Archive for the ‘Finance’ Category

longevity insurance (annuities)

Saturday, August 5th, 2017

Here is excellent advice from a British expert in personal finance. Longevity risk – the risk of outliving one’s savings – is underestimated or ignored by many.

[T]he most important type of risk that most people fail to buy insurance against is living too long — longevity risk. Many people are now shunning using at least some of their pension fund to buy a level or inflation protected guaranteed annuity, because they focus on the perceived poor value of annuities, compared with the rates on offer 10 years ago.

Jason Butler, “Insurance — a vital component of financial planning”, Financial Times, 3 August 2017 (gated paywall).

robots in finance

Monday, July 31st, 2017

They are already here, and are said to be more efficient than human traders!

JPMorgan will soon be using a first-of-its-kind robot to execute trades across its global equities algorithms business, after a European trial of the bank’s new artificial intelligence (AI) programme showed it was much more efficient than traditional methods of buying and selling. ….

The [job of the] AI — known internally as LOXM — … is to execute client orders with maximum speed at the best price, by using lessons it has learnt from billions of past trades — both real and simulated — to tackle problems such as how best to offload big equity stakes without moving market prices. ….

One possible evolution of LOXM is teaching the machine how to get to know individual clients, so that it could consider their behaviour and reaction as it decides how to trade.

Laura Noonan, “JPMorgan develops robot to execute trades“, Financial Times, 31 July 2017 (gated paywall).

Amazon battles Walmart

Saturday, June 10th, 2017

The competition is different than you might expect, folks. There is a strong focus on finance, in addition to ecommerce.

The dominant US ecommerce company [Amazon] has been dabbling in lending for nearly six years, and has made $3bn in loans to some of the small businesses that sell through its online platform.

Now Amazon is substantially expanding its offer of instant loans and considering whether to provide other bank-like services. ….

The Seattle-based juggernaut also this week stepped up its battle with the world’s largest retailer, Walmart. Targeting the lower income customers that have long been Walmart’s bread and butter, Amazon said it would offer substantial discounts on its Prime membership programme to US shoppers who are on public assistance. ….

Over the short term, both initiatives sound like great news for consumers and small businesses. Amazon’s move into banking has already created new borrowing opportunities for businesses that had struggled to get bank loans. And its offer to low-income customers will give them more equal access to the benefits of the digital economy.

Brooke Masters, “Amazon’s quiet domination merits greater scrutiny“, Financial Times, 10 June 2017 (gated paywall).

Walmart Financial Services provides credit cards and other bank-like services, including cash transfers to Mexico and other countries, in addition to transfers within the United States and Canada.

Shiller on housing bubbles

Friday, May 19th, 2017

Yale economist Robert Shiller worries that a housing bubble could form in the USA, creating conditions for another financial crisis. (more…)

some things never change

Wednesday, February 15th, 2017

Wall Street continues to have enormous influence in Washington, DC. The only difference is that now the influence is more open.

When Robert Rubin resigned as co-head of Goldman Sachs to join Bill Clinton’s White House in 1993, he found “a sort of rugby scrum to get up close to the president” in the Oval Office. Mr Rubin sat at a discreet distance: “I always liked to be away from the centre,” he wrote in his autobiography.

Gary Cohn, who has made the same move from Goldman to become director of Donald Trump’s National Economic Council, has no such reticence. He stood at Mr Trump’s shoulder as the president declared his determination to scythe back financial regulation and stimulate more lending by banks. ….

Mr Trump exploited Goldman as a target for populist resentment in his campaign, railing that Hillary Clinton’s speeches for the bank showed the need to “drain the swamp” in Washington. He forgot it when elected, but the complaint worked and his conduct since lends it even sharper potential.

John Gapper, “Gary Cohn is embarrassing Goldman Sachs“, Financial Times, 15 February 2017 (gated paywall).

deregulating sale of financial products

Sunday, February 5th, 2017

Here is a follow-up to an earlier post.

President Trump and his team are moving quickly to kill the “Fiduciary rule” intended to protect consumers from financial advisers who look after their own interest (commissions on sales) rather than the interest of their clients.

President Donald Trump has begun killing off an Obama-era retirement-savings rule unpopular with Republicans and some financial-industry executives who say it would harm consumers more than help…“We think it is a bad rule. It is a bad rule for consumers,” said White House National Economic Council Director Gary Cohn in an interview with The Wall Street Journal on Thursday. “This is like putting only healthy food on the menu, because unhealthy food tastes good but you still shouldn’t eat it because you might die younger.”

Lisa Beilfuss and Michael Wursthorn, “Trump Moves to Kill Off Obama’s Landmark Retirement Rule“, Wall Street Journal, 3 February 2017 (gated paywall).

This is NOT fake news, folks; nor is it satire.

Ed Thorp at lunch with the FT

Saturday, February 4th, 2017

This is a superb “Lunch with the FT”. John Authers, FT Senior Investment Commentator, interviews Ed Thorp, the famous mathematician, hedge fund manager and blackjack player. Here are excerpts from an exceptionally long, informative and entertaining column. Click on the link below to read the full column (highly recommended). (more…)

Wall Street and the White House

Friday, February 3rd, 2017

The relationship between Wall Street and the White House is closer than ever. Donald Trump will soon begin to release Wall Street from controls that President Obama imposed on banks and financial advisers.

President Donald Trump is on Friday due to take his first steps towards undoing parts of the Dodd-Frank reforms that reshaped US banking in the aftermath of the financial crisis.

Mr Trump will also cheer financial professionals who offer retirement advice by directing his officials to consider scrapping a rule that orders them to act in the best interests of their clients, a senior White House official told the Wall Street Journal. [Emphasis added.]

Gary Cohn, the former Goldman Sachs executive who is now director of the White House’s National Economic Council, said Mr Trump would sign executive orders preparing the way to fulfil a campaign pledge to dismantle parts of Dodd-Frank. ….

The so-called “fiduciary rule” on retirement advice, which is in the White House’s crosshairs, has been the target of fierce lobbying by broker-dealers and other financial advisers since it was proposed by the Obama administration in 2015.

Although not yet in force, it will require them to recommend the best product for their clients, not just a suitable product. [Emphasis added.] ….

Steven Mnuchin, the hedge fund manager nominated to be Treasury secretary, has promised to “kill” parts of the [Dodd-Frank] law, including the Volcker rule, which put curbs on banks placing bets with their own money.

Barney Jopson, “Trump to take first step towards dismantling Dodd-Frank reforms“, Financial Times, 4 February 2017 (gated paywall).

Goldman Sachs alumni join the Trump team

Friday, January 20th, 2017

Goldman Sachs alumni tapped by Trump for key posts include Gary Cohn (to head the White House National Economic Council) and Steven Mnuchin (his nominee for Treasury secretary).

[Additional] Goldman-linked appointments …include  Stephen Bannon and Anthony Scaramucci, both ex-investment bankers, and Dina Powell, former president of the bank’s charitable foundation. Jay Clayton, named to head the Securities and Exchange Commission, the market watchdog, is a Wall Street lawyer who acted for Goldman on the injection of government money in the depths of the crisis. Gretchen Butler Clayton, his wife, works at Goldman as a private wealth adviser. ….

All this after Mr Trump accused Goldman of “owning” Ted Cruz, his rival for the Republican nomination, and challenged Hillary Clinton over her paid speeches to banks, including Goldman.

Ben McLannahan, “Goldman Sachs: Occupying Washington again“, Financial Times Big Read, 21 January 2017 (gated paywall).

An earlier TdJ post on this subject can be accessed here.

reaction to guaranteed active management

Monday, January 9th, 2017

The FT letters section is becoming something of a blog. Last week reader Jason MacQueen promoted “guaranteed active management”, a scheme to guarantee investors a return higher than that offered by managers of passive funds. Fund managers would assume all of the downside risk and reap any upside rewards.

MacQueen’s letter drew a lengthy response from reader Jon Hay, who wrote (in part):

It is nice for any one fund manager to be able to claim that it has outperformed a benchmark. But it is quite wrong and misleading to cultivate the idea that investors should generally expect their managers to outperform. That is self-evidently impossible. That the average active manager underperforms the benchmark after costs is necessarily always true. ….

[F]und performance … often — even if it may underperform a benchmark — delivers capital growth and income in absolute terms. That can only be the true goal of fund management.

Jon Hay, “Benchmark obsession is a distraction from fund management’s true goal“, letter to the editor, Financial Times, 9 January 2017 (gated paywall).

Mr Hay is Corporate finance editor of GlobalCapital, a magazine published by London-based Euromoney Institutional Investor. His letter attracted not letters, but short comments from ‘HoundDog’ and ‘EconLarry’. The second pseudonym belongs to the writer of this blog (Thought du Jour). (more…)