Bionic Turtle’s Week in Risk — Ending September 4th

International

Apple

  • World’s Riskiest & Most Dangerous Countries for Business https://www.pinkerton.com/blog/dangerous-risky-countries/The PRW [Pinkerton Risk Wheel] is divided into four distinct quadrants that summarize the different types of risks faced by businesses around the world. Those four primary categories include: Hazard & Event Risk; Operational & Physical Risk; Technology & Information Risk; Market & Economic Risk” The report is here http://trtl.bz/2cuc1wg

Case Studies

scandal collage

Banks and Banking

Fintech

mit digital bank manifesto

emerging risks 2

  • The Latest In Financial Advisor #FinTech (August 2016) https://www.kitces.com/blog/the-latest-in-financial-advisor-fintech-august-2016/New Product Watch: a Risk Tolerance Software Bonanza … the world of risk tolerance software was a quiet and sleepy space since the 1990s, with FinaMetrica as the only major player for years, and little demand for alternatives as most advisors just use whatever (often overly simplified) questionnaire their home office provides. That all changed when Riskalyze arrived on the scene in 2011, with its meteoric rise over the past 5 years, as the company now shows upwards of 100 employees via LinkedIn, and last year opened an Atlanta office to complement its headquarters in northern California near Sacramento. And now, risk tolerance software is a hot space for technology companies. Recent entrants include Tolerisk, PocketRisk, RiskPro, and Totum Wealth is pivoting towards risk discovery analytics as well.

Markets, valuation and investing (alpha)

  • Uncertain Alpha https://blog.thinknewfound.com/2016/08/uncertain-alpha/ This is really good! “From the regression equation [Y = 0.0178 + 1.06662*X] , you can see that the strategy has a beta that is slightly over the market at 1.06, but monthly alpha of 1.78%. That’s the three year track record; what more could you want?

uncertain alpha

  • The 5,000-Year Government Debt Bubble (Should investors buy the most expensive bonds in recorded history?) http://www.wsj.com/articles/the-5-000-year-government-debt-bubble-1472685194
  • Speed Bumps Are the Hot New Thing for Exchanges https://www.bloomberg.com/view/articles/2016-08-31/speed-bumps-are-the-hot-new-thing-for-exchangesIt was widely predicted that the approval of IEX as an exchange would create more complexity in market structure, and those predictions are coming delightfully true. Speed bumps will now be a competitive tool for exchanges, but each exchange can build its speed bump to target a different audience. Chicago’s speed bump will advantage market makers who provide displayed liquidity. IEX’s speed bump advantages investors who place hidden discretionary peg orders, as well as investors who want to buy all the shares on all the exchanges before the displayed liquidity can change.
  • Is There a Bond Market Bubble? https://blogs.cfainstitute.org/investor/2016/08/25/is-there-a-bond-market-bubble/All of this bond buying by central banks has been intentional, of course. By providing a bid under bonds, they have lifted bond prices and reduced interest rates. In many cases, like in Europe and Japan, this has created negative interest rates.

market bubbl

better way value

Regulation and systematic risk

  • Echoes of 2008 as danger signs are ignored https://www.ft.com/content/9191d608-7023-11e6-9ac1-1055824ca907For after the financial crisis exploded in 2007, it become painfully clear to policymakers that finance sometimes can hurt the real economy. What was happening in those seemingly arcane derivatives markets in 2006, for example, was fueling a mortgage and corporate borrowing binge — and when that imploded it tipped the wider economy into recession. So after 2008, central bankers implemented reforms that are supposed to force them to try to understand how the finer details of financial markets might end up damaging the global economy again … And in the academic sphere, the study of finance is no longer relegated to business schools; it is creeping into high-status university economics departments too.
  • This Is How Leverage in the Financial System Lives On (Investors look to a bevy of derivatives to increase returns) http://www.bloomberg.com/news/articles/2016-08-31/this-is-how-leverage-in-the-financial-system-lives-onInvestors seeking to boost returns at a time of abundant liquidity and unconventional monetary policy have also applied leverage to corporate credit, a market which has exploded in size thanks to low interest rates and yield-hungry investors who have enabled companies to sell more of their debt. While the use of single-name CDSs that offer insurance-like payouts to a single security, company, or government, has diminished in the wake of the financial crisis, trading tied to indexes comprised of multiple entities has jumped.” Here is the paper referenced (Asset managers, eurodollars and unconventional monetary policy) http://trtl.bz/2ceMJBT
  • FSB publishes progress reports on implementation of reforms to the OTC derivatives market http://trtl.bz/2c7mgFZ Here is the report (ie, Eleventh Progress Report on Implementatio) http://trtl.bz/2c0viB7
  • Bank Groups Weigh Legal Challenge to Fed Stress Tests http://www.wsj.com/articles/bank-groups-weigh-legal-challenge-to-fed-stress-tests-1472751110The exams arguably have made banks safer by forcing them to better measure risks they face. They also dictate the amount of capital banks can return to shareholders, in turn influencing returns on equity and share-price valuations. Given that, the tests in some ways have become a deciding factor in how banks run their businesses. A big point of contention among banks is the opacity of the tests, as well as the ability of regulators to block capital returns for subjective reasons.

stress_tests

GARP

Quantitative Methods

  • Excel 2016: Financial Functions in Depth https://www.lynda.com/Excel-tutorials/Excel-2016-Financial-Functions-Depth/504663-2.htmlIn this course, I’ll show you how to use all of the financial functions in Excel 2016 to analyze your data. To start, I’ll show you how to calculate a loan payment, calculate interest paid during a specific period, and calculate the number of periods in an investment. Next, I’ll tackle depreciation, showing you how to calculate it using the straight line, and declining balance methods, plus many more. I’ll then move on to analyzing cash flows by calculating the future value, net present value, and internal rate of return of your investments. Next I’ll show you how to analyze coupon bonds, discount securities and treasury bills. Finally, I’ll show you how to analyze bonds with unusual payment structures.

Climate and Weather

  • Flooding of Coast, Caused by Global Warming, Has Already Begun http://www.nytimes.com/2016/09/04/science/flooding-of-coast-caused-by-global-warming-has-already-begun.html This is alarming in the short- and long-run: “The release of greenhouse gases from human activity is causing the planet to warm rapidly, perhaps faster than at any other time in the Earth’s history. The ice sheets in both Greenland and West Antarctica are beginning to melt into the sea at an accelerating pace. Scientists had long hoped that any disintegration of the ice sheets would take thousands of years, but recent research suggests the breakup of West Antarctica could occur much faster. In the worst-case scenario, this research suggests, the rate of sea-level rise could reach a foot per decade by the 22nd century, about 10 times faster than today.

flooding

flood collage

Other (ISO 31000, pension crisis, marking VC returns, food price deflation, CFA syllabus change methodolgy)

food deflation

  • CFA Curriculum Updates: Maintaining the Gold Standard (Faced with such an evolving investment environment, how does CFA Institute determine which new topics, trends, and skills to add to the CFA Program?) Article is here http://trtl.bz/2c1h7MvMembers of the Education Advisory Committee (EAC) of CFA Institute are discussing an array of new topics, including inadequate pension funding, the effects of negative interest rates, alternative investment vehicles, and multiple new risks.
  • More companies insure against employee harassment http://www.marketplace.org/2016/08/…ims-sexual-harassment-companies-are-buying-itIn practical terms, EPLI [Employment Practices Liability Insurance] works pretty much the same way as car insurance or any other liability insurance. Claims of discrimination and workplace harassment are treated as a risk, and the entity purchasing the insurance can increase or reduce the risk and possible costs.
  • Introducing Compliance Insights: Protiviti’s Monthly Roundup http://trtl.bz/2bZ1BSz

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