fixed income

Understanding Asset Allocation: An Intuitive Approach to Maximizing Your Portfolio
by Victor A. Canto
Published 2 Jan 2005

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.

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(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.

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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
Published 11 Jul 2010

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.

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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.

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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.

The New Science of Asset Allocation: Risk Management in a Multi-Asset World
by Thomas Schneeweis , Garry B. Crowder and Hossein Kazemi
Published 8 Mar 2010

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.

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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.

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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.

Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined
by Lasse Heje Pedersen
Published 12 Apr 2015

(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.

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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.

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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.

Electronic and Algorithmic Trading Technology: The Complete Guide
by Kendall Kim
Published 31 May 2007

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.

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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.

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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.

A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation
by Richard Bookstaber
Published 5 Apr 2007

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.

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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.

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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.

The Crisis of Crowding: Quant Copycats, Ugly Models, and the New Crash Normal
by Ludwig B. Chincarini
Published 29 Jul 2012

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.

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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.

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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.

Unconventional Success: A Fundamental Approach to Personal Investment
by David F. Swensen
Published 8 Aug 2005

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.

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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.

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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.

Inside the House of Money: Top Hedge Fund Traders on Profiting in a Global Market
by Steven Drobny
Published 31 Mar 2006

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.

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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.

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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.

House of Cards: A Tale of Hubris and Wretched Excess on Wall Street
by William D. Cohan
Published 15 Nov 2009

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.

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“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.

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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.

My Life as a Quant: Reflections on Physics and Finance
by Emanuel Derman
Published 1 Jan 2004

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.

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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.

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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.

Beyond Diversification: What Every Investor Needs to Know About Asset Allocation
by Sebastien Page
Published 4 Nov 2020

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.

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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.

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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.

Street Fighters: The Last 72 Hours of Bear Stearns, the Toughest Firm on Wall Street
by Kate Kelly
Published 14 Apr 2009

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.

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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.

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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
Published 3 May 2007

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.

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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.

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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.

Frequently Asked Questions in Quantitative Finance
by Paul Wilmott
Published 3 Jan 2007

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.

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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.

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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.

Getting a Job in Hedge Funds: An Inside Look at How Funds Hire
by Adam Zoia and Aaron Finkel
Published 8 Feb 2008

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.

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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.

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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.

The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes, and Real Money
by Steven Drobny
Published 18 Mar 2010

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.

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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.

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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.

Stocks for the Long Run, 4th Edition: The Definitive Guide to Financial Market Returns & Long Term Investment Strategies
by Jeremy J. Siegel
Published 18 Dec 2007

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.

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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?

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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.

Stocks for the Long Run 5/E: the Definitive Guide to Financial Market Returns & Long-Term Investment Strategies
by Jeremy Siegel
Published 7 Jan 2014

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?

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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.

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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.

Stigum's Money Market, 4E
by Marcia Stigum and Anthony Crescenzi
Published 9 Feb 2007

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.

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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.

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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 and Maureen O'Hara
Published 28 Sep 2013

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.

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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 

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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.

Money and Power: How Goldman Sachs Came to Rule the World
by William D. Cohan
Published 11 Apr 2011

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.

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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.

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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.

The Bank That Lived a Little: Barclays in the Age of the Very Free Market
by Philip Augar
Published 4 Jul 2018

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.’

Financial Independence
by John J. Vento
Published 31 Mar 2013

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.

Investing Amid Low Expected Returns: Making the Most When Markets Offer the Least
by Antti Ilmanen
Published 24 Feb 2022

Taking a broad view gives a surprisingly low market share for passive equity investing, as low as 18%.3 For delegated managers, the passive market share is near 40% for equities but remains much lower for fixed income. For example, Morningstar estimates that the passive share of mutual fund assets has risen from 19% to 50% for US equities between 2007 and 2021, and from 7% to 31% for US fixed income.4 There has been much debate about the market impact of the shift to passive investing. Here are my favorite insights: Investors have benefited from lower fees (even on the active side, thanks to competitive pressures).

…

There is also some evidence that active stock pickers tend to outperform during recessions, at times of high dispersion between stock-specific returns, and especially during “differentiated declines” – when weak markets and wide dispersion coincide.14 Finally, it helps when active managers' common structural tilts are working well. The most obvious examples of common structural tilts are active fixed income managers' tendency to load up on credit risk (and thus equity markets) and hedge funds' typically positive equity market betas. Figure 7.2 shows that the pairwise correlation across fixed income managers and their typical correlation with the equity market are 0.6–0.7. Correlations are almost as high for hedge fund subsectors, but close to zero for active equity managers. These differences matter both for manager diversification and for fair fees.15 Figure 7.2 Common Directional Factors Among Hedge Funds and Active FI Managers, 2010–2019 Sources: AQR, eVestment, Credit Suisse.

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Thus, investors should look for markets with many unsophisticated investors (say, retail) and/or non-economically motivated participants. 12 Mauboussin-Callahan (2020) estimates with almost four decades of Pitchbook and Morningstar data that the interquartile range (“middle fifty” between 25th to 75th percentiles) of US venture capital and buyout funds was near +/−10% (internal rate of return compared to median manager), while that of long/short equity funds was near +/−3% (5-year annualized return compared to median), that of US equity mutual funds near +/−2%, and that of US bond funds near +/−1%. 13 For a more serious treatment of Samuelson's dictum, see Garleanu-Pedersen (2021). 14 See Parikh-McQuiston-Zhi (2018). 15 The positive credit and equity market sensitivities explain why active fixed income managers tended to outperform their benchmarks during the bullish 2010s (see Brooks-Gould-Richardson (2020)). At the same time, active equity managers tended to lag, leading some observers to claim that active fixed income is “easier” than active equity. There is a simpler explanation. The typical tilts of a large-cap US equity manager are out-of-benchmark exposures in cash, small-caps, and non-US markets.

Expected Returns: An Investor's Guide to Harvesting Market Rewards
by Antti Ilmanen
Published 4 Apr 2011

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.

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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).

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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.

Crash of the Titans: Greed, Hubris, the Fall of Merrill Lynch, and the Near-Collapse of Bank of America
by Greg Farrell
Published 2 Nov 2010

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.

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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.

Portfolio Design: A Modern Approach to Asset Allocation
by R. Marston
Published 29 Mar 2011

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.

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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.

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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.

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
Published 27 Jul 2009

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.

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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?

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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.

Straight to Hell: True Tales of Deviance, Debauchery, and Billion-Dollar Deals
by John Lefevre
Published 4 Nov 2014

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.

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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.

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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.

Fed Up!: Success, Excess and Crisis Through the Eyes of a Hedge Fund Macro Trader
by Colin Lancaster
Published 3 May 2021

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.

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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.

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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.

A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers
by Lawrence G. Mcdonald and Patrick Robinson
Published 21 Jul 2009

.: 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.

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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.

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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.

High-Frequency Trading: A Practical Guide to Algorithmic Strategies and Trading Systems
by Irene Aldridge
Published 1 Dec 2009

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.

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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.

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See Transaction costs Ferstenberg, R., 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.

All the Devils Are Here
by Bethany McLean
Published 19 Oct 2010

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.

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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.

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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.

The Greed Merchants: How the Investment Banks Exploited the System
by Philip Augar
Published 20 Apr 2005

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.

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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.

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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.

Market Sense and Nonsense
by Jack D. Schwager
Published 5 Oct 2012

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.

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During these events, steeply declining values in high-yielding debt securities (e.g., 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.

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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.

The Accidental Investment Banker: Inside the Decade That Transformed Wall Street
by Jonathan A. Knee
Published 31 Jul 2006

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!

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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.

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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 and Fabrice Douglas Rouah
Published 23 Sep 2004

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.

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Till is also a Principal of Premia Risk Consultancy, Inc., 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.

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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.

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 and Stephen R. Foerster
Published 16 Aug 2021

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.

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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.”

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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.

How I Invest My Money: Finance Experts Reveal How They Save, Spend, and Invest
by Brian Portnoy and Joshua Brown
Published 17 Nov 2020

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.

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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.

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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 and Barry Schachter
Published 30 Jun 2007

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.

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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.

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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
Published 1 Sep 2004

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.

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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.

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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.
Published 30 Oct 2011

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.

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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).

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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.

How to Predict the Unpredictable
by William Poundstone

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.

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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.

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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.

The Gone Fishin' Portfolio: Get Wise, Get Wealthy...and Get on With Your Life
by Alexander Green
Published 15 Sep 2008

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.

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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.

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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.

The Bond King: How One Man Made a Market, Built an Empire, and Lost It All
by Mary Childs
Published 15 Mar 2022

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.

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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.

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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.

The Long Good Buy: Analysing Cycles in Markets
by Peter Oppenheimer
Published 3 May 2020

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.

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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).

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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.

Greed and Glory on Wall Street: The Fall of the House of Lehman
by Ken Auletta
Published 28 Sep 2015

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.

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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.

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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.

Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever
by Robin Wigglesworth
Published 11 Oct 2021

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.

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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.

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“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.

Last Man Standing: The Ascent of Jamie Dimon and JPMorgan Chase
by Duff McDonald
Published 5 Oct 2009

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.

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(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.

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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.)

The Power of Passive Investing: More Wealth With Less Work
by Richard A. Ferri
Published 4 Nov 2010

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.

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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!

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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.

The Quants
by Scott Patterson
Published 2 Feb 2010

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.

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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.

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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.

DeFi and the Future of Finance
by Campbell R. Harvey , Ashwin Ramachandran , Joey Santoro , Vitalik Buterin and Fred Ehrsam
Published 23 Aug 2021

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.

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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.

Financial Freedom: A Proven Path to All the Money You Will Ever Need
by Grant Sabatier
Published 5 Feb 2019

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.

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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.

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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.

Hedge Fund Market Wizards
by Jack D. Schwager
Published 24 Apr 2012

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.

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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.

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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?

The Pyramid of Lies: Lex Greensill and the Billion-Dollar Scandal
by Duncan Mavin
Published 20 Jul 2022

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.

Capital Allocators: How the World’s Elite Money Managers Lead and Invest
by Ted Seides
Published 23 Mar 2021

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
Published 4 Oct 2015

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).

After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead
by Alan S. Blinder
Published 24 Jan 2013

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.

The Big Short: Inside the Doomsday Machine
by Michael Lewis
Published 1 Nov 2009

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.

What Happened to Goldman Sachs: An Insider's Story of Organizational Drift and Its Unintended Consequences
by Steven G. Mandis
Published 9 Sep 2013

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.

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
Published 11 May 2009

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 and Moorad Choudhry
Published 14 Jul 2002

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.

Transaction Man: The Rise of the Deal and the Decline of the American Dream
by Nicholas Lemann
Published 9 Sep 2019

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.

Optimization Methods in Finance
by Gerard Cornuejols and Reha Tutuncu
Published 2 Jan 2006

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.

Financial Market Meltdown: Everything You Need to Know to Understand and Survive the Global Credit Crisis
by Kevin Mellyn
Published 30 Sep 2009

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.

The Clash of the Cultures
by John C. Bogle
Published 30 Jun 2012

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.

The Dealmaker: Lessons From a Life in Private Equity
by Guy Hands
Published 4 Nov 2021

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.

Toward Rational Exuberance: The Evolution of the Modern Stock Market
by B. Mark Smith
Published 1 Jan 2001

(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.

The Essays of Warren Buffett: Lessons for Corporate America
by Warren E. Buffett and Lawrence A. Cunningham
Published 2 Jan 1997

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."

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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.

Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions
by Joshua Rosenbaum , Joshua Pearl and Joseph R. Perella
Published 18 May 2009

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.

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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.

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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.

Quit Like a Millionaire: No Gimmicks, Luck, or Trust Fund Required
by Kristy Shen and Bryce Leung
Published 8 Jul 2019

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.

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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.

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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.

Smarter Investing
by Tim Hale
Published 2 Sep 2014

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.

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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.

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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.

Adaptive Markets: Financial Evolution at the Speed of Thought
by Andrew W. Lo
Published 3 Apr 2017

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.

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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.

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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
Published 7 Dec 2016

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.

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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.

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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.

Security Analysis
by Benjamin Graham and David Dodd
Published 1 Jan 1962

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.

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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.

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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.

Personal Investing: The Missing Manual
by Bonnie Biafore , Amy E. Buttell and Carol Fabbri
Published 24 May 2010

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.

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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.

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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.

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
Published 15 Oct 2009

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.

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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.

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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 and Fernando Alvarez
Published 31 May 2011

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.

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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.

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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.

How to Kick Ass on Wall Street
by Andy Kessler
Published 4 Jun 2012

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.

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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.

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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.

Extreme Money: Masters of the Universe and the Cult of Risk
by Satyajit Das
Published 14 Oct 2011

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).

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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.

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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.

DIY Investor: How to Take Control of Your Investments & Plan for a Financially Secure Future
by Andy Bell
Published 12 Sep 2013

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.

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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.

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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
Published 25 Aug 2011

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.

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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.

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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
Published 3 Jan 2005

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.

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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.

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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.

Endless Money: The Moral Hazards of Socialism
by William Baker and Addison Wiggin
Published 2 Nov 2009

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.

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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.

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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.

Retirementology: Rethinking the American Dream in a New Economy
by Gregory Brandon Salsbury
Published 15 Mar 2010

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.

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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.

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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.

Confidence Game: How a Hedge Fund Manager Called Wall Street's Bluff
by Christine S. Richard
Published 26 Apr 2010

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.

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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.

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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.”

Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism
by Kevin Phillips
Published 31 Mar 2008

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.

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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.

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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.

Rigged Money: Beating Wall Street at Its Own Game
by Lee Munson
Published 6 Dec 2011

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.

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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.

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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.

Why I Left Goldman Sachs: A Wall Street Story
by Greg Smith
Published 21 Oct 2012

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.

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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.

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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
Published 24 Apr 2007

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.

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(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.

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© 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.

Young Money: Inside the Hidden World of Wall Street's Post-Crash Recruits
by Kevin Roose
Published 18 Feb 2014

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.

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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.”

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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.

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
Published 11 Jul 2011

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.

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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.

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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.

Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives
by Satyajit Das
Published 15 Nov 2006

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.

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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’.

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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.

The Price of Time: The Real Story of Interest
by Edward Chancellor
Published 15 Aug 2022

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.

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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.

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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
Published 17 Nov 2008

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.”

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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. 

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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).

Best Places to Retire: The Top 15 Affordable Towns for Retirement on a Budget (Retirement Books)
by Clayton Geoffreys
Published 30 Apr 2015

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.

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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.

Trade Wars Are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace
by Matthew C. Klein
Published 18 May 2020

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.

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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.

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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.

How to Retire the Cheapskate Way
by Jeff Yeager
Published 1 Jan 2013

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.

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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.

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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.”

The Rise of the Quants: Marschak, Sharpe, Black, Scholes and Merton
by Colin Read
Published 16 Jul 2012

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.

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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.

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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.

Stock Market Wizards: Interviews With America's Top Stock Traders
by Jack D. Schwager
Published 1 Jan 2001

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.

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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.

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"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.

Trading at the Speed of Light: How Ultrafast Algorithms Are Transforming Financial Markets
by Donald MacKenzie
Published 24 May 2021

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.

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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.

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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
Published 28 Sep 2007

(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.

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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.

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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.

Mathematics of the Financial Markets: Financial Instruments and Derivatives Modelling, Valuation and Risk Issues
by Alain Ruttiens
Published 24 Apr 2013

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.

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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.

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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.

Chaos Kings: How Wall Street Traders Make Billions in the New Age of Crisis
by Scott Patterson
Published 5 Jun 2023

(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).

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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.

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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.

The Secret Club That Runs the World: Inside the Fraternity of Commodity Traders
by Kate Kelly
Published 2 Jun 2014

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.

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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.

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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

Money Mavericks: Confessions of a Hedge Fund Manager
by Lars Kroijer
Published 26 Jul 2010

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.

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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.

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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.

Investing Demystified: How to Invest Without Speculation and Sleepless Nights
by Lars Kroijer
Published 5 Sep 2013

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.

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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.

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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.

The Fix: How Bankers Lied, Cheated and Colluded to Rig the World's Most Important Number (Bloomberg)
by Liam Vaughan and Gavin Finch
Published 22 Nov 2016

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.

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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.

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(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.

No One Would Listen: A True Financial Thriller
by Harry Markopolos
Published 1 Mar 2010

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.

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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.

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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.

King of Capital: The Remarkable Rise, Fall, and Rise Again of Steve Schwarzman and Blackstone
by David Carey
Published 7 Feb 2012

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.

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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.

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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.

Mastering Private Equity
by Zeisberger, Claudia,Prahl, Michael,White, Bowen , Michael Prahl and Bowen White
Published 15 Jun 2017

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.

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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.

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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.

Corporate Finance: Theory and Practice
by Pierre Vernimmen , Pascal Quiry , Maurizio Dallocchio , Yann le Fur and Antonio Salvi
Published 16 Oct 2017

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.

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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.

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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.

Advanced Stochastic Models, Risk Assessment, and Portfolio Optimization: The Ideal Risk, Uncertainty, and Performance Measures
by Frank J. Fabozzi
Published 25 Feb 2008

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.

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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.

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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.

Cryptoassets: The Innovative Investor's Guide to Bitcoin and Beyond: The Innovative Investor's Guide to Bitcoin and Beyond
by Chris Burniske and Jack Tatar
Published 19 Oct 2017

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.

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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.

The Little Book of Hedge Funds
by Anthony Scaramucci
Published 30 Apr 2012

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.

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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.

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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.

The Alpha Masters: Unlocking the Genius of the World's Top Hedge Funds
by Maneet Ahuja , Myron Scholes and Mohamed El-Erian
Published 29 May 2012

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.

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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.

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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.

Mastering the Market Cycle: Getting the Odds on Your Side
by Howard Marks
Published 30 Sep 2018

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.

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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).

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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.”

Fed Up: An Insider's Take on Why the Federal Reserve Is Bad for America
by Danielle Dimartino Booth
Published 14 Feb 2017

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.

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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.

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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.

How Money Became Dangerous
by Christopher Varelas
Published 15 Oct 2019

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.

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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.

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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.

Triumph of the Optimists: 101 Years of Global Investment Returns
by Elroy Dimson , Paul Marsh and Mike Staunton
Published 3 Feb 2002

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?

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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.

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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).

The Missing Billionaires: A Guide to Better Financial Decisions
by Victor Haghani and James White
Published 27 Aug 2023

It is a must‐have resource for anyone seeking to make informed and thoughtful financial decisions at any stage of life, whether you're a young investor building wealth, an entrepreneur invested heavily in your own business, or at a stage where your primary focus is investing, spending, and giving. I started working at Goldman Sachs in New York City in July 1987 and have been lucky to ride a wonderful slow wave of strong equity and fixed income returns. But despite this very favorable backdrop, I have observed near‐inexplicable financial decisions by numerous wealthy and highly intelligent people, many of whom would count in Victor and James’ tally of “missing billionaires.” I have also seen my own approach to financial decision‐making evolve with time and experience.

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This framing has several advantages: it allows decisions about affordability to be made within the lifetime consumption and portfolio choice framework, enables comparisons of rent‐versus‐buy decisions, allows comparisons of different levels of borrowing, and captures the tax‐efficiency of owning and consuming your own real estate. The following two recommendations are pretty general and don't depend much on specific circumstances or an individual's risk‐aversion: Don't keep a mortgage outstanding while simultaneously holding significant low‐risk fixed income assets. Avoid owning excess residential real estate—that is, a bigger house than wanted or needed—purely for financial reasons. Such exposure is usually dominated by diversified equities. Actively Managed Mutual Funds We find it useful to bear in mind that every divergence from the market portfolio is an active bet, which requires someone else to be on the other side.

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We'll work through several case studies and evaluate the most popular option‐based strategies available to individual investors. Until the final section, our analysis focuses on stock options, as this is the area of primary relevance to retail investors. However, much of what we say about the appropriate decision framework holds equally for options within other asset classes, such as fixed income, foreign exchange, and commodities. Using Expected Utility to Measure Whether Options Are Making Us Better Off Expected Utility is a particularly useful paradigm to apply to assessing options, as their inherently nonlinear payoffs make the use of simpler metrics like the Sharpe ratio misleading.

MONEY Master the Game: 7 Simple Steps to Financial Freedom
by Tony Robbins
Published 18 Nov 2014

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.”

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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?

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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.

Warren Buffett Accounting Book: Reading Financial Statements for Value Investing (Warren Buffett's 3 Favorite Books)
by Stig Brodersen and Preston Pysh
Published 30 Apr 2014

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.

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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.

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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?”

Retire Before Mom and Dad
by Rob Berger
Published 10 Aug 2019

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.

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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.

Damsel in Distressed: My Life in the Golden Age of Hedge Funds
by Dominique Mielle
Published 6 Sep 2021

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.

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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.

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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.

Why Wages Rise
by F. A. Harper
Published 1 Jan 1957

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
Published 10 Jul 2014

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).

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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.

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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
Published 13 Sep 2015

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.

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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

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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.

The Oil Factor: Protect Yourself-and Profit-from the Coming Energy Crisis
by Stephen Leeb and Donna Leeb
Published 12 Feb 2004

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.

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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 and Franklin Allen
Published 15 Feb 2014

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.

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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.

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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
Published 18 Jan 2021

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.

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“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.

Smart Money: How High-Stakes Financial Innovation Is Reshaping Our WorldÑFor the Better
by Andrew Palmer
Published 13 Apr 2015

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.

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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 and Andrew Jackson
Published 14 Apr 2012

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.

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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).

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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).

Mini Farming: Self-Sufficiency on 1/4 Acre
by Brett L. Markham
Published 14 Apr 2010

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.

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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.

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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.

The Four Pillars of Investing: Lessons for Building a Winning Portfolio
by William J. Bernstein
Published 26 Apr 2002

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.

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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.

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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
Published 13 Apr 2015

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.

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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.

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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.

The Dollar Meltdown: Surviving the Coming Currency Crisis With Gold, Oil, and Other Unconventional Investments
by Charles Goyette
Published 29 Oct 2009

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.

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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.

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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.

Twilight of the Elites: America After Meritocracy
by Chris Hayes
Published 11 Jun 2012

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.

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: 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.

Your Money: The Missing Manual
by J.D. Roth
Published 18 Mar 2010

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.)

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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.

…

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The Fund: Ray Dalio, Bridgewater Associates, and the Unraveling of a Wall Street Legend
by Rob Copeland
Published 7 Nov 2023

Dalio branded it the All-Weather portfolio because it could steer an investor through rough seas.* Unlike Pure Alpha, which could bet in virtually any market worldwide, All-Weather was basically a whole lot of bonds. The asset mix was 13 percent equities and 87 percent fixed income. It also used generous leverage. All-Weather juiced its returns on relatively low-yielding fixed income by borrowing money to boost the bets. This move was straight out of Dalio’s Holy Grail, as well as the work of Prince’s former Tulsa professor Richard Burgess. The leverage was theoretically safe so long as it was only used in low-risk investments.

…

She hadn’t heard of Dalio’s busted depression call from a few years earlier. His newsletters never mentioned it, and Dalio didn’t bring it up. Ochoa-Brillembourg figured Bridgewater Associates was worth a moon shot, with some precautions. The World Bank pension fund would fork over $5 million of its savings, only to be invested in the relatively tame area of domestic fixed income. Ochoa-Brillembourg allowed Dalio to make international bets, but maintained that Bridgewater would be judged only on its relative performance to the U.S. bond market. If Dalio lost his shirt going afield, there would be no excuses. When talk came to fees, Ochoa-Brillembourg held all the cards.

…

Thus while what Dalio pronounced publicly may have been true of his feelings in the moment, those views didn’t necessarily translate to Bridgewater’s portfolio. To employ such an automated, systematic approach was, for the era, genuinely original.* Another moneymaker for Bridgewater was Bob Prince. Dalio had delegated the lion’s share of research on bonds, or fixed income, to his longtime colleague. Prince made bonds, particularly U.S. Treasuries, considered the safest of all, a mainstay of Bridgewater’s client accounts. The move proved prescient and profitable. Treasuries went on a long streak of strong performance, up double digits some years, including in 2000, when the stock market dragged badly and busted currency bets weighed on the rest of the Bridgewater portfolio.

Traders at Work: How the World's Most Successful Traders Make Their Living in the Markets
by Tim Bourquin and Nicholas Mango
Published 26 Dec 2012

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.

The Fear Index
by Robert Harris
Published 14 Aug 2011

‘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.

Barometer of Fear: An Insider's Account of Rogue Trading and the Greatest Banking Scandal in History
by Alexis Stenfors
Published 14 May 2017

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.

More Money Than God: Hedge Funds and the Making of a New Elite
by Sebastian Mallaby
Published 9 Jun 2010

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.

The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns
by John C. Bogle
Published 1 Jan 2007

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.

Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism
by Ha-Joon Chang
Published 26 Dec 2007

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.

Bad Samaritans: The Guilty Secrets of Rich Nations and the Threat to Global Prosperity
by Ha-Joon Chang
Published 4 Jul 2007

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.

Advances in Financial Machine Learning
by Marcos Lopez de Prado
Published 2 Feb 2018

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.

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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.

Secrets of Sand Hill Road: Venture Capital and How to Get It
by Scott Kupor
Published 3 Jun 2019

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.

…

See also acquisitions; initial public offerings (IPOs) Facebook Accel Partners’ investment in, 39–40, 86–87 initial public offering of, 264, 272–273 and Instagram, 130 product-market fit of, 45 unprecedented success of, 272 VC funding behind, 25, 41 failed VC investments, 3, 37–38, 51 failures, discussing, 131 Federal Reserve, U.S., 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.

Why Aren't They Shouting?: A Banker’s Tale of Change, Computers and Perpetual Crisis
by Kevin Rodgers
Published 13 Jul 2016

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.

Handbook of Modeling High-Frequency Data in Finance
by Frederi G. Viens , Maria C. Mariani and Ionut Florescu
Published 20 Dec 2011

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.

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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.

The Predators' Ball: The Inside Story of Drexel Burnham and the Rise of the JunkBond Raiders
by Connie Bruck
Published 1 Jun 1989

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.

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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.

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“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
Published 6 Sep 2016

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.

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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.

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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.

Trading and Exchanges: Market Microstructure for Practitioners
by Larry Harris
Published 2 Jan 2003

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.

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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.

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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.

13 Bankers: The Wall Street Takeover and the Next Financial Meltdown
by Simon Johnson and James Kwak
Published 29 Mar 2010

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.

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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.

Our Lives in Their Portfolios: Why Asset Managers Own the World
by Brett Chistophers
Published 25 Apr 2023

Such responsibility is one more reason why asset managers tend to have a far more direct impact on people’s lives in asset-manager society than under asset-manager capitalism. Furthermore, real assets generate different kinds of income from financial assets. The latter generate interest payments (on fixed-income securities) and dividends (on shares), and it is these that asset managers have historically been accustomed to receiving. Real assets, by contrast, generate things like housing rents, payments per kilowatt-hour for electricity, and road-toll fees – and innumerable other types of income stream besides.

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In the context of long-term low inflation and new, post-crisis demands on monetary policy, the decade or so following the crisis was characterised by rock-bottom interest rates, which boosted institutional investment in housing and infrastructure via asset managers for two principal reasons. First, the decline in yields on fixed-income financial securities motivated investors to look elsewhere for income-generating assets, and real estate (including housing) and infrastructure fitted the bill. Second, real-estate and infrastructure investments, alongside private-equity investments, can generally be readily geared – and plentiful cheap debt was now available to asset managers to help amplify returns from infrastructure and real-estate funds.

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Indeed, the early signs are that just as institutional-investor capital is pouring into unlisted housing and infrastructure equity funds at unprecedented rates as inflation spreads in 2022, so also is it pouring into managers’ unlisted debt funds. A key part of the reason appears to be that the money loaned by such funds typically pays floating interest rates – and hence, as an investment option, the funds are not threatened by inflation and rising interest rates in the way that traditional fixed-income credit instruments are. Hannah Zhang reported in May 2022 that, while the reality and expectation of rising rates were ‘killing traditional bond portfolios’, almost all institutional investors were planning to maintain or increase their allocations to private debt, since few other investments ‘naturally benefit from rising rates’.75 In short, the smart money would be on continuation of business as usual in asset-manager society – even as inflation and higher interest rates take hold.

The Weed Runners: Travels With the Outlaw Capitalists of America's Medical Marijuana Trade
by Nicholas Schou
Published 31 Aug 2013

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.

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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.

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing
by Burton G. Malkiel
Published 10 Jan 2011

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.

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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.

The Millionaire Fastlane: Crack the Code to Wealth and Live Rich for a Lifetime
by Mj Demarco
Published 8 Nov 2010

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?

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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.

Freedom Without Borders
by Hoyt L. Barber
Published 23 Feb 2012

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.

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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
Published 12 Oct 2000

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%).

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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.

A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan
by Ben Carlson
Published 14 May 2015

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.

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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.

Working Identity, Updated Edition, With a New Preface: Unconventional Strategies for Reinventing Your Career
by Herminia Ibarra
Published 17 Oct 2023

But then I realized that what I have always wanted is a job that keeps me constantly interested and always learning new things.” With each round, she also met more and more people who, like her, had “unconventional backgrounds,” or who impressed her as role models for whom she’d like to become: “I met an extraordinary woman—super smart and super nice—in fixed-income research, who graduated from my alma mater around the same time I did. She promised to call when she got back from her honeymoon.” As she improved her knowledge of the rules of the game, she even began to improvise possibilities. She interviewed with a boutique bank, deciding on the spot to tell them she wanted to be a researcher on the entertainment industry.

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Finding people with humanities backgrounds as well as finding women who seemed successful while still having time for their personal lives were, for June, critical tests of her options in the finance world. She made friends, for example, with her teaching assistant: “He considers that my working as a literature professor while taking business classes makes me as weird as he.” At one investment bank, she was impressed with the physicist in fixed-income research who graduated from her university. At another bank, she met a managing director with an MA in philosophy and theology. She drew inspiration from the financial columnist, who like her, had a flair for writing. She especially enjoyed an economics course taught by a professor from Spain, a country where she had spent much time and in whose culture her academic discipline was rooted.

The End of Wall Street
by Roger Lowenstein
Published 15 Jan 2010

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.

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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.

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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.”

The Ascent of Money: A Financial History of the World
by Niall Ferguson
Published 13 Nov 2007

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.

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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.

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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.

Other People's Money: Masters of the Universe or Servants of the People?
by John Kay
Published 2 Sep 2015

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.

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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.

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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.

Capital Ideas: The Improbable Origins of Modern Wall Street
by Peter L. Bernstein
Published 19 Jun 2005

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.

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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.

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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.

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing (Eleventh Edition)
by Burton G. Malkiel
Published 5 Jan 2015

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.

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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.

I.O.U.: Why Everyone Owes Everyone and No One Can Pay
by John Lanchester
Published 14 Dec 2009

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.

Taming the Sun: Innovations to Harness Solar Energy and Power the Planet
by Varun Sivaram
Published 2 Mar 2018

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.

Crashed: How a Decade of Financial Crises Changed the World
by Adam Tooze
Published 31 Jul 2018

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
Published 10 Mar 2011

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.

Meltdown: How Greed and Corruption Shattered Our Financial System and How We Can Recover
by Katrina Vanden Heuvel and William Greider
Published 9 Jan 2009

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.

The New Tycoons: Inside the Trillion Dollar Private Equity Industry That Owns Everything
by Jason Kelly
Published 10 Sep 2012

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.

Heads I Win, Tails I Win
by Spencer Jakab
Published 21 Jun 2016

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.

Be Your Own Financial Adviser: The Comprehensive Guide to Wealth and Financial Planning
by Jonquil Lowe
Published 14 Jul 2010

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).

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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 

Trend Following: How Great Traders Make Millions in Up or Down Markets
by Michael W. Covel
Published 19 Mar 2007

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.

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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.

Investment: A History
by Norton Reamer and Jesse Downing
Published 19 Feb 2016

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. 

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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.

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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.

The End of Theory: Financial Crises, the Failure of Economics, and the Sweep of Human Interaction
by Richard Bookstaber
Published 1 May 2017

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.

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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.

The Buy Side: A Wall Street Trader's Tale of Spectacular Excess
by Turney Duff
Published 3 Jun 2013

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.

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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.

The End of Accounting and the Path Forward for Investors and Managers (Wiley Finance)
by Feng Gu
Published 26 Jun 2016

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.

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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.

New Market Wizards: Conversations With America's Top Traders
by Jack D. Schwager
Published 28 Jan 1994

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.

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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.

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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?

One Up on Wall Street
by Peter Lynch
Published 11 May 2012

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.

The greatest trade ever: the behind-the-scenes story of how John Paulson defied Wall Street and made financial history
by Gregory Zuckerman
Published 3 Nov 2009

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.

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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.

Nudge: Improving Decisions About Health, Wealth, and Happiness
by Richard H. Thaler and Cass R. Sunstein
Published 7 Apr 2008

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.

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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.

Value Investing: From Graham to Buffett and Beyond
by Bruce C. N. Greenwald , Judd Kahn , Paul D. Sonkin and Michael van Biema
Published 26 Jan 2004

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.

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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.

MegaThreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them
by Nouriel Roubini
Published 17 Oct 2022

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.

Fred Schwed's Where Are the Customers' Yachts?: A Modern-Day Interpretation of an Investment Classic
by Leo Gough
Published 22 Aug 2010

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.

Money Moments: Simple Steps to Financial Well-Being
by Jason Butler
Published 22 Nov 2017

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.

The Road to Ruin: The Global Elites' Secret Plan for the Next Financial Crisis
by James Rickards
Published 15 Nov 2016

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.

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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.

Paper Promises
by Philip Coggan
Published 1 Dec 2011

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.

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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.

Austerity: The History of a Dangerous Idea
by Mark Blyth
Published 24 Apr 2013

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.

The Meritocracy Myth
by Stephen J. McNamee
Published 17 Jul 2013

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.

The Permanent Portfolio
by Craig Rowland and J. M. Lawson
Published 27 Aug 2012

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.

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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.

The Bridge: The Building of the Verrazano-Narrows Bridge
by Gay Talese and Bruce Davidson
Published 1 Jan 2003

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.

Four Futures: Life After Capitalism
by Peter Frase
Published 10 Mar 2015

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.

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 and Monique Tilford
Published 31 Aug 1992

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.

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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.

Nerds on Wall Street: Math, Machines and Wired Markets
by David J. Leinweber
Published 31 Dec 2008

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.

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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.

When Work Disappears: The World of the New Urban Poor
by William Julius Wilson
Published 1 Jan 1996

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).

The American Way of Poverty: How the Other Half Still Lives
by Sasha Abramsky
Published 15 Mar 2013

“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.

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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.

The Code of Capital: How the Law Creates Wealth and Inequality
by Katharina Pistor
Published 27 May 2019

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.

Palace Coup: The Billionaire Brawl Over the Bankrupt Caesars Gaming Empire
by Sujeet Indap and Max Frumes
Published 16 Mar 2021

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”).

Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present
by Jeff Madrick
Published 11 Jun 2012

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.

Money Changes Everything: How Finance Made Civilization Possible
by William N. Goetzmann
Published 11 Apr 2016

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.

Den of Thieves
by James B. Stewart
Published 14 Oct 1991

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.

Naked Economics: Undressing the Dismal Science (Fully Revised and Updated)
by Charles Wheelan
Published 18 Apr 2010

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.

The Lords of Easy Money: How the Federal Reserve Broke the American Economy
by Christopher Leonard
Published 11 Jan 2022

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).

Heat Wave: A Social Autopsy of Disaster in Chicago
by Eric Klinenberg
Published 11 Jul 2002

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.

American Kleptocracy: How the U.S. Created the World's Greatest Money Laundering Scheme in History
by Casey Michel
Published 23 Nov 2021

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?

The Business Blockchain: Promise, Practice, and Application of the Next Internet Technology
by William Mougayar
Published 25 Apr 2016

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.

The Death of Money: The Coming Collapse of the International Monetary System
by James Rickards
Published 7 Apr 2014

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.

The Divide: American Injustice in the Age of the Wealth Gap
by Matt Taibbi
Published 8 Apr 2014

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.

The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street
by Justin Fox
Published 29 May 2009

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.

The Populist Explosion: How the Great Recession Transformed American and European Politics
by John B. Judis
Published 11 Sep 2016

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.

The Rich and the Rest of Us
by Tavis Smiley
Published 15 Feb 2012

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.

The Dhandho Investor: The Low-Risk Value Method to High Returns
by Mohnish Pabrai
Published 17 May 2009

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.

The Man Who Knew: The Life and Times of Alan Greenspan
by Sebastian Mallaby
Published 10 Oct 2016

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
Published 7 Feb 2004

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. 

The Production of Money: How to Break the Power of Banks
by Ann Pettifor
Published 27 Mar 2017

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.

Big Mistakes: The Best Investors and Their Worst Investments
by Michael Batnick
Published 21 May 2018

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.

Where We Are: The State of Britain Now
by Roger Scruton
Published 16 Nov 2017

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.

The End of Indexing: Six Structural Mega-Trends That Threaten Passive Investing
by Niels Jensen
Published 25 Mar 2018

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.

The Best Business Writing 2013
by Dean Starkman
Published 1 Jan 2013

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.

The Mesh: Why the Future of Business Is Sharing
by Lisa Gansky
Published 14 Oct 2010

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.

Creatures of a Day: And Other Tales of Psychotherapy
by Irvin D. Yalom
Published 24 Feb 2015

“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.

Makeshift Metropolis: Ideas About Cities
by Witold Rybczynski
Published 9 Nov 2010

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.

The Passenger
by AA.VV.
Published 23 May 2022

In California the revolt culminated in 1978 with Proposition 13, the initiative put forward by Howard Jarvis, a 75-year-old who has been described as a precursor to Donald Trump and features in Jason Cohn and Camille Servan-Schreiber’s 2019 documentary The First Angry Man. (This being California, Jarvis also made a cameo appearance in the 1980 comedy Airplane!) Riding a wave of discontent among homeowners at a time of rising inflation, particularly for white pensioners on a fixed income who were no longer able to afford their bills, Jarvis gained 63 per cent support to pass his measure capping property taxes (residential and commercial) at 1 per cent and limiting annual increases to the rate of inflation, subject to a maximum of 2 per cent. According to its critics, Proposition 13 favours long-standing owners – properties are only revalued when they are sold – and the elderly at the expense of the young, but the major beneficiaries are companies and the owners of commercial properties.

97 Things Every Programmer Should Know
by Kevlin Henney
Published 5 Feb 2010

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).

Numbers Rule Your World: The Hidden Influence of Probability and Statistics on Everything You Do
by Kaiser Fung
Published 25 Jan 2010

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.

Models. Behaving. Badly.: Why Confusing Illusion With Reality Can Lead to Disaster, on Wall Street and in Life
by Emanuel Derman
Published 13 Oct 2011

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.

Sabotage: The Financial System's Nasty Business
by Anastasia Nesvetailova and Ronen Palan
Published 28 Jan 2020

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.

The Great Economists Ten Economists whose thinking changed the way we live-FT Publishing International (2014)
by Phil Thornton
Published 7 May 2014

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. 

The Relentless Revolution: A History of Capitalism
by Joyce Appleby
Published 22 Dec 2009

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.

The Unwinding: An Inner History of the New America
by George Packer
Published 4 Mar 2014

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.

Digital Accounting: The Effects of the Internet and Erp on Accounting
by Ashutosh Deshmukh
Published 13 Dec 2005

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.

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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.

The Secret Lives of Hoarders: True Stories of Tackling Extreme Clutter
by Matt Paxton and Phaedra Hise
Published 3 May 2011

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.

Bitcoin: The Future of Money?
by Dominic Frisby
Published 1 Nov 2014

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.’

How We Got Here: A Slightly Irreverent History of Technology and Markets
by Andy Kessler
Published 13 Jun 2005

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.

The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street
by Robert Scheer
Published 14 Apr 2010

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.

Day One Trader: A Liffe Story
by John Sussex
Published 16 Aug 2009

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.

Rules for Revolutionaries: How Big Organizing Can Change Everything
by Becky Bond and Zack Exley
Published 9 Nov 2016

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.

Money Mischief: Episodes in Monetary History
by Milton Friedman
Published 1 Jan 1992

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.

Crapshoot Investing: How Tech-Savvy Traders and Clueless Regulators Turned the Stock Market Into a Casino
by Jim McTague
Published 1 Mar 2011

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.

The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse
by Mohamed A. El-Erian
Published 26 Jan 2016

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.

A World of Three Zeros: The New Economics of Zero Poverty, Zero Unemployment, and Zero Carbon Emissions
by Muhammad Yunus
Published 25 Sep 2017

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

The $100 Startup: Reinvent the Way You Make a Living, Do What You Love, and Create a New Future
by Chris Guillebeau
Published 7 May 2012

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.

Revolution at Point Zero: Housework, Reproduction, and Feminist Struggle
by Silvia Federici
Published 4 Oct 2012

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.

Raw Data Is an Oxymoron
by Lisa Gitelman
Published 25 Jan 2013

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.

Unhappy Union: How the Euro Crisis - and Europe - Can Be Fixed
by John Peet , Anton La Guardia and The Economist
Published 15 Feb 2014

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.

For the Love of Money: A Memoir
by Sam Polk
Published 18 Jul 2016

“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.

Antisemitism: Here and Now
by Deborah E. Lipstadt
Published 29 Jan 2019

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.

China's Superbank
by Henry Sanderson and Michael Forsythe
Published 26 Sep 2012

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.

Tulipomania: The Story of the World's Most Coveted Flower & the Extraordinary Passions It Aroused
by Mike Dash
Published 10 Feb 2010

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.

What Got You Here Won't Get You There: How Successful People Become Even More Successful
by Marshall Goldsmith and Mark Reiter
Published 9 Jan 2007

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.

Culture Shock! Costa Rica 30th Anniversary Edition
by Claire Wallerstein
Published 1 Mar 2011

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.

Shortchanged: Life and Debt in the Fringe Economy
by Howard Karger
Published 9 Sep 2005

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.

Crisis and Dollarization in Ecuador: Stability, Growth, and Social Equity
by Paul Ely Beckerman and Andrés Solimano
Published 30 Apr 2002

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.

Losing Control: The Emerging Threats to Western Prosperity
by Stephen D. King
Published 14 Jun 2010

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.

Buying Time: The Delayed Crisis of Democratic Capitalism
by Wolfgang Streeck
Published 1 Jan 2013

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.

What They Do With Your Money: How the Financial System Fails Us, and How to Fix It
by Stephen Davis , Jon Lukomnik and David Pitt-Watson
Published 30 Apr 2016

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.

The Trouble With Billionaires
by Linda McQuaig
Published 1 May 2013

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.

Stolen: How to Save the World From Financialisation
by Grace Blakeley
Published 9 Sep 2019

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.

Girlfriend in a coma
by Douglas Coupland
Published 19 Feb 1998

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.

This Chair Rocks: A Manifiesto Against Ageism
by Ashton Applewhite
Published 10 Feb 2016

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.

China's Great Wall of Debt: Shadow Banks, Ghost Cities, Massive Loans, and the End of the Chinese Miracle
by Dinny McMahon
Published 13 Mar 2018

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.

Suggestible You: The Curious Science of Your Brain's Ability to Deceive, Transform, and Heal
by Erik Vance
Published 14 Sep 2016

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.

The Great Demographic Reversal: Ageing Societies, Waning Inequality, and an Inflation Revival
by Charles Goodhart and Manoj Pradhan
Published 8 Aug 2020

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.

Built on a Lie: The Rise and Fall of Neil Woodford and the Fate of Middle England’s Money
by Owen Walker
Published 4 Mar 2021

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.

Bootstrapped: Liberating Ourselves From the American Dream
by Alissa Quart
Published 14 Mar 2023

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.

More Than You Know: Finding Financial Wisdom in Unconventional Places (Updated and Expanded)
by Michael J. Mauboussin
Published 1 Jan 2006

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.”

More Joel on Software
by Joel Spolsky
Published 25 Jun 2008

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.

Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown
by Detlev S. Schlichter
Published 21 Sep 2011

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.

The Blue Cascade: A Memoir of Life After War
by Mike Scotti
Published 14 May 2012

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.

The Impulse Society: America in the Age of Instant Gratification
by Paul Roberts
Published 1 Sep 2014

“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.

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
Published 25 Nov 2012

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.

When the Money Runs Out: The End of Western Affluence
by Stephen D. King
Published 17 Jun 2013

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.

I Love Capitalism!: An American Story
by Ken Langone
Published 14 May 2018

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.

Learn Algorithmic Trading
by Sebastien Donadio
Published 7 Nov 2019

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.

Going Solo: The Extraordinary Rise and Surprising Appeal of Living Alone
by Eric Klinenberg
Published 1 Jan 2012

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.

The Water Will Come: Rising Seas, Sinking Cities, and the Remaking of the Civilized World
by Jeff Goodell
Published 23 Oct 2017

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?”

Lying for Money: How Fraud Makes the World Go Round
by Daniel Davies
Published 14 Jul 2018

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.

Deep Value
by Tobias E. Carlisle
Published 19 Aug 2014

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.

Net Zero: How We Stop Causing Climate Change
by Dieter Helm
Published 2 Sep 2020

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.

Orange Sunshine: The Brotherhood of Eternal Love and Its Quest to Spread Peace, Love, and Acid to the World
by Nicholas Schou
Published 16 Mar 2010

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.

Rough Sleepers: Dr. Jim O'Connell's Urgent Mission to Bring Healing to Homeless People
by Tracy Kidder
Published 17 Jan 2023

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.”

Aiming High: Masayoshi Son, SoftBank, and Disrupting Silicon Valley
by Atsuo Inoue
Published 18 Nov 2021

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.

Sunbelt Blues: The Failure of American Housing
by Andrew Ross
Published 25 Oct 2021

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.”

The Meritocracy Trap: How America's Foundational Myth Feeds Inequality, Dismantles the Middle Class, and Devours the Elite
by Daniel Markovits
Published 14 Sep 2019

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.”

Mathematics for Finance: An Introduction to Financial Engineering
by Marek Capinski and Tomasz Zastawniak
Published 6 Jul 2003

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.

Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets
by Nassim Nicholas Taleb
Published 1 Jan 2001

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.

The Power Surge: Energy, Opportunity, and the Battle for America's Future
by Michael Levi
Published 28 Apr 2013

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.

Brexit, No Exit: Why in the End Britain Won't Leave Europe
by Denis MacShane
Published 14 Jul 2017

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.

Snakes in Suits: When Psychopaths Go to Work
by Dr. Paul Babiak and Dr. Robert Hare
Published 7 May 2007

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 Butterfly Defect: How Globalization Creates Systemic Risks, and What to Do About It
by Ian Goldin and Mike Mariathasan
Published 15 Mar 2014

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.

Liar's Poker
by Michael Lewis
Published 1 Jan 1989

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.

Only Humans Need Apply: Winners and Losers in the Age of Smart Machines
by Thomas H. Davenport and Julia Kirby
Published 23 May 2016

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.

Keeping at It: The Quest for Sound Money and Good Government
by Paul Volcker and Christine Harper
Published 30 Oct 2018

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.

Red Flags: Why Xi's China Is in Jeopardy
by George Magnus
Published 10 Sep 2018

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.

Reimagining Capitalism in a World on Fire
by Rebecca Henderson
Published 27 Apr 2020

“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.

Practical Doomsday: A User's Guide to the End of the World
by Michal Zalewski
Published 11 Jan 2022

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.

Golden Gates: Fighting for Housing in America
by Conor Dougherty
Published 18 Feb 2020

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.”

Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism
by Jeff Gramm
Published 23 Feb 2016

General Motors itself played a major role in this evolution. Employee pension funds, which form one of the largest groups of institutional investors, are essentially a GM creation. While some pension funds existed when GM president Charles Wilson launched the GM Pension Fund in 1950, they tended to be annuity plans holding fixed-income securities, or trusts invested entirely in the stock of the employer company. Wilson believed pension plans should have significant equity exposure, but he thought it was senselessly risky to bet workers’ retirement money on the future of their employer. He mandated independent management of GM’s pension funds, little or no investment in the employer company, and a diversified portfolio with no large ownership stakes in other companies.67 Wilson’s guidelines immediately caught on with other employers—eight thousand new plans were launched within a year of GM’s—and were codified in the ERISA Act of 1974.

Fault Lines: How Hidden Fractures Still Threaten the World Economy
by Raghuram Rajan
Published 24 May 2010

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.

The Cheating Culture: Why More Americans Are Doing Wrong to Get Ahead
by David Callahan
Published 1 Jan 2004

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."

Dark Pools: The Rise of the Machine Traders and the Rigging of the U.S. Stock Market
by Scott Patterson
Published 11 Jun 2012

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.

In FED We Trust: Ben Bernanke's War on the Great Panic
by David Wessel
Published 3 Aug 2009

“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.

The Mathematics of Banking and Finance
by Dennis W. Cox and Michael A. A. Cox
Published 30 Apr 2006

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.

The Physics of Wall Street: A Brief History of Predicting the Unpredictable
by James Owen Weatherall
Published 2 Jan 2013

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.

Phishing for Phools: The Economics of Manipulation and Deception
by George A. Akerlof , Robert J. Shiller and Stanley B Resor Professor Of Economics Robert J Shiller
Published 21 Sep 2015

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.

Mindware: Tools for Smart Thinking
by Richard E. Nisbett
Published 17 Aug 2015

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.

The 4-Hour Workweek: Escape 9-5, Live Anywhere, and Join the New Rich
by Timothy Ferriss
Published 1 Jan 2007

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.)

Money: The Unauthorized Biography
by Felix Martin
Published 5 Jun 2013

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

The Bitcoin Standard: The Decentralized Alternative to Central Banking
by Saifedean Ammous
Published 23 Mar 2018

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.”

file:///C:/Documents%20and%...
by vpavan

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.

Madoff Talks: Uncovering the Untold Story Behind the Most Notorious Ponzi Scheme in History
by Jim Campbell
Published 26 Apr 2021

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.

Quit Like a Woman: The Radical Choice to Not Drink in a Culture Obsessed With Alcohol
by Holly Glenn Whitaker
Published 9 Jan 2020

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.

The Heat Will Kill You First: Life and Death on a Scorched Planet
by Jeff Goodell
Published 10 Jul 2023

One such woman was named Stephanie Pullman. She was seventy-two years old and lived alone in a small house in Sun City West, a development north of downtown Phoenix. After raising four kids in Ohio, Pullman had moved to Arizona in 1988 to escape the cold Ohio winters. She worked in a hospital, then retired in 2011 and lived on a fixed income of less than $1,000 a month. During the summer of 2018, she was late to pay her electric bill and owed $176.84. On September fifth, Pullman paid $125, leaving $51.84 unpaid. Two days later, when the temperature hit 107 degrees, her electric company, Arizona Public Service (APS), cut off her power.

Cheap Land Colorado: Off-Gridders at America's Edge
by Ted Conover
Published 1 Nov 2022

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.

How Will Capitalism End?
by Wolfgang Streeck
Published 8 Nov 2016

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.

Planet Ponzi
by Mitch Feierstein
Published 2 Feb 2012

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.

Six Degrees: The Science of a Connected Age
by Duncan J. Watts
Published 1 Feb 2003

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.

The Upstarts: How Uber, Airbnb, and the Killer Companies of the New Silicon Valley Are Changing the World
by Brad Stone
Published 30 Jan 2017

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.

The Geography of Nowhere: The Rise and Decline of America's Man-Made Landscape
by James Howard Kunstler
Published 31 May 1993

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.

What Would the Great Economists Do?: How Twelve Brilliant Minds Would Solve Today's Biggest Problems
by Linda Yueh
Published 4 Jun 2018

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.

The Great Economists: How Their Ideas Can Help Us Today
by Linda Yueh
Published 15 Mar 2018

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.

Truevine: Two Brothers, a Kidnapping, and a Mother's Quest: A True Story of the Jim Crow South
by Beth Macy
Published 17 Oct 2016

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.

Market Risk Analysis, Quantitative Methods in Finance
by Carol Alexander
Published 2 Jan 2007

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.

Winner-Take-All Politics: How Washington Made the Rich Richer-And Turned Its Back on the Middle Class
by Paul Pierson and Jacob S. Hacker
Published 14 Sep 2010

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.

Warnings
by Richard A. Clarke
Published 10 Apr 2017

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.

Shoe Dog
by Phil Knight
Published 25 Apr 2016

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.

Finance and the Good Society
by Robert J. Shiller
Published 1 Jan 2012

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.

Bank 3.0: Why Banking Is No Longer Somewhere You Go but Something You Do
by Brett King
Published 26 Dec 2012

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.

Hot: Living Through the Next Fifty Years on Earth
by Mark Hertsgaard
Published 15 Jan 2011

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.

The Black Box Society: The Secret Algorithms That Control Money and Information
by Frank Pasquale
Published 17 Nov 2014

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?

The Levelling: What’s Next After Globalization
by Michael O’sullivan
Published 28 May 2019

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.

Samuelson Friedman: The Battle Over the Free Market
by Nicholas Wapshott
Published 2 Aug 2021

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.

The Desert and the Sea: 977 Days Captive on the Somali Pirate Coast
by Michael Scott Moore
Published 23 Jul 2018

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.

Greater: Britain After the Storm
by Penny Mordaunt and Chris Lewis
Published 19 May 2021

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?

Unknown Market Wizards: The Best Traders You've Never Heard Of
by Jack D. Schwager
Published 2 Nov 2020

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.”

Everybody's Guide to Small Claims Court
by Ralph E. Warner
Published 2 Jan 1978

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—.

Asset and Risk Management: Risk Oriented Finance
by Louis Esch , Robert Kieffer and Thierry Lopez
Published 28 Nov 2005

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.

Beyond the Random Walk: A Guide to Stock Market Anomalies and Low Risk Investing
by Vijay Singal
Published 15 Jun 2004

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.

Framing Class: Media Representations of Wealth and Poverty in America
by Diana Elizabeth Kendall
Published 27 Jul 2005

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.

Mathematical Finance: Theory, Modeling, Implementation
by Christian Fries
Published 9 Sep 2007

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.

The Downfall of Money: Germany's Hyperinflation and the Destruction of the Middle Class
by Frederick Taylor
Published 16 Sep 2013

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.

Sacred Economics: Money, Gift, and Society in the Age of Transition
by Charles Eisenstein
Published 11 Jul 2011

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.

The Divided Nation: A History of Germany, 1918-1990
by Mary Fulbrook
Published 14 Oct 1991

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.

Evicted: Poverty and Profit in the American City
by Matthew Desmond
Published 1 Mar 2016

“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.

Shutdown: How COVID Shook the World's Economy
by Adam Tooze
Published 15 Nov 2021

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.

The Dying Citizen: How Progressive Elites, Tribalism, and Globalization Are Destroying the Idea of America
by Victor Davis Hanson
Published 15 Nov 2021

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.

Who Owns England?: How We Lost Our Green and Pleasant Land, and How to Take It Back
by Guy Shrubsole
Published 1 May 2019

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.

The Future Is Asian
by Parag Khanna
Published 5 Feb 2019

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.

The Great Good Place: Cafes, Coffee Shops, Bookstores, Bars, Hair Salons, and Other Hangouts at the Heart of a Community
by Ray Oldenburg
Published 17 Aug 1999

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.

The Tyranny of Nostalgia: Half a Century of British Economic Decline
by Russell Jones
Published 15 Jan 2023

In adopting their proposed strategy, the government was encouraged by the fact that some trade union leaders, including certain leftwingers such as Jack Jones, the head of the Transport and General Workers’ Union, had grasped that runaway inflation was devastating UK competitiveness, hurting those on fixed incomes and with little bargaining power the most, and that if it was allowed to continue it would guarantee Labour’s removal from office.12 An announcement limiting wage increases to £6 a week for those earning less than £8,000 a year, supported by penalties on employers that breached the norm, was announced in July 1975.

Seven Crashes: The Economic Crises That Shaped Globalization
by Harold James
Published 15 Jan 2023

In the 1920s, as the financial adviser to his college, King’s, in Cambridge, Keynes applied a credit-cycle theory of investment—which he also propagated for a wider audience as the founder of the London and Cambridge Economic Service—as a way of choosing how to allocate investments between equities, fixed income, and cash. It was not in fact a strategy that brought remarkable success.80 So Keynes started to reconsider his position. There was a double set of assumptions that Keynes increasingly brought to bear in his analysis: on the one side, dislike of the instability produced by the chance interactions of financial markets, with their regular bouts of euphoria followed by collapse; and on the other, an appreciation of what systematic planning, in wartime Germany, and later in Mussolini’s Italy and the Soviet Union, might do.

The Last Tycoons: The Secret History of Lazard Frères & Co.
by William D. Cohan
Published 25 Dec 2015

"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.

On the Brink: Inside the Race to Stop the Collapse of the Global Financial System
by Henry M. Paulson
Published 15 Sep 2010

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.

Superclass: The Global Power Elite and the World They Are Making
by David Rothkopf
Published 18 Mar 2008

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.

No Such Thing as Society
by Andy McSmith
Published 19 Nov 2010

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?

War and Gold: A Five-Hundred-Year History of Empires, Adventures, and Debt
by Kwasi Kwarteng
Published 12 May 2014

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.

Confessions of a Wall Street Analyst: A True Story of Inside Information and Corruption in the Stock Market
by Daniel Reingold and Jennifer Reingold
Published 1 Jan 2006

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.

Crisis and Leviathan: Critical Episodes in the Growth of American Government
by Robert Higgs and Arthur A. Ekirch, Jr.
Published 15 Jan 1987

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.

The Lost Bank: The Story of Washington Mutual-The Biggest Bank Failure in American History
by Kirsten Grind
Published 11 Jun 2012

“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?

Connectography: Mapping the Future of Global Civilization
by Parag Khanna
Published 18 Apr 2016

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.

The Cigarette: A Political History
by Sarah Milov
Published 1 Oct 2019

“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.

Capitalism in America: A History
by Adrian Wooldridge and Alan Greenspan
Published 15 Oct 2018

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).

Market Wizards: Interviews With Top Traders
by Jack D. Schwager
Published 7 Feb 2012

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.

The Oil and the Glory: The Pursuit of Empire and Fortune on the Caspian Sea
by Steve Levine
Published 23 Oct 2007

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.

Debtor Nation: The History of America in Red Ink (Politics and Society in Modern America)
by Louis Hyman
Published 3 Jan 2011

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.

The Euro and the Battle of Ideas
by Markus K. Brunnermeier , Harold James and Jean-Pierre Landau
Published 3 Aug 2016

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.

The Bankers' New Clothes: What's Wrong With Banking and What to Do About It
by Anat Admati and Martin Hellwig
Published 15 Feb 2013

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.

Bernie Madoff, the Wizard of Lies: Inside the Infamous $65 Billion Swindle
by Diana B. Henriques
Published 1 Aug 2011

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.

Manias, Panics and Crashes: A History of Financial Crises, Sixth Edition
by Kindleberger, Charles P. and Robert Z., Aliber
Published 9 Aug 2011

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.

The Founders: The Story of Paypal and the Entrepreneurs Who Shaped Silicon Valley
by Jimmy Soni
Published 22 Feb 2022

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.

The Economists' Hour: How the False Prophets of Free Markets Fractured Our Society
by Binyamin Appelbaum
Published 4 Sep 2019

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.

The Joys of Compounding: The Passionate Pursuit of Lifelong Learning, Revised and Updated
by Gautam Baid
Published 1 Jun 2020

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.

Alpha Trader
by Brent Donnelly
Published 11 May 2021

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.

Berlin: Life and Death in the City at the Center of the World
by Sinclair McKay
Published 22 Aug 2022

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.

Circle of Greed: The Spectacular Rise and Fall of the Lawyer Who Brought Corporate America to Its Knees
by Patrick Dillon and Carl M. Cannon
Published 2 Mar 2010

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.

Persian Gulf Command: A History of the Second World War in Iran and Iraq
by Ashley Jackson
Published 15 May 2018

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.

The Concepts and Practice of Mathematical Finance
by Mark S. Joshi
Published 24 Dec 2003

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.

What Went Wrong: How the 1% Hijacked the American Middle Class . . . And What Other Countries Got Right
by George R. Tyler
Published 15 Jul 2013

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.

The Great Leveler: Violence and the History of Inequality From the Stone Age to the Twenty-First Century
by Walter Scheidel
Published 17 Jan 2017

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.

Debt: The First 5,000 Years
by David Graeber
Published 1 Jan 2010

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: A 400-Year History of American Capitalism
by Bhu Srinivasan
Published 25 Sep 2017

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.

Debunking Economics - Revised, Expanded and Integrated Edition: The Naked Emperor Dethroned?
by Steve Keen
Published 21 Sep 2011

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.

Americana
by Bhu Srinivasan

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.

The Taste of War: World War Two and the Battle for Food
by Lizzie Collingham
Published 1 Jan 2011

‘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.

The Years of Rice and Salt
by Kim Stanley Robinson
Published 2 Jun 2003

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.

Roller-Coaster: Europe, 1950-2017
by Ian Kershaw
Published 29 Aug 2018

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.

Steve Jobs
by Walter Isaacson
Published 23 Oct 2011

“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.”

The Story of Work: A New History of Humankind
by Jan Lucassen
Published 26 Jul 2021

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.

Basic Economics
by Thomas Sowell
Published 1 Jan 2000

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.

Palo Alto: A History of California, Capitalism, and the World
by Malcolm Harris
Published 14 Feb 2023

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.

Karl Marx: Greatness and Illusion
by Gareth Stedman Jones
Published 24 Aug 2016

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.

State of Emergency: The Way We Were
by Dominic Sandbrook
Published 29 Sep 2010

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.

Valuation: Measuring and Managing the Value of Companies
by Tim Koller , McKinsey , Company Inc. , Marc Goedhart , David Wessels , Barbara Schwimmer and Franziska Manoury
Published 16 Aug 2015

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.

The Price of Silence: The Duke Lacrosse Scandal
by William D. Cohan
Published 8 Apr 2014

“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.

The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance
by Ron Chernow
Published 1 Jan 1990

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.

Empire of Things: How We Became a World of Consumers, From the Fifteenth Century to the Twenty-First
by Frank Trentmann
Published 1 Dec 2015

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.

The Making of the Atomic Bomb
by Richard Rhodes
Published 17 Sep 2012

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.

The Complete Novels Of George Orwell
by George Orwell
Published 3 Jun 2009

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.