Micro Outsourcing
Don’t know how to call this model. It’s a little bit of co-development, a little bit of OEM. It’s a micro out-sourcing, a proxy worker, and so on…
Basic idea is to tap capital, talents and ideas from individuals, and the venture simply provides infrastructure, know-hows and sometimes capital, to make things happen collectively. Depending on the nature of the business and/or how responsibility is split, the profits would be split accordingly.
Some examples:
- Be a Wine maker
- Contract Farming (crowd based)
- Hedge fund hotels
- Brokerage built-in advisors functions.
- Save the children adopting a kid
- Startup incubator
- App Hosting
- Online storefront (billing, ad, logistic)
- Micro funding. Prosper or Zopa or Kiva.org
Some possibilities:
- Freelancers total service (tax, insurance, legal, virtual office, virtual receptionists, etc…)
- Design, sourcing, manufacturing ?
- Charity
- Community Restaurant (Community Garden Model?) : everything supplied, just your idea and cooking skill
Some catch lines:
- “Put your mom’ secret receipt and your cooking skill to work!”
- “Give me $5000 and an idea, and I will put your idea on the Apptore”
Milk “Crush”
Whey is a by-product of cheese-making. It usually is used for feeding the pigs, but it could also be used to make more cheese (see Whey to Go).
Cheese Making : Milk –> Cheese + Whey
CME already had Dry Whey Futures & Milk Futures. All we need is a Cheese Futures to complete this important manufacturing cycle.
Now, lucky arbitragers have one new “crush” to play with. And this would definitely make me ponder a bit next time I hand over a glass of milk and a and a grilled cheese sandwich to my kids.
References:
- Western Milling April 2004: “Milk Futures Gaining Popularity”.
- How to Trade a Soybean Crush Spread
- Crack Spread
THE BIG EIGHT & Beyond
Eight financial designations are premier within areas of investment professionals:
- CAIASM. The Chartered Alternative Investment AnalystSM designation—the only certification among the Big Eight that’s specifically intended for alternative investments—concentrates on the primary alternative sectors of hedge funds, real estate, private equity, commodities, and managed futures. Since the Chartered Alternative Investment Analyst Association® awarded the first CAIAs in 2003, the rapid growth in alternatives has fostered a concomitant explosion in new CAIAs. As of June 2009, approximately 3,000 CAIAs had been awarded to designees in 62 countries.
- CFA®. The oldest, most widely held, and perhaps most highly regarded financial designation is that of the Chartered Financial Analyst®. The first CFA certifications were awarded in 1963 by the Institute of Chartered Financial Analysts and the Financial Analysts Federation, which in 1999 merged under the umbrella of AIMR (Association for Investment Management and Research, renamed CFA Institute in 2004). As of May 2009, approximately 98,500 CFAs had been awarded to individuals in 130 countries. The qualifying exam covers a broad swath of subject matter applicable to securities analysis and portfolio management.
- CFP®. The Certified Financial Planner Board of Standards owns and awards the Certified Financial Planner™ designation. Because of the CFP’s long history and popularity within the profession, and because of the breadth of material the CFP exams involve, the CFP can be viewed as the financial planning field’s equivalent to the CFA. The first CFPs were awarded in 1973; as of May 2009, there were about 59,000 active certificants. The CFP’s emphasis on domestic laws and estate issues means that it is currently awarded almost exclusively within the US.
- CIC. The Chartered Investment Counselor designation is essentially an extension of the CFA geared specifically toward client-facing investment managers. It was first awarded in 1975 by the Investment Counsel Association of America, which became the Investment Adviser Association in 2005. As of June 2009, there were about 350 active CIC charterholders, the vast majority of whom are in the US.
- CIMA®. Certified Investment Management AnalystsSM are generally investment consultants who focus on asset allocation, the construction of portfolios of multiple managers or strategies, manager search and selection, and performance measurement. The CIMA has been conferred by the Investment Management Consultants AssociationSM since the designation’s inauguration in 1988. As of the end of 2008, nearly 5,800 CIMAs had been awarded, mostly in the US.
- CMT®. The Chartered Market Technician is devoted to the study and application of technical analysis. The Market Technicians Association awarded the first CMT charters in 1989. In June 2009, there were just over 800 active CMT charterholders in 36 countries.
- CRPC®. Pre- and post-retirement planning is what the Chartered Retirement Planning CounselorSM is all about. Given the public’s heightened awareness of retirement-related issues, it’s not surprising that the annual growth rate of CRPCs is one of the highest among the Big Eight. The College for Financial Planning—the dominant administrator of the CFP exam—conferred the first CRPCs in 1996. The CRPC is based on US tax law and is therefore specific to the US. As of May 2009, around 15,500 investment professionals held CRPC charters.
- FRM®. The need for effective risk management, underscored by the recent financial crisis, has prompted dramatic growth in certification of Financial Risk Managers by the Global Association of Risk Professionals. FRM certificants are trained in the major strategic disciplines of financial risk management (market, credit, and operational risks, and risk management in investment management). From 1997 through 2008, approximately 17,700 FRMs were awarded in 90 countries.
Outside investment world, there are other financial designations:
Series 7 & Series 63/66, for broker-dealer representative/sales.
CPA for accountants.
ASA, CERA, etc: P/1,FM/2, C/4 exams for actuary.
Source : Privilege of Peerage: The Value of Professional Designations
Financial Systems
One of the Wall Street technologists’ skills is to identify needs of the business units, and to implement/integrate with all the 3rd party systems. Below are the financial systems I have heard of from my friends and clients.
Things you need to know about them: what are they good for (what products, what functions/departments) , and their interfaces (api, data format)
Factset Fixed Income (demo video)
Data Vendors:
Tradeweb, its alliances & liquidity providers
Intex and its partners.
Model Vendors:
Asset Liability Management
The scope of ALM activities has widened. Today, ALM departments are addressing (non-trading) foreign exchange risks and other risks. Also, ALM has extended to non-financial firms. Corporations have adopted techniques of ALM to address interest-rate exposures, liquidity risk and foreign exchange risk.
The problem was not that the value of assets might fall or that the value of liabilities might rise. It was that capital might be depleted by narrowing of the difference between assets and liabilities. (see diagram below)
Besides ALM, securitization also allows firms to directly address asset-liability risk by removing assets or liabilities from their balance sheets. This not only eliminates asset-liability risk; it also frees up the balance sheet for new business.
Liability-Driven Investing
What is Liability-Driven Investing?
Many institutional investors have liabilities they must pay in the future, such as the retirement benefits that pension funds pay, or disability payments in the case of an insurance company. To meet these future obligations, pension funds, insurance companies and other institutions invest a pool of assets with the goal of paying their future liabilities from the returns on those assets. If returns are insufficient to cover the liabilities, the institution must contribute capital to fund the liabilities.
Historically, bonds were used as a partial hedge for these interest rate risks but the recent growth in LDI has focused on using swaps and other derivatives. These offer significant additional flexibility and capital efficiency compared to bonds.
Investment Strategies for an Insurance Company’s Capital Account
Conscious Balance-Sheet Management
“Three big banks—Bank of America Corp., Deutsche Bank AG and Citigroup Inc.—are among the most active at temporarily shedding debt just before reporting their finances to the public”
“Over the past 10 quarters, the three banks have lowered their net borrowings in the “repurchase,” or repo, market by an average of 41% at the ends of the quarters, compared with their average net repo borrowings for the entire quarter”
Quarter-end window dressing techniques is so common that this news should not have come in as a surprise at all. Now the real question, how do they do it?
WSJ : Banks Trim Debt, Obscuring Risks
10-year note hit 4%
Overall bond market is hit…
Related links :
MND : Mortgages Hit 2010 Price Lows as 10s Test 4.00%. Lack of Liquidity Affecting Action
WSJ : Auctions, Data Weigh on Treasury Prices
System Open Market Account Holdings
Securities Holdings as of March 31, 2010 ($ thousands) :
| Summary Report | |
| Security Type | Total (in Thousands) |
| US Treasury Bills (T-Bills) | 18,422,636.7 |
| US Treasury Notes and Bonds (Notes/Bonds) | 708,871,742.9 |
| US Treasury Inflation-Protected Securities (TIPS)* | 43,777,163.1 |
| Federal Agency Securities** | 168,988,000.0 |
| Agency Mortgage-Backed Securities*** | 1,068,697,160.7 |
| Total SOMA Holdings | 2,008,756,703.4 |
| Change From Prior Week | -3,602,865.9 |
A cool trillion dollar, out of 7.5 trillion total outstanding, of mortgage backed securities was held by government. Now government has stopped buying MBS, let’s see what happens.
Westport Geek 