Category Archives: Risk Management

Jamie Dimon on JPMorgan’s Big Data Strategy

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Large banks like JPMorgan have always had big data, but in a letter to shareholders released Wednesday, JPMorgan CEO Jamie Dimon likened the difference between yesterday’s and today’s big data to the difference between a rotary phone and a cellphone.

“To best utilize our data assets and spur innovation, we have built our own extraordinary in-house big data capabilities – we think as good as any in Silicon Valley – populated with more than 200 analysts and data scientists, which we call Intelligent Solutions,” Dimon wrote.

Dimon outlined at least five ways the firm has incorporated big data into improving business processes. In the corporate and investment bank, big data is being deployed to improve operational efficiency by analyzing errors. In custody for example, the firm uses big data to identify and find the root cause of breaks in processes or variances in the net asset values of funds. The result has reduced the operational burden and improved client service, Dimon wrote. Continue reading

VIX Products in High Demand by Investors

Volatility arbitrage though not new, has taken on a new dimension, as several new hedge funds have begun to deploy strategies involving VIX futures and options. We’ve seen the VIX universe continue to expand in surprising ways. For instance, a major investment group that principally trades energy and interest rate products, recently became a Trading Privileged Holder, or TPH at CFE. Other new users include European investors trading VIX products against fee stocks, a measure of volatility of the Euro Stocks 50. And banks in Brazil, now actively using VIX products for macro hedging. We also see increasing numbers of customers that sell implied volatility short, which has been an active topic in many trading forums. Its important to note we are still in the early stages of developing previously-identified customer segments globally, such as hedge funds, CTAs, proprietary trading firms and institutional investors. Many customers in these categories are early adopters meaning there is considerable room to further expand every category of VIX user. Quite simply, we believe investors of every type can potentially benefit from the added dimension of pure volatility provided by VIX futures and options, and that education is the key to unlocking that potential. – Ed Tilly CEO, CBOE (Q1’2014 Earnings Call, source: www.SeekingAlpha.com)

Paul Singer on Financial Markets 2014

Paul Singer has survived in the financial markets for 40 years, and that means a lot. He has seen almost every kind of event and volatility, and that kind of experience brings valuable insights for all of us. His cautious view for 2014 given the steep run up in stock markets with easy money from the US Fed Quantitative Easing (QE) over last 5 years since 2008. Here’s a brief interview with him at Davos in Jan 2014.

Wall Street Crash, October 1929

This post is probably the most valuable post on this website, for the amount of history, learning, wealth and losses it captures, and lessons that are as relevant today, as they were in the Wall Street Crash, October 1929. Please read and share. Thanks.

Claud Cockburn, writing for the “Times of London” from New York, described the irrational exuberance that gripped the nation just prior to the Wall Street Crash, October 1929 and the following Great Depression of the 1930s, the bread lines, the apple sellers, etc. As Europe wallowed in post-war malaise, America seemed to have discovered a new economy, the secret of uninterrupted growth and prosperity, the fount of transforming technology:

“The atmosphere of the great boom was savagely exciting, but there were times when a person with my European background felt alarmingly lonely. He would have liked to believe, as these people believed, in the eternal upswing of the big bull market or else to meet just one person with whom he might discuss some general doubts without being regarded as an imbecile or a person of deliberately evil intent – some kind of anarchist, perhaps.” Continue reading

Lehman Brothers Case Study

This is an ongoing post to study what exactly happened to Lehman Brothers.

Sep 15, 2008: Lehman Brothers was the 4th largest investment bank in the world. Why was Hank Paulson smiling the day Lehman Brothers was declared bankrupt? Did he play a role in the denial of US Govt support for Lehman Brothers at a critical juncture? Nobody knows that. But what one surely knows is that Hank Paulson is ex-Goldman Sachs and Goldman Sachs is a long term beneficiary of Lehman Brothers fall. Agreed that Lehman had much higher leverage (about 40x) than its peers (20x), so their balance sheet was much higher in risk. But if US Govt could support other large financial organizations like AIG, Fannie Mae and Freddie Max, maybe they should have offered some “short term support” to Lehman Brothers too. In credit crunch situation, time is all that one needs, and with a bit of time, Lehman could have got a chance to get sell some of its assets to raise capital or raise fresh capital from its long term investors globally. The US Govt’s/ Fed’s attitude of “not a single dollar to support you” towards Lehman Brothers was not logical and it harmed the global financial markets, including US economy. Continue reading