Citadel Investment Group is preparing to expand into investment banking as the Chicago-based hedge fund tries to rebound from last year’s massive losses.
Citadel is expected to hire as many as five investment bankers, including Merrill Lynch & Co.’s Todd Kaplan, a leveraged finance specialist. The firm is expected to make the announcement in the next few days, according to a person familiar with matter.
As the President intervenes in more and more industries, a key question is how he does it and what he is trying to achieve. Is he trying to reorganize insolvent firms while, as much as possible, preserving the rights of stakeholders as established under existing contracts? Or is he trying to achieve a “fair” outcome as he judges it, regardless of preexisting rules and agreements? I fear it may be the latter, in which case politics may start to trump the rule of law.
I think most people agree with this, so I’m starting to spend less time on articles discussing this:
Martin Feldstein has two worries. He’s worried about deflation in the short-run, and about inflation in the longer run:
via Economist’s View: Feldstein: Deflation Raises Questions about Global Recovery.
Banks Juice Profits, Fantasize About Loan Quality: David Reilly – Bloomberg.com.
On accounting distortions:
By lowballing loan-loss reserves, banks can squeeze out substantial profits ahead of a stress test.
Quantitative weighting schemes need to look back at the past to help forecast the future, with the assumption that persistence exists. With negative persistence recently, the better plan is to weight factors opposite what has performed well by incorporating the persistence information above into the process.
Based on the results above, shorter-term trading models would have performed well since June 2007, while longer-term models would have performed better previously.
Quantitative weighting schemes need to look back at the past to help forecast the future, with the assumption that persistence exists. With negative persistence recently, the better plan is to weight factors opposite what has performed well by incorporating the persistence information above into the process.
Based on the results above, shorter-term trading models would have performed well since June 2007, while longer-term models would have performed better previously.
Reading and thinking about Taleb leads me a different answer than I would have given 6 months ago. Yes, we need more regulation—but it should be ‘regulation by simplification’ rather than ‘regulation by supervision’.
Why? As a technological optimist, I believe in innovation as the major force for growth over the long run. So one important part of policy is setting up the conditions under which technological innovation can occur. That means supporting R&D and education, encouraging venture capital and entrepreneurship, and making sure that government regulation does not get in the way of ‘good’ innovation.
Economist’s View: “The Twenty-First Century Will be the Age of Inductive Economics”.
The consumers of economic theory, not surprisingly, tended to pick and choose those elements of that rich literature that best supported their self-serving actions. … It is in this light that we must understand how it was that the vast majority of the economics profession remained so blissfully silent and indeed unaware of the risk of financial disaster. …
The efficient market hypothesis is just a model and, like all interesting models, it is not literally true.
People often misinterpret high average fund returns as proof that a manager does know how to identify pricing errors. Consider, for example, a hedge fund with an annual volatility of 20%. (To be more precise, the standard deviation of the fund’s excess return with respect to the appropriate benchmark is 20%.)
If the fund’s average abnormal return is 5% per year over a ten-year period, many investors and financial reporters would conclude that the manager is truly gifted, with a real knack for identifying under- and over-valued securities. But they would probably be wrong. Suppose the manager’s true alpha is zero, so he really has no skill beyond that needed to recover his costs. If we pretend his returns are normally distributed, the probability that his average abnormal return exceeds 5% per year for a ten year period is more than 20%. In other words, in a group of hedge fund managers with standard deviations of 20%, we expect one in five to have a ten-year average annual abnormal return of at least 5%—even if none actually have any skill. We expect one in twenty of the unskilled managers to produce a ten-year average annual abnormal return of at least 10%.
Invoking the Sputnik Era, Obama Vows Record Outlays for Research
His adviser’s perspective:
Does Government R&D Policy Mainly Benefit Scientists and Engineers?