Today's Post

    Eurelectric Speaks Up For Grushenka Is it possible or desirable to separate "speculation" from operational hedging, so as to clear the way for industries to do the latter without the regulatory burdens that planners want to impose upon the former? Once Europe has decided that speculation is a bad thing, won't it end up pursuing the demon ways that will collapse the proposed distinction?

    Sometimes I can’t help but think of a passage from The Brothers Karamazov: “It was known too that the young person had, especially of late, been given to what is called ‘speculation,’ and that she had shown marked abilities in that direction…. [S]he had for some time past, in partnership with old Karamazov, actually invested in the purchase of bad debts for a trifle, a tenth of their nominal value, and afterwards had made out of them ten times their value.” The evident condemnation of Grushenka’s entrepreneurship by her unhappy neighbors was part of the great historic tragedy that led in time to the liquidation of the “kulaks.” The ongoing MiFID II process is unlikely to have quite so tragic a consequence but it does display the old speculation-is-evil premise, a premise one might have hoped had long been abandoned. This all brings us to Eurelectric, an association representing the interests of the electrical power industry throughout Europe, and which sent a letter to the European Commission recently that expressed its unhappiness with proposed ...

Featured Post

The Skorina Report: Another try at herding Gotham’s five-headed fund

Guest columnist Charles Skorina looks at the five-headed NYC pension system with its new leader, Scott Evans.

By Charles Skorina In July, Scott Evans reported for duty as Chief Investment Officer in New York City's Bureau of Asset Management, where he'll manage $160 billion in employee pension funds. Traditionally the city's CIO is replaced when the political wheel turns, which it did last fall. Retiring Mayor Michael Bloomberg was succeeded by William De Blasio; and Comptroller John Liu, the independently-elected custodian of the city's pension funds, was replaced by Scott Stringer. Mr. Stringer beat back a last-minute primary challenge from disgraced ...

One Ordinary Week in the Life of Climate Change

(March 24 update) We present here recent anecdotals on the subject of climate change.  It's a topic that affects many industries: insurance, real estate, energy (renewable and non-), food, water, national defense, to name a few.   Investment opportunities arise when there is a divergence of opinion, as is uniquely the case in the United States (unlike the other nations on Earth) on the subject of climate change.  There's an argument to be made that investors who accept the settled science ...

Guest Posts

The Skorina Report: Divestment vs. Fiduciary Duty Whose Money is it?
Guest columnist Charles Skorina takes a look at investment divestment..

What the divestment debate comes down to is how boards define their fiduciary duty. [Spoiler: We don't think divestment is a good idea] We're recruiters in the business of finding chief investment officers and senior asset managers, and our readers worry more about investing than divesting.  So you may be forgiven if you overlooked Global Divestment Day on Friday, February 13. It was spearheaded by Bill McKibben's 350.org/Fossil Free group with support from many other Green enthusiasts.  Mr. McKibben is the Pied Piper ...

Risk management

The Latest News from Italian Banking and the Dane-geld
Banca Monte dei Paschi di Siena, BMPS, the oldest bank in the world, has now admitted that its exposure to Nomura Holdings has exceeded the 25% cap set by Italy’s regulators. Faille can't think of a good alpha-winning play on this fact, but it does inspire him to re-work a Kipling poem.

Rudyard Kipling famously warned that once a nation starts “paying the Dane-geld” it will never get rid of the Dane. Those who have succeeded in an extortion racket will continue with it. This is usually taken (and was surely intended) as a caution against appeasement: the Anglo-Saxon King Aethelred bought off the Vikings with silver because he was not prepared to fight them. Even after the Danes killed the Archbishop of Canterbury in 1012 the response of the Anglo-Saxon monarchy was … to send the Danes more silver. But the idea of ...


When I Learned Truth About RadioShack
IT guys have been denigrating RadioShack, from their own perch of superiority, for a long time. The trouble is, while those IT guys were the future, RadioShack's customer base was fading into the past.

RadioShack’s final decline, the long-delayed visit from karma if you will, had a lot to do with inept financing decisions. At the end of the first decade of the 21st century RadioShack executives became obsessed with the idea that their company was undervalued. They kept fighting the market valuation, buying back their own stock with borrowed money to a degree that proved unsustainable. Hence the bankruptcy filing in February of this year, and a classic opportunity for alpha hunters. As you’ve likely heard and read it was Standard General LP that ...

Risk management

Liquidity, Leverage and Those Nimble Hedge Funds
Basel III has given us three different statistics with a common goal, to keep banks to a stable funding profile, neither too illiquid nor too highly leveraged. As these requirements come on-line, what will be the consequences for the relationship between prime brokers and hedge fund managers?

The Q1 2015 issue of AIMA Journal, the issue that marks that association’s 25th anniversary, includes an intriguing essay about the potential impacts of Basel III liquidity regulations on the dynamics between prime brokers and hedge funds.  I certainly wish AIMA a happy anniversary, but I’m more interested in those dynamics. The authors of the essay, Edward Grissell and John Duckitt, both of Nomura International, together present the “key themes and topics” of a conference on consequences of Basel that Nomura Prime Finance hosted in January. The specific concerns of that ...


Zulauf Sees Unprecedented Risks: Zhou Fears Deflation
Felix Zulauf is the principal of Zulauf Asset Management, and a former global strategist for the UBS Group. He said that central banks have intervened on such a large scale of late that they have left "global financial markets ... more distorted than ever before and accordingly the risks are very high."

The head of the People’s Bank of China, Zhou Xiaochuan, says that China must be “vigilant to see if the disinflation trend will continue, and if deflation will happen or not.” The Governor’s remarks, delivered at the Boao Forum for Asia, constituted a rare admission by an official of the People’s Republic that things have gotten worrisome. And if they’re worrisome for China, they are at least worth a frown in the rest of the world. This hasn’t kept some analysts from treating the remarks as good news, on the hypothesis that such ...

Institutional Investing

They Do It Right Down Under: Australian Institutional Funds
The hapless U.S. mutual funds Chen and Gallagher sample have a nominally positive pre fee alpha only when measured against CAPM. That disappears into the negatives when the baseline used is the Fama-French model, and deeper into the negatives when the momentum factor is added.

A new paper by two scholars affiliated with the University of New South Wales compares Australian institutional funds to U.S. mutual funds. Along the way, these two scholars illuminate the distinction between true alpha on the one hand and beta-posing-as-alpha on the other. Their bottom line: Australian institutional funds generate positive alpha, even when alpha is defined in narrow and challenging ways. U.S. mutual funds don’t. U.S. mutual funds can barely generate positive alpha when it ...

Risk management

EDHEC: Geography is Not Just a Listing or Headquarters
Indexes labeled as representing developed market equity include companies with significant and increasing exposure to macro-economic trends in the emerging markets. A portfolio that tracks such an index may well have much more such exposure than its managers or investors had bargained for

In a new report, five scholars affiliated with EDHEC Risk Institute, find that for many equities, the ‘official’ nationality doesn’t match the underlying geographic reality. Taking too seriously the place of listing, or the assignment of nationality in market indexes, may create a distorted view of the real risks of a portfolio, and of the contributors to performance. One consequence of this in turn may be that booms are wilder and busts are more devastating ...


John H. Makin, Hedge Fund Economist/Principal, Defender of U.S. Fed
The impression one gets from some of the recent work of Dr. Makin is of a man who decided, late in life, that currency is a state invention, and that the states deputize their central banks to make sure the rest of us use it properly.

John Makin, an economist and hedge fund principal who has become known in recent years as an all-too-predictable defender of the role of the Federal Reserve, passed away March 30. Among the last words that he wrote were these (in US News and World Report, February 5, 2015): “[T]he timing of expected Fed tightening will keep slipping, probably into 2016, especially as the Fed faces reality and abandons its 3 percent growth forecast.” He saw weak ...

Risk management

EDHEC: Smart Beta Indexes May Be On a Launch Pad
There have been "a considerable number of product launches in the area of smart beta ETFs," but investors are eager for more, perhaps in the hope the developers will get beyond the "few popular strategies" in that area on which they have so far focused. With more variety may come a real take-off.

EDHEC-Risk Institute surveyed 222 European ETF investors and found a lot of support for some innovative financial engineering of the smart-beta variety.  So, great crackin’! The survey found, first, that users of exchange traded funds are generally satisfied with the results they’ve been getting.  Unsurprisingly the satisfaction is greater for some asset classes than for others. In particular, satisfaction has increased of late for corporate bond and government bond funds. It also remains very high for ...