Personal Finances and Loans Solutions » debt

Emphasizing the credit opportunity

admin — Thu, 18 Feb 2010 22:53:03 +0000

In a labor–management situation, for instance, a company may want to partner with its union to improve quality, productivity, or processes—yet it wants to be adversarial when it comes to negotiating benefits and wages. These two contrary positions may be difficult to understand. A true partnership needs to focus on mutual interests, but it doesn’t have to encompass all the interests of both parties. Even in a labor–management dispute over compensation, the two sides can succeed in forging a partnership based on common objectives to resolve their dilemma.

After the partners have determined the scope of the partnership, they must communicate quickly and often to make sure both sides understand the limits of the partnership. My friend Larry works for an airline that recently offered its employees stock in the airline in exchange for pay cuts. The company broadcast its offer through the media—emphasizing the opportunity for employees to own the airline, just as management does with its stock ownership program. But Larry discovered he did not have the same benefits and privileges the managers had; while managers fly for free, the union employees pay a nominal fee for their passes. Larry resents the fact that while he takes stock instead of dollars, just like management, he doesn’t enjoy the same treatment. The managers’ free seats undermine the credibility of the public relations campaign aimed at building employee morale.

Is the index the right finger to be pointing?

admin — Fri, 28 Aug 2009 17:31:38 +0000

For investors tired of watching mutual fund managers make lousy decisions and underperform the market, mutual fund families invented the index fund. The manager of the index fund buys and holds the stocks in the market index. Index funds return exactly what the market returns. Index funds have become extremely popular in the last decade.

As index funds increase in popularity, many non-index funds also imitate the indexes. Increasingly, more and more funds buy the same stocks, have exorbitant marketing expenses, and have the same goal: increasing funds under management. Stock selection is motivated by this goal. A fund full of unknown stocks will not be recommended by financial planners or understood by the public. Unusual funds are quickly labeled “too risky” and disappear.

Mutual fund families comb through the stock picks of each fund and assure that a minimum number of the popular index stocks are present. Managers who vary too far are reprimanded and eventually fired if they do not conform.

FINANCES – NO CDO BENCHMARKS

admin — Thu, 23 Apr 2009 10:21:43 +0000

Analyzing CDO performance is challenging because there is no publicly available secondary market data. Furthermore, there are no readily available performance statistics or CDO indexes to gauge total returns. Certain proxies for CDO collateral performance exist, such as leveraged-loan closed funds (as a proxy for CLOs), synthetic residential MBS indexes, and leveraged-loan indexes, but due to structural and managerial differences, these are not always a good substitute for the various notes in the CDO structure.

Still, there is ample information available to investors to monitor their individual transactions. Most dealers publish surveillance reports. Moody’s publishes a series of monthly reports (see the appendix to this chapter) that detail CDO performance, broken down by vintage and collateral type. These reports are the closest publication we have to a market performance matrix. Moody’s even details CDO equity returns. The reports are extremely beneficial when examining macrotrends in the CDO market but, because names are not listed, the reports cannot be used to determine the performance of specific deals.