Tuesday, May 26, 2015

Bond liquidity

Dear Buy-side. You seem very concerned about liquidity. Can I suggest paying for it? — Bull Market — Medium: "What needs to happen? Basically, the buy side needs to face up to reality. It needs to start looking at its cost of execution in the long run, rather than on a transaction-by-transaction basis, and understanding that if it prices the brokers out of business, it will have nobody left to make its trades. At present, the regulators aren’t helping with this at all — in a misguided attempt at consumer protection, they make it more or less impossible for a fund manager to make an investment in helping its counterparties. But really, the issue is with the clients themselves. If they want to keep on offering immediate liquidity to their investors (and they do), they need to stop creating the conditions under which that sort of immediacy is impossible for the market to provide."

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Saturday, May 23, 2015

Difference Between Economic Growth Rates and Treasury Interest Rates Significantly Affects Long-Term Budget Outlook - Washington Center for Equitable Growth

Must-Read: Richard Kogan et al.: Difference Between Economic Growth Rates and Treasury Interest Rates Significantly Affects Long-Term Budget Outlook

" We analyze U.S. data for the 223 years since 1792 and find that, on average, economic growth has exceeded interest rates, helping to shrink the burden of existing debt…"
This should also affect the Piketty argument that capital will rise as as share of the economy.  Though the treasury bill rate is not the same as the return on capital, it could, assuming that the increased return for taking risk and rate of depreciation cancel out.

Friday, May 22, 2015

Banks Will Keep Doing FX Stuff That Got Them in Trouble - Bloomberg View

Banks Will Keep Doing FX Stuff That Got Them in Trouble - Bloomberg View: "I mentioned yesterday that, as a condition of their probation, all the banks that pled guilty to a conspiracy to rig foreign-exchange rates have to send sad little "Disclosure Notices" to their clients. Here, for instance, is JPMorgan's disclosure notice, which on a cursory glance seems to be identical to the one attached to its plea agreement. It's an interesting little document. There's an introductory paragraph, and then a paragraph of contrite moaning that "conduct by certain individuals has fallen short of the Firm's expectations," specifically by being a massive antitrust conspiracy."

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Sunday, May 17, 2015

Fund management performance

Active fund managers really can pick stocks - FT.com: "Unfortunately, the average investor does not see the fruits of managers’ stockpicking labours. Assuming a recent estimate from Jack Bogle, the founder of Vanguard, the world’s second-largest asset manager, is correct, the average active equity fund has all-in costs (including fees, transaction costs and a drag from cash holdings) of 2.27 per cent a year, swamping the raw "

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Saturday, May 16, 2015

3i: three eyes - FT.com

3i: three eyes - FT.com: "3i counters that investors in its debt and infrastructure funds have different return targets to the group itself. Fair enough. But there remains the question of what sort of company 3i is. Does PE (investing 3i’s money) belong with asset management (investing other people’s money)?"

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Friday, May 15, 2015

Perfect Insider Traders Got Caught - Bloomberg View

Perfect Insider Traders Got Caught - Bloomberg View: "Still, Trader1 really is the greatest of all insider traders. He spread out his trades to avoid attention, he communicated in code, the code was golf code, and when he got caught he cooperated to minimize his sentence while also trying to undermine the prosecutors' legal theory on an FBI recording. He's learned all of the lessons I have to teach about insider trading, except the big one: Don't insider trade! You'll always get caught, and it's never worth it."

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Monday, May 11, 2015

Oil and consumer spending

James Hamilton has a report on the effect of oil prices on consumer spending.  Using a VAR to estimate the structural relationship between consumer spending and oil prices the effect of the 2006-07 oil prices increase and the recent decrease is assessed against the actual performance. Half of the 2007-09 decline in consumer spending is attributed to oil price increase.  The recent rise in US consumer spending appears to be a little less than would be expected, suggesting, in Hamilton's opinion, that people are not confident that lower prices will be sustained.

I am still looking to test the relative influence of oil prices and financial crisis on economic performance.  I suggest that a panel of countries GDP (relative to trend) and estimates of the size of the financial sector as well as the relative importance of oil in the economy as a test.  The latter is the most difficult to assess and model.