Wall Street Warriors

A look at what it can be like to work on Wall Street. (this episode focuses on "winners" in Hedge funds, commodities, and currency trading):

Gross / Fink: Heavy Hitters Special, Nov. 17 - Video - Bloomberg

Gross / Fink: Heavy Hitters Special, Nov. 17 - Video - Bloomberg http://bloom.bg/sMeM6I#ooid=czaGgxMzrdBsdBv6Z-Q8EmotIzII6yU9:

Nov. 22 (Bloomberg) -- Bill Gross, co-chief investment officer at Pacific Investment Management Co., and Laurence Fink, chief executive officer of BlackRock Inc., discuss the European sovereign-debt crisis, the U.S. economy and investment strategy. Bloomberg's Erik Schatzker moderated the Nov. 17 event hosted by the UCLA Anderson School of Management and Bloomberg Television. (Source: Bloomberg)

From Bloomberg.

Related articles

• Fink, Gross on European debt crisis (investmentpostcards.com)
• You Won't Believe What Bill Gross And Larry Fink Said About Occupy Wall Street On Bloomberg (businessinsider.com)
• Pimco's Gross and BlackRock's Fink The Acceptable Face Of Capitalism (forbes.com)
• Here's A Sentence Bill Gross Wishes He'd Never Written... (businessinsider.com)

Timothy Geithner and Jim Cramer

Interesting video interview in which Geithner and Cramer discuss Europe as well as the US.

Class videos

I have always been told I have the face for radio, but that said, here are some videos that will likely help review for the next exam:

Model of Financial System:



The Role of Financial Intermediaries:



Where various classes fit:



Nexus of Contracts:



Introductory Bond Pricing


Introduction to Valuation


Bond prices and interest rate changes:



Introduction to capital budgeting

A panel discussion on Executive Compensation

Good stuff.  Has public board members, lawyer, politicans, and a professor.  Very interesting, especially the discussion of how compensation committees set executive compensation  (i.e. what do boards do), and changes that have come up in the last few years.



Excellent even if it drags a bit at the very start.  (it is 86 minutes so you can skip around some ;) )

Here is the link. http://www.youtube.com/watch?v=jtH5lMpF6_Q

Related articles

• Executive pay needs better disclosure: report (cbc.ca)
• TVA board to analyze CEO's pay incentives (knoxnews.com)
• OSC seeks more clarity in pay disclosure (financialpost.com)
• We Do It Right, but Those Others Don't (norris.blogs.nytimes.com)
• Corporate Canada still fuzzy on pay disclosure (financialpost.com)

Video of the Trillion Dollar Bet in 5 parts

YouTube - The Black-Scholes Formula - 1/5:

The Trillion Dollar bet, which is based on the Long Term Capital Management story (when Genius Failed) , is a staple in my classes. Here is the first of 5 parts of the old PBS video.

HIGHLY recommended! The show is really two separate stories--on one on the history of the Black Scholes formula, and one on the Collapse of Long Term Capital Management.  (FWIW We  usually use the latter mainly in class but the whole thing is good!)






The moral of the story is that absolute adherence to quantitative models is what frequently gets you in trouble. Models are representations of reality and reality can often vary widely from the model.

Part 1, Part 2, Part 3,  Part 4, Part 5

Related articles

• Nobel Laureate Myron S. Scholes, PhD Shares Insight with IMCA (prweb.com)
• Myron Scholes on lessons learned (theglobeandmail.com)

Thanks to Zvi for the link (and reminding that I had promised to post this!)

Video time: Simpsons on flashing, Bubbles, and Monkeys!

The weekend is a good time to catch up on some videos, so here are some. (And
I want my students to watch these, so I better make use a flashy article name!)

Three somewhat fun, but also pretty interesting videos:

The May Flash Crash was back in the news, so we will start off with this. You remember the flash crash. It was when stock markets fell with amazing speed back in May.
Flash Crash. Markets don't move that fast! (One of the theories was that someone with fat fingers just hit the wrong order. Now it may be just a metaphor, but the Simpson's make it interesting.  





For what it is worth, the Wikipedia article on the so-called flash crash is pretty good.


Christ Martensen does a good job with a 15 minute video on Bubbles.


and finally a Ted Talk by Laurie Santos that looks at predictable irrationality and Monkeys. (sorry if you don't like monkeys ;) )

Ian Ayres: Super Crunchers

I regularly get asked about good books to read, here is one for you that is a few years old, but excellent!

Ian Ayres' Super Crunchers

Inside Job Trailer

It looks remarkably (as in over the top-Michael Mooreish) biased, but as a fellow FinanceProfessor said in an email "a must see".

Jon Stewart takes on Perfect Storms

Jon Stewart on last week's 2:45 Market Sell-off

Hilarious.  Thanks to Calculated Risk for pointing it out.  I apologize in advance for any offensive language.

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
A Nightmare on Wall Street
www.thedailyshow.com
Daily Show Full Episodes Political Humor Tea Party

McGraw Hill CEO: We Just Got It Wrong

From CNBC and Clusterstock: This was one of the more interesting CNBC interviews I have seen in a long time.

The interview is with McGraw-Hill CEO Terry McGraw. In the interview Mr McGraw starts off talking about new tools for college classrooms but then it gets more exciting and he discusses the recent case in which a judge allowed rating agencies to be sued. McGraw stresses that there was no fraud, but that they did not expect real estate declines to be as sharp as they were. (it is interesting to note, they did allow for 15% declines which if you remember back last year people were saying that rating agencies never considered ANY decline. So that was clearly wrong.

He then tackles the basic structure of the rating agencies where firms pay to be rated and disagrees that it is flawed.

From Clusterstock: McGraw Hill CEO: We Just Got It Wrong:

"..he addresses the pay-to-play model, and he argues that it's the only one that makes sense. When issuer-pays, the ratings are freely disseminable to everyone. When a buyer pays, the information stays with the buyer. And what's more, there's not much of a business selling this kind of research to each customers"

John Bogle on FORA.tv - The Culture that Spawned the Crisis: A Closer Look

FORA.tv - The Culture that Spawned the Crisis: A Closer Look: "The Culture that Spawned the Crisis: A Closer Look"

Bogle is a great presenter and this definitely does not disappoint. VERY good. It will definitely be used for classes dealing with governance and even financial institutions.




The Bogle piece that I used here is part of a longer (1:27) presentation on the crisis. The entire thing is worth the effort, but I am biased and liked Bogle's the best. Why biased? Possibly because one of the best presentations I have ever seen was by John Bogle in Rochester a few years ago. The ideas he railed against then (agency costs and transaction while calling for better transparency and governance), really were driving forces behind the current problems.

Dividend lecture: "Dividends are like getting married, stock buybacks are like hooking-up"

Aswath Damodaran from NYU is truly one of the best professors I have ever seen--a true genius. He is one of a handful of financeprofessors I will drop everything to see his presentation at any conference.


YouTube - Damodaran on Dividends:

"Professor Aswath Damodaran, Professor of Finance from the New York University Stern School of Business, lectures about stock buybacks and dividends. See http://pages.stern.nyu.edu/... for more. ."

Quote of the video?

"Dividends are like getting married, stock buybacks are like hooking up."

This class video is from 2007 but it so well done I will include it.






BTW I found this when I was deciding on a new idea for class. I want to do 5 minute (preview/summary) for the most important things in class. (The same video can serve as both preview to help create the mental architecture on which to "hang" the class material and a summary to help students reinforce the key points of the class. (Any thoughts, from either students or professors would be appreciated.)

Tim Geithner inteview on CNN

Here is the video from the CNN interview with Treasury Secretary Geithner that I mentioned on Twitter.

US Bancorp CEO Explains Banking | Simoleon Sense

Ok, yes I know this was pre-Lehman, and even pre-Bear! That said, it is an excellent starting point to understand banking. (If I were currently teaching a Money and Banking class I guarantee it would be required and tested).

Richard Davis (the CEO) speaks on the banking industry as well as his own firm.

US Bancorp CEO Explains Banking | Simoleon Sense:

"This video was posted at the noisefree investing blog. Great find.

Introduction (Via Noisefree Investing)

In this hour long video, Davis -one of the few banking CEO’s to remain largely unscathed in the recent financial mess- gives a great overview of the banking system. Davis is the CEO at US Bancorp."

While many might question the term unscathed (stock price fell by over 70% at trough), it is true they seemingly came through it alive. And yes, it should be noted that US Bancorp did get TARP money and is currently in plans to issue new equity.

A great class project would be to look at the firm and see what happened to it over the past 18 months realizing its exposure to the California housing market. (Hint: use Google lab's TimeLine (which wont allow me to link to it, but is very good and could easily be used to make a fascinating class discussion)

UCLA Anderson School of Management | Knowledge Assets | UCLA Anderson Faculty Highlights

WOW! Occasionally I am still blown away by how many amazingly good resources are available online. This is a great case in point. UCLA's Andersen School of Management has made many of their faculty available to us.

UCLA Anderson School of Management | Knowledge Assets | UCLA Anderson Faculty Highlights

I really don't know where to start, but here goes. I just watched these and a few others. All good. All Recommended. I am picking these since they fit my class the best, but by all means watch them all!

William Ouchi on Corporate Governance in the US.




Sanford Jacoby and Emily Nason on governance in Japan and the US.



John Hughes on information asymmetries and how to impact the cost of capital it must impact on systematic risk (which is based on his paper with Liu and Liu that is available here). Richard Roll on Real Estate prices and interest rates.

When renting a ship to anchor it offshore makes sense (and cents!)

Contango and Backwardation are two terms that confuse many students. But with today's oil markets giving us an historic (and memorable!) example of contango, I trust many more will remember it going forward.

First the fast definitions: (want a better definition? see Investorwords.com)

Contango: when futures price is higher than spot price
Backwardation: when spot price is higher than futures price

Now the story. Oil prices have fallen sharply. In the short term there is more oil than we need. Of course producers will likely adjust (and the economy recover) so most future market participants beleive that oil prices will go up in the future. So why not buy now and hold on to it? Well one problem is that it is not a trivial thing to store oil for long periods of time.

Bloomberg.com: Contango Pays Most in Decade as Shell Stores Crude:

"...traders who bought oil at the $40.81 a barrel on Dec. 5 could sell futures contracts for delivery next December at $54.65, a 34 percent gain."

Now of course there are costs involved (cost of capital and storage costs)

"After taking into account storage and financing costs investors would earn about 11 percent, according to Andy Lipow, president of Houston consultant Lipow Oil Associates LLC."

But where do you store so much oil? With storage facilities in Cushing Oklahoma and elsewhere filling up, companies are renting tankers to anchor off shore holding the oil.

Again from Bloomberg:

"Royal Dutch Shell Plc sees so much potential in the strategy that it anchored a supertanker holding as much as $80 million of oil off the U.K. to take advantage of higher prices for future delivery. The ship is one of as many as 16 booked for potential storage instead of transporting crude, said Johnny Plumbe, chief executive officer of London shipbroker ACM Shipping Group..."

Want to learn more about the contango and backwardation? Check out this teaching video from Bionic Turtle.

The Sky is falling!!! but maybe not all the way

With apologies to chicken little, it is bad out there: over half a million jobs lost in one month and almost 2 million so far this year, stock markets down, people fearing for their jobs, and the governments bail outs seemingly being every day events.

Not surprising this bad news is forcing investors to become more risk averse and many to become more pessimistic. Indeed, with all this bad news economists are suddenly making Thomas Malthus (the person largely responsible for Economics being called the Dismal Science) seem the norm.

A few of the more dire forecasts:

MarketWatch reports that

"...former Goldman Chairman John Whitehead? He "sees" a tragic ending: This Reagan Deputy Secretary of State and former New York Fed chairman "sees" America burning through trillions, over many years: "Nothing but large increases in the deficit ... worse than the Depression." See previous Paul B. Farrell. He worries that "tomorrow is the day Moody's and S&P will announce a downgrade of U.S. government bonds." Politicians and public are delusional, promising huge new programs plus tax cutting: "This is a road to disaster.' .... he says: "I don't see a solution.

(FTR the article presents several near Doomsday scenarios)

Faced with these possibilities, the government is doing what it can to prevent a repeat of the Great Depression of the 1930s.

Clusterstock quoting the Spectator:

"The Americans allowed a depression to develop in the 1930s because they were afraid of the consequences of losing the principles of sound money. In an effort to avoid a re-run of the 1930s, the Western world is imposing the opposite, equally unbalanced and intemperate solution. We might thereby avoid a depression — but the bad stuff which follows currency compromise will crash down upon us with great vigour. This is the one and only one, and probably last, shock that the credit crunch has yet to impose on a still unsuspecting world.

....The world has survived and thrived under a paper regime. But the greybeards were right, too. Within 15 years, the currencies of Russia, Germany and Austria were worthless. France’s had dropped in the eight years up to 1926 by 86 per cent, Portugal’s was down by 93 per cent and by 1930 only six had held steady against the ‘gold exchange’ dollar of 1918. The rules were understood by all. If you were going to have an inconvertible currency, you had to behave impeccably: deficits were dangerous and there must be no growth in the money supply."

Will it work? We don't know. But they are trying. Will it lead to inflation? Maybe. Probably. Is inflation better than the alternative of a long long recession/depression? Again, the best I can give you is a "probably".

How long will recession last? No idea.
How bad will it get? No idea.

So instead of just guessing, let's turn to noted NYU Economist, and famous Bear, Dr. Roubini. "Dr. Doom" does think equities will fall by another 20-30% and further drop in equities but that the recession will only last another year.

Dr. Doom Foresees Much More Pain So Why Is Roubini's 401(k) All in Stocks: Tech Ticker, Yahoo! Finance:
"

Roubini predicts that macroeconomic news and earnings will be much worse than expected in the coming months, as the dollar weakens even further. 'The surprise is how bad the the economy [will get].'""

But adds

" I'm not in the Armageddon camp," forecasting a severe recession through 2009, but not a repeat of the Great Depression.

Videos explaining aspects of the current financial situation

Wow. The Unknownprofessor over at Financial Rounds really found some great lessons done in video format. AMAZINGLY good and am embarrassed to say I had not seen them before today.

My personal favorite uses an Arctic Expedition to show what has happened and what credit default swaps are.




The second video is on CDOs. GREAT!







Thanks to Financial Rounds!

And finally one that I just found when watching the other two:

Bell Ringing!

If you get a chance, be sure to catch the NYSE closing bell today. As part of St. Bonaventure's 150th anniversary celebration Mark Larry (the finance club president), Jeff Peterson (my chairman), and Sr. Margaret Carney (University President) will be ringing the closing bell today!

here is a video of the bell ringing.