseudorandom number generator.


pages: 369 words: 128,349

Beyond the Random Walk: A Guide to Stock Market Anomalies and Low Risk Investing by Vijay Singal

3Com Palm IPO, Andrei Shleifer, AOL-Time Warner, asset allocation, book value, buy and hold, capital asset pricing model, correlation coefficient, cross-subsidies, currency risk, Daniel Kahneman / Amos Tversky, diversified portfolio, endowment effect, fixed income, index arbitrage, index fund, information asymmetry, information security, junk bonds, liberal capitalism, locking in a profit, Long Term Capital Management, loss aversion, low interest rates, margin call, market friction, market microstructure, mental accounting, merger arbitrage, Myron Scholes, new economy, prediction markets, price stability, profit motive, random walk, Richard Thaler, risk free rate, risk-adjusted returns, risk/return, selection bias, Sharpe ratio, short selling, short squeeze, survivorship bias, Tax Reform Act of 1986, transaction costs, uptick rule, Vanguard fund

HOME BIAS IS WORSE THAN YOU THINK Whenever an individual’s portfolio is considered, all of the possible assets must be considered, financial and nonfinancial. However, the evidence presented above is based on equity markets only. In addition to marketable equity there is private equity in companies not publicly traded. There are fixed-income assets such as government bonds and corporate bonds. There is real estate. And, finally, even human capital is an asset. Among all nonmarketable assets, human capital is probably the most important. Since human capital is highly correlated with an individual’s job and eventually with the domestic economy, a large proportion of an individual’s capital is invested in the domestic market.


pages: 416 words: 39,022

Asset and Risk Management: Risk Oriented Finance by Louis Esch, Robert Kieffer, Thierry Lopez

asset allocation, Brownian motion, business continuity plan, business process, capital asset pricing model, computer age, corporate governance, discrete time, diversified portfolio, fixed income, implied volatility, index fund, interest rate derivative, iterative process, P = NP, p-value, random walk, risk free rate, risk/return, shareholder value, statistical model, stochastic process, transaction costs, value at risk, Wiener process, yield curve, zero-coupon bond

The choice of risk factors is somewhat arbitrary and faces the following dilemma: representation of an asset as a number of elementary risks ensures very accurate results, but is costly in terms of calculation and data needed to supply the model. We now examine a number of decomposition models to support our statement. 7.2.1.1 Fixed-income securities Let us consider a security that brings in certain income in amounts X1 , X2 , . . . , XT at the respective times t1 , t2 , . . . , tT . Some of these income amounts may be positive and others negative. The full range of the risk factors on which the security depends is expressed as: X1 (1 + r1 )−t1 X2 (1 + r2 )−t2 · · · XT (1 + rT )−tT t1 t2 ··· tT Here, rj represents the market interest rate for the corresponding period.


pages: 496 words: 131,938

The Future Is Asian by Parag Khanna

3D printing, Admiral Zheng, affirmative action, Airbnb, Amazon Web Services, anti-communist, Asian financial crisis, asset-backed security, augmented reality, autonomous vehicles, Ayatollah Khomeini, barriers to entry, Basel III, bike sharing, birth tourism , blockchain, Boycotts of Israel, Branko Milanovic, British Empire, call centre, capital controls, carbon footprint, cashless society, clean tech, clean water, cloud computing, colonial rule, commodity super cycle, computer vision, connected car, corporate governance, CRISPR, crony capitalism, cross-border payments, currency peg, death from overwork, deindustrialization, Deng Xiaoping, Didi Chuxing, Dissolution of the Soviet Union, Donald Trump, driverless car, dual-use technology, energy security, European colonialism, factory automation, failed state, fake news, falling living standards, family office, financial engineering, fixed income, flex fuel, gig economy, global reserve currency, global supply chain, Great Leap Forward, green transition, haute couture, haute cuisine, illegal immigration, impact investing, income inequality, industrial robot, informal economy, initial coin offering, Internet of things, karōshi / gwarosa / guolaosi, Kevin Kelly, Kickstarter, knowledge worker, light touch regulation, low cost airline, low skilled workers, Lyft, machine translation, Malacca Straits, Marc Benioff, Mark Zuckerberg, Masayoshi Son, megacity, megaproject, middle-income trap, Mikhail Gorbachev, money market fund, Monroe Doctrine, mortgage debt, natural language processing, Netflix Prize, new economy, off grid, oil shale / tar sands, open economy, Parag Khanna, payday loans, Pearl River Delta, prediction markets, purchasing power parity, race to the bottom, RAND corporation, rent-seeking, reserve currency, ride hailing / ride sharing, Ronald Reagan, Salesforce, Scramble for Africa, self-driving car, Shenzhen special economic zone , Silicon Valley, smart cities, SoftBank, South China Sea, sovereign wealth fund, special economic zone, stem cell, Steve Jobs, Steven Pinker, supply-chain management, sustainable-tourism, synthetic biology, systems thinking, tech billionaire, tech worker, trade liberalization, trade route, transaction costs, Travis Kalanick, uber lyft, upwardly mobile, urban planning, Vision Fund, warehouse robotics, Washington Consensus, working-age population, Yom Kippur War

China now has more than fifty “unicorn” companies with billion dollar–plus valuations (slightly less than the United States), while India has about a dozen and ASEAN just under ten, with many more such pre-IPO companies gathering steam. The global asset management industry is only about 5 percent exposed to Asia, something Western institutional investors—from asset managers and pension funds to family offices—are scrambling to correct as they search for high-yield fixed-income investments such as Asian currencies, sovereign debt, and corporate bonds. Tencent, Alibaba, and Baidu already rank among the largest companies in the world by market cap, but their rapid expansion of customer base and services makes them attractive as core elements of a Western retiree’s portfolio to augment the struggling blue-chip companies such as GE and HP.


pages: 505 words: 133,661

Who Owns England?: How We Lost Our Green and Pleasant Land, and How to Take It Back by Guy Shrubsole

Adam Curtis, Anthropocene, back-to-the-land, Beeching cuts, Boris Johnson, Capital in the Twenty-First Century by Thomas Piketty, centre right, congestion charging, Crossrail, deindustrialization, digital map, do-ocracy, Downton Abbey, false flag, financial deregulation, fixed income, fulfillment center, Garrett Hardin, gentrification, Global Witness, Goldman Sachs: Vampire Squid, Google Earth, housing crisis, housing justice, James Dyson, Jeremy Corbyn, Kickstarter, land bank, land reform, land tenure, land value tax, linked data, loadsamoney, Londongrad, machine readable, mega-rich, mutually assured destruction, new economy, Occupy movement, offshore financial centre, oil shale / tar sands, openstreetmap, place-making, plutocrats, profit motive, rent-seeking, rewilding, Right to Buy, Ronald Reagan, Russell Brand, sceptred isle, Stewart Brand, the built environment, the map is not the territory, The Wealth of Nations by Adam Smith, Tragedy of the Commons, trickle-down economics, urban sprawl, web of trust, Yom Kippur War, zero-sum game

The lands would still technically be his, ‘in right of his Crown’, but the revenues would flow to the Treasury and they would be managed by an organisation answerable to Parliament – later called the Crown Estate. It was a sweet deal for the king, as the Crown lands were in a pretty shambolic state at the time. Revenues remained low, and land holdings had continued to be filched for bribes and the enrichment of court favourites. The Civil List, by contrast, handed the royal family a guaranteed fixed income. And over the next century, the Crown Estate’s fortunes were to revive. Staffed with an increasingly professional civil service, its holding of land doubled in size from around 106,000 acres to 220,000 acres over the course of Queen Victoria’s reign. More importantly from the government’s perspective, revenues grew immensely, bringing in millions of pounds for the public purse.


pages: 473 words: 132,344

The Downfall of Money: Germany's Hyperinflation and the Destruction of the Middle Class by Frederick Taylor

Albert Einstein, anti-communist, banking crisis, Berlin Wall, British Empire, central bank independence, centre right, collective bargaining, falling living standards, fiat currency, fixed income, full employment, German hyperinflation, housing crisis, Internet Archive, Johann Wolfgang von Goethe, mittelstand, offshore financial centre, plutocrats, quantitative easing, rent control, risk/return, strikebreaker, trade route, zero-sum game

With socialists in power after 1918, the wages and welfare of ordinary workers, manual and junior white-collar alike, were far more important to the republican government. The incomes of the pre-war elite, which had already declined relative to that of the average German worker, did not increase sufficiently to keep up the standard of living such men and their families had been used to. The private wealth, based on property, savings and fixed-income investments, which had cascaded down the generations, suddenly all but evaporated. Their sons could not afford to study as their fathers and grandfathers had. Crucially, it was not just a question of money. The prestige of the class to which most of these students belonged, since the eighteenth century closely associated with its services to the German monarchical states, also took a tumble.


pages: 448 words: 142,946

Sacred Economics: Money, Gift, and Society in the Age of Transition by Charles Eisenstein

Albert Einstein, back-to-the-land, bank run, Bernie Madoff, big-box store, bread and circuses, Bretton Woods, capital controls, carbon credits, carbon tax, clean water, collateralized debt obligation, commoditize, corporate raider, credit crunch, David Ricardo: comparative advantage, debt deflation, degrowth, deindustrialization, delayed gratification, disintermediation, diversification, do well by doing good, fiat currency, financial independence, financial intermediation, fixed income, floating exchange rates, Fractional reserve banking, full employment, global supply chain, God and Mammon, happiness index / gross national happiness, hydraulic fracturing, informal economy, intentional community, invisible hand, Jane Jacobs, land tenure, land value tax, Lao Tzu, Lewis Mumford, liquidity trap, low interest rates, McMansion, means of production, megaproject, Money creation, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, multilevel marketing, new economy, off grid, oil shale / tar sands, Own Your Own Home, Paul Samuelson, peak oil, phenotype, planned obsolescence, Ponzi scheme, profit motive, quantitative easing, race to the bottom, Scramble for Africa, special drawing rights, spinning jenny, technoutopianism, the built environment, Thomas Malthus, too big to fail, Tragedy of the Commons

Inflation is mathematically very similar in its effects to a depreciating currency in that it encourages the circulation of money, discourages hoarding, and makes it easier to repay debts. Free-money has several important advantages, however. In addition to eliminating classic costs of inflation (menu costs, shoe-leather costs, etc.), it does not impoverish people on a fixed income. Here is a typical pro-inflation argument by Dean Baker of the Center for Economic and Policy Research: If it is politically impossible to increase the deficit, then monetary policy provides a second potential tool for boosting demand. The Federal Reserve Board can go beyond its quantitative easing program to a policy of explicitly targeting a moderate rate of inflation (e.g., 3–4 percent) thereby making the real rate of interest negative.


pages: 934 words: 135,736

The Divided Nation: A History of Germany, 1918-1990 by Mary Fulbrook

Albert Einstein, banking crisis, Berlin Wall, bread and circuses, centre right, classic study, coherent worldview, collective bargaining, death from overwork, deindustrialization, Fall of the Berlin Wall, feminist movement, first-past-the-post, fixed income, full employment, it's over 9,000, joint-stock company, land reform, means of production, Mikhail Gorbachev, open borders, Peace of Westphalia, Sinatra Doctrine, union organizing, unorthodox policies

By July 1922, the dollar was worth 493.2 Marks; by January 1923 the figure was 17,972; and in an inflationary explosion, the figures rose to 4.62 million Marks by August, 98.86 million Marks by September, 25,260 million Marks by October, and an almost unimaginable 4,200,000 million Marks by 15 November 1923 3 Paper notes were simply stamped with a new increased value; people were paid their wages by the cartload; prices doubled and trebled several times a day, making shopping with money almost impossible; and the savings, hopes, plans, assumptions and aspirations of huge numbers of people were swept away in a chaotic whirlwind. Those on fixed incomes, and those dependent on money savings, were of course hit the hardest. Even when the worst material impact was over, the psychological shock of the experience was to have longer-lasting effects, confirming a deep-seated dislike of democracy which was thereafter equated with economic distress and a heightened fear of the possible consequences of economic instability.


pages: 311 words: 130,761

Framing Class: Media Representations of Wealth and Poverty in America by Diana Elizabeth Kendall

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", AOL-Time Warner, Bernie Madoff, blue-collar work, Bonfire of the Vanities, call centre, content marketing, Cornelius Vanderbilt, David Brooks, declining real wages, Donald Trump, employer provided health coverage, ending welfare as we know it, fixed income, framing effect, gentrification, Georg Cantor, Gordon Gekko, greed is good, haute couture, housing crisis, illegal immigration, income inequality, junk bonds, Michael Milken, mortgage tax deduction, new economy, payday loans, Ponzi scheme, Ray Oldenburg, Richard Florida, Ronald Reagan, San Francisco homelessness, Saturday Night Live, systems thinking, telemarketer, The Great Good Place, The Theory of the Leisure Class by Thorstein Veblen, Thorstein Veblen, trickle-down economics, union organizing, upwardly mobile, urban planning, vertical integration, work culture , working poor

Describing the differential effects of a hurricane, one journalist stated, Hurricane Isabel was an equal-opportunity destroyer, flooding the houses, snapping the trees and cutting the power of rich and poor alike. But the lingering hardships imposed by the storm are not likely to be so democratic, officials from across the region say. People with low or fixed incomes, the elderly and the unemployed are struggling harder to rebuild, the officials say. Many had little or no insurance; many lost everything they owned.123 Unlike the widespread media appeals for the poor at the holidays, disaster relief draws only brief coverage, often describing how government agencies and volunteer organizations like the Red Cross are helping the victims.


The Great Good Place: Cafes, Coffee Shops, Bookstores, Bars, Hair Salons, and Other Hangouts at the Heart of a Community by Ray Oldenburg

bread and circuses, citizen journalism, cognitive bias, feminist movement, fixed income, global village, invisible hand, Jane Jacobs, Lewis Mumford, New Journalism, New Urbanism, place-making, profit motive, Ralph Waldo Emerson, Ray Oldenburg, Seaside, Florida, the built environment, The Death and Life of Great American Cities, The Great Good Place, urban planning, urban renewal, urban sprawl, Victor Gruen, wage slave, young professional

There was no appreciation of that which the oldest generation contributes to communities which provide a place for them. Third places provide a means for retired people to remain in contact with those still working and, in the best instances, for the oldest generation to associate with the youngest. The plight of the elderly and those on fixed incomes generally, points up another important function of third places and it is that performed by all “mutual aid societies.” In the convivial atmosphere of third places, people get to know one another and to like one another and then to care for one another. When people care for one another, they take an interest in their welfare; and this is a vastly superior form of welfare than that obtained by governmental programs.


pages: 458 words: 132,912

The Dying Citizen: How Progressive Elites, Tribalism, and Globalization Are Destroying the Idea of America by Victor Davis Hanson

"World Economic Forum" Davos, 2021 United States Capitol attack, 23andMe, affirmative action, Affordable Care Act / Obamacare, airport security, Bernie Sanders, Big Tech, Black Lives Matter, Boeing 737 MAX, borderless world, bread and circuses, British Empire, business climate, business cycle, carbon footprint, centre right, clean water, coronavirus, COVID-19, creative destruction, currency manipulation / currency intervention, defund the police, deindustrialization, deplatforming, disinformation, Donald Trump, Dr. Strangelove, drone strike, El Camino Real, fake news, Ferguson, Missouri, fixed income, Francis Fukuyama: the end of history, future of work, George Floyd, Gini coefficient, global pandemic, Herbert Marcuse, high-speed rail, Honoré de Balzac, illegal immigration, immigration reform, income inequality, Jeff Bezos, Joseph Schumpeter, laissez-faire capitalism, lockdown, Mark Zuckerberg, mass immigration, mass incarceration, Menlo Park, microaggression, military-industrial complex, mortgage debt, Nate Silver, new economy, New Urbanism, obamacare, old-boy network, Paris climate accords, Parler "social media", peak oil, Potemkin village, Ralph Waldo Emerson, Robert Mercer, Ronald Reagan, school choice, Silicon Valley, Silicon Valley billionaire, Skype, social distancing, Social Justice Warrior, tech worker, Thomas L Friedman, transcontinental railway, upwardly mobile, vertical integration, WikiLeaks, working poor, Yom Kippur War, zero-sum game

It is usually judged dead last in terms of the cost of doing business. Translated, that means that small-business operators relocated to more business-friendly states (for example, seventy thousand Californians on average have left for Texas alone each year of the last decade, and the rate is climbing to over eighty thousand per year), as did retirees on fixed incomes and young people shut out of the high-priced coastal housing market.39 Oddly the state rarely lamented the loss of its once thriving middle classes. The inference is that many of the evacuees were conservatives, so their departure only further ensured a monopoly of progressive elected officials.


pages: 561 words: 138,158

Shutdown: How COVID Shook the World's Economy by Adam Tooze

2021 United States Capitol attack, air freight, algorithmic trading, Anthropocene, Asian financial crisis, asset-backed security, Ayatollah Khomeini, bank run, banking crisis, Basel III, basic income, Ben Bernanke: helicopter money, Benchmark Capital, Berlin Wall, Bernie Sanders, Big Tech, bitcoin, Black Lives Matter, Black Monday: stock market crash in 1987, blue-collar work, Bob Geldof, bond market vigilante , Boris Johnson, Bretton Woods, Brexit referendum, business cycle, business process, business process outsourcing, buy and hold, call centre, capital controls, central bank independence, centre right, clean water, cognitive dissonance, contact tracing, contact tracing app, coronavirus, COVID-19, credit crunch, Credit Default Swap, cryptocurrency, currency manipulation / currency intervention, currency peg, currency risk, decarbonisation, deindustrialization, Donald Trump, Elon Musk, energy transition, eurozone crisis, facts on the ground, failed state, fake news, Fall of the Berlin Wall, fear index, financial engineering, fixed income, floating exchange rates, friendly fire, George Floyd, gig economy, global pandemic, global supply chain, green new deal, high-speed rail, housing crisis, income inequality, inflation targeting, invisible hand, It's morning again in America, Jeremy Corbyn, junk bonds, light touch regulation, lockdown, low interest rates, margin call, Martin Wolf, mass immigration, mass incarceration, megacity, megaproject, middle-income trap, Mikhail Gorbachev, Modern Monetary Theory, moral hazard, oil shale / tar sands, Overton Window, Paris climate accords, Pearl River Delta, planetary scale, Potemkin village, price stability, Productivity paradox, purchasing power parity, QR code, quantitative easing, remote working, reserve currency, reshoring, Robinhood: mobile stock trading app, Ronald Reagan, secular stagnation, shareholder value, Silicon Valley, six sigma, social distancing, South China Sea, special drawing rights, stock buybacks, tail risk, TikTok, too big to fail, TSMC, universal basic income, Washington Consensus, women in the workforce, yield curve

Treasuries surged more sharply than they had since the days of Paul Volcker in 1982.44 “[It] was mind-boggling,” said Bob Michele, chief investment officer at J.P. Morgan Asset Management. “I have been doing this now for almost 40 years, and this is the strangest market I have ever seen.” Andrew Wilson, chairman of global fixed income at Goldman Sachs Asset Management, commented: “Our primary responsibility is generating the liquidity our clients want. All of us are having to sell the things we can, rather than the things we would want to sell . . . That’s why this ripples right across everything.” 45 Rick Rieder, BlackRock’s chief investment officer, agreed.


pages: 1,009 words: 329,520

The Last Tycoons: The Secret History of Lazard Frères & Co. by William D. Cohan

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", activist fund / activist shareholder / activist investor, Alan Greenspan, AOL-Time Warner, bank run, Bear Stearns, book value, Carl Icahn, carried interest, cognitive dissonance, commoditize, computer age, corporate governance, corporate raider, creative destruction, credit crunch, deal flow, diversification, Donald Trump, East Village, fear of failure, financial engineering, fixed income, G4S, Glass-Steagall Act, hiring and firing, interest rate swap, intermodal, Joseph Schumpeter, junk bonds, land bank, late fees, Long Term Capital Management, Marc Andreessen, market bubble, Michael Milken, offshore financial centre, Ponzi scheme, proprietary trading, Ralph Nader, Ralph Waldo Emerson, rolodex, Ronald Reagan, shareholder value, short squeeze, SoftBank, stock buybacks, The Nature of the Firm, the new new thing, Yogi Berra

"Due to the fact that MDW is now going to retire and no one in his family is willing to inherit Lazard's financial problems and managerial conflicts...This has been in the works for a long time; just look at the history of former well known MDs that left a while back, they knew and got the fuck out of here. For those of you stuck there like me run, run as fast as you can." Another warned a few days later, "In the next two weeks, all departments at Lazard will get hit: Trading, banking, asset management; specifically, departments like high yield, fixed income, accounts payable etc. Take it from me, no one is safe. Play it safe people and start getting those resumes out there and start loading up on the office supplies." Morale at the firm, always low, dropped even further. "There are rumors of layoffs but no one has been laid off yet," another banker said.

UBS, too, owned 15 percent of Eurazeo but was still working on the integration of Paine Webber. For any number of reasons, though, the most obvious potential buyer was Lehman Brothers, which had been utterly reengineered during the past decade by its brilliant CEO, Dick Fuld. In August 2001, Lehman's market value was around $18 billion, thanks largely to its powerhouse fixed-income division, and was eager to consider deals. The firm was then not quite as strong in investment banking, and especially in M&A, as it would later become. So Lazard would have been an excellent complement, especially in Europe, where Lehman had not yet started building aggressively. Lehman also coveted Lazard's asset management business.


pages: 535 words: 158,863

Superclass: The Global Power Elite and the World They Are Making by David Rothkopf

"World Economic Forum" Davos, airport security, Alan Greenspan, anti-communist, asset allocation, Ayatollah Khomeini, bank run, barriers to entry, Bear Stearns, Berlin Wall, Big Tech, Bob Geldof, Branko Milanovic, Bretton Woods, BRICs, business cycle, carried interest, clean water, compensation consultant, corporate governance, creative destruction, crony capitalism, David Brooks, Doha Development Round, Donald Trump, fake news, financial innovation, fixed income, Francis Fukuyama: the end of history, Gini coefficient, global village, high net worth, income inequality, industrial cluster, informal economy, Internet Archive, Jeff Bezos, jimmy wales, John Elkington, joint-stock company, knowledge economy, Larry Ellison, liberal capitalism, Live Aid, Long Term Capital Management, Mahatma Gandhi, Mark Zuckerberg, market fundamentalism, Marshall McLuhan, Martin Wolf, mass immigration, means of production, Mexican peso crisis / tequila crisis, Michael Milken, Mikhail Gorbachev, military-industrial complex, Nelson Mandela, old-boy network, open borders, plutocrats, Ponzi scheme, price mechanism, proprietary trading, Savings and loan crisis, shareholder value, Skype, special economic zone, Steve Jobs, Thorstein Veblen, too big to fail, trade liberalization, trickle-down economics, upwardly mobile, vertical integration, Vilfredo Pareto, Washington Consensus, William Langewiesche

Smaller, balding, born in the Bronx, he is a master of self-effacing humor although he is one of those best-and-brightest types lured to Goldman from Harvard Law School in 1981. He started as a gold salesman at the commodity trading arm of Goldman because he was not considered slick enough to appeal to the investment-banking side of the operation. Thirteen years later he headed that commodity division, and within four more years he was cohead of Goldman’s fixed income, currency, and commodities operations. In 2003 he became president, beating out the very buttoned-down, central-casting investment banker John Thain. Cautious and brilliant, Blankfein does enjoy the benefits of his success. During the week, while working around the clock, he lives in a $27 million apartment on the Upper West Side.


pages: 632 words: 159,454

War and Gold: A Five-Hundred-Year History of Empires, Adventures, and Debt by Kwasi Kwarteng

accounting loophole / creative accounting, Alan Greenspan, anti-communist, Asian financial crisis, asset-backed security, Atahualpa, balance sheet recession, bank run, banking crisis, Bear Stearns, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, California gold rush, capital controls, Carmen Reinhart, central bank independence, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency manipulation / currency intervention, Deng Xiaoping, discovery of the americas, Etonian, eurozone crisis, fiat currency, financial engineering, financial innovation, fixed income, floating exchange rates, foreign exchange controls, Francisco Pizarro, full employment, German hyperinflation, Glass-Steagall Act, guns versus butter model, hiring and firing, income inequality, invisible hand, Isaac Newton, it's over 9,000, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, land bank, liberal capitalism, low interest rates, market bubble, money: store of value / unit of account / medium of exchange, moral hazard, new economy, Nixon triggered the end of the Bretton Woods system, oil shock, plutocrats, Ponzi scheme, price mechanism, quantitative easing, rolodex, Ronald Reagan, South Sea Bubble, subprime mortgage crisis, Suez canal 1869, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the market place, The Wealth of Nations by Adam Smith, too big to fail, War on Poverty, Yom Kippur War

The Duke of Chandos lost a paper fortune of £700,000, while, more grievously still, Sir Justus Beck, a director of the Bank of England, went bankrupt owing £347,000; Sir Isaac Newton, the great scientist, lost £20,000 by selling too early and then buying back into the shares at their peak.35 There were political casualties, as many of the leading political figures such as Aislabie, the Chancellor, and Craggs, the Secretary of State, had been suspected of taking shares in the company and then using their parliamentary position to talk up the share price. Walpole emerged at the head of the government. The failure of the South Sea Company was based on the inability of the Company to generate any income from actual trade with South America. It has been calculated that the inherent, or ‘fair’, value of the shares, based simply on the fixed income the government gave the Company, was around £150.36 The idea behind the Company taking on the national debt was that the revenue from the trade would meet the burden of the interest on the national debt, and so, inevitably, if such trade failed to materialize, the worth of the Company’s shares would be considerably lower.


Crisis and Leviathan: Critical Episodes in the Growth of American Government by Robert Higgs, Arthur A. Ekirch, Jr.

Alistair Cooke, American ideology, business cycle, clean water, collective bargaining, creative destruction, credit crunch, declining real wages, endowment effect, fiat currency, fixed income, foreign exchange controls, full employment, Glass-Steagall Act, guns versus butter model, hiring and firing, Ida Tarbell, income per capita, Jones Act, Joseph Schumpeter, laissez-faire capitalism, land bank, manufacturing employment, means of production, military-industrial complex, minimum wage unemployment, plutocrats, post-industrial society, power law, price discrimination, profit motive, rent control, rent-seeking, Richard Thaler, road to serfdom, Ronald Reagan, Sam Peltzman, Savings and loan crisis, Simon Kuznets, strikebreaker, The Wealth of Nations by Adam Smith, total factor productivity, transaction costs, transcontinental railway, union organizing, Upton Sinclair, War on Poverty, Works Progress Administration

APPENDIX TO CHAPTER TWO Federal Government Agencies, Programs, and Activities (by Acronym or Abbreviation), 1983 AMS Agricultural Marketing Service Amtrak National Railroad Passenger Corporation ABMC American Battle Monuments Commission ACDA Arms Control and Disarmament Agency ANA Agricultural Conservation Program Administration for Native Americans ADA Administration on Aging APHIS Animal and Plant Health Inspection Service ACP ACUS ACYF ADAMHA Administrative Conference of the United States Administration for Children, Youth, and Families Alcohol, Drug Abuse, and Mental Health Administration ADB Asian Development Bank ADD Administration on Developmental Disabilities AEDS Atomic Energy Detection System AFDC Aid to Families with Dependent Children AFIDA Agricultural Foreign Investment Disclosure Act AFIS American Forces Information Service AFPC Armed Forces Policy Council AFR AFRRI AFSC AID ALJ ASCS ATSDR Air Force Reserve Armed Forced Radiobiology Research Institute Agricultural Stabilization and Conservation Service Agency for Toxic Substances and Disease Registry BCP Blended Credit Program BEA Bureau of Economic Analysis BIA Bureau of Indian Affairs BIB Board for International Broadcasting BJS Bureau of Justice Statistics BLM Bureau of Land Management BLS Bureau of Labor Statistics BPA Bonneville Power Administration BSC Business Service Centers CAB CALS Civil Aeronautics Board Current Awareness Literature Service Armed Forces Staff College CBO Agency for International Development Congressional Budget Office CCA Crop Condition Assessment CCC Commodity Credit Corporation Administrative Law Judge 263 Appendix 264 CCEA Cabinet Council on Economic Affairs CCR Commission on Civil Rights CDBG Community Development Block Grant CDC Centers for Disease Control DAVA DCA Defense Audiovisual Agency Defense Communications Agency DCAA Defense Contract Audit Agency DCASR Defense Contract Administration Services Regions CEA Council of Economic Advisers DCII CEQ Council on Environmental Quality Defense Central Index of Investigations DCS Defense Communications System CFC Cooperative Finance Corporation DEA Drug Enforcement Administration CFTC Commodity Futures Trading Commission DIA Defense Intelligence Agency CFA CHAMPVA CIA Commission of Fine Arts Civilian Health and Medical Program of the Veterans Administration Central Intelligence Agency DIPEC DIS DISAM CIC Consumer Information Center COGP Comcen's Conrail CPSC Commission on Government Procurement Federal Communications Centers Defense Investigative Service Defense Institute of Security Assistance Management DLA Defense Logistics Agency DLS Defense Legal Services agency DMA Defense Mapping Agency Consolidated Rail Corporation OMS Defense Mapping School Consumer Product Safety Commission DNA Defense Nuclear Agency CRS Community Relations Service CSA Defense Industrial Plant Equipment Center Community Services Administration CSRS Cooperative State Research Service DOD Department of Defense DODCI Department of Defense Computer Institute DODDS Department of Defense Dependents Schools DOE Department of Energy DA Department of the Army DOT Department of Transportation DARPA Defense Advanced Research Projects Agency DSAA Defense Security Assistance Agency 265 Appendix DSN DVOP EDA Deep Space Network Disabled Veterans' Outreach Program Economic Development Administration FCIC Federal Crop Insurance Corporation FCS Foreign Commercial Service FCU Federal credit union FDA Food and Drug Administration EEOC Equal Employment Opportunity Commission FDIC EIA Energy Information Administration Federal Deposit Insurance Corporation FDPC Federal Data Processing Centers EOUSA EPA EPIC Executive Office for United States Attorneys Environmental Protection Agency Energy Conservation Program Guide for Industry and Commerce ERA Economic Regulatory Administration ERISA Employee Retirement Income Security Act ESA Employment Standards Administration ESF Economic Support Fund ETA Eximbank FAA FAIR Employment and Training Administration Export-Import Bank of the United States Federal Aviation Administration Fair Access to Insurance Requirements FAR Federal Acquisition Regulations FAS Foreign Agricultural Service FBI FEC FEMA Federal Election Commission Federal Emergency Management Agency FFB Federal Financing Bank FGB Foster Grandparent Program FGIS Federal Grain Inspection Service FHA Federal Housing Administration FHLBB Federal Home Loan Bank Board FHWA Federal Highway Administration FIA Federal Insurance Administration FIC Federal Information Centers FICC FIP FLETC Fixed Income Consumer Counseling Forestry Incentive Program Federal Law Enforcement Training Center Federal Bureau of Investigation FLRA Federal Labor Relations Authority FCA Farm Credit Administration FLITE FCC Federal Communications Commission Federal Legal Information Through Electronics FCIA Foreign Credit Insurance Association FMC FMCS Federal Maritime Commission Federal Mediation and Conciliation Service 266 Appendix FmHA Farmers Home Administration FNMA Federal National Mortgage Association FNS FOMC FPRS Food and Nutrition Service HRSA Health Resources and Services Administration HUD Department of Housing and Urban Development IADB Inter- American Defense Board; Inter-American Development Bank IAEA International Atomic Energy Agency Federal Open Market Committee Federal Property Resources Service IAF Inter-American Foundation FRA Federal Railroad Administration FRS Federal Reserve System ICAF FSIS Food Safety and Inspection Service Industrial College of the Armed Forces ICAO International Civil Aviation Organization FSLIC FSS FSTS Federal Savings and Loan Insurance Corporation Office of Federal Supply and Services Federal Secure Telephone Service FTC Federal Trade Commission FTS Federal Telecommunications System FWS Fish and Wildlife Service GAO General Accounting Office ICC Interstate Commerce Commission ICM Intergovernmental Committee for Migration IDA International Development Association; Institute for Defense Analyses IDCA United States International Development Cooperation Agency IFC International Finance Corporation IHS Indian Health Service Government National Mortgage Association IMF International Monetary Fund GPO Government Printing Office IMS Institute of Museum Services GSA General Services Administration INS Immigration and Naturalization Service INTERPOL International Criminal Police Organization GNMA HCFA Health Care Financing Administration HDS Office of Human Development Services IRS Internal Revenue Service HHS Department of Health and Human Services ITA International Trade Administration HNIS Human Nutrition Information Service ITU HRA Health Resources Administration International Telecommunication Union Appendix 267 Individual Yield Coverage program MTB Materials Transportation Bureau JAG Judge Advocate General MTN Multilateral trade negotiations IYC JCS Joint Chiefs of Staff JFMIP Joint Financial Management Improvement Program NARS National Archives and Records Service NASA National Aeronautics and Space Administration NATO North Atlantic Treaty Organization JTPA Job Training Partnership Act LC LMRDA LMSA LSC Library of Congress Labor Management Reporting and Disclosure Act NBS National Bureau of Standards Labor- Management Services Administration NCCB National Consumer Cooperative Bank Legal Services Corporation NCDC New Community Development Corporation LVER Local Veterans' Employment Representative MA Maritime Administration NCIC MAC Military Airlift Command NCJRS National Criminal Justice Reference Service NCI National Cancer Institute National Cartographic Information Center MBDA Minority Business Development Agency NCPC MDB's Multilateral development banks National Capital Planning Commission NCSL MEECN Minimum Essential Emergency Communications Network National Center for Service Learning MILSATCOM MSB-COD MSC MSHA Military Satellite Communications Systems Minority Small Business-Capital Ownership Development program NCUA National Credit Union Administration NDU National Defense University NFIP National Flood Insurance Program NHTSA National Highway Traffic Safety Administration NIC Military Sealift Command National Institute of Corrections NIE Mine Safety and Health Administration National Institute of Education NIH MSPB Merit Systems Protection Board National Institutes of Health NIJ MSSD Model Secondary School for the Deaf National Institute of Justice NIS Naval Investigative Service 268 Appendix NLM NLRB NMB National Library of Medicine OCSE Office of Child Support Enforcement National Labor Relations Board OECD Organization for Economic Cooperation and Development OES Office of Employment Security National Mediation Board NMCS National Military Command System NOAA National Oceanic and Atmospheric Administration OFCC Office of Federal Contract Compliance OFPP Office of Federal Procurement Policy OFR Office of the Federal Register NOS National Ocean Survey NRC Nuclear Regulatory Commission OGPS NSA National Security Agency Office of Grants and Programs Systems OICD NSC National Security Council Office of International Cooperation and Development NSF National Science Foundation OIRM Office of Information Resources Management NSTL National Space Technology Laboratories OJARS Office of Justice Assistance, Research and Statistics NTIA National Telecommunications and Information Administration OJJDP Office of Juvenile Justice and Delinquency Prevention NTID National Technical Institute for the Deaf NTIS National Technical Information Service NTS Naval Telecommunications System OMB Office of Management and Budget OPD Office of Policy Development OPIC Overseas Pri vare Investment Corporation OPM Office of Personnel Management NTSB National Transportation Safety Board ORM Office of Regional Management NWC National War College ORR Office of Refugee Relief OA Office of Administration OSCE Office of Child Support Enforcement OAS Organization of American States OSHA Occupational Safety and Health Administration OCA Office of Consumer Advisor OSHRC Occupational Safety and Health Review Commission OCCCA OCS Office of Congressional, Community and Consumer Affairs Office of Community Services OSTP OT Office of Science and Technology Policy Office of Transportation Appendix OTA 269 Office of Technology Assessment SAO Office of Trade Adjustment Assistance Smithsonian Astrophysical Observatory SBA OVRR Office of Veterans' Reemployment Rights Small Business Administration SBIC's OWBE Office of Women's Business Enterprise OTAA OWP Office of Water Policy PADC Pennsylvania Avenue Development Corporation PAHO Pan American Health Organization PBGC Pension Benefit Guaranty Corporation PBS PCC PHA's Public Buildings Service Panama Canal Commission Public Housing Agencies PHS Public Health Service PIK Payment-In-Kind program PRC Postal Rate Commission PTO Patent and Trademark Office RCWP REA RETRF RFE RL Rural Clean Water Program Rural Electrification Administration Rural Electrification and Telephone Revolving Fund Radio Free Europe Railroad Retirement Board RSA Rehabilitation Services Administration RSPA RSVP SCP Senior Companion Program SCS Soil Conservation Service SCSEP Senior Community Service Employment Program SEAN Scientific Event Alert Network SEC SGLI Research and Special Programs Administration Retired Senior Volunteer Program RTB Rural Telephone Bank SAC Strategic Air Command Securities and Exchange Commission Servicemen's Group Life Insurance SIL Smithsonian Institution Libraries SITES Smithsonian Institution Traveling Exhibition Service SLS Saint Lawrence Seaway Development Corporation SMIDA SPC SRIM Small Business Innovation Development Act South Pacific Commission Standing order microfiche service SRS Statistical Reporting Service SSA Social Security Administration Radio Liberty RRB Small Business Investment Companies SSI Supplemental Security Income Program SSS Selective Service System START Strategic arms reduction talks TAC Tactical Air Command TCE Tax Counseling for the Elderly Program Appendix 270 STDN TDP TRIMIS Spaceflight Tracking and Data Network Trade and Development Program USIA USICA United States International Communication Agency USITC United States International Trade Commission USMC United States Marine Corps T ri-Service Medical Information System TRI-TAC Joint Tactical Communications Program TSC Transportation Systems Center TVA Tennessee Valley Authority USN USNCB UCPP Urban Crime Prevention Program USPS UDAG Urban Development Action Grant USRA UIS Unemployment Insurance Service United States Information Agency USTTA United States Navy United States National Central Bureau United States Postal Service United States Railway Association United States Travel and Tourism Administration UMTA Urban Mass Transportation Administration VA UN United Nations VETS Veterans' Employment and Training Service VGLI Veterans Group Life Insurance UNESCO UNICEF UNICOR United Nations Educational, Scientific and Cultural Organization VITA Volunteer Income Tax Assistance Program VMLI Federal Prison Industries, Inc.


pages: 506 words: 146,607

Confessions of a Wall Street Analyst: A True Story of Inside Information and Corruption in the Stock Market by Daniel Reingold, Jennifer Reingold

Alan Greenspan, AOL-Time Warner, barriers to entry, Bear Stearns, Berlin Wall, corporate governance, deal flow, estate planning, Fall of the Berlin Wall, fixed income, George Gilder, high net worth, informal economy, junk bonds, margin call, Mary Meeker, mass immigration, Michael Milken, new economy, pets.com, Robert Metcalfe, rolodex, Saturday Night Live, shareholder value, short selling, Silicon Valley, stem cell, Telecommunications Act of 1996, thinkpad, traveling salesman, undersea cable, UUNET

Go to his office at 2:30 PM today.” Well, okay then. So at 2:30 on the nose, I went upstairs to the president’s office on the 32nd floor. I waited in his office for quite a while, until finally someone walked in. It wasn’t Bob Greenhill at all. “Hi, I’m John Mack,” he said, shaking my hand. Mack headed Morgan Stanley’s fixed income department. He was a North Carolinian of Lebanese descent whose father had been a wholesale grocer. Unlike most of the big shots on the Street, Mack was deadly serious and not one for shooting the breeze. He got right to the point. “Bob resigned today,” he said. He apologized for being late and for the crazy circumstances of him standing in for Greenhill.


pages: 549 words: 147,112

The Lost Bank: The Story of Washington Mutual-The Biggest Bank Failure in American History by Kirsten Grind

"World Economic Forum" Davos, Alan Greenspan, asset-backed security, bank run, banking crisis, Bear Stearns, big-box store, call centre, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, financial engineering, fixed income, fulfillment center, Glass-Steagall Act, housing crisis, junk bonds, low interest rates, Maui Hawaii, money market fund, mortgage debt, naked short selling, NetJets, Savings and loan crisis, shareholder value, short selling, Shoshana Zuboff, Skype, too big to fail, Y2K

“If they were using a fixed-rate loan,” the follow-up report pointed out, “they would not be able to do this because they would be required to make principal payments each month.”13 One loan consultant offered up a simple way to tell if reluctant salespeople needed more training on the true benefits of an Option ARM loan. Ask them this question: “An elderly lady with a low, fixed-income needs to choose a mortgage loan that will best meet her needs. She could get a fixed-rate loan with a monthly payment of $1,400, or an adjustable-rate loan with a payment of $1,100. Which loan should you sell her?” The right answer was, of course, the lower monthly payment. Who wouldn’t want to save $300 a month?


pages: 497 words: 144,283

Connectography: Mapping the Future of Global Civilization by Parag Khanna

"World Economic Forum" Davos, 1919 Motor Transport Corps convoy, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 9 dash line, additive manufacturing, Admiral Zheng, affirmative action, agricultural Revolution, Airbnb, Albert Einstein, amateurs talk tactics, professionals talk logistics, Amazon Mechanical Turk, Anthropocene, Asian financial crisis, asset allocation, autonomous vehicles, banking crisis, Basel III, Berlin Wall, bitcoin, Black Swan, blockchain, borderless world, Boycotts of Israel, Branko Milanovic, BRICs, British Empire, business intelligence, call centre, capital controls, Carl Icahn, charter city, circular economy, clean water, cloud computing, collateralized debt obligation, commoditize, complexity theory, continuation of politics by other means, corporate governance, corporate social responsibility, credit crunch, crony capitalism, crowdsourcing, cryptocurrency, cuban missile crisis, data is the new oil, David Ricardo: comparative advantage, deglobalization, deindustrialization, dematerialisation, Deng Xiaoping, Detroit bankruptcy, digital capitalism, digital divide, digital map, disruptive innovation, diversification, Doha Development Round, driverless car, Easter island, edge city, Edward Snowden, Elon Musk, energy security, Ethereum, ethereum blockchain, European colonialism, eurozone crisis, export processing zone, failed state, Fairphone, Fall of the Berlin Wall, family office, Ferguson, Missouri, financial innovation, financial repression, fixed income, forward guidance, gentrification, geopolitical risk, global supply chain, global value chain, global village, Google Earth, Great Leap Forward, Hernando de Soto, high net worth, high-speed rail, Hyperloop, ice-free Arctic, if you build it, they will come, illegal immigration, income inequality, income per capita, industrial cluster, industrial robot, informal economy, Infrastructure as a Service, interest rate swap, Intergovernmental Panel on Climate Change (IPCC), Internet of things, Isaac Newton, Jane Jacobs, Jaron Lanier, John von Neumann, Julian Assange, Just-in-time delivery, Kevin Kelly, Khyber Pass, Kibera, Kickstarter, LNG terminal, low cost airline, low earth orbit, low interest rates, manufacturing employment, mass affluent, mass immigration, megacity, Mercator projection, Metcalfe’s law, microcredit, middle-income trap, mittelstand, Monroe Doctrine, Multics, mutually assured destruction, Neal Stephenson, New Economic Geography, new economy, New Urbanism, off grid, offshore financial centre, oil rush, oil shale / tar sands, oil shock, openstreetmap, out of africa, Panamax, Parag Khanna, Peace of Westphalia, peak oil, Pearl River Delta, Peter Thiel, Philip Mirowski, Planet Labs, plutocrats, post-oil, post-Panamax, precautionary principle, private military company, purchasing power parity, quantum entanglement, Quicken Loans, QWERTY keyboard, race to the bottom, Rana Plaza, rent-seeking, reserve currency, Robert Gordon, Robert Shiller, Robert Solow, rolling blackouts, Ronald Coase, Scramble for Africa, Second Machine Age, sharing economy, Shenzhen special economic zone , Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, six sigma, Skype, smart cities, Smart Cities: Big Data, Civic Hackers, and the Quest for a New Utopia, South China Sea, South Sea Bubble, sovereign wealth fund, special economic zone, spice trade, Stuxnet, supply-chain management, sustainable-tourism, systems thinking, TaskRabbit, tech worker, TED Talk, telepresence, the built environment, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, Tim Cook: Apple, trade route, Tragedy of the Commons, transaction costs, Tyler Cowen, UNCLOS, uranium enrichment, urban planning, urban sprawl, vertical integration, WikiLeaks, Yochai Benkler, young professional, zero day

Connectivity is the most important asset class of the twenty-first century. For investors looking to capitalize on cheap credit and to commit assets to the real economy rather than phony financial derivatives, there is nothing more concrete than infrastructure. Infrastructure is an asset class capable of generating higher returns than fixed income and less volatility than equities. Though it requires debt in the short term, there is no long-term growth without it. The benefits of investing in infrastructure are immeasurable, creating flow opportunities that enhance mobility, boost productivity, and spur social transformation. As the former World Bank chief economist Justin Lin argues, capital markets, multilateral institutions, and other structural funds should focus on strengthening regional banks so they can finance large-scale infrastructure that creates jobs and connects societies.*6 There is no better example than America’s own Interstate Highway System, ushered in by President Dwight Eisenhower in the 1950s.


pages: 468 words: 145,998

On the Brink: Inside the Race to Stop the Collapse of the Global Financial System by Henry M. Paulson

Alan Greenspan, asset-backed security, bank run, banking crisis, Bear Stearns, break the buck, Bretton Woods, buy and hold, collateralized debt obligation, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, Doha Development Round, fear of failure, financial engineering, financial innovation, fixed income, housing crisis, income inequality, junk bonds, London Interbank Offered Rate, Long Term Capital Management, low interest rates, margin call, money market fund, moral hazard, Northern Rock, price discovery process, price mechanism, regulatory arbitrage, Ronald Reagan, Saturday Night Live, Savings and loan crisis, short selling, sovereign wealth fund, technology bubble, too big to fail, trade liberalization, young professional

The loan to this entity would be nonrecourse, which brought back Friday morning’s dilemma: the Fed could find itself facing losses, and it would want indemnification. I had our legal team, led by general counsel Bob Hoyt, looking into exactly what we could do. The Fed had brought in BlackRock, a fixed-income investment specialist, to examine the mortgage portfolio, which JPMorgan wanted priced as of the previous Friday. We kept an open conference line linking Washington, the New York Fed, and JPMorgan. I got hold of Neel in a JPMorgan conference room and asked him to step out and call me privately.


pages: 613 words: 151,140

No Such Thing as Society by Andy McSmith

"there is no alternative" (TINA), anti-communist, Ayatollah Khomeini, Berlin Wall, Big bang: deregulation of the City of London, Black Monday: stock market crash in 1987, Bob Geldof, Boris Johnson, British Empire, Brixton riot, Bullingdon Club, call centre, cuban missile crisis, Etonian, F. W. de Klerk, Farzad Bazoft, feminist movement, fixed income, Francis Fukuyama: the end of history, friendly fire, full employment, glass ceiling, God and Mammon, greed is good, illegal immigration, index card, John Bercow, Kickstarter, liberal capitalism, light touch regulation, Live Aid, loadsamoney, long peace, means of production, Mikhail Gorbachev, mortgage debt, mutually assured destruction, negative equity, Neil Kinnock, Nelson Mandela, North Sea oil, Northern Rock, old-boy network, popular capitalism, Right to Buy, Ronald Reagan, Rubik’s Cube, Sloane Ranger, South Sea Bubble, spread of share-ownership, Stephen Fry, strikebreaker, Suez crisis 1956, The Chicago School, union organizing, upwardly mobile, urban decay, Winter of Discontent, young professional

Edward Heath’s salary, when he became prime minister in 1970, was £17,250. In July 1980, Margaret Thatcher’s went up to £46,400.13 These escalating figures were bewildering enough for people who could protect their living standards either by switching jobs, or by joining a union, but for those on fixed incomes they were terrifying. People living off a lifetime’s savings watched helplessly as the nest egg shrank, month by month. As an example, Lady Isobel Barnett was one of the very first celebrities created by the television age. She was a quick-witted, engaging doctor who was a regular panellist on a TV quiz show called What’s My Line?


pages: 585 words: 151,239

Capitalism in America: A History by Adrian Wooldridge, Alan Greenspan

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, agricultural Revolution, air freight, Airbnb, airline deregulation, Alan Greenspan, American Society of Civil Engineers: Report Card, Asian financial crisis, bank run, barriers to entry, Bear Stearns, Berlin Wall, Blitzscaling, Bonfire of the Vanities, book value, Bretton Woods, British Empire, business climate, business cycle, business process, California gold rush, Charles Lindbergh, cloud computing, collateralized debt obligation, collective bargaining, Corn Laws, Cornelius Vanderbilt, corporate governance, corporate raider, cotton gin, creative destruction, credit crunch, debt deflation, Deng Xiaoping, disruptive innovation, Donald Trump, driverless car, edge city, Elon Musk, equal pay for equal work, Everybody Ought to Be Rich, Fairchild Semiconductor, Fall of the Berlin Wall, fiat currency, financial deregulation, financial engineering, financial innovation, fixed income, Ford Model T, full employment, general purpose technology, George Gilder, germ theory of disease, Glass-Steagall Act, global supply chain, Great Leap Forward, guns versus butter model, hiring and firing, Ida Tarbell, income per capita, indoor plumbing, informal economy, interchangeable parts, invention of the telegraph, invention of the telephone, Isaac Newton, Jeff Bezos, jimmy wales, John Maynard Keynes: technological unemployment, Joseph Schumpeter, junk bonds, Kenneth Rogoff, Kitchen Debate, knowledge economy, knowledge worker, labor-force participation, land bank, Lewis Mumford, Louis Pasteur, low interest rates, low skilled workers, manufacturing employment, market bubble, Mason jar, mass immigration, McDonald's hot coffee lawsuit, means of production, Menlo Park, Mexican peso crisis / tequila crisis, Michael Milken, military-industrial complex, minimum wage unemployment, mortgage debt, Myron Scholes, Network effects, new economy, New Urbanism, Northern Rock, oil rush, oil shale / tar sands, oil shock, Peter Thiel, Phillips curve, plutocrats, pneumatic tube, popular capitalism, post-industrial society, postindustrial economy, price stability, Productivity paradox, public intellectual, purchasing power parity, Ralph Nader, Ralph Waldo Emerson, RAND corporation, refrigerator car, reserve currency, rising living standards, road to serfdom, Robert Gordon, Robert Solow, Ronald Reagan, Sand Hill Road, savings glut, scientific management, secular stagnation, Silicon Valley, Silicon Valley startup, Simon Kuznets, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, stem cell, Steve Jobs, Steve Wozniak, strikebreaker, supply-chain management, The Great Moderation, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, total factor productivity, trade route, transcontinental railway, tulip mania, Tyler Cowen, Tyler Cowen: Great Stagnation, union organizing, Unsafe at Any Speed, Upton Sinclair, urban sprawl, Vannevar Bush, vertical integration, War on Poverty, washing machines reduced drudgery, Washington Consensus, white flight, wikimedia commons, William Shockley: the traitorous eight, women in the workforce, Works Progress Administration, Yom Kippur War, young professional

The Employee Retirement Income Security Act (ERISA) of 1974 was a landmark here: it obliged all companies with retirement plans to set aside money to meet payments owed to current and future retirees in a separate trust fund. This created huge new pools of capital that, by law, had to be invested both prudently and productively. In practice, prudent and productive investment meant the stock market because stocks have outperformed fixed-income securities and deposit accounts by a significant margin. ERISA created a new class of guardians—pension funds—that managed mountains of money for retirees. Some of the most vigilant guardians of money were pension funds like CaLPERS (the California Public Employees Retirement System), which looked after the interests of retired public-sector workers such as academics (who frequently spent their retirements complaining about the evils of shareholder capitalism).


The Cigarette: A Political History by Sarah Milov

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", activist lawyer, affirmative action, airline deregulation, American Legislative Exchange Council, barriers to entry, British Empire, business logic, collective bargaining, corporate personhood, deindustrialization, fixed income, Frederick Winslow Taylor, G4S, global supply chain, Herbert Marcuse, imperial preference, Indoor air pollution, information asymmetry, invisible hand, Kitchen Debate, land tenure, military-industrial complex, new economy, New Journalism, Philip Mirowski, pink-collar, Potemkin village, precariat, price stability, profit maximization, race to the bottom, Ralph Nader, rent-seeking, scientific management, Silicon Valley, structural adjustment programs, technological determinism, The Chicago School, Torches of Freedom, trade route, union organizing, Unsafe at Any Speed, Upton Sinclair, vertical integration, War on Poverty, women in the workforce

“The value of a farm today that produces tobacco is pretty well based on [its] tobacco allotment,” Everett Jordan, the Democratic senator from North Carolina, observed in 1965.148 The quota paid political dividends as well. Many of the inactive quota owners who rented out their assigned poundage were elderly—sometimes retired farmers, sometimes widows. This rental money was a valuable supplement to a fixed income. “This acreage represents their life investment,” explained one lessee whose active farm operation was cobbled together by renting unused quota. “Due to this money these people are not on the welfare roles [sic].”149 The grower came to think of the government-created value of the quota as natural (“their life investment”), drawing a racially inflected distinction between rental income and the welfare dole.


pages: 499 words: 148,160

Market Wizards: Interviews With Top Traders by Jack D. Schwager

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", Alan Greenspan, Albert Einstein, asset allocation, backtesting, beat the dealer, Bretton Woods, business cycle, buy and hold, commodity trading advisor, computerized trading, conceptual framework, delta neutral, Edward Thorp, Elliott wave, fixed income, implied volatility, index card, junk bonds, locking in a profit, margin call, market bubble, market fundamentalism, Market Wizards by Jack D. Schwager, Michael Milken, money market fund, Nixon triggered the end of the Bretton Woods system, pattern recognition, Paul Samuelson, Ralph Nelson Elliott, random walk, Reminiscences of a Stock Operator, short selling, Teledyne, transaction costs, uptick rule, yield curve, zero-sum game

When you could get 14 percent in long-term treasury securities, in order to be competitive, stocks had to sell so much lower than they were selling at that it wasn’t even worth focusing on which stocks to buy—although you might focus on the short side. What was unique in that period was the inevitability of a turn in interest rates in order for anything else to be worthwhile; it was simply a matter of timing that turn. In contrast to most other periods, this period had a clear unidirectional message: U.S. Treasury fixed income securities were by far the quintessential value of the time. Anyone with any sense of contrarian mentality had to look at interest rates in the early 1980s as presenting a potentially great opportunity. You knew the Fed would have to ease as soon as business started to run into trouble. In addition, we had already seen an important topping in the rate of inflation.


pages: 586 words: 160,321

The Euro and the Battle of Ideas by Markus K. Brunnermeier, Harold James, Jean-Pierre Landau

"there is no alternative" (TINA), Affordable Care Act / Obamacare, Alan Greenspan, asset-backed security, bank run, banking crisis, battle of ideas, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Bretton Woods, Brexit referendum, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, collective bargaining, credit crunch, Credit Default Swap, cross-border payments, currency peg, currency risk, debt deflation, Deng Xiaoping, different worldview, diversification, Donald Trump, Edward Snowden, en.wikipedia.org, Fall of the Berlin Wall, financial deregulation, financial repression, fixed income, Flash crash, floating exchange rates, full employment, Future Shock, German hyperinflation, global reserve currency, income inequality, inflation targeting, information asymmetry, Irish property bubble, Jean Tirole, Kenneth Rogoff, Les Trente Glorieuses, low interest rates, Martin Wolf, mittelstand, Money creation, money market fund, Mont Pelerin Society, moral hazard, negative equity, Neil Kinnock, new economy, Northern Rock, obamacare, offshore financial centre, open economy, paradox of thrift, pension reform, Phillips curve, Post-Keynesian economics, price stability, principal–agent problem, quantitative easing, race to the bottom, random walk, regulatory arbitrage, rent-seeking, reserve currency, risk free rate, road to serfdom, secular stagnation, short selling, Silicon Valley, South China Sea, special drawing rights, tail risk, the payments system, too big to fail, Tyler Cowen, union organizing, unorthodox policies, Washington Consensus, WikiLeaks, yield curve

Thorough and publically communicated asset quality reviews could have a similar effect: they would reduce asymmetric information, reduce the stigma, and encourage the issuance of additional equity. The issuance of “contingent convertible bond,” so called CoCos, was pushed as a “cheaper” alternative. Cocos is a hybrid fixed-income security that counts toward capital requirements as it can be converted into equity in case a pre-specified trigger is reached. CoCos have come under increased criticism lately and remain untested as an effective crisis management tool. A third way to attract new funding is to increase the efficiency of direct-lending arrangements, for example, via the corporate bond market or private debt, a theme that also the capital markets union puts forward.


Debtor Nation: The History of America in Red Ink (Politics and Society in Modern America) by Louis Hyman

Alan Greenspan, asset-backed security, bank run, barriers to entry, Bretton Woods, business cycle, business logic, card file, central bank independence, computer age, corporate governance, credit crunch, declining real wages, deindustrialization, diversified portfolio, financial independence, financial innovation, fixed income, Gini coefficient, Glass-Steagall Act, Home mortgage interest deduction, housing crisis, income inequality, invisible hand, It's morning again in America, late fees, London Interbank Offered Rate, low interest rates, market fundamentalism, means of production, mortgage debt, mortgage tax deduction, p-value, pattern recognition, post-Fordism, profit maximization, profit motive, risk/return, Ronald Reagan, Savings and loan crisis, Silicon Valley, statistical model, Tax Reform Act of 1986, technological determinism, technology bubble, the built environment, transaction costs, union organizing, white flight, women in the workforce, working poor, zero-sum game

Lending long-term mortgages at a low rate and forced to borrow from depositors at high rates, bankers sought out a new way to lend money. A floating interest rate solved their problem. Mortgages with adjustable rates allowed banks to lend money without incurring interest rate risk. Such adjustable rates shifted the risk of a rising interest rate to the borrowers, who, also with fixed incomes, would be even more unable to weather such a shift in their payments than institutions. In the early 1980s, adjustable rate mortgages (ARMs) and secondary markets made commercial banks’ re-entry into mortgages profitable again—and easier.59 If banks wanted mortgages in their portfolios, ARMs allowed them to do so without interest rate risk.


pages: 598 words: 169,194

Bernie Madoff, the Wizard of Lies: Inside the Infamous $65 Billion Swindle by Diana B. Henriques

accounting loophole / creative accounting, airport security, Albert Einstein, AOL-Time Warner, banking crisis, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, break the buck, British Empire, buy and hold, centralized clearinghouse, collapse of Lehman Brothers, computerized trading, corporate raider, diversified portfolio, Donald Trump, dumpster diving, Edward Thorp, financial deregulation, financial engineering, financial thriller, fixed income, forensic accounting, Gordon Gekko, index fund, locking in a profit, low interest rates, mail merge, merger arbitrage, messenger bag, money market fund, payment for order flow, plutocrats, Ponzi scheme, Potemkin village, proprietary trading, random walk, Renaissance Technologies, riskless arbitrage, Ronald Reagan, Savings and loan crisis, short selling, short squeeze, Small Order Execution System, source of truth, sovereign wealth fund, too big to fail, transaction costs, traveling salesman

By buying stocks with warrants attached to them, a trader could exercise the warrant to buy shares at one price while simultaneously selling shares at a higher price, locking in an arbitrage profit. 39 actively and visibly pursuing warrant arbitrage: Peter Chapman, “Before the Fall: Bernard L. Madoff,” Traders Magazine, March 2009. 41 the returns on convertible bonds were slightly higher: Scott L. Lummer and Mark W. Riepe, “Convertible Bonds as an Asset Class: 1957–1992,” Journal of Fixed Income (September 1993), from an undated reprint by Ibbotson Associates, Inc., Chicago, Ill. 41 falsifying convertible bond arbitrage profits: In re: Bernard L. Madoff Investment Securities, Debtor; Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities v. David L.


pages: 568 words: 162,366

The Oil and the Glory: The Pursuit of Empire and Fortune on the Caspian Sea by Steve Levine

Berlin Wall, California gold rush, classic study, computerized trading, corporate raider, cuban missile crisis, facts on the ground, failed state, fixed income, independent contractor, indoor plumbing, John Deuss, Khyber Pass, megastructure, Menlo Park, Mikhail Gorbachev, oil rush, Potemkin village, rolodex, Ronald Reagan, Seymour Hersh, shareholder value, Silicon Valley, telemarketer, trade route, vertical integration

There, they moved into a grand apartment near the Parc de la Muette, in the prestigious sixteenth arrondissement. Their neighborhood was one of the ethnic ghettos into which the émigrés divided themselves, districts where they were “turbulent, remonstrative, despising of the ‘indigenous’ population, awaiting with assurance the defeat of the Bolsheviks, but for the time being deprived of fixed incomes,” Banine wrote. Calouste Gulbenkian’s son, Nubar, described how “the cafes of Paris, rife with rumors from the homeland, were like brokers’ branch offices with securities traded on a curb market and icons, paintings, jewelry, and other treasures changing hands like a Baku bazaar.” One of these traders, Leon Mantashev, a spendthrift son of Baku’s richest oil baron now in need of funds, sold his last remaining painting to Nubar’s father for $30,000.


pages: 726 words: 172,988

The Bankers' New Clothes: What's Wrong With Banking and What to Do About It by Anat Admati, Martin Hellwig

Alan Greenspan, Andrei Shleifer, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, bonus culture, book value, break the buck, business cycle, Carmen Reinhart, central bank independence, centralized clearinghouse, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, diversified portfolio, en.wikipedia.org, Exxon Valdez, financial deregulation, financial engineering, financial innovation, financial intermediation, fixed income, George Akerlof, Glass-Steagall Act, Growth in a Time of Debt, income inequality, information asymmetry, invisible hand, Jean Tirole, joint-stock company, joint-stock limited liability company, junk bonds, Kenneth Rogoff, Larry Wall, light touch regulation, London Interbank Offered Rate, Long Term Capital Management, margin call, Martin Wolf, Money creation, money market fund, moral hazard, mortgage debt, mortgage tax deduction, negative equity, Nick Leeson, Northern Rock, open economy, Paul Volcker talking about ATMs, peer-to-peer lending, proprietary trading, regulatory arbitrage, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Satyajit Das, Savings and loan crisis, shareholder value, sovereign wealth fund, subprime mortgage crisis, technology bubble, The Market for Lemons, the payments system, too big to fail, Upton Sinclair, Yogi Berra

In Chapters 9 and 10 we discuss the incentives and ability of banks and other financial institutions to borrow at favorable rates and under favorable terms. In Chapters 10 and 13 we further consider the impact of money market funds on banking. 9. This observation was made by Sheila Bair, former chair of the FDIC, in a Washington Post column on April 13, 2012 titled “Fix Income Inequality Now.” Bair whimsically calls on banks to solve the inequality problem by giving everyone a $10 million loan for ten years at an interest rate of zero, which could generate $200,000 a year in interest for a decade. After pointing out that taking $10 million at zero interest and investing at 2 percent would give everyone $200,000 as a gift, essentially as a “money machine,” she says: “The more adventuresome can buy 10-year Greek debt at 21 percent, for an annual income of $2.1 million.


pages: 614 words: 174,226

The Economists' Hour: How the False Prophets of Free Markets Fractured Our Society by Binyamin Appelbaum

90 percent rule, airline deregulation, Alan Greenspan, Alvin Roth, Andrei Shleifer, anti-communist, battle of ideas, Benoit Mandelbrot, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, Celtic Tiger, central bank independence, clean water, collective bargaining, Corn Laws, correlation does not imply causation, Credit Default Swap, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, desegregation, Diane Coyle, Donald Trump, Dr. Strangelove, ending welfare as we know it, financial deregulation, financial engineering, financial innovation, fixed income, flag carrier, floating exchange rates, full employment, George Akerlof, George Gilder, Gini coefficient, greed is good, Greenspan put, Growth in a Time of Debt, Ida Tarbell, income inequality, income per capita, index fund, inflation targeting, invisible hand, Isaac Newton, It's morning again in America, Jean Tirole, John Markoff, Kenneth Arrow, Kenneth Rogoff, land reform, Les Trente Glorieuses, long and variable lags, Long Term Capital Management, low cost airline, low interest rates, manufacturing employment, means of production, Menlo Park, minimum wage unemployment, Mohammed Bouazizi, money market fund, Mont Pelerin Society, Network effects, new economy, Nixon triggered the end of the Bretton Woods system, oil shock, Paul Samuelson, Philip Mirowski, Phillips curve, plutocrats, precautionary principle, price stability, profit motive, public intellectual, Ralph Nader, RAND corporation, rent control, rent-seeking, Richard Thaler, road to serfdom, Robert Bork, Robert Gordon, Robert Solow, Ronald Coase, Ronald Reagan, Sam Peltzman, Savings and loan crisis, Silicon Valley, Simon Kuznets, starchitect, Steve Bannon, Steve Jobs, supply-chain management, The Chicago School, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, transaction costs, trickle-down economics, ultimatum game, Unsafe at Any Speed, urban renewal, War on Poverty, Washington Consensus, We are all Keynesians now

I’m worried about my country and I’m worried that I’m going to go down the drain.”68 Freedom from Inflation More than 8 million Americans were out of work when Ronald Reagan delivered his first inaugural address on January 20, 1981, but the new president was focused on a different problem. “We suffer from the longest and one of the worst sustained inflations in our national history,” Reagan said. “It distorts our economic decisions, penalizes thrift, and crushes the struggling young and the fixed-income elderly alike. It threatens to shatter the lives of millions of our people.” He listed this even before the burden of high taxes and, for both, he famously offered the same prescription. “Government is not the solution to our problem; government is the problem.” Carter had blamed inflation on the profligacy of the American people; Reagan was blaming inflation on the profligacy of the government.


Alpha Trader by Brent Donnelly

Abraham Wald, algorithmic trading, Asian financial crisis, Atul Gawande, autonomous vehicles, backtesting, barriers to entry, beat the dealer, behavioural economics, bitcoin, Boeing 747, buy low sell high, Checklist Manifesto, commodity trading advisor, coronavirus, correlation does not imply causation, COVID-19, crowdsourcing, cryptocurrency, currency manipulation / currency intervention, currency risk, deep learning, diversification, Edward Thorp, Elliott wave, Elon Musk, endowment effect, eurozone crisis, fail fast, financial engineering, fixed income, Flash crash, full employment, global macro, global pandemic, Gordon Gekko, hedonic treadmill, helicopter parent, high net worth, hindsight bias, implied volatility, impulse control, Inbox Zero, index fund, inflation targeting, information asymmetry, invisible hand, iterative process, junk bonds, Kaizen: continuous improvement, law of one price, loss aversion, low interest rates, margin call, market bubble, market microstructure, Market Wizards by Jack D. Schwager, McMansion, Monty Hall problem, Network effects, nowcasting, PalmPilot, paper trading, pattern recognition, Peter Thiel, prediction markets, price anchoring, price discovery process, price stability, quantitative easing, quantitative trading / quantitative finance, random walk, Reminiscences of a Stock Operator, reserve currency, risk tolerance, Robert Shiller, secular stagnation, Sharpe ratio, short selling, side project, Stanford marshmallow experiment, Stanford prison experiment, survivorship bias, tail risk, TED Talk, the scientific method, The Wisdom of Crowds, theory of mind, time dilation, too big to fail, transaction costs, value at risk, very high income, yield curve, you are the product, zero-sum game

Spreads vary dramatically by asset class and by product within an asset class. In FX, spreads in EURUSD (the most liquid pair) are often less than 1/10 of spreads in USDTRY (Turkish lira). The bid/ask in a small cap or microcap stock can be 50X the AAPL bid/ask. Gold trades way tighter than palladium. Spreads in credit are generally wider than spreads in fixed income. Spreads in agricultural commodities are generally wider than spreads in short-term interest rate futures. And so on. Every market has a different texture and part of this texture comes from the bid/offer spread. Trading activity on each side of the spread is called bid/ ask bounce. Think about your average trade size and call that one unit.


pages: 1,239 words: 163,625

The Joys of Compounding: The Passionate Pursuit of Lifelong Learning, Revised and Updated by Gautam Baid

Abraham Maslow, activist fund / activist shareholder / activist investor, Airbnb, Alan Greenspan, Albert Einstein, Alvin Toffler, Andrei Shleifer, asset allocation, Atul Gawande, availability heuristic, backtesting, barriers to entry, beat the dealer, Benoit Mandelbrot, Bernie Madoff, bitcoin, Black Swan, book value, business process, buy and hold, Cal Newport, Cass Sunstein, Checklist Manifesto, Clayton Christensen, cognitive dissonance, collapse of Lehman Brothers, commoditize, corporate governance, correlation does not imply causation, creative destruction, cryptocurrency, Daniel Kahneman / Amos Tversky, deep learning, delayed gratification, deliberate practice, discounted cash flows, disintermediation, disruptive innovation, Dissolution of the Soviet Union, diversification, diversified portfolio, dividend-yielding stocks, do what you love, Dunning–Kruger effect, Edward Thorp, Elon Musk, equity risk premium, Everything should be made as simple as possible, fear index, financial independence, financial innovation, fixed income, follow your passion, framing effect, George Santayana, Hans Rosling, hedonic treadmill, Henry Singleton, hindsight bias, Hyman Minsky, index fund, intangible asset, invention of the wheel, invisible hand, Isaac Newton, it is difficult to get a man to understand something, when his salary depends on his not understanding it, Jeff Bezos, John Bogle, Joseph Schumpeter, junk bonds, Kaizen: continuous improvement, Kickstarter, knowledge economy, Lao Tzu, Long Term Capital Management, loss aversion, Louis Pasteur, low interest rates, Mahatma Gandhi, mandelbrot fractal, margin call, Mark Zuckerberg, Market Wizards by Jack D. Schwager, Masayoshi Son, mental accounting, Milgram experiment, moral hazard, Nate Silver, Network effects, Nicholas Carr, offshore financial centre, oil shock, passive income, passive investing, pattern recognition, Peter Thiel, Ponzi scheme, power law, price anchoring, quantitative trading / quantitative finance, Ralph Waldo Emerson, Ray Kurzweil, Reminiscences of a Stock Operator, reserve currency, Richard Feynman, Richard Thaler, risk free rate, risk-adjusted returns, Robert Shiller, Savings and loan crisis, search costs, shareholder value, six sigma, software as a service, software is eating the world, South Sea Bubble, special economic zone, Stanford marshmallow experiment, Steve Jobs, Steven Levy, Steven Pinker, stocks for the long run, subscription business, sunk-cost fallacy, systems thinking, tail risk, Teledyne, the market place, The Signal and the Noise by Nate Silver, The Wisdom of Crowds, time value of money, transaction costs, tulip mania, Upton Sinclair, Walter Mischel, wealth creators, Yogi Berra, zero-sum game

A tiny difference in incremental returns over a long period of time results in a massive difference in accumulated wealth. The effects of compounding are too small to be noticed until they are too large to be ignored. To illustrate the impact a tiny 2 percent of savings in frictional costs can make in the long run, let’s assume that you invest $30,000 today in three fixed income instruments yielding 7 percent, 9 percent, and 11 percent, respectively. Figure 32.2 shows what this investment will look like after forty years. FIGURE 32.2 The 2 percent difference. Now it is the turn of equities—the greatest long-term wealth-creating asset class. Figure 32.3 shows what happens if you invest the same sum of money in a portfolio of high-quality stocks with an average annual earnings growth of 15 percent and a 2 percent dividend, for a total of 17 percent return.


Manias, Panics and Crashes: A History of Financial Crises, Sixth Edition by Kindleberger, Charles P., Robert Z., Aliber

active measures, Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, Boeing 747, Bonfire of the Vanities, break the buck, Bretton Woods, British Empire, business cycle, buy and hold, Carmen Reinhart, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, Corn Laws, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cross-border payments, currency peg, currency risk, death of newspapers, debt deflation, Deng Xiaoping, disintermediation, diversification, diversified portfolio, edge city, financial deregulation, financial innovation, Financial Instability Hypothesis, financial repression, fixed income, floating exchange rates, George Akerlof, German hyperinflation, Glass-Steagall Act, Herman Kahn, Honoré de Balzac, Hyman Minsky, index fund, inflation targeting, information asymmetry, invisible hand, Isaac Newton, Japanese asset price bubble, joint-stock company, junk bonds, large denomination, law of one price, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low interest rates, margin call, market bubble, Mary Meeker, Michael Milken, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, new economy, Nick Leeson, Northern Rock, offshore financial centre, Ponzi scheme, price stability, railway mania, Richard Thaler, riskless arbitrage, Robert Shiller, short selling, Silicon Valley, South Sea Bubble, special drawing rights, Suez canal 1869, telemarketer, The Chicago School, the market place, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, very high income, Washington Consensus, Y2K, Yogi Berra, Yom Kippur War

Economic activity was adversely affected in advance of the collapse of the stock market, not because of a change in the money supply but because at the peak of the fever the business world of Lyons turned to speculation in Union Générale: ‘silk merchants, cloth manufacturers, industrialists, tradesmen, dry-goods merchants, grocers, butchers, people with fixed incomes, janitors, shoemakers’; ‘A lot of capital was diverted from regular business to stock market both in securities and in call money.’43 Some of the features of the US stock market crash of 1929 were similar to those in the collapse of the French banks nearly fifty years earlier: a preoccupation with speculation and a decline in economic activity as stock prices peaked; more money was needed to support the higher level of stock prices and less money was available for economic activity.


pages: 505 words: 161,581

The Founders: The Story of Paypal and the Entrepreneurs Who Shaped Silicon Valley by Jimmy Soni

activist fund / activist shareholder / activist investor, Ada Lovelace, AltaVista, Apple Newton, barriers to entry, Big Tech, bitcoin, Blitzscaling, book value, business logic, butterfly effect, call centre, Carl Icahn, Claude Shannon: information theory, cloud computing, Colonization of Mars, Computing Machinery and Intelligence, corporate governance, COVID-19, crack epidemic, cryptocurrency, currency manipulation / currency intervention, digital map, disinformation, disintermediation, drop ship, dumpster diving, Elon Musk, Fairchild Semiconductor, fear of failure, fixed income, General Magic , general-purpose programming language, Glass-Steagall Act, global macro, global pandemic, income inequality, index card, index fund, information security, intangible asset, Internet Archive, iterative process, Jeff Bezos, Jeff Hawkins, John Markoff, Kwajalein Atoll, Lyft, Marc Andreessen, Mark Zuckerberg, Mary Meeker, Max Levchin, Menlo Park, Metcalfe’s law, mobile money, money market fund, multilevel marketing, mutually assured destruction, natural language processing, Network effects, off-the-grid, optical character recognition, PalmPilot, pattern recognition, paypal mafia, Peter Thiel, pets.com, Potemkin village, public intellectual, publish or perish, Richard Feynman, road to serfdom, Robert Metcalfe, Robert X Cringely, rolodex, Sand Hill Road, Satoshi Nakamoto, seigniorage, shareholder value, side hustle, Silicon Valley, Silicon Valley startup, slashdot, SoftBank, software as a service, Startup school, Steve Ballmer, Steve Jobs, Steve Jurvetson, Steve Wozniak, technoutopianism, the payments system, transaction costs, Turing test, uber lyft, Vanguard fund, winner-take-all economy, Y Combinator, Y2K

In a turn of fate (and tables), Thiel and Solo had met years before, when Solo had interviewed Thiel for a job at O’Connor & Associates. Following the interview, Solo raved to his wife about PayPal’s emphasis on merit—an echo of what he’d enjoyed at O’Connor. “When I was in my upper twenties, the managing partner of O’Connor said, ‘David, we want to make you the global head of the fixed income and derivatives division of the bank,’ ” Solo recalled. “And I remember saying, ‘… that’s great, but don’t you think you’d be better off hiring somebody from Salomon Brothers who actually knows all this stuff?’ And [he] said, ‘You know what, we might actually lose nine months or a year by not hiring the guy who has more experience, but in the end, we’ve always succeeded by betting on the people who we think have the talent and work ethic—and who we know.’ ” Upon reflection, Solo felt the same logic applied at PayPal.


pages: 559 words: 164,795

Berlin: Life and Death in the City at the Center of the World by Sinclair McKay

Albert Einstein, anti-communist, Berlin Wall, Bletchley Park, dark matter, Fall of the Berlin Wall, Fellow of the Royal Society, fixed income, Francis Fukuyama: the end of history, German hyperinflation, haute couture, In Cold Blood by Truman Capote, Isaac Newton, Johann Wolfgang von Goethe, Mikhail Gorbachev, plutocrats, Prenzlauer Berg, uranium enrichment

The repercussions of the murder were equally serious: Rathenau’s killing, which carried the sense of unstoppable anarchic bloodshed, shook the foreign stock markets and faith in Germany’s economy, depreciating the currency, which contributed another wave swelling the approaching tsunami of hyperinflation; this in turn would destroy livelihoods and leave Berliners scrabbling in the humiliation of a worthless currency and panic buying. It was in this period that a number of more elderly, wealthy Berliners – living off savings and fixed incomes – came to taste what it was like to be among the city’s poor and desperate; with the mark losing its value by the hour, the accepted structure of civilization – the simplest act of shopping for food – simply melted. Family heirlooms replaced notes and coins, and all to acquire ever more meagre supplies of staples.


pages: 613 words: 181,605

Circle of Greed: The Spectacular Rise and Fall of the Lawyer Who Brought Corporate America to Its Knees by Patrick Dillon, Carl M. Cannon

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", accounting loophole / creative accounting, affirmative action, Alan Greenspan, AOL-Time Warner, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, buy and hold, Carl Icahn, collective bargaining, Columbine, company town, computer age, corporate governance, corporate raider, desegregation, energy security, estate planning, Exxon Valdez, fear of failure, fixed income, Gordon Gekko, greed is good, illegal immigration, index fund, John Markoff, junk bonds, mandatory minimum, margin call, Maui Hawaii, McDonald's hot coffee lawsuit, Michael Milken, money market fund, new economy, oil shale / tar sands, Ponzi scheme, power law, Ralph Nader, rolodex, Ronald Reagan, Sand Hill Road, Savings and loan crisis, Silicon Valley, Silicon Valley startup, Steve Jobs, the High Line, the market place, white picket fence, Works Progress Administration, zero-sum game

Invariably, his answer would be to point, as he did in the Pacific Homes case, to the huge assets owned or controlled by the defendants—especially compared to the paltry resources of his little-guy clients. The United Methodist Church, Lerach emphasized, controlled some $7.5 billion in assets at the time when it was trying to abrogate the contracts of Pacific Homes’ retirees on fixed incomes. “Those $7.5 billion are the assets of 43,000 individual churches,” Witwer responded. “Each university, hospital, home is a separate institution that owns its own property. There is not property of fund, as such, that belongs to the UMC. You can’t structure an entity out of a confederation.” This reasoning led to Witwer’s last line of defense, a rationale that was more a public relations strategy than a legal philosophy: if the church were held liable for the financial collapse of Pacific Homes, money would be siphoned from other, even more worthy enterprises in the church’s mission, including clothing and feeding the poor.


pages: 714 words: 188,602

Persian Gulf Command: A History of the Second World War in Iran and Iraq by Ashley Jackson

Bletchley Park, British Empire, Charles Lindbergh, colonial rule, fixed income, full employment, it's over 9,000, out of africa, power law, Suez crisis 1956, the built environment

Other consumer goods such as tyres, cigarette papers, newsprint and alum were also brought under government control. The Commercial Secretary at the Baghdad embassy pointed to other factors: many farmers and merchants were benefiting from conditions and there was significant profiteering, while those on fixed incomes were suffering, with demand for labour exceeding supply.19 Indicating inflationary trends, a January 1942 conference at the Iraqi Ministry of Finance set the rates paid for tobacco, of which there was a shortage: ‘improved’ special-quality tobacco had risen from 90 fils per kilo in 1940 to 200, while ‘third’-quality had risen from 32 to 70 fils in the same period.20 What Daniel Silverfarb dubs ‘the great inflation’ in Iraq was caused primarily by British military expenditure.21 Between 1941 and 1943 alone, the British spent £61.5 million on military tasks.


pages: 775 words: 208,604

The Great Leveler: Violence and the History of Inequality From the Stone Age to the Twenty-First Century by Walter Scheidel

agricultural Revolution, assortative mating, basic income, Berlin Wall, Bernie Sanders, Branko Milanovic, British Empire, capital controls, Capital in the Twenty-First Century by Thomas Piketty, classic study, collective bargaining, colonial rule, Columbian Exchange, conceptual framework, confounding variable, corporate governance, cosmological principle, CRISPR, crony capitalism, dark matter, declining real wages, democratizing finance, demographic transition, Dissolution of the Soviet Union, Downton Abbey, Edward Glaeser, failed state, Fall of the Berlin Wall, financial deregulation, fixed income, Francisco Pizarro, full employment, Gini coefficient, global pandemic, Great Leap Forward, guns versus butter model, hiring and firing, income inequality, John Markoff, knowledge worker, land reform, land tenure, low skilled workers, means of production, mega-rich, Network effects, nuclear winter, offshore financial centre, plutocrats, race to the bottom, recommendation engine, rent control, rent-seeking, road to serfdom, Robert Gordon, Ronald Reagan, Second Machine Age, Simon Kuznets, synthetic biology, The Future of Employment, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Malthus, transaction costs, transatlantic slave trade, universal basic income, very high income, working-age population, zero-sum game

As a result, income from capital accounted for a larger share of total income than it has done since. Was this situation representative of premodern societies more generally? Considering that the gap between the rate of economic growth and nominal returns on capital (as proxied by interest rates or fixed incomes from estates or endowments) had always been extremely large, it is plausible to assume that on the whole, capital owners enjoyed a perennial advantage. At the same time, we would expect the intensity of shocks to capital to have varied considerably, dependent on the likelihood of violent asset redistribution.


The Concepts and Practice of Mathematical Finance by Mark S. Joshi

Black-Scholes formula, Brownian motion, correlation coefficient, Credit Default Swap, currency risk, delta neutral, discrete time, Emanuel Derman, financial engineering, fixed income, implied volatility, incomplete markets, interest rate derivative, interest rate swap, London Interbank Offered Rate, martingale, millennium bug, power law, quantitative trading / quantitative finance, risk free rate, short selling, stochastic process, stochastic volatility, the market place, time value of money, transaction costs, value at risk, volatility smile, yield curve, zero-coupon bond

THE CONCEPTS AND PRACTICE OF MATHEMATICAL FINANCE Second Edition Mathematics, Finance and Risk Editorial Board Mark Broadie, Graduate School of Business, Columbia University Sam Howison, Mathematical Institute, University of Oxford Neil Johnson, Centre for Computational Finance, University of Oxford George Papanicolaou, Department of Mathematics, Stanford University Modern finance in theory and practice relies absolutely on mathematical models and analysis. It draws on and extends classical applied mathematics, stochastic and probabilistic methods, and numerical techniques to enable models of financial systems to be constructed, analysed and interpreted. This methodology underpins applications to derivatives pricing for equities and fixed income products, assetliability modelling, volatility, risk management, credit risk, insurance analysis and many more. This new series will consist of books that explain the processes and techniques of the new applied mathematics, and how to use them to model financial systems and to understand the underlying phenomena and forces that drive financial markets.


pages: 772 words: 203,182

What Went Wrong: How the 1% Hijacked the American Middle Class . . . And What Other Countries Got Right by George R. Tyler

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, 8-hour work day, active measures, activist fund / activist shareholder / activist investor, affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, bank run, banking crisis, Basel III, Bear Stearns, behavioural economics, benefit corporation, Black Swan, blood diamond, blue-collar work, Bolshevik threat, bonus culture, British Empire, business cycle, business process, buy and hold, capital controls, Carmen Reinhart, carried interest, cognitive dissonance, collateralized debt obligation, collective bargaining, commoditize, company town, compensation consultant, corporate governance, corporate personhood, corporate raider, corporate social responsibility, creative destruction, credit crunch, crony capitalism, crowdsourcing, currency manipulation / currency intervention, David Brooks, David Graeber, David Ricardo: comparative advantage, declining real wages, deindustrialization, Diane Coyle, disruptive innovation, Double Irish / Dutch Sandwich, eurozone crisis, financial deregulation, financial engineering, financial innovation, fixed income, Ford Model T, Francis Fukuyama: the end of history, full employment, George Akerlof, George Gilder, Gini coefficient, Glass-Steagall Act, Gordon Gekko, Greenspan put, hiring and firing, Ida Tarbell, income inequality, independent contractor, invisible hand, job satisfaction, John Markoff, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Rogoff, labor-force participation, laissez-faire capitalism, lake wobegon effect, light touch regulation, Long Term Capital Management, low interest rates, manufacturing employment, market clearing, market fundamentalism, Martin Wolf, minimum wage unemployment, mittelstand, Money creation, moral hazard, Myron Scholes, Naomi Klein, Northern Rock, obamacare, offshore financial centre, Paul Samuelson, Paul Volcker talking about ATMs, pension reform, performance metric, Pershing Square Capital Management, pirate software, plutocrats, Ponzi scheme, precariat, price stability, profit maximization, profit motive, prosperity theology / prosperity gospel / gospel of success, purchasing power parity, race to the bottom, Ralph Nader, rent-seeking, reshoring, Richard Thaler, rising living standards, road to serfdom, Robert Gordon, Robert Shiller, rolling blackouts, Ronald Reagan, Sand Hill Road, Savings and loan crisis, shareholder value, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, Steve Ballmer, Steve Jobs, stock buybacks, subprime mortgage crisis, The Chicago School, The Spirit Level, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transcontinental railway, transfer pricing, trickle-down economics, tulip mania, Tyler Cowen, Tyler Cowen: Great Stagnation, union organizing, Upton Sinclair, upwardly mobile, women in the workforce, working poor, zero-sum game

Mindful of the slump in American productivity and stagnant wages characterizing the Reagan era, Michael Pascoe, a business editor at the Sydney Morning Herald, put the credit blowout in perspective: “It wasn’t the subprime crisis and the subsequent GFC [Global Financial Crisis] that flat-lined the US—it was already going nowhere but no one noticed because the stagnation was papered over by its debt explosion. The World’s biggest economy was like an individual on a fixed income who runs up a big credit card debt buying the new car, the new boat, and a flash holiday. The individual looks richer and has more stuff, but in reality is not richer…. Much of America’s middle and working classes didn’t even get to share in the illusion while it lasted—their incomes have grown little and the debt-fueled jobs growth proved as illusionary as George Bush’s ‘mission accomplished’ and Fannie Mae’s balance sheet.”69 Rising Income Disparity By compressing wages and seeing that virtually all the gains from growth are being redistributed upward, Reaganomics has caused income disparities to widen to levels not seen since the Roaring Twenties.


pages: 801 words: 209,348

Americana: A 400-Year History of American Capitalism by Bhu Srinivasan

activist fund / activist shareholder / activist investor, American ideology, AOL-Time Warner, Apple II, Apple's 1984 Super Bowl advert, bank run, barriers to entry, Bear Stearns, Benchmark Capital, Berlin Wall, blue-collar work, Bob Noyce, Bonfire of the Vanities, British Empire, business cycle, buy and hold, California gold rush, Carl Icahn, Charles Lindbergh, collective bargaining, commoditize, Cornelius Vanderbilt, corporate raider, cotton gin, cuban missile crisis, Deng Xiaoping, diversification, diversified portfolio, Douglas Engelbart, Fairchild Semiconductor, financial innovation, fixed income, Ford Model T, Ford paid five dollars a day, global supply chain, Gordon Gekko, guns versus butter model, Haight Ashbury, hypertext link, Ida Tarbell, income inequality, information security, invisible hand, James Watt: steam engine, Jane Jacobs, Jeff Bezos, John Markoff, joint-stock company, joint-stock limited liability company, junk bonds, Kickstarter, laissez-faire capitalism, Louis Pasteur, Marc Andreessen, Menlo Park, Michael Milken, military-industrial complex, mortgage debt, mutually assured destruction, Norman Mailer, oil rush, peer-to-peer, pets.com, popular electronics, profit motive, punch-card reader, race to the bottom, refrigerator car, risk/return, Ronald Reagan, Sand Hill Road, self-driving car, shareholder value, side project, Silicon Valley, Silicon Valley startup, Steve Ballmer, Steve Jobs, Steve Wozniak, strikebreaker, Ted Nelson, The Death and Life of Great American Cities, the new new thing, The Predators' Ball, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, trade route, transcontinental railway, traveling salesman, Upton Sinclair, Vannevar Bush, Works Progress Administration, zero-sum game

New York: T. Y. Crowell, 1886. Evening News Association. Men of Progress: Embracing Biographical Sketches of Representative Michigan Men. Detroit: John F. Eby, 1900. Eyman, Scott. Lion of Hollywood: The Life and Legend of Louis B. Mayer. New York: Simon & Schuster, 2005. Fabozzi, Frank J. Fixed Income Mathematics: Analytical and Statistical Techniques. 4th edition. New York: McGraw-Hill, 2006. Faison, Azie. Game Over: The Rise and Transformation of a Harlem Hustler. New York: Simon & Schuster, 2007. Falk, David. The Bald Truth. New York: Simon & Schuster, 2009. Faulkner, Harold Underwood.


pages: 823 words: 220,581

Debunking Economics - Revised, Expanded and Integrated Edition: The Naked Emperor Dethroned? by Steve Keen

accounting loophole / creative accounting, Alan Greenspan, banking crisis, banks create money, barriers to entry, behavioural economics, Benoit Mandelbrot, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, book value, business cycle, butterfly effect, capital asset pricing model, cellular automata, central bank independence, citizen journalism, clockwork universe, collective bargaining, complexity theory, correlation coefficient, creative destruction, credit crunch, David Ricardo: comparative advantage, debt deflation, diversification, double entry bookkeeping, en.wikipedia.org, equity risk premium, Eugene Fama: efficient market hypothesis, experimental subject, Financial Instability Hypothesis, fixed income, Fractional reserve banking, full employment, Glass-Steagall Act, Greenspan put, Henri Poincaré, housing crisis, Hyman Minsky, income inequality, information asymmetry, invisible hand, iterative process, John von Neumann, Kickstarter, laissez-faire capitalism, liquidity trap, Long Term Capital Management, low interest rates, mandelbrot fractal, margin call, market bubble, market clearing, market microstructure, means of production, minimum wage unemployment, Money creation, money market fund, open economy, Pareto efficiency, Paul Samuelson, Phillips curve, place-making, Ponzi scheme, Post-Keynesian economics, power law, profit maximization, quantitative easing, RAND corporation, random walk, risk free rate, risk tolerance, risk/return, Robert Shiller, Robert Solow, Ronald Coase, Savings and loan crisis, Schrödinger's Cat, scientific mainstream, seigniorage, six sigma, South Sea Bubble, stochastic process, The Great Moderation, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, total factor productivity, tulip mania, wage slave, zero-sum game

But have some more coffee and stay tuned; after a few more introductory bits, things start to get interesting. The impact of changing prices on consumer demand At this point, we have presented only the economic explanation of how a consumer will determine the consumption of any one bundle of commodities, given a fixed income and fixed prices. But what interests economists is what they call a ‘demand curve,’ which shows how demand for a commodity changes as its price changes, while the consumer’s income remains constant. This last condition is crucial – and as we’ll see shortly, it is where the whole enterprise comes unstuck.


pages: 725 words: 221,514

Debt: The First 5,000 Years by David Graeber

Admiral Zheng, Alan Greenspan, anti-communist, back-to-the-land, banks create money, behavioural economics, bread and circuses, Bretton Woods, British Empire, carried interest, cashless society, central bank independence, classic study, colonial rule, commoditize, corporate governance, David Graeber, delayed gratification, dematerialisation, double entry bookkeeping, financial innovation, fixed income, full employment, George Gilder, informal economy, invention of writing, invisible hand, Isaac Newton, joint-stock company, means of production, microcredit, Money creation, money: store of value / unit of account / medium of exchange, moral hazard, oil shock, Panopticon Jeremy Bentham, Paul Samuelson, payday loans, place-making, Ponzi scheme, Post-Keynesian economics, price stability, profit motive, reserve currency, Right to Buy, Ronald Reagan, scientific management, seigniorage, sexual politics, short selling, Silicon Valley, South Sea Bubble, subprime mortgage crisis, Thales of Miletus, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transatlantic slave trade, tulip mania, upwardly mobile, urban decay, working poor, zero-sum game

Since wages were fixed in pounds, shillings, and pence, this also had the effect of raising their value, and hence it was usually popular. “Crying up” by contrast had the effect of lowering the effective value of the units of account. This could be useful to reduce a king’s—or his allies’—personal debt measured in such units, but it also undercut the income of wage-earners and those on any sort of fixed income and so was often protested. 96. Langholm 1979, Wood 2002:73–76. 97. On the patristic literature on usury: Maloney 1983; Gordon 1989; Moser 2000; Holman 2002:112–26; Jones 2004:25–30. 98. Matthew 5:42 99. St Basil of Caesarea, Homilia II in Psalmum XIV (PG 29, 268–69). 100. op cit. 101. op cit. 102.


Americana by Bhu Srinivasan

activist fund / activist shareholder / activist investor, American ideology, AOL-Time Warner, Apple II, Apple's 1984 Super Bowl advert, bank run, barriers to entry, Bear Stearns, Benchmark Capital, Berlin Wall, blue-collar work, Bob Noyce, Bonfire of the Vanities, British Empire, business cycle, buy and hold, California gold rush, Carl Icahn, Charles Lindbergh, collective bargaining, commoditize, Cornelius Vanderbilt, corporate raider, cotton gin, cuban missile crisis, Deng Xiaoping, diversification, diversified portfolio, Douglas Engelbart, Fairchild Semiconductor, financial innovation, fixed income, Ford Model T, Ford paid five dollars a day, global supply chain, Gordon Gekko, guns versus butter model, Haight Ashbury, hypertext link, Ida Tarbell, income inequality, information security, invisible hand, James Watt: steam engine, Jane Jacobs, Jeff Bezos, John Markoff, joint-stock company, joint-stock limited liability company, junk bonds, Kickstarter, laissez-faire capitalism, Louis Pasteur, Marc Andreessen, Menlo Park, Michael Milken, military-industrial complex, mortgage debt, mutually assured destruction, Norman Mailer, oil rush, peer-to-peer, pets.com, popular electronics, profit motive, punch-card reader, race to the bottom, refrigerator car, risk/return, Ronald Reagan, Sand Hill Road, self-driving car, shareholder value, side project, Silicon Valley, Silicon Valley startup, Steve Ballmer, Steve Jobs, Steve Wozniak, strikebreaker, Ted Nelson, The Death and Life of Great American Cities, the new new thing, The Predators' Ball, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, trade route, transcontinental railway, traveling salesman, Upton Sinclair, Vannevar Bush, Works Progress Administration, zero-sum game

New York: T. Y. Crowell, 1886. Evening News Association. Men of Progress: Embracing Biographical Sketches of Representative Michigan Men. Detroit: John F. Eby, 1900. Eyman, Scott. Lion of Hollywood: The Life and Legend of Louis B. Mayer. New York: Simon & Schuster, 2005. Fabozzi, Frank J. Fixed Income Mathematics: Analytical and Statistical Techniques. 4th edition. New York: McGraw-Hill, 2006. Faison, Azie. Game Over: The Rise and Transformation of a Harlem Hustler. New York: Simon & Schuster, 2007. Falk, David. The Bald Truth. New York: Simon & Schuster, 2009. Faulkner, Harold Underwood.


pages: 915 words: 232,883

Steve Jobs by Walter Isaacson

"World Economic Forum" Davos, air freight, Albert Einstein, Andy Rubin, AOL-Time Warner, Apollo 13, Apple II, Apple's 1984 Super Bowl advert, big-box store, Bill Atkinson, Bob Noyce, Buckminster Fuller, Byte Shop, centre right, Clayton Christensen, cloud computing, commoditize, computer age, computer vision, corporate governance, death of newspapers, Do you want to sell sugared water for the rest of your life?, don't be evil, Douglas Engelbart, Dynabook, El Camino Real, Electric Kool-Aid Acid Test, Fairchild Semiconductor, Fillmore Auditorium, San Francisco, fixed income, game design, General Magic , Golden Gate Park, Hacker Ethic, hiring and firing, It's morning again in America, Jeff Bezos, Johannes Kepler, John Markoff, Jony Ive, Kanban, Larry Ellison, lateral thinking, Lewis Mumford, Mark Zuckerberg, Menlo Park, Mitch Kapor, Mother of all demos, Paul Terrell, Pepsi Challenge, profit maximization, publish or perish, reality distortion field, Recombinant DNA, Richard Feynman, Robert Metcalfe, Robert X Cringely, Ronald Reagan, Silicon Valley, skunkworks, Steve Ballmer, Steve Jobs, Steve Wozniak, Steven Levy, Stewart Brand, supply-chain management, The Home Computer Revolution, thinkpad, Tim Cook: Apple, Tony Fadell, vertical integration, Wall-E, Whole Earth Catalog

“The lesson I learned was clear, that I always wanted to be self-sufficient,” she said. “I took pride in that. My relationship with money is that it’s a tool to be self-sufficient, but it’s not something that is part of who I am.” After graduating from the University of Pennsylvania, she worked at Goldman Sachs as a fixed income trading strategist, dealing with enormous sums of money that she traded for the house account. Jon Corzine, her boss, tried to get her to stay at Goldman, but instead she decided the work was unedifying. “You could be really successful,” she said, “but you’re just contributing to capital formation.”


pages: 927 words: 236,812

The Taste of War: World War Two and the Battle for Food by Lizzie Collingham

agricultural Revolution, air gap, American ideology, Bletchley Park, British Empire, centre right, clean water, colonial exploitation, distributed generation, European colonialism, fixed income, full employment, global village, guns versus butter model, indoor plumbing, labour mobility, land reform, mass immigration, means of production, profit motive, rising living standards, trade route, V2 rocket, women in the workforce

‘In view of the allotments made to their wives by the men [out of their pay packets] it is difficult to understand this complaint unless traders in the Territory are making more profit than they should on essential foodstuffs.’15 But the district claimed (probably fairly) that it could not afford the ‘large and expert staff’ which would be needed to enforce price controls. The poor peasantry, artisans and the middle classes on fixed incomes suffer most in the face of inflation. Throughout the empire those who bought their food on a daily basis were faced by inexorable rises in the price of food, which meant that every day they were able to buy a little less to eat. For some the price rises deprived them of their ability to buy even the most basic of subsistence diets.


pages: 736 words: 233,366

Roller-Coaster: Europe, 1950-2017 by Ian Kershaw

airport security, anti-communist, Apollo 11, Ayatollah Khomeini, banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Boris Johnson, Bretton Woods, Brexit referendum, British Empire, business cycle, centre right, colonial rule, cuban missile crisis, deindustrialization, Deng Xiaoping, Donald Trump, European colonialism, eurozone crisis, Exxon Valdez, failed state, Fall of the Berlin Wall, falling living standards, feminist movement, first-past-the-post, fixed income, floating exchange rates, foreign exchange controls, Francis Fukuyama: the end of history, full employment, Herbert Marcuse, illegal immigration, income inequality, Jeremy Corbyn, Johann Wolfgang von Goethe, labour market flexibility, land reform, late capitalism, Les Trente Glorieuses, liberal capitalism, liberation theology, low interest rates, low skilled workers, mass immigration, means of production, Mikhail Gorbachev, mutually assured destruction, Neil Armstrong, Nelson Mandela, Nixon triggered the end of the Bretton Woods system, North Sea oil, Northern Rock, oil shale / tar sands, oil shock, open borders, post-war consensus, precariat, price stability, public intellectual, quantitative easing, race to the bottom, reserve currency, rising living standards, road to serfdom, Ronald Reagan, Ronald Reagan: Tear down this wall, Sinatra Doctrine, Suez crisis 1956, The Chicago School, trade liberalization, union organizing, upwardly mobile, washing machines reduced drudgery, Washington Consensus, Winter of Discontent, young professional

Commodity prices rose across Europe by over 13 per cent in 1974, driving up the already rising inflation. Compared with the years 1950–73, consumer prices were on average more than twice as high in the decade 1973–83, more than four times higher in the Mediterranean countries. As always, those on fixed incomes were especially badly hit by inflation. The price increases were invariably passed on to the consumer, resulting inevitably in wage demands to meet the higher cost of living, further intensifying inflation where they were met – as they usually were, given the strength of trade unions. But the rising costs of employment led to redundancies.


pages: 762 words: 246,045

The Years of Rice and Salt by Kim Stanley Robinson

Admiral Zheng, fixed income, Khyber Pass, Kim Stanley Robinson, land tenure, Malacca Straits, post scarcity, South China Sea, trade route

To be among like minded people they should have moved to the Alpine emirates or Afghanistan long before. So no one was fooled by the facade of the coup. And as things had recently been getting a bit better, the timing of the coup was not particularly good. It made no sense; apparently it had only happened because the officers had been living on fixed incomes during the period of hyperinflation, and thought everyone else was as desperate as they were. But many, many people were still sick of the army, and supportive of their district panchayats if not of the state council. So it seemed to Budur that the chances for successful resistance were good. Kirana was much more pessimistic.


pages: 869 words: 239,167

The Story of Work: A New History of Humankind by Jan Lucassen

3D printing, 8-hour work day, affirmative action, agricultural Revolution, Albert Einstein, anti-work, antiwork, Asian financial crisis, banking crisis, basic income, Berlin Wall, Black Lives Matter, blue-collar work, bread and circuses, Bretton Woods, Capital in the Twenty-First Century by Thomas Piketty, Charles Babbage, collective bargaining, Columbian Exchange, commoditize, computer age, coronavirus, COVID-19, demographic transition, deskilling, discovery of the americas, domestication of the camel, Easter island, European colonialism, factory automation, Fall of the Berlin Wall, fixed income, Ford Model T, founder crops, Frederick Winslow Taylor, full employment, future of work, Great Leap Forward, hiring and firing, income inequality, income per capita, informal economy, invisible hand, James Watt: steam engine, joint-stock company, knowledge economy, labour mobility, land tenure, long peace, mass immigration, means of production, megastructure, minimum wage unemployment, money: store of value / unit of account / medium of exchange, new economy, New Urbanism, out of africa, pension reform, phenotype, post-work, precariat, price stability, public intellectual, reshoring, scientific management, Scramble for Africa, Second Machine Age, stakhanovite, tacit knowledge, Thales of Miletus, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade route, transatlantic slave trade, two and twenty, universal basic income, W. E. B. Du Bois, women in the workforce, working poor

From this, an insurance system gradually developed in the Republic, which provided benefits not only in the event of death but also – albeit more limited – in case of illness or old age. In Amsterdam, these payments were not made on the basis of a pay-as-you-go system, but from the interest of invested capital, preferably long-term and fixed-income government bonds. Thus, a fully fledged mutual insurance organization for working people emerged in the eighteenth century. The craft guilds’ admission criteria were, of course, crucial, and here we see an interesting link between accessibility and urban growth – accessibility measured by the costs of acquiring civil rights and, moreover, of paying for guild membership, as well as other provisions regarding, for example, religion or family reputation.


pages: 850 words: 254,117

Basic Economics by Thomas Sowell

affirmative action, air freight, airline deregulation, Alan Greenspan, American Legislative Exchange Council, bank run, barriers to entry, big-box store, British Empire, business cycle, clean water, collective bargaining, colonial rule, corporate governance, correlation does not imply causation, cotton gin, cross-subsidies, David Brooks, David Ricardo: comparative advantage, declining real wages, Dissolution of the Soviet Union, diversified portfolio, European colonialism, fixed income, Ford Model T, Fractional reserve banking, full employment, global village, Gunnar Myrdal, Hernando de Soto, hiring and firing, housing crisis, income inequality, income per capita, index fund, informal economy, inventory management, invisible hand, John Maynard Keynes: technological unemployment, joint-stock company, junk bonds, Just-in-time delivery, Kenneth Arrow, knowledge economy, labor-force participation, land reform, late fees, low cost airline, low interest rates, low skilled workers, means of production, Mikhail Gorbachev, minimum wage unemployment, moral hazard, offshore financial centre, oil shale / tar sands, payday loans, Phillips curve, Post-Keynesian economics, price discrimination, price stability, profit motive, quantitative easing, Ralph Nader, rent control, rent stabilization, road to serfdom, Ronald Reagan, San Francisco homelessness, Silicon Valley, surplus humans, The Bell Curve by Richard Herrnstein and Charles Murray, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, transcontinental railway, Tyler Cowen, Vanguard fund, War on Poverty, We are all Keynesians now

Would you be equally as likely to enter two occupations with the same average income—say, $50,000 a year—over the next decade if one occupation paid $50,000 every year while the income in the other occupation might vary from $10,000 one year to $90,000 the next year and back again, in an unpredictable pattern? Chances are you would require a somewhat higher average income in the occupation with variable pay, to make it equally attractive with the occupation with a reliably fixed income. Accordingly, stocks usually yield a higher average rate of return than bonds, since stocks have a variable rate of return (including, sometimes, no return at all), while bonds have a guaranteed fixed rate of return. It is not some moral principle that makes this happen. It happens because people will not take the risk of buying stocks unless they can expect a higher average rate of return than they get from bonds.


pages: 864 words: 272,918

Palo Alto: A History of California, Capitalism, and the World by Malcolm Harris

2021 United States Capitol attack, Aaron Swartz, affirmative action, air traffic controllers' union, Airbnb, Alan Greenspan, Alvin Toffler, Amazon Mechanical Turk, Amazon Web Services, Apple II, Apple's 1984 Super Bowl advert, back-to-the-land, bank run, Bear Stearns, Big Tech, Bill Gates: Altair 8800, Black Lives Matter, Bob Noyce, book scanning, British Empire, business climate, California gold rush, Cambridge Analytica, capital controls, Charles Lindbergh, classic study, cloud computing, collective bargaining, colonial exploitation, colonial rule, Colonization of Mars, commoditize, company town, computer age, conceptual framework, coronavirus, corporate personhood, COVID-19, cuban missile crisis, deindustrialization, Deng Xiaoping, desegregation, deskilling, digital map, double helix, Douglas Engelbart, Edward Snowden, Elon Musk, Erlich Bachman, estate planning, European colonialism, Fairchild Semiconductor, financial engineering, financial innovation, fixed income, Frederick Winslow Taylor, fulfillment center, future of work, Garrett Hardin, gentrification, George Floyd, ghettoisation, global value chain, Golden Gate Park, Google bus, Google Glasses, greed is good, hiring and firing, housing crisis, hydraulic fracturing, if you build it, they will come, illegal immigration, immigration reform, invisible hand, It's morning again in America, iterative process, Jeff Bezos, Joan Didion, John Markoff, joint-stock company, Jony Ive, Kevin Kelly, Kickstarter, knowledge worker, land reform, Larry Ellison, Lean Startup, legacy carrier, life extension, longitudinal study, low-wage service sector, Lyft, manufacturing employment, Marc Andreessen, Marc Benioff, Mark Zuckerberg, Marshall McLuhan, Max Levchin, means of production, Menlo Park, Metcalfe’s law, microdosing, Mikhail Gorbachev, military-industrial complex, Monroe Doctrine, Mont Pelerin Society, moral panic, mortgage tax deduction, Mother of all demos, move fast and break things, mutually assured destruction, new economy, Oculus Rift, off grid, oil shale / tar sands, PageRank, PalmPilot, passive income, Paul Graham, paypal mafia, Peter Thiel, pets.com, phenotype, pill mill, platform as a service, Ponzi scheme, popular electronics, power law, profit motive, race to the bottom, radical life extension, RAND corporation, Recombinant DNA, refrigerator car, Richard Florida, ride hailing / ride sharing, rising living standards, risk tolerance, Robert Bork, Robert Mercer, Robert Metcalfe, Ronald Reagan, Salesforce, San Francisco homelessness, Sand Hill Road, scientific management, semantic web, sexual politics, Sheryl Sandberg, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, social web, SoftBank, software as a service, sovereign wealth fund, special economic zone, Stanford marshmallow experiment, Stanford prison experiment, stem cell, Steve Bannon, Steve Jobs, Steve Wozniak, Steven Levy, Stewart Brand, stock buybacks, strikebreaker, Suez canal 1869, super pumped, TaskRabbit, tech worker, Teledyne, telemarketer, the long tail, the new new thing, thinkpad, Thorstein Veblen, Tim Cook: Apple, Tony Fadell, too big to fail, Toyota Production System, Tragedy of the Commons, transcontinental railway, traumatic brain injury, Travis Kalanick, TSMC, Uber and Lyft, Uber for X, uber lyft, ubercab, union organizing, Upton Sinclair, upwardly mobile, urban decay, urban renewal, value engineering, Vannevar Bush, vertical integration, Vision Fund, W. E. B. Du Bois, War on Poverty, warehouse robotics, Wargames Reagan, Washington Consensus, white picket fence, William Shockley: the traitorous eight, women in the workforce, Y Combinator, Y2K, Yogi Berra, éminence grise

For some homeowners this was a perfect storm: The state assessed their homes at skyrocketing prices while sales and income tax rates went up, too, all while high inflation undermined their spending power. Elderly homeowners who faced the prospect of being taxed out as their property assessments raced ahead of their fixed incomes were particularly sympathetic. On the left, organizers called for corporations to pay their fair share, but the right had an alternative solution: No one should. In 1978, California passed Proposition 13 by almost exactly the same margin as it passed the defunct Prop 14. Proposition 13 changed the property tax system, fixing assessments at 1976 levels (plus 2 percent a year for inflation, max) until a property is sold and capping the tax at 1 percent of that property’s value.


pages: 932 words: 307,785

State of Emergency: The Way We Were by Dominic Sandbrook

anti-communist, Apollo 13, Arthur Marwick, back-to-the-land, banking crisis, Bretton Woods, British Empire, centre right, collective bargaining, Corn Laws, David Attenborough, Doomsday Book, edge city, estate planning, Etonian, falling living standards, fear of failure, Fellow of the Royal Society, feminist movement, financial thriller, first-past-the-post, fixed income, full employment, gentrification, German hyperinflation, global pandemic, Herbert Marcuse, mass immigration, meritocracy, moral panic, Neil Kinnock, new economy, New Urbanism, Norman Mailer, North Sea oil, oil shock, Own Your Own Home, post-war consensus, sexual politics, traveling salesman, union organizing, upwardly mobile, urban planning, Winter of Discontent, young professional

When they looked at Britain, they saw a breakdown of politeness and public order, a collapse of discipline and self-restraint, a mounting sense of vandalism, greed and self-interest, embodied by individuals from Arthur Scargill to George Best. And on top of all that, middle-class voters complained of being ‘ground between the cost of living on the one hand and a more or less fixed income on the other’, as an internal Tory report put it in January 1972. ‘Honest middle-class people, good citizens, people with principles and standards’ had been abandoned ‘in a vacuum’, wrote a local official a year later. There was ‘a general fear about the state of our society’, the party’s Advisory Committee on Policy reported in March 1973, and a ‘feeling that we are not in control’.43 Heath’s failure to appease middle-class anxieties was one of his greatest tactical blunders.


pages: 964 words: 296,182

Karl Marx: Greatness and Illusion by Gareth Stedman Jones

anti-communist, battle of ideas, Berlin Wall, British Empire, Charles Babbage, classic study, colonial rule, Corn Laws, deindustrialization, Fall of the Berlin Wall, feminist movement, fixed income, invention of the sewing machine, joint-stock company, land reform, land tenure, means of production, New Journalism, New Urbanism, night-watchman state, On the Economy of Machinery and Manufactures, The Wealth of Nations by Adam Smith, trade liberalization, unemployed young men, wage slave

Karl had earlier hoped to co-edit Deutscher Bote (German Messenger) with Herwegh in Zurich, and on 19 February Herwegh wrote about a possible collaboration. But this plan ended when the authorities closed down the Bote and expelled Herwegh. Arnold Ruge had also agreed to the Bote plan, but his primary aim was to secure the ‘essential rebirth’ of the Deutsche Jahrbücher. So next he offered Karl co-editorship and a fixed income of 550–600 thalers with another 250 thalers for other writings. The new journal would establish ‘radical philosophy on the foundations of the freedom of the press’ and would ‘articulate the question of the political crisis or of general consciousness as it begins to form itself’. The immediate aim would be ‘to prepare ourselves, so that later we may jump in among the philistines fully armed and knock them out with one blow’.6 Karl’s politics had closely followed those of Ruge ever since the end of the 1830s.


pages: 892 words: 91,000

Valuation: Measuring and Managing the Value of Companies by Tim Koller, McKinsey, Company Inc., Marc Goedhart, David Wessels, Barbara Schwimmer, Franziska Manoury

accelerated depreciation, activist fund / activist shareholder / activist investor, air freight, ASML, barriers to entry, Basel III, Black Monday: stock market crash in 1987, book value, BRICs, business climate, business cycle, business process, capital asset pricing model, capital controls, Chuck Templeton: OpenTable:, cloud computing, commoditize, compound rate of return, conceptual framework, corporate governance, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, currency risk, discounted cash flows, distributed generation, diversified portfolio, Dutch auction, energy security, equity premium, equity risk premium, financial engineering, fixed income, index fund, intangible asset, iterative process, Long Term Capital Management, low interest rates, market bubble, market friction, Myron Scholes, negative equity, new economy, p-value, performance metric, Ponzi scheme, price anchoring, proprietary trading, purchasing power parity, quantitative easing, risk free rate, risk/return, Robert Shiller, Savings and loan crisis, shareholder value, six sigma, sovereign wealth fund, speech recognition, stocks for the long run, survivorship bias, technology bubble, time value of money, too big to fail, transaction costs, transfer pricing, two and twenty, value at risk, yield curve, zero-coupon bond

Some experts even assert that stock markets lead lives of their own. Nobel Prize winner Robert Shiller writes, “Fundamentally, stock markets are driven by popular narratives, which don’t need basis in solid facts.”1 Bill Gross, cofounder and former chief investment officer of PIMCO, one of the world’s largest fixed-income investment managers, claims that the last 100 years of U.S. stock returns “belied a commonsensical flaw much like that of a chain letter or yes—a Ponzi scheme.”2 Does it make sense to view the stock market as an arena where emotions rule supreme? We think not. Certainly, irrational behavior can drive prices for some stocks in some sectors in the short term.


pages: 1,335 words: 336,772

The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance by Ron Chernow

Alan Greenspan, always be closing, bank run, banking crisis, Bear Stearns, Big bang: deregulation of the City of London, Black Monday: stock market crash in 1987, Bolshevik threat, book value, Boycotts of Israel, Bretton Woods, British Empire, buy and hold, California gold rush, capital controls, Carl Icahn, Charles Lindbergh, collective bargaining, Cornelius Vanderbilt, corporate raider, death from overwork, Dutch auction, Etonian, financial deregulation, financial engineering, fixed income, German hyperinflation, Glass-Steagall Act, index arbitrage, interest rate swap, junk bonds, low interest rates, margin call, Michael Milken, military-industrial complex, money market fund, Monroe Doctrine, North Sea oil, oil shale / tar sands, old-boy network, paper trading, plutocrats, Robert Gordon, Ronald Reagan, short selling, stock buybacks, strikebreaker, Suez canal 1869, Suez crisis 1956, the market place, the payments system, too big to fail, transcontinental railway, undersea cable, Yom Kippur War, young professional

Another critical figure was Lewis Bernard, nicknamed Brainy Bernard, the first Jewish partner and probably the best strategic thinker in the firm. He chaired a 1979 task force to devise a ten-year plan for Morgan Stanley. It was Bernard who introduced the computerized, multicurrency system for global trading that would make Morgan Stanley a trendsetter. In 1983, he headed a new fixed-income division that belatedly led the firm into the trading of gold, precious metals, and foreign exchange and the issuing and trading of commercial paper, municipal bonds, and mortgage-backed securities—all tools to please increasingly demanding corporate customers. These activities also required more traders and salespeople, further transforming Morgan Stanley into an anonymous global financial conglomerate.


pages: 1,061 words: 341,217

The Price of Silence: The Duke Lacrosse Scandal by William D. Cohan

"Hurricane Katrina" Superdome, affirmative action, Albert Einstein, Bear Stearns, Bonfire of the Vanities, David Brooks, fixed income, medical malpractice, Robert Bork, rolodex, Ronald Reagan, Saturday Night Live, union organizing

“They said the way I conducted myself through this difficult situation was admirable, and they were so proud to have me be part of their community, and I couldn’t be prouder to be a part of their community. It was, by far and away, the most incredible award I ever received. It was incredible.” That summer, Seligmann worked as an analyst in the fixed-income group at Bear Stearns, the Wall Street investment bank, and told the audience he hoped to be an attorney one day. In an interview, Nifong said he was told the original plan was to have David Evans testify at the state bar hearing, not Seligmann. “They did some mock trial stuff, where they put these people through their paces,” he said.


pages: 1,213 words: 376,284

Empire of Things: How We Became a World of Consumers, From the Fifteenth Century to the Twenty-First by Frank Trentmann

Abraham Maslow, Airbnb, Alan Greenspan, Anton Chekhov, Ayatollah Khomeini, behavioural economics, Berlin Wall, Big bang: deregulation of the City of London, bread and circuses, British Empire, Capital in the Twenty-First Century by Thomas Piketty, car-free, carbon footprint, Cass Sunstein, choice architecture, classic study, clean water, collaborative consumption, collective bargaining, colonial exploitation, colonial rule, Community Supported Agriculture, company town, critique of consumerism, cross-subsidies, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, deindustrialization, dematerialisation, Deng Xiaoping, deskilling, equity premium, Fall of the Berlin Wall, Fellow of the Royal Society, financial exclusion, fixed income, food miles, Ford Model T, full employment, gentrification, germ theory of disease, global village, Great Leap Forward, haute cuisine, Herbert Marcuse, high net worth, income inequality, index card, informal economy, Intergovernmental Panel on Climate Change (IPCC), Internet of things, it's over 9,000, James Watt: steam engine, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kitchen Debate, knowledge economy, labour mobility, Les Trente Glorieuses, libertarian paternalism, Livingstone, I presume, longitudinal study, mass immigration, McMansion, mega-rich, Michael Shellenberger, moral panic, mortgage debt, Murano, Venice glass, Naomi Klein, New Urbanism, Paradox of Choice, Pier Paolo Pasolini, planned obsolescence, pneumatic tube, post-industrial society, Post-Keynesian economics, post-materialism, postnationalism / post nation state, profit motive, prosperity theology / prosperity gospel / gospel of success, public intellectual, purchasing power parity, Ralph Nader, rent control, retail therapy, Richard Thaler, Right to Buy, Ronald Reagan, school vouchers, scientific management, Scientific racism, Scramble for Africa, seminal paper, sharing economy, Silicon Valley, Skype, stakhanovite, Ted Nordhaus, the built environment, the market place, The Spirit Level, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, Thorstein Veblen, trade liberalization, trade route, transatlantic slave trade, union organizing, upwardly mobile, urban planning, urban sprawl, Washington Consensus, women in the workforce, working poor, young professional, zero-sum game

For those in work, life was getting significantly better. As we have already seen, affluent workers were joining the ranks of homeowners and radio listeners. There were now growing islands of comfort and entertainment, especially among workers in new industries such as electrical engineering, people on fixed incomes who benefited from the drop in prices, and among the young. In 1930s Britain, young working-class men had considerable spending power; their income had more than doubled in a generation. Most handed half of their wages over to their parents, but this left another half for their own pleasure. Young women joined a new army of clerks, typists and shop assistants, earning less than their brothers but enjoying unprecedented independence nonetheless.21 Here were the core customers for cinemas, dance halls, fashionable clothes, lipstick and brilliantine.


pages: 1,437 words: 384,709

The Making of the Atomic Bomb by Richard Rhodes

Able Archer 83, Albert Einstein, Arthur Eddington, Brownian motion, Charles Lindbergh, cuban missile crisis, death from overwork, Donner party, Eddington experiment, Ernest Rutherford, Etonian, fixed income, full employment, God and Mammon, Isaac Newton, jitney, John von Neumann, Louis Pasteur, nuclear winter, publish or perish, Richard Feynman, Ronald Reagan, seminal paper, the scientific method, Upton Sinclair, uranium enrichment, Works Progress Administration

Returning to my rented room, I at once bought enough food staples to last the week, for within three days, all the prices would have risen appreciably, by fifteen percent, say, so that my allowance would have run short and would not have permitted such pleasures as an excursion to Potsdam or to the lake country on Sundays. . . . I was too young, much too callous, and too inexperienced to understand what this galloping inflation must have meant—actual starvation and misery—to people who had to live on pensions or other fixed incomes, or even to wage earners, especially those with children, whose pay lagged behind the rate of inflation.34 So must Szilard have lived, except that no one recalls ever seeing him cook for himself; he preferred the offerings of delicatessens and cafés. He would have understood what inflation meant and some of the reasons for its extremity.


pages: 1,497 words: 492,782

The Complete Novels Of George Orwell by George Orwell

British Empire, fixed income, gentleman farmer, Machine translation of "The spirit is willing, but the flesh is weak." to Russian and back, pneumatic tube, the market place, traveling salesman, union organizing, white flight

When the big shops have their remnant sales Mrs Wheeler’s always at the head of the queue, and it’s her greatest pride, after a day’s hard fighting round the counter, to come out without having bought anything. Miss Minns is quite a different sort. She’s really a sad case, poor Miss Minns. She’s a tall thin woman of about thirty-eight, with black patent-leather hair and a very good, trusting kind of face. She lives on some kind of tiny fixed income, an annuity or something, and I fancy she’s a left-over from the old society of West Bletchley, when it was a little country town, before the suburb grew up. It’s written all over her that her father was a clergyman and sat on her pretty heavily while he lived. They’re a special by-product of the middle classes, these women who turn into withered hags before they even manage to escape from home.