NYSE and how it responded 102 years ago

On June 28, 1914, Austrian Archduke Franz Ferdinand was assassinated in Sarajevo. This event led to a month of failed diplomatic manoeuvring between Austria-Hungary, Germany, France, Russia, and Britain which ended with the onset of the Great War, as it was originally called.

Austria-Hungary declared war on Serbia on July 28, causing Germany and Russia to mobilize their armies on July 30. When Russia offered to negotiate rather than demobilize their army, Germany declared war on Russia on August 1. Germany declared war on France on August 3, and when Germany attacked Belgium on August 4, England declared war on Germany.  Europe was at war, and millions would die in the battles that f....



A primer on behavioural finance… Fast

This primer from (quote source) covers virtually all anyone would need to know to get to grips with this topic. True it requires careful thought but it is high quality compressed learning:

“Went out to dinner the other night, check came at the end of the meal as it always does.  Never liked the check at the end of the meal system.  Because money’s a very different thing before and after you eat.  Before you eat money has no value.  And you don’t care about money when you’re hungry, you sit down in a restaurant, you’re like the ruler of an empire.  “More drinks, appetizers, quickly, quickly.  It will be the greatest meal of our lives.”  Then after the meal, you kno....



High tech meets low finance

The Economist reports recently that for all the money spent on technology, banking is not efficient

TECHNOLOGY ought to have revolutionised finance more than any other industry. After all, modern money is mostly an entry on a computer—capable of being transmitted instantly and virtually costlessly around the world. Stockmarket activity is now dominated by high-frequency traders, who make deals faster than they can blink.

The finance sector spends more on technology, as a proportion of its revenues, tha....



Cheques are 350 years old

1659 – On this day in 1659 the first cheque for making a payment was written.

At 350 years old today, this is expected to be its last major landmark as automated payments take over. Automated payments, such as using a card or online banking, account for massive amounts of payments made worldwide.

old cheque

The use of cheques peaked in 1990 but has dropped significantly since. Today two-thirds of under 25s have never written a cheque, and the method of payment is unlikely to reach its 400 year celebration.

“It would be fair to say this is....



Peer to peer lending is set to explode

U.S. circus performer Robin Valencia soars from a cannon during the “Open Air Show” parade as part of activities at the 31st International Circus Festival of Monte Carlo.

More than eight years ago, I predicted that the private-credit world would explode within a few decades. I’m clearly on target for that prediction, though it may happen a lot sooner.

I’ve been a fan of private credit for a long time. Recently, I have once again been exploring the private-credit world, and it seems this market is growing faster than I had thought.

With today’s banking environment and all the perks of private lending, however, it shouldn’t be a surprise.

Capitalizing on Impossi....



Death and Transfiguration

image

The golden age of the Western corporation may be coming to an end.

EDWARD GIBBON, the great English historian, begins his “Decline and Fall” with a glowing portrait of the Roman Empire in the age of Augustus. The Empire “comprehended the fairest part of the earth”. Rome’s enemies we....



Two Cheers for Ignorance

By Kevin D. Williamson

Among the many memorable sights and sounds (and smells) of Occupy Wall Street was the young man who was very eager to speak to me about derivatives trading, which, he promised me, was positioned to sucker-punch the world economy even more brutally than the mortgage bubble had. He seemed to have a great deal of information at his command: The derivatives market was so many trillions of dollars and was inadequately regulated in such-and-such a way, etc. Listening to him speak for a bit, I told him I had only one question that I’d like him to answer:

“What’s a derivative?”

Sputter, stutter, stammer, hem and haw. He had no idea. It w....



The Rich Are Different. They’re Better Investors.

What if the rich get richer because they know how to invest their money more effectively? New research shows that this may be a factor behind the rise in inequality. 

Different investors have different levels of sophistication. Why? 

It might come from varying levels of education. For example, I know what diversification is, and why it works. But other people might not, and might just pick one or two stocks, increasing their risk without boosting their expected return. Research shows that this is one of the biggest mistakes that people make, if not the biggest. 

Differences in education are dangerous because unsophisticated people generally don’t realize they’re u....



The Future of Retirement?

It’s sleazy, it’s totally illegal, and yet it could become the future of retirement.

Over 100 years ago in America — before Social Security, before IRAs, corporate pensions and 401(k)s — there was a ludicrously popular (and somewhat sleazy) retirement scheme called the tontine.

At their peak, around the turn of the century, tontines represented nearly two-thirds of the American insurance market, holding about 7.5 percent of national wealth. It’s estimated that by 1905, there were 9 million tont....



Underlying cause of the “correction”: Quantitative Pleasing… for a short time only

I have noted before that quantitative easing is a mirage…. someone has to pay in the end. Here’s why and how.“The Fed’s Price Correction”….. WSJ

By

MARTIN FELDSTEIN

Aug. 24, 2015 7:29 p.m. ET

The unfolding stock-market collapse—the Dow Jones Industrial Average plummeted more than 1,000 points on Monday morning, rebounding later to nearly 600 points down, following several days of decline last week—is the inevitable result of the Federal Reserve’s policies, namely quantitative easing that produced abnormally low interest rates. The decline on Wall Street has spread to every sto....



Pickin’ Picketty to bits: more flaws

RG-bargy

Future returns on wealth will be lower than Thomas Piketty thinks

EVER since Thomas Piketty, a French economist, published his monumental best-seller “Capital in the 21st Century” last year, his work has come under attack on theoretical and statistical grounds. The latest assault comes from an unsurprising source: the libertarian Cato Institute.

The argument centres on Mr Piketty’s use of the expression “r > g”, where r is the return on capital and g is the growth rate of the....



Janet Yellen Is No Stock Market Sage

If you sold your biotech stock based on the Fed chair’s assessment of the market in July, you’d be sorry now.

By BURTON G. MALKIEL
June 1, 2015
At a recent International Monetary Fund event in Washington, D.C., Federal Reserve Chair Janet Yellen opined about the “potential dangers” posed by “quite high” stock market valuations. This was not her first market prognostication. In July 2014 she singled out biotech and social-media stocks as having “substantially stretched” valuations. Such comments are ill considered and are more likely to do harm than good.

If Ms. Yellen and other Fed officials h....



Possible Correction?

Here’s David Bianco and Ju Wang:

We believe the probability of a 5%+ dip is high this summer and our tactical call remains Down given the S&P now at an even higher PE than a year ago, heightened uncertainty in 10yr yields, weak earnings growth and continued soft economic data. We haven’t had a 5%+ dip this year. Historically 5%+ dips are common and happen at least once a year since 1960, except 1964, 1993 & 1995. It has been 916 trading days (3.6 years) since a 10% correction. Selloff triggers could be a further rise in 10yr yields especially if UE keeps falling amidst slow economic growth and Fed remains unclear on first hike timing, or a jump in the dollar upon the Fed ex....



Compulsory Reading for the FMA

Instead of Attacking Insider Trading, Make Everyone an Insider

Preet Bharara could call off his crusade against a fuzzy crime if all investors were hit with a fire hose of data.

By ANDY KESSLER

April 6, 2015 7:09 p.m. ET

Here’s how you know a company is about to miss earnings: The stock falls slowly after the quarter ends and continues trickling until the announcement that, lo, the company didn’t live up to analysts’ estimates. Someone knew it was coming and traded on the tip. Someone always knows.

It’s called insider trading, and Preet Bharara, the U.S. attorney for the Southern District of New York, has convicted 80 people of it. On Friday the Seco....



Cost of Capital

Recent letter from BWGL Associate Peter Farley to business commentator Rod Oram. The claim made by Mr Oram is very common in NZ and thus the flaw in it of considerable importance.

Dear Mr Oram,

I heard you on Nine to Noon on Tuesday, when discussing the possible sale of State houses, say that government has the lowest cost of capital. This is an all too common misunderstanding.

It is true that the government has the lowest cost of borrowing – because its taxation capability means that there is a very low risk that lenders will not be repaid. This is totally unrelated to the financial risk associated with any “venture” in which ....



End of a Classic Era

CHICAGO — The pits where generations of sweating traders in colorful jackets once bellowed out orders for wheat, corn and cattle contracts, using hand signals and sheer force of personality, are almost empty. The smattering of traders who hung around them on a recent day appeared listless, some glancing at tablet screens, others staring blankly into space.

Open-outcry futures trading, a profession that took root here in the mid-19th century, becoming part of the city’s identity and influencing trading systems around the world, is going extinct. Most of the futures pits inside the Chicago Board of Trade building, an Art Deco tower that looms over downtown’s LaSalle Street, are schedu....