Felix Salmon

Felix TV

Felix Salmon
Oct 13, 2010 13:45 UTC

What’s this about me getting some kind of online video programming before the end of the year?

Well, it’s all still a little vague and it’s very much a work in progress. But right now the idea is that I do a little rant into a video camera, and then the Reuters production wizards add some very cute bells and whistles and edit it down into something snappy and fun. Here’s a proof of concept, let me know what you think!


I’d really hate to see this kind of flip attitude about the markets coming out of Reuters. As a frequent reader of your blog, I also would not like to see you doing this kind of pandering, mainly because you don’t need to. You don’t need to dumb it down, even if you want to do video.

About this specfic piece, you don’t actually explain how people lose money on bonds. If this is supposed to be explaining something to someone who doesn’t understand how bonds work, you’ve left out a lot of stuff. For example, if payments are fixed, how can I lose money? So what if prices go down? Unless the company defaults on their payments, I will get my interest and coupon.

You also don’t explain that when people talk about a “bond bubble” they also seem to be talking about a “bond wall,” which is very real, especially if you don’t know what bonds your investment manger is putting your money in.

Full disclosure: I work at Thomson Reuters (not in editorial)

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Felix Salmon
Oct 13, 2010 05:45 UTC

Wall Street Doesn’t Get It datapoint of the day — NYO

Quantitative analysis of the difference between straights and gays — OKCupid

Improvisation, not plotting, behind Ecuador’s “coup” — Qorreo

Are hedge funds front-running their own 13F disclosures? Probably not, but they could if they wanted to — All About Alpha

Everything you ever wanted to know about MERS — SSRN


Muji –

No I completely agree with you that homosexual pairings can have a substantially higher rate of HIV transmission, as well as numerous other diseases. But a 4000% higher relative incidence of HIV must definitionally include promiscuity as well.

Here are survey results as published by The Advocate, a gay-oriented publication.

http://web.archive.org/web/2006083003222 1/www.advocate.com/2006_sex_survey_resul ts_02.asp

See question 9. About 30% report having had more than 50 lifetime partners, 20% have had more than 100 and 10% report more than 300.

These extraordinary figures relative to what is seen in the heterosexual community. Yet these figures comport with similar studies in this field.

For those who think AIDS is a bad thing and hope to see a future with much less of it, a little factual accuracy is in order.

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Tyson and Hubbard, blithe technocrats

Felix Salmon
Oct 12, 2010 19:24 UTC

Chrystia Freeland interviewed Laura Tyson and Glenn Hubbard here at Reuters this morning, and the whole thing was surprisingly friendly: the Davos-centric elite talking constructively about what ought to be done, and spending a lot of time agreeing with each other.

The whole interview took the classic form of a journalist asking experts what their opinion is about what should be done: here’s where the two sides agree, and here’s where they disagree. But from my point of view, all three of the people on camera are very much on one side of the much bigger, much more heated, and much more important debate — call it the technocrats versus the populists.

Laura Tyson, for instance, early on talked with an upturned nose about “the political atmosphere in the United States”. These people running for Congress, they oppose TARP, which we members of the elite all agreed was absolutely necessary. There’s “a poisonous atmosphere in terms of how one looks at the financial services industry or the business sector in general”. And she even uses the third person plural:

The population is furious with the leaders of government and the leaders of the business community, both the real business community, quote-unquote, and the financial markets, for getting us into this mess.  That’s how they see it.

Of course, that’s not how we see it. We don’t feel the need to make the distinction between the financial markets and the real business community. And the Obama administration — they’re good guys! They’re reaching out to the business community!

While Tyson looked out of touch, Hubbard was doing his best reasonable-Republican impression, agreeing frequently with what Tyson was saying while still pushing hard for the Bush tax cuts on the rich to be extended. Not to do so, he said, would constitute punishment of the rich, and we don’t want that. When Chrystia pushed him on that point, his mask slipped a bit:

But the bit we were all waiting for was for Chrystia to ask Tyson and Hubbard about Inside Job, the film where they both come off very badly. The film’s director, Charles Ferguson, contributed a pointed blog entry to Reuters about the two of them, saying that they “exemplify the disturbing, opaque conflicts of interest that pervade the economics discipline”. Certainly it’s odd that the two economists, whose entire profession is based upon the premise that incentives matter, should be so resistant to the idea that the millions of dollars they’ve earned from the financial-services industry might in any way color their actions or beliefs.

Chrystia put the question in the gentlest possible way, talking about

the idea that one of the things that created the financial crisis was that experts, policymakers, people like you, became too close to business, not because you’re bad, but because those are the people you hang out with, those are the people on whose boards you serve. And you started to see the interests of the collective — of the state, of the country — and the interests of business as being the same.

Ferguson’s thesis is much harsher, of course: he doesn’t just blame people like Tyson and Hubbard for the financial crisis; he blames these two individuals personally. (Among others.) And yes, he thinks that all that money has corrupted them, made them bad. Ferguson knew how Tyson would respond: “she has confined her remarks on the financial crisis to extremely vague statements about ‘greed,’ ‘human nature,’ etc.” he writes, and that’s exactly what she did, taking advantage of the way that Chrystia phrased the question to answer a theoretical question rather than a personal one.

But Hubbard’s response is more interesting:

I know in my own case, as somebody who’s advocated more regulation and a wholesale mortgage refinancing, I’m kind of a strange bedfellow with the financial services industry, if that’s Mr. Ferguson’s accusation.

Of course this is silly: insofar as Hubbard has advocated more regulation, he’s advocated exactly the kind of more regulation that the financial services industry would be perfectly happy with. And the financial services industry in general would love lots more mortgage refinancing, or any other kind of consumption of its services. Indeed, Pimco’s Bill Gross has been pushing that very idea quite loudly.

After watching the whole thing, I can’t imagine that it did Tyson any favors if she’s angling to replace Larry Summers at the NEC. She was good at talking about “the President’s policies” a lot, but she doesn’t represent the kind of change that the public is clamoring for — she’s happiest talking about economic theory in the abstract, and she’s much less good at relating it to the real lives of real Americans living on mere five-figure salaries. And, of course, there’s no indication at all that the public wants a board member of Morgan Stanley ($350,000 a year for turning up to a few board meetings) to replace Summers in the White House. We’ve had enough of bankers running the country, especially when they’re as out of touch as this, and when they refuse to answer hard questions from the likes of Charles Ferguson.


Bust ‘em Felix. I’m tired of Tyson, Hubbard, Summers, and all the rest of that generation of self-exculpating, leveraging-up enablers. They ought to be cashiered.

Put Austan Goolsbee into the game. His ideas couldn’t be any more ruinous than his predecessors.

As Helen Lovejoy often says: “Won’t somebody please think of the children?”

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How the Google car could boost electric-car sales

Felix Salmon
Oct 12, 2010 18:06 UTC

Google’s driverless car is one of those technologies which makes me feel old, in a bad way: I would dearly love to have been able to grow up with this technology. And I can’t wait for it to arrive: I’m not a very good driver, and I’m sure that taking a Google car would be much safer for both me and for other road users.

It could also cause a radical change in the economics of cars, making it much less attractive to buy them, and much more attractive to buy into something much closer to the NetJets model. Doron Levin has a keen insight:

Cars that don’t need drivers also may not need private owners – since they could be summoned remotely and returned once their journey is complete. Why take on a lease if you can purchase a subscription to a car instead? Car owners who never want to spend a saturday under the hood or in the waiting room of a mechanic’s shop again might quickly adapt to a car subscription model.

My guess is that in the first instance, at least, driverless cars are still going to require a driver sitting behind the wheel, much as airplanes on autopilot still require a pilot at the controls. So sending a driverless car back to its depot at night will be non-trivial. But eventually we’ll get there, and you’ll be able to rent a truck when you need a truck, or a zippy sportscar when you’re so inclined, or a big family wagon only when you need it.

One of the big problems with cars right now is that families buy the biggest car they’re ever likely to need. The family car might just be used to drive a single person to work and back most of the time, but because it might used for a family camping holiday once every year or two, the family ends up buying something huge, and the expense of that work commute rises substantially as a result.

Similarly, one of the big reasons why people are wary of electric cars is that every so often they want to take long car journeys which can’t be managed on a single charge. Up until now, the only solution to that problem is either to have a second, gasoline-based, car, or else to have a nationwide network of recharging stations which in any case are likely to take far too long to recharge the battery.

Car subscriptions would be a much better solution. You use an electric car most of the time, and then when you need something with greater range, you just swap it out for one of those instead.

So bring on the self-driving car! It could be exactly what we need to get most of us driving electric.


Car subscriptions sound like a really great idea. We wouldn’t need to always worry about when we should send our cars for servicing, and financially it would be much less of a burden. I hope this idea spreads around!


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How to attend the Value Investing Congress

Felix Salmon
Oct 12, 2010 16:04 UTC

It’s the Value Investing Congress today and tomorrow, I’m not sure whether I’m going to be able to make it at all, but you can be sure that lots of financial journalists will be filing breathless reports about various celebrity hedge fund managers’ investment ideas, and that the actual delegates at the conference will be even more excited about the prospect of getting to be in the same room as these multimillionaire investment stars.

It’s a highly artificial environment, where fund managers get to present their best case for why a given stock is undervalued. And if there’s one lesson to learn from going to this event, it’s that successful fund managers are also highly-accomplished salesmen. They’re fantastic at telling stories, and by the time their presentation is over, you’re all but phoning up your broker on the spot, telling him to buy as much as he possibly can.

It’s an amazing place for hedge fund managers to find and impress potential new investors in their funds: it’s that rare opportunity, for them, to speak to a large audience which has money to burn (tickets are $4,395 apiece) and which clearly is predisposed to like their ideas — all in a distraction-free environment where nobody is going to challenge their analysis with a bear case or otherwise interfere with the message being sent.

If you’re attending the Congress, then, I’d urge that you be highly conscious of your own human biases. You’ve spent all that money — now you want to get value from it, right? You’re actively looking for stocks to invest in, and managers to invest with. Which means that the bar has to be set very, very high. Indeed, I’d argue that the bar should be set infinitely high — that the best thing to do is simply sit back, take note of the stocks that everybody is talking about, and then rank them. Make a list with the ideas and managers you found most compelling at the top, and the ones you found least compelling at the bottom. Then, do nothing for one year, or whatever time horizon you think is sensible to judge the managers on. If three years is better, then use that.

At the end of that period of time, look to see if there’s any correlation at all between the ideas you found most compelling, on the one hand, and the trades and managers which ended up making the most money, on the other.

What you’re doing here is not judging fund managers — rather, you’re judging your own ability to judge fund managers. After all, there’s no point in taking someone else’s investment advice if you exhibit demonstrably poor judgment in working out whose advice to take.

Ideally, you should repeat this exercise a few different times — maybe at successive Value Investing Congresses, maybe at other such events. Eventually, you’ll get a pretty good idea of your own ability to discern someone else’s ability to generate alpha. Or, to put it another way, you’ll work out whether you’re capable of distinguishing genuinely good stock-picking ideas from genuinely good salesmanship. I’m pretty sure that I can’t do it, and as a result, no matter how rich I was, it would be a waste of money for me to spend $4,395 attending this event. If you think you’re better than me on that front, then feel free to attend: I wish you all the best of fortune. But it’s almost certainly a good idea to test that hypothesis first.


Investor conferences are also great for meeting other investors! Building relationships & sharing your thought process and concerns with other allocators that are facing the same pressures as you are is incredibly valuable.

Joe Ryan

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How Dealbook lost its HP scoop

Felix Salmon
Oct 12, 2010 14:16 UTC

The NYT’s Dealbook franchise spent a chunk of yesterday in internal discussions on how to use Twitter, which is hopeful. But first they should work on their ability to use the Web.

A nice little scoop fell into Dealbook’s lap yesterday, when Ray Lane, the incoming chairman of Hewlett-Packard, wrote a strongly-worded letter to the NYT in response to Joe Nocera’s column on Saturday. In it, Lane linked to a blog entry by Josh Greenbaum which also took issue with Nocera’s column.

Dealbook, however, didn’t publish the letter, which was clearly intended for publication; nor did it link to the letter elsewhere; nor did it link to Greenbaum’s post. Instead, in an unsigned post, it merely quoted two paragraphs from the letter.

And so it was left to Dealbook’s biggest rival, the WSJ — in the form of its All Things Digital franchise — to publish the letter. AllThingsD’s Kara Swisher obtained a copy of the email, posted it, and ended up outscooping the very publication to whom the letter was addressed.

All of which says to me that Dealbook still has a newspaper mindset, rather than a blog mindset; I guess the editors there felt that their job was to report on the letter, rather than simply publish it. (The FT clearly felt the same way: it reported on the letter, but neither published it nor linked to it.) It’s a bad habit left over from print days, and it shouldn’t happen on any newspaper website, let alone a blog.

Of course, if the letter is newsworthy, then it’s worth writing about. But if you have the letter, and if you’re writing about the letter, then there’s no excuse at all not to print the letter.

It’s worth noting, here, that AllThingsD is deliberately and consciously operated at arm’s length from the WSJ, with its own reporters, its own publishing technology, and its own offices in California. It’s a model the FT has aped with its new FTTilt operation, for good reason. As anybody who has ever worked at a blog inside a print newsroom will tell you, there are constant conflicts and internal fights when that happens, with the bloggers wanting to publish lots of stuff and the newspaper people holding them back for all manner of reasons.

I don’t know whether Dealbook wanted to print the letter and wasn’t allowed to, or whether it simply self-censored. But if it’s serious about becoming “the Politico of finance”, then it’s going to have to be much more aggressive on mini-scoops like this one. Win the lunch hour, people!


Felix Salmon
Oct 12, 2010 05:42 UTC

John Carney has the best explainer yet on the foreclosure crisis — CNBC

Cigar Guy Unveiled — Time

The best response yet to Andrew Sullivan’s 10th blogiversary — Atlantic

Steve Rattner on Sheila Bair — Economics of Contempt

Justin Bieber launches nail polish line. On National Coming Out DayReuters

Joan Sutherland, 1926-2010 — SMH


Here is a good oldie on servicing:

http://www.calculatedriskblog.com/2007/0 2/tanta-mortgage-servicing-for-ubernerds .html

Much missed…

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When brokers aren’t followed

Felix Salmon
Oct 12, 2010 05:13 UTC

I can’t help but think that UBS’s widely-publicized tax issues are hurting its U.S. brokerage:

UBS AG executives are trying to squeeze more production out of several hundred brokers in the U.S. who received bonuses to join the company but haven’t brought in enough clients or other revenue to become profitable for the Swiss bank. UBS has about 6,700 brokers in the U.S.

Senior managers in the division such as its chief executive, Robert McCann, have been pushing some new brokers for about six months to “win back” their old clients.

Broker-poaching is commonplace in the brokerage industry and is universally predictated on the idea that clients are much more loyal to their broker than they are to their broker’s firm. So if a broker moves from Morgan Stanley, say, to UBS, then that broker’s clients are expected to move with her.

Except, this doesn’t seem to be happening at UBS, which lured away brokers with the promise of large bonuses and then saw those brokers’ former clients stay put, refusing to follow their broker to the now-notorious Swiss bank.

This could also be related to the move from active to passive investing. Stockbrokers are by their nature active investors, picking stocks and looking after your investments. Maybe the departure of your broker from one shop to another is as good a time as any to ask whether you need a broker at all or whether you should just put all your money in ETFs. Especially if your broker turned out to give bad advice during the crisis, buying just before the market crashed and selling near the bottom.

The human touch is valuable, of course, but it’s not worth nearly as much as most brokers earn or as most of their clients end up paying. Hire an independent financial adviser, if you must, to help you out with asset-allocation decisions and to hold your hand in times of market turmoil. But just like picking stocks or picking fund managers or even picking a stockbroker, picking a good financial adviser is hard. Go for one with a minimalist approach: in general, less is more. If they tell you they’re smarter than everybody else, run away.


A few snippets from working in the industry:

Clients, in general, have no idea that UBS has tax issues. How they form their perspectives on reputation of brands is a haphazard amalgamation of marketing, popular editorials, and exceptionally personal experiences.

Clients will abandon a relationship of 15 years when a broker jumps ship because they like going into the (same) branch to deposit checks. Client decisions on brokers are idiosyncratic and have little to do with performance or firm.

Clients have no idea how to tell if their broker gave them bad advice. They know if their broker didn’t call them or make them feel like they were getting good advice, but most statements and available data provided by the brokers’ firms to clients is just enough to make clients feel like they know what is happening, but no where near enough to make a decent comparison.

Clients want to have a broker that is smarter than everybody else. In fact, half of what they are paying for is to be told that their broker is smarter than everyone else (this applies both to stock pickers, mutual fund pickers, and passive managers ["listen, I'm so smart that we're not even going to play this beat the market game"]).

The (broker) human touch is valuable (full disclosure: was a broker, talkin’ my book). Hard to say whether it is more valuable to blow up your e*trade account yourself (in double leveraged etfs!) or have a broker blow up your account for you. Surely some brokerage house has the data to do it, but like they’re going to give it to me…

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Can we trust the WSJ on Wall Street pay?

Felix Salmon
Oct 12, 2010 03:45 UTC

Back in January, the WSJ’s Stephen Grocer ran an startling article about Wall Street’s 2009 bonuses:

An analysis by The Wall Street Journal shows that executives, traders, investment bankers, money managers and others at 38 top financial companies can expect to earn nearly 18% more than they did in 2008—and slightly more than in the record year of 2007.

On further examination, however, the assertion that Wall Street bonuses were going to hit a record high turned out to have a serious flaw: the calculations for that “record year of 2007″ excluded the likes of Bear Stearns, Merrill Lynch, and Lehman Brothers.

At least in January a critical reader could pick up on that flaw, by reading this paragraph in the right way:

The increase in both revenue and compensation is due partly to the industry’s consolidation during the financial crisis. J.P. Morgan, for example, acquired Washington Mutual Inc. and Bear Stearns Cos. Bank of America bought Merrill Lynch & Co. and Countrywide Financial Corp. Those deals inflated revenue and compensation because the acquirers’ financial results now include the purchased companies.

Obviously, those acquisition deals wouldn’t have inflated total Wall Street compensation if the likes of WaMu, Merrill, and Countrywide were included in total Wall Street compensation figures all along.

Today, however, the WSJ runs much the same article, but with no such giveaway that the data is flawed.

Pay on Wall Street is on pace to break a record high for a second consecutive year, according to a study conducted by The Wall Street Journal.

It’s simply intellectually dishonest to say that a 2010 payroll of $144 billion would constitute an all-time record if you aren’t comparing that sum to total Wall Street pay in 2007.

But it gets worse: at least the January article was largely based on public securities filings. Today’s article, by contrast, is simply based on a survey, which the Journal isn’t publishing and whose methodology we’re not privy to. It’s not even entirely clear whether the Journal survey of 35 firms is the same as the eFinancialCareers survey of 5,671 bankers and financial professionals cited in a sidebar chart.

So please, WSJ, when you’re writing articles about the highly-sensitive subject of Wall Street bonuses, be as transparent and accurate as you can. Explain where you’re getting your numbers, explain exactly how you’re calculating them, and explain any weaknesses in the methodology. You can still have your sensationalist headlines, but if readers want all the relevant information, there’s no reason you shouldn’t give it to them.