"A conversation with George Soros, Chairman, Soros Fund Management."
..it is extraordinary how many traditional long-only mutual funds hold ETFs, either to equitize their cash or to get the market return and then just layer on fees. You may not see the ETFs held during the reporting periods, but certainly inside those periods."One more look-in which sums up the issue:
"First, "...it's not inherently wrong for mutual fund managers to equitize cash with ETFs. Depending on a manager's investment discipline and conditions in the relevant asset class, it can be perfectly sensible to combine a set of active opportunities and ETFs for portfolio completion....But Keenan's remarks reveal a couple serious -- and potentially related -- problems:
(1) reporting-period manipulation designed to conceal the fact that managers are equitizing assets using ETFs and
(2) the cynical laziness of earning market returns and layering on active-management fees."
The part about the funds not holding the ETFs during reporting periods is example 1,734,651 of an agency cost. Specifically this "window dressing" increases costs merely to make it look like the managers are somehow adding value.
"One in five respondents to a new survey in the journal Nature say they've used drugs to boost their brain power."
"...find evidence that analysts outperform on their stock recommendations when they have an educational link to the company. A simple portfolio strategy of going long the buy recommendations with school ties and going short buy recommendations without ties earns returns of 5.40% per year. We test whether Regulation FD, targeted at impeding selective disclosure, constrained the use of direct access to senior management. We find a large effect: pre-Reg FD the return premium from school ties was 8.16% per year, while post-Reg FD the return premium is nearly zero and insignificant"Cite: Frazzini, Andrea, Malloy, Christopher J. and Cohen, Lauren, "Sell Side School Ties" (February 20, 2008). Harvard Business School Finance Working Paper No. 08-074 Available at SSRN: http://ssrn.com/abstract=1095808
"recommendation drift of firms with low prior turnover is more than double in magnitude compared to that of firms with high prior turnover. Additional proxies for attention, such as analyst coverage, institutional ownership, the amount of distracting news in a day, or a measure of residual turnover that controls for liquidity and uncertainty, produce similar results. Volume reactions around the recommendation event show that investors fail to react promptly to recommendations on low attention stocks. Together, the evidence suggests that investor inattention is a plausible explanation for investors' underreaction to stock recommendations."
"Patience and good decision-making help set women apart here.”
As a result, women’s portfolios on average gain 1.4 percent more than men’s, according to a study cited by Ms. DiCosmo. Single women’s portfolios do 2.3 percent better than single men’s. The study, “Boys Will Be Boys: Gender, Overconfidence and Common Stock Investment,” was published in 2001 by Brad M. Barber, a finance professor at the University of California, Davis, and Terrance Odean, now a professor of banking and finance at the Haas School of Business at the University of California, Berkeley (faculty.haas.berkeley.edu/odean/papers/gender/gender.html)."
"The company was responding to a letter from Microsoft that threatened to lower the price of its buyout offer and take it directly to Yahoo shareholders....And a video from the Associated Press:
Our board’s view of your proposal has not changed,” Yahoo said in letter to Mr. Ballmer....“We continue to believe that your proposal is not in the best interests of Yahoo and our stockholders. Contrary to statements in your letter, stockholders representing a significant portion of our outstanding shares have indicated to us that your proposal substantially undervalues Yahoo. Furthermore, as a result of the decrease in your own stock price, the value of your proposal today is significantly lower than it was when you made your initial proposal.”"
Well-functioning financial markets are essential for the efficacy of monetary policy and, indeed, for economic growth and stability. Consistent with its role as the nation's central bank, the Federal Reserve has taken a number of steps in recent weeks to improve market liquidity and market functioning. These actions include reducing the cost and increasing the allowable term of discount window credit to commercial banks; increasing the size of our Term Auction Facility, through which credit is auctioned to depository institutions; initiating a Term Securities Lending Facility, which allows primary dealers to swap less-liquid mortgage backed securities for more-liquid Treasury securities; and creating the Primary Dealer Credit Facility, which is similar to the discount window but accessible to primary dealers."And later:
".... on March 13, Bear Stearns advised the Federal Reserve and other government agencies that its liquidity position had significantly deteriorated and that it would have to file for bankruptcy the next day unless alternative sources of funds became available.
This news raised difficult questions of public policy. Normally, the market sorts out which companies survive and which fail, and that is as it should be. However, the issues raised here extended well beyond the fate of one company....The company's failure could also have cast doubt on the financial positions of some of Bear Stearns' thousands of counterparties and perhaps of companies with similar businesses. Given the exceptional pressures on the global economy and financial system, the damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain."
Later in the same article, regular contributor Edward Kane gets in the act:"The Swedish and American crises share many traits....Happily, despite economic conditions that were far worse than in the USA today — and unlike a similar episode in Japan — Sweden quickly recovered.
Yet, it did so in a manner that would be highly controversial in the United States. Sweden used taxpayer money — and lots of it — to rebuild its wounded banks.....Sweden's successful crisis management may offer a road map for U.S. officials. But the Swedish cleanup wasn't cheap. It cost the public an estimated 6% of annual economic output; an equivalent bill for the U.S. today would be nearly $850 billion."
"Edward Kane, a Boston College finance professor, says the Fed's decision to facilitate the sale by backing $29 billion worth of Bear Stearns' assets is the first sign of what amounts to a government takeover of the financial system. 'They've implicitly provided guarantees to any number of these firms. There is a nationalization (occurring). It is implicit and unacknowledged,' says Kane"Ok, Yoga breath.
Interest rate swaps: In interest rate swaps, you are addressing only the interest rate part of the loan. If a company takes a view that the interest rates are going to be higher and if it has borrowed in floating rate, say linked to the LIBOR (London Inter Bank Rate), then it could do an interest rate swap—it pays a fixed rate and receives a floating rate from the bank."Good stuff. Great for class!
Microsoft Unlikely to Raise Yahoo Offer - WSJ.com: "Microsoft Corp. is preparing to lay a long siege.
Two months after Microsoft made its $44.6 billion offer to acquire Yahoo Inc., the software maker has no plans to raise its bid, people close to the company say.
Such pronouncements are standard in deal negotiations but people close to Microsoft insist the stance isn't posturing. While speculation has swirled that Microsoft was poised to raise its bid, Microsoft is instead biding its time."
"UBS, the largest Swiss bank, said on Tuesday that it would write down another $19 billion related to “U.S. real estate and related structured credit positions” ...The news came as Deutsche Bank, the biggest German lender, said Tuesday that it expected a first-quarter loss of about $3.9 billion on write-downs of United States real estate loans and assets. Global banks have now written down more than $200 billion of soured loans in the market debacle that began last summer with the implosion of the American subprime mortgage market."The article goes on to say that UBS will raise $15 billion in a rights issue.
"News of massive writedowns at two major European banks paradoxically sent shares soaring Tuesday, as many investors took the typically negative announcements as a signal to buy into the battered sector."and later:
"The sector's revival was also aided by signs that U.S. Treasury Secretary Hank Paulson and central bankers are considering radical strategies to boost liquidity.Banks are hoarding cash in case they need it and as concern lingers about counterparty risk....
"For a long time we've been worried about moral hazard ... we're now past that point, what we're trying to do now is save the banking system, and the price that banks will pay is tougher regulation going forward.""
Update: the stock market rose 3.2% on the news.
"U.S. stocks on Tuesday celebrated the start of a new quarter, rallying as
Lehman Brothers Holdings Inc.'s equity offer drew a warm reception, fueling the Dow to its 8th-biggest point jump ever."
(gee, these stories really do bring into play many of the topics covered in class. Who knows, this might make a great essay ;).
