Week InReview

Is active management good? It depends.

"Taken as a whole, our review of the current academic literature suggests that the conventional wisdom is too negative on the value of active management. The literature that followed Carhart (1997) has documented that active managers have a variety of skills and tend to make value-added decisions, such that, after accounting for all costs, many actively managed funds appear to generate positive value for investors. While the debate between active and passive is not settled and many research challenges remain, we conclude that the current academic literature finds active management more promising for investors than the conventional wisdom claims."

Friday | Sep 27, 2018
Watchdogs can't handle Wall Street's riskiest loans
Washington rewrote the rulebook for Wall Street after the 2008 financial crisis, but dangerous lending is still eluding regulators. Risky transactions are increasingly common in the U.S.'s more than $2 trillion market for leveraged loans and junk bonds, and agencies including the Federal Reserve can't do much about it. That's because some of the most aggressive financing is being done outside the traditional banking sector. (Bloomberg Markets | Sep 27)

Moody's expects consumer technology giants to be major disruptors in financial services
Technology companies such as Apple, Facebook and Google are emerging as competitors to financial firms that deal directly with consumers, according to a Moody's Investors Service report. Tech giants have the ability to take over customer relationships and to become channels for financial-product distribution, the report says. (Investment News | Sep 25)

Fintech lending - untested in a downturn - has grown fastest in countries with higher income, less competitive banking sectors, and loose financial regulation, the Bank for International Settlements said in a new report. But the biggest findings in the report are what the BIS, the bank for central banks, doesn't know: how fintech has affected borrowers, lenders, financial stability, and the economy. (Barron's | Sep 24)

Amid concerns raised about volatility, appetite grows for Libor alternative SOFR
Entities including government agencies, global institutions, banks and municipalities have issued more than $9 billion in debt tied to the Secured Overnight Financing Rate during the past two months, indicating increased adoption since the Libor alternative launched nearly six months ago. However, market participants say SOFR has progress to make, and concerns have been raised about volatility. (Bloomberg | Sep 24)

U.S. G-SIBs post rise in OTC derivatives notional in Q2
Total over-the-counter derivatives notional increased 2%, or $4.3 trillion, in the second quarter to reach $222 trillion at the eight U.S. global systemically important banks. The aggregate amount rose 17%, or $32 trillion, during the first half of the year. (Risk | Sep 20)
`Conservatorship is not sustainable'
FHFA director says
(Sep 27) -- "It remains absolutely essential for Congress and the Administration to enact housing finance reform legislation," FHFA Director Melvin L. Watt said in testimony before the House Financial Services Committee.
  • Watt said he is "confident" that the Uniform MBS will begin on schedule on June 3, 2019
    • "To further ensure liquidity in the housing finance market, FHFA issued a proposed rule earlier this month to require the Enterprises to maintain policies that promote aligned investor cash flows on the UMBS"
  • "FHFA has had the responsibility for creating its own regime for market discipline" since the Enterprises have been insulated from normal market forces while under conservatorship
    • One example is the Conservatorship Capital Framework that "establishes aligned capital guidelines for both Enterprises across different mortgage loan and asset categories"
    • Used to ensure Enterprises don't make competitive decisions which may "adversely impact safety and soundness"
  • NOTE: Freddie Mac and Fannie Mae have been in federal conservatorship since Sept. 2008
The Cyber Cafe
Cybersecurity news every Friday
'Every cyberattack is related to geopolitical conditions,' says CEO of cybersecurity company hired by Google
FireEye CEO Kevin Mandia, whose company was hired by Google to protect against cyberattacks, said the majority of foreign cyberthreats are state-sanctioned and are a new form of warfare. "They're not going to meet us on a battlefield with a bunch of tanks... they're going to meet us in cyberspace," Mandia told Jim Cramer on CNBC's "Fast Money."

Federal government fails at cybersecurity: GAO
The U.S. government has failed to take adequate cybersecurity actions despite recommendations, the Government Accountability Office reports, noting that transportation, financial services, energy and communications are all vulnerable because of lax security.

Microsoft: 'No company lets enterprises eliminate more passwords'
The latest app from Microsoft, the Microsoft Authenticator app, uses high-tech data including facial recognition and fingerprints to end company reliance on passwords. Most data breaches are the result of compromised passwords, Microsoft says.
Binge reading disorder
Hand-curated, chosen with love
Crypto & cannabis are the perfect post-crisis bubbles
Robo-traders and index funds may have taken over most of the stock market, but the psychology of bubbles is still strong.

How Jim Chanos uses cynicism, chutzpah - and a secret Twitter account - to take on markets (and Elon Musk)
Recent months have seen one bizarre event after another in the saga of the electric-automaker and its iconic boss, and Chanos has been watching it all. The 61-year-old founder of hedge fund Kynikos Associates announced his short against Tesla in the fall of 2015 and has been nursing losses ever since.

The financial crisis may have scarred a generation for life
Ten years later, many of the financial scars  have healed . Household balance sheets for most are roughly where they used to be. The stock market is up, housing has recovered, and banks are lending again. But, a decade after Lehman Brothers went bust, real damage remains, and could have consequences for many years to come.
- Quartz