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Weekend Financial Stories of Interest
By Jon Menaster | May 6, 2007
Here are some interesting stories from the world of finance over the weekend, just in case you can’t find something to read this Sunday afternoon:
Businesses Try to Make Money and Save the World, in the NY Times, is an article by Stephanie Strom all about a new type of investment firm: one owned by a non profit organization. The company she profiles is called Altrushare, and one of its owners says:
We’re a for-profit institutional brokerage, and we have to compete on execution and commissions and do so with the same technology and talent you would expect from a top-tier firm,” said Peter Drasher, a founder of Altrushare, which is based in Bridgeport, Conn. “What makes us different is our nonprofit ownership and our mission, which is to support struggling communities with our profits.
What an interesting idea.. using profits from a brokerage firm to better support struggling communities.
Does it even matter if the U.S. has a cold? is another New York Times article, this one by Daniel Gross, discussing how world markets are no longer so thoroughly tied to U.S. markets; when the U.S. economy doesn’t grow as fast as the rest of the world, such as in first quarter 2007, the rest of the world marches on.
Western Europe is benefiting from rising trade with Eastern Europe, Russia, Asia and the Middle East. As a result, the euro zone, America’s largest trading partner, is simply not as reliant on the United States as it used to be, Mr. Setser said. “Europe is clearly no longer growing on the back of U.S. domestic demand growth,” he said. As other economies increasingly trade with one another, the United States plays a diminished role.
Jason Kelly published an article on Bloomberg.com entitled “HAL 9000-Style Machines, Kubrick’s Fantasy, Outwit Traders”. The piece is all about how the emergence of Artificial Intelligence in financial markets has the possibility to drastically change the playing field. He says:
Dhar says AI programs typically start with a human hunch about the markets. Let’s say you think that rising volatility in stock prices may signal a coming “breakout,” Wall Street-speak for an abrupt rise or fall in prices. Dhar says he would select market indicators for volatility and stock prices, feed them into his AI algorithms and let them check whether that intuition is right. If it is, the program would look for market patterns that hold up over time and base trades on them.
The last piece is a blog post called Hedge Fund Borrowing Propping Up the Dollar and Stock Market, which was not written this weekend, but I just read it so I thought I’d throw it in. It’s about hedge funds, Renaissance’s Medalion fund in particular, and how they earn such high returns (Renaissance’s Medalion fund earned a return of 79% last year (44% after fees).
RogerRafter ends the post by saying:
Renaissance is taking on a very high degree of risk. With over $47 billion leveraged into the stock market, they won’t have a fun time trying to get out once the market finanally turns ugly. How deeply the bias toward risk is represented in the core mathematical models is a question for the PhDs. Simons has reportedly collected around $3.2 billion in compensation during the last 2 years alone. When most people see those kind of numbers the reaction is that nobody could possibly deserve to make that much money. In my view, Simons has created a brilliant business model that takes advantage of flaws in the system. To the extent that he is profiting from the mistakes of other traders there is no real harm done to the economy. Indeed Simons has done a lot of good through his charitable contributions. However, to the extent that Renaissance is creating systemic risk by (possibly) playing the Yen Carry Trade, creating excess liquidity and promoting malinvestment Simons may be doing substantial economic damage to this country and the world.
Great piece; it’s long but read it all if you get the chance.
Have a great weekend, and I’ll have more posts for you later on this week!
Topics: Business, Finance, Investing, Money News, Psychology |