While the Federal Reserve anticipates 2-3% interest rates will be enough to combat inflation, the choice of cash holdings for financial institutions provides a clue to their confidence in the Fed’s strategy. The evidence shows that they expect a bumpy ride.
Continue reading..Using Credit Suisse’s Archegos report, we explore how without any fundamental change in corporate earnings or economic sentiment, deleveraging mechanisms can produce an ‘instant bear market’
Continue reading..Rampant gigantism in the stock market took a blow recently as small-cap stocks enjoyed a run of outperformance. Is this the return of value?
Continue reading..Portfolio optimisation has transformed investing in recent decades. But according to a new paper, naive application of such modelling can lead to extreme or unstable trading strategies.
Continue reading..In a time of rising bond yields, active bond funds can use derivatives to manage duration risk. But as the experience of Pimco shows, attempts to generate alpha this way do not justify the risks or management costs.
Continue reading..Pimco’s star manager uses credit default swaps to boost returns and increase inflows to his fund. How transparent are the risks?
Continue reading..When I wrote the Devil's Derivatives I looked at the risk modelling behind the ratings of CDOs, bank trading and credit portfolios. Through a combination of bad incentives and leverage, these models performed very badly and contributed to the financial meltdown of 2007-8. Lurking in the background of my analysis was traditional portfolio modelling as…
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