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Showing posts from November, 2010

Investing in Fear Is Big Business

by Brendan Conway

Call it a bull market in fear.

The popularity of the VIX index, which has become a widely watched barometer of investor fear since the financial crisis, is generating a host of spinoffs, copycats and derivatives. It is adding up to big business for VIX's owner, the Chicago Board Options Exchange, as well as partners and competitors that have developed products pegged to, or inspired by, the VIX.

VIX clones have sprung up in Australia, Canada and India. There are now VIX-like measures in the crude-oil and gold markets. Soon, there will be a VIX each for corn and soybeans. The popularity of the index has fueled growth in futures and options just to bet on the VIX itself.

Formally known as the CBOE Market Volatility Index, the VIX tracks the prices investors pay for options to protect themselves against swings in the Standard & Poor's 500-stock index. An increase in those prices suggests an increase in investor anxiety. It is also used as a short-term predictor …

Are We Entering Another Phase of Financial Crisis?

As Spain starts looking rocky, Tyler Cowen writes:

In a nutshell, we're watching the most pitched, highest-stakes, most determined battle between politics and finance which has been staged. I am expecting finance to win.

Arnold Kling follows up with four questions:

1. What is the true state of the large European banks? In particular, if, they had to write down the principal on the debt of the PIGS by, say, 15 percent, which banks would still be solvent?

2. What does the option for inflating away European debt look like? How would the cost of that inflation be distributed? Can the inflation take place within the context of the euro, or does it require that some countries leave the euro?

3. Does a crisis create an opportunity for governments to make radical changes to the welfare state, or is that still not possible?

4. Suppose that governments have to choose between preserving their banks and preserving high levels of spending on public employees and retirees. Which choic…

The real problem: Income inequality

By David Futrelle

(MONEY Magazine) -- Raghuram Rajan wasn't the only economist who warned of the financial crisis before it struck. He was, however, the sole one brave enough to make this prediction in front of Alan Greenspan at a 2005 Jackson Hole Conference devoted to celebrating the legacy of the once-seemingly infallible Fed chief.

Nor is Rajan unique in blaming the panic on the decoupling of risk and reward in the financial sector. But he stands out as one of the few economists who cite income inequality as another root cause.

That's hardly the type of theory you'd expect to hear from an economist at the University of Chicago, a bastion of free-market thinking. But he argues that this income gap inspired politicians on both sides of the aisle to push low-income housing loans as a palliative for the poor, which helped to send the housing sector into overdrive.

The author of Fault Lines tells MONEY contributing writer David Futrelle that unless we come to terms with our ec…

The Goldman Sachs guide to interview success

Sarah Butcher

For anyone not already aware of this, Goldman Sachs has produced a presentation on how to kill it in an interview.

Their advice is aimed at the student market, but some of it could apply equally to the experienced, lateral hire. For the sake of the latter, we have distilled the most pertinent points below. If you are the former, we suggest you watch the whole thing.

The quick version:

Preparations:

• Make a long list of your qualifications and strengths and weaknesses. Think about how past experiences demonstrate your skills.

• Familiarise yourself heavily with your CV.

• Make sure you know your ‘key selling points’ and practice talking about them in a ‘confident and conversational’ fashion.

• Create a coherent story based around your CV, which makes you seem like an ideal candidate.

• Be prepared to talk about things which demonstrate leadership, teamwork, professional accomplishments, interpersonal skills and your ability to overcome obstacles.

• Leave 20-30m before the intervie…

Why getting a 50 per cent pay rise isn’t always so awesome

Rio Goh

In an emerging and growing market like China, job opportunities are plentiful, while candidates are scarce and are understandably looking to benefit from this growth.

I often speak to front-office candidates who expect base salary increments of more than 50 per cent when they change roles. Some banks are actually willing to provide these raises to sales people, provided they bring in and increase revenue by 50 per cent within a short time frame.

The best case scenario if this happens is that the relationship manager is able to deliver on this revenue promise and it becomes a win-win situation for both parties.

However, the most likely scenario is that the candidate over-promises and high expectations are created. When the candidate then under-delivers and fails to meet revenue targets, both parties are disappointed.

Managing your salary expectations is therefore crucial to managing your career. The ultimate career entails a combination of learning, development, growth, promotions a…

Special report: A far from random walk from Wall Street

By Leah Schnurr and Edward Krudy

NEW YORK (Reuters) - Leanne Chase took her money out of stocks in early June 2008 before the collapse of Lehman Brothers sparked a near-panic. She said she and her husband had the same feeling they had during the dot-com bubble: The market had become just "weird."

Though the couple had been in and out of the market before, Chase, a 42-year-old part-time consultant and self-described conservative investor, said she has no intention of getting back in again.

"It makes me nuts when I get out early and there's more money to be made, or I get out late when I could have made more if I'd gotten out early," she said. "The stock market's not an investment, it's gambling."

The faith -- and money -- individual investors once held in the stock market has severely eroded. Two painful major stock market crashes over the last decade combined with the advent of arcane, complicated trading practices has created widespread suspi…

6 Easy Ways to Increase Retirement Savings

by Kimberly Palmer

Here's a pop quiz: Do you know much money you need for retirement? If you're like most people, you probably don't. According to the Transamerica Center for Retirement Studies, most of us just guess how much money we'll need once we stop working. Only 1 in 10 people does any sort of calculation at all.

That might help explain why, on average, Americans are on track to replace less than 60 percent of their income during retirement. Financial experts generally recommend that retirees replace at least 80 percent, given the rising costs of healthcare.

The best way to unveil the big mystery is to punch some numbers. Luckily, online tools make it easy. Banks and brokerage firms increasingly offer calculators that can automatically incorporate your personalized information; Fidelity, T.D. Ameritrade, Transamerica, and T. Rowe Price are among those that do. If you prefer to do your own research, consider plugging your details into one of Bankrate.com's retir…

The 17 Things Worrying Investors Right Now

Lloyd Khaner

Ever since Benjamin Graham created the concept of "Mr. Market", investors have noticed that when the market gets worried, stocks tend to get cheaper. With that in mind, I've been keeping a running tally of all the issues, events and future concerns affecting market behavior at any given moment. Here's a look at what's happening this week in "Lloyd's Wall of Worry." Also, click here to see the interactive Wall of Worry on Minyanville.

WEEK OF NOVEMBER 15-19
WORRY COUNT: 17

CHINA: Kickin' it purely "my way or the highway." Especially treacherous on the rest of us as they are still building their highways.

THE PIIGS: Portugal, Ireland, Italy, Greece and Spain. FYI: News of their demise has been greatly…delayed.

CALIFORNIA AND THE OTHER 49 STATES: Automakers – done. Banks – done. Next on line at the bailout window: Muni Bonds. "Please step up to the white line."

QE II: In the popularity ratings still more dear than a root …

5 Ways to Save Money in Retirement

by Amy E. Buttell

In retirement, it's time to spend wisely.

With retirement, you're dealing with a phase of your financial life where you have a limited amount of money and no concrete idea of how long it must last. With finite resources, you must be mindful of your spending so you won't outlive your money and so you'll have the funds for the things most important to you.

"By the time people are ready to retire, or have already retired, they should have a very current picture of what their spending is," says Tim Kober, a certified financial planner with Cedar Financial Advisors in Portland, Ore. "There's the problem of spending going up in the initial part of retirement when people do all the deferred things that they've been wanting to, and it's important that they don't overdraw their nest egg to make all those nice things happen."

Retirement has many stages, and not every stage is one where you'll want to splurge. But it's imp…

Top 10 myths about job interviews

By Anne Fisher

FORTUNE -- Dear Annie: I graduated from college last spring and, after taking a few months off to take care of some family business, I'm looking for my first "real" job. I've been lucky enough to get several interviews, and they've gone pretty well, but I have to say, I'm kind of mystified. While I was still in school, I read a bunch of books about how to prepare for a job interview, and one thing they all said was that interviewers would be well prepared and ask probing, detailed questions.

Instead, I'm finding that, not only do my interviewers so far seem to have few questions beyond "Tell me about yourself," but they haven't even read my resume (short as it is, at this point). Am I just running into some weird companies, or is this par for the course? --Ivy League

Dear Ivy: In an ideal world, everyone responsible for deciding who gets hired would indeed be well versed on your qualifications and ready to ask thoughtful, incisiv…

Here's a job with surging salaries in Asia...

Ananya Mukherjee

Crystal ball gazing suggests good times ahead for the wallets of compliance professionals in Asia Pacific next year.

As a consequence of an existing talent shortage and rising demands for their skills in a changing regulatory environment, base salaries for compliance professionals are predicted to increase in 2011, especially in investment banking and private banking.

Compliance candidates who have Asian, European and American regulatory exposure in monitoring, surveillance, and anti money laundering are the most in demand, says Clem Cull, associate director, banking and financial services, Ambition Singapore.

In particular, firms are looking for mid-level compliance professionals at AVP level, whose salaries in Singapore are typically between S$65k and S$115k, according to Chris Mead, general manager of Hays Singapore.

Singapore-based compliance staff should expect salary rises of approximately 10 to 15 per cent next year. “We should expect further salary pressures in the…

The Beginning of the End?

Dan Caplinger

Investors are used to the stock market playing havoc with their quarterly account statements. What many people may be totally unprepared for, however, is having to blame their Treasury bond holdings for big losses this time around.

The quiet crash in long Treasuries
If you're like most investors, you probably haven't been paying very close attention to the bond market lately. After all, stocks have put in a stellar performance since the beginning of September, and despite some shakiness in the last week or so, they've largely managed to preserve their gains.

Adding to the distractions are big fluctuations in commodities. Precious metals hit new highs last week before dramatically falling in the wake of the midterm elections and the finalization of the latest round of quantitative easing from the Federal Reserve. Similarly, after having hit levels against some currencies that hadn't been seen in decades, the U.S. dollar rebounded sharply in the past 10 days, a…

Is the Rally Over?

by Jane J. Kim

For those investors wondering whether the months-long stock-market rally, after retreating a few steps, has more room left to run, Mark Rylance has some words of advice.

"There's absolutely no way that anyone knows what's going to happen," says the Newport Beach, Calif., financial adviser.

Many investors are wondering whether they should cash out or stay invested. For their part, many financial advisers say they are keeping their clients in diversified portfolios but are making more tactical shifts.

Over the past year, for example, Mr. Rylance has increased the amount of dividend-paying stocks, master limited partnerships and blue-chip stocks to about 25% of clients' total portfolios from about 20% as a way to generate income in an otherwise lackluster yield environment. Now, he's looking at taking some profits given his concerns that the market is "probably overbought."

Many advisers are shifting into alternative assets, such as mutual fu…

How to Play a Market Rally

by Ben Levisohn and Jane J. Kim

Stocks Have Surged—but Investors Who Want to Lock In Some Profits Now Need to Do It Carefully

Forget "buy and hold." It is time to time the stock market.

For 10 long years, market rallies have ended badly for investors. Now, with stocks up 15.6% in four months, strategists are beginning to suggest that ordinary investors start dialing back on risk.

That doesn't mean dumping shares willy-nilly. With the Federal Reserve committed to flooding markets with liquidity, it still makes sense to be in equities. But "if you've ridden the market up, you might want to do some trimming," says Steven Shueh, managing partner at Roundview Capital.

Some investors may already be starting. The Dow Jones Industrial Average has given up 2.2% from its Nov. 5 high.

The first step is to disabuse yourself of the notion that it's impossible to time the market. It turns out that sometimes you can. When markets are stuck in a trading range for an extended…

Time for Anti-Inflation Planning

by Dave Kansas

The Federal Reserve has unleashed its latest effort to goose the economy, dubbed Quantitative Easing 2, and global stock markets have cheered. When you announce plans to print $600 billion and "throw it at the problem" people can show a tendency toward giddiness.

Now, less than two weeks after the Fed announced QE2, some of the giddiness is giving way to consternation and unease. In the run-up to the G-20 meeting in Seoul this past week, Germans, Chinese, Brazilians and Russians (anyone left?) all made strong complaints about QE2, arguing that the printing of still more dollars could destabilize the global economy. Fed Chairman Ben Bernanke countered that the Fed's job is to focus on the U.S. economy, not everyone else's. Translation: "We'll do what it takes, and the rest of you can pound sand."

The unease emanating from QE2 is the specter of inflation. And while inflation remains a distant concern, it makes sense to start thinking about fir…

Death of the salesmen: Why private bankers should no longer be product pushers

Simon Mortlock

Eliminate sales targets, stop product pushing and don’t hire juniors for client-facing roles – that’s how the private banking sector should knock itself into shape, says Jean Pierre Cuoni, founder and chairman of EFG International.

The financial crisis has highlighted the potential dangers of a sales-driven private banking model. “Products were ill sold by people who didn’t understand what they were selling, which created disappointment,” said Cuoni, speaking at the recent Private Banker International Wealth Summit in Singapore, organised by VRL.

An aggressive sales culture in a private bank should be stamped out, he addded. “It puts you on the wrong path. You become a salesman. You should be an entrepreneur, a businessman, not a salesman.”

At some larger firms (not EFG, Cuoni hastened to add) private bankers are misused as distribution channels for the investment bank’s products. The Chinese wall that traditionally existed between the two divisions has broken down. “Sellin…

Bullish Sentiment Creeps Up

Andrew Bond

Since the beginning of September, the bulls have been in charge of the U.S. stock market. The incredible run, fueled by improving economic data, strong earnings reports, and another round of quantitative easing, has sent the S&P 500 soaring by more than 16%, only to be outdone by the Nasdaq's 22% gain as of Monday's close.

The rally has also been broad based as leaders from many different sectors have advanced substantially. Since the end of August, Apple has increased by 31%, ExxonMobil is up 19%, and Goldman Sachs has run up by nearly 24%.

However, bears looking for a ray of light may want to look at the recent American Association of Individual Investors (AAII) sentiment survey. The survey purports to measure the percentage of individual investors who are bullish, bearish, and neutral on the stock market for the next six months.

On Oct. 29, the survey reached a two year high in terms of bullish sentiment, as 51.2% of the respondents said that more upside is to c…

On Wall Street Pay is the Problem, Again

Commentary: Risk-taking still gets rewarded

Given a shot at tamping down risk-taking on Wall Street, did Washington miss out on using a silver bullet?

In a blanket approach, the Dodd-Frank Act attempted to safeguard almost every aspect of financial services: consumer protection, limits on hedge-fund and private-equity participation, proprietary trading, a process to deal with too-big-to-fail firms and so on. There are new rules and more rules, more desk jockeys and bureaucrats.

But there is a glaring omission: pay.

For all of the reformist talk of how Dodd-Frank will squeeze Wall Street's ability to take big risks, the plan ignores the impetus behind that risk-taking.

Wall Street's paycheck machine is undaunted in the face of reform. Bonus pay is expected to rise 5% this year, according to the latest survey from Johnson Associates Inc. Overall compensation is edging up, expected be $144 billion this year, and guaranteed pay packages are back in vogue for so-called rain-makers and h…

Be nice, begs Wall Street

NEW YORK - The captains of Wall Street yesterday begged regulators to cushion the blow from a sweeping regulatory reform Bill that is expected to squeeze profits from some of their most lucrative franchises.

Two years after a severe credit crisis that was in large part of their own making, top financiers met yesterday at a conference held by their lead lobbying group where they vowed to help "shape" reforms still being hammered out.

Morgan Stanley CEO James Gorman complained at the annual meeting of the Securities Industry and Financial Markets Association (Sifma) about polarising anti-Wall Street "rhetoric".

Sifma represents hundreds of securities firms, banks and asset managers, including Morgan Stanley, JPMorgan Chase, Goldman Sachs and Bank of America.

Just days after an election handed Republicans control of the House of Representatives, Mr Gorman appealed to the public to give markets more time to recover.

"The financial system nearly shut down. It's only…