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Bloomberg Markets Magazine

Bloomberg Markets Magazine February/March 2018

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United States
Bloomberg Finance LP
Back issues only

in this issue

8 min
zoom with a view: how distance influences china watchers

WHEN IT COMES TO analyzing China, distance seems to make investors’ views of the world’s second-largest economy grow, shall we say, less fond. Whether it’s George Soros (who’s likened China to the U.S. before the 2008 subprime mortgage crisis) or Kyle Bass (who’s said the Chinese economy is built on sand) or Jim Chanos (who’s said, memorably, that China is on a “treadmill to hell”), there’s no shortage of gloomy outlooks. Overinvestment, too much debt, bubbly markets, faked data, Ponzi-like financial structures—the litany of looming pitfalls seems inescapable to many investors, especially hedge funds, based in financial hubs from Connecticut to Canary Wharf. That negativity is a sharp contrast to the majority opinion held closer to Beijing or Shanghai. There, booming consumption, a pickup in global trade, and an increasingly innovative…

2 min

Matthew Campbell is a Bloomberg News senior reporter based in London, where he covers global business, geopolitics, and economics. In “Where’s All the Cash Going?” (p. 72), he explores why Germans— who live in what is, in most respects, a hyperadvanced economy—are so attached to their physical currency, even as electronic payment options explode in popularity elsewhere. “For most of us, how to pay for a purchase is just a matter of convenience,” Campbell says. “But in Germany, preferring hard cash has much deeper connotations, with roots in the war years and even earlier.” Some important marketmoving stories are produced today by Bloomberg algorithms instead of the newsroom. Singapore-based application specialists Barry Porter and Thomas Labbe write about investors turning to artificial intelligence and machine learning in “How to Get an…

4 min
how the world’s oldest bond market is adopting the newest technology

MUNIS AND MACHINES Total par value of bonds out for the bid on {MBWD }. EACH WEEKDAY, hundreds of dealers and institutional investors trade billions of dollars’ worth of municipal bonds on electronic platforms. A About 60 percent of the interdealer trades of municipal securities are executed electronically these days, according to the Municipal Securities Rulemaking Board. The trend toward electronic trading has been building for a while, and lately it’s accelerated. Why would the muni market be different from others? For one thing, the world’s oldest bond market is also the most fragmented. Punch up {MSRC }, the Muni Bond Search function, and you can quickly see that there are almost 1 million different muni bonds outstanding. By contrast, the Vanguard Total Stock Market ETF seeks to replicate the entire U.S. equity…

6 min
does a flattening yield curve mean recession?

EVERYBODY’S TALKING ABOUT the yield curve, and it’s not hard to see why. In 2017 the U.S. Treasury 2s-10s curve touched its flattest level since the period that immediately preceded the global financial crisis a decade ago. Given the curve’s reputation as an oracle of economic performance, the flattening has raised concerns in some quarters that the Federal Reserve is making a policy mistake that will tilt the economy into recession. But is the popular narrative that a flattening curve heralds an economic downturn—and an equity bear market—actually true? I’m a macro strategist who writes Bloomberg’s Macro Man column; I’ve also recently started a MythBusters-style series in these pages where I challenge some of the most basic assumptions in finance. For my latest endeavor, I decided to examine whether the curve-downturn…

6 min
looking for a value factor in bonds? here’s one way to spot opportunities

Go to {DRSK } for quantitative estimates of the credit health of a selected issuer. IN EQUITIES MARKETS, the best-performing factor over time has been value. The Bloomberg U.S. Pure Value Portfolio, for example, has far outstripped other equity factors, returning 147 percent from 1999 through 2017. By contrast, the second-strongest factor, size, generated a return of –28 percent over the period. Factor models, of course, are based on the idea that some part of a security’s returns can be explained by the characteristics it shares with other stocks. But what about fixed income? In a low-yield environment, many bond market participants are actively researching ways to tap intrinsic value to enhance performance. One approach could be this: Use Nobel laureate Robert Merton’s model framework to figure out the implied probability of default…

4 min
activists use pay as a lever— and now you can, too

For details of CEO pay at major U.S.companies, go to {PAY }. ATTACKING CEOS! Shining a light on boards’ shortcomings as independent overseers! Girding for proxy battles! To do those kinds of things, activists often focus on executive compensation. Pay has become even more important in the years since the financial crisis, which underscored how poorly thought-out incentive structures can motivate bad behavior. Shareholder votes on executive compensation have focused the attention of some of the world’s largest institutional shareholders on the link between pay and company performance. That’s opened an additional avenue for activists to shore up support for their proposals, says Steven Balet, a managing director and activism expert at FTI Consulting Inc. “Activists don’t necessarily have an issue with the quantity of pay, which makes sense coming from a hedge…