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Archive for June, 2013


Dodd-Frank Trade Reporting isn’t coming … it’s here. February 28, 2013 was the date that Major Swap Participants (MSPs) were imagesrequired to begin reporting equity, foreign exchange and other commodity swaps. And this is just the beginning of a series of milestones in the regulation that was designed to prevent future “too big to fail scenarios,” such as what occurred during the Global Financial Crisis of 2008. But, there is a bigger story here around regulation and compliance and how IT is used to ensure transparency, accuracy and accountability in reporting.

Regulation, Regulation and more Regulation

While Dodd-Frank is a U.S. regulation under the supervision of the Commodities Futures Trading Commission (CFTC), any financial institution doing business with a U.S. bank will need to comply. Continue reading

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The recent crisis as lead to unexpected results, Here is what I feel the most unusual lessons…gm_00411 Darwin, Northern Territory Painting 1983

Lesson #1 Government agencies allocate capital better than the private sector
Lesson #2 Central banks should control asset prices and prevent them from falling
Lesson #3 Darwin & Schumpeter were wrong, creationists are right; there is such a thing as a free lunch
Lesson #4 Towards a new orthopraxy
Lesson #5 Wondrous tools used by the clergy to grow GDP
Lesson #6 How to finance infinite needs……

The Monetary Policy drama

Everyone interested in the world economy should watch Bernanke‘s recent speech and the press conference:

FED 2

FED 2 (Photo credit: Wikipedia)

 (Switch to full screen, it works well). Here is the base URL which collects together all the materials about the Fed’s announcement. The `exit strategy principles’ are in the June 21-22, 2011 meeting. 

The announcement reinforces the sense that the US economy is healing. The US Fed is keen to have inflation of 2% and believes the NAIRU is around 6.5%. Hence, once they come into the range where unemployment has achieved a few strong improvements and is trending to get below 6.5%, while price stability has not been compromised in that inflation expectations are still at 2%, they will start unwinding the extreme expansionary stance of monetary policy that has been in place in recent years. All through, there is no fixed calendar about what the Fed will do when. There is a clear articulation of the decision rules that will be employed, about how future data releases will generate future policy. 

Why did the world see this badly? Continue reading

Yes Rupee @60

The unintended consequences of a centrally-planned world continue to peek through at the most unexpected of place, as moments ago imagesthe Indian Rupee just plunged to a new all time record low against the USD, with the USDINR rising over 60 for the first time, triggering stops and overriding any potential USD selling intervention that the RBI may have attempted just below the resistance level which took place 59.985 according to Reuters.

A snapshot of events in India currently via Bloomberg:

  • Rupee drops 0.9% to 60.2250 per dollar; touches record 60.26.
  • USD/INR one-month implied volatility falls 32 bps to 11.60%; level suggests there is 68% chance rupee will drop to 62.2976 per dollar in a month (see that story here)
  • USD/INR risk reversal drops for third successive day, falling 17 bps to 1.80%; gauge of investor sentiment reached 2.23% last week, reflecting biggest pessimism on rupee in a year Continue reading

Asset Pricing

Lets revisit an article I published a couple of months back  as we know all valuation classes teach the equity market correlation method soimages it would be interesting to hear your views.

Equity exists in many forms. In securitization, equity is the tranche that takes the first loss and controls the deal. In a mutual insurer/bank/thrift, etc., the book equity is held by the dividend-receiving policyholders. The real equity is held by management, who actually control the place, because the dividend-receiving policyholders will not vote them out. In a credit tenant lease, there is the guy that owns the property, and typically he puts up a teensy amount of equity, because there is a “credit tenant,” one that has an investment grade rating, and the mortgage is secured by:

the property
the senior unsecured credit of the “credit tenant,” whose lease payments pay the mortgage, and go directly to the lender, and
the equity owner. Continue reading

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