mutual investment club of cornell education series – alternative investments zachary peskin senior...
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Mutual Investment Club of Cornell
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Education Series – Alternative Investments
Zachary PeskinSenior Analyst - Macroeconomy
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Alternative Investments
Fixed Income Bills, Notes, Bonds Derivatives & Structured Products
Currency Commodities
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Fixed Income - Basics
Bond: a debt security where the issuer is obliged to pay interest and/or repay the principal at maturity
Issued by: Governments
National local
Corporations See last week’s presentation for
valuation basics
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Fixed Income – Importance & Risks
Why should we care? Part of a well diversified portfolio Predictable income Perceived as not risky (actually very risky)
Risks Interest-rate risk Credit risk Counterparty risk (more on this later)
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How is Fixed Income Traded?
How are they traded? Very different from stocks
Not on exchanges Bid/Ask spread like other securities Flow Traders Range from very liquid to very illiquid
Key securities: US Treasuries
2 year 10 year
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Fixed Income Alphabet Soup
CDS CDO MBS ABS RMBS Basically anything with a cash flow can
be securitized and traded
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Fixed Income - More Information
The Big Short – Michael Lewis Bloomberg Terminal
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Currency
The largest market in the world (1 trillion +)
Used in everyday life Especially important in cross-country
investments Important currencies:
USD Euro Yen Yuan CHF
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Uniqueness of a Currency Investment
Two sided nature of every trade Currencies are quoted in terms of other
currencies Example:
Buy Euros Implicitly short USD (or some other
currency)
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The Ultimate Macro Play
To analyze most assets, need two views: Company level Macro level
Currency is exclusively a macro view Factors that impact currency pricing:
Interest rates Monetary/fiscal policy Growth prospects Regulation
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How is Currency Traded?
Round lots of 100,000 Price quoted in terms of pips Retail investors (like us) can invest in
ETFs Usually very liquid Highly volatile When an investors buys or sells a
foreign asset an FX occurs Instruments:
Spot, forward, swap, future, option
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Currency – More Information
Bloomberg Terminal (or others) for pricing
Wikipedia article on FX Bloomberg video series on FX Take a macroeconomics class that
focuses on: Central banks/monetary policy International trade Financial economics
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Commodities - Basics
Raw materials used naturally in manufacturing, food products, transportation systems, etc.
Examples: Crude Oil Gold Silver Wheat Soy Beans Orange Juice
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Commodities - Importance
Many products are derivatives of their underlying commodities
Huge driver of macroeconomic trends Oil shortages during 1970s Food prices causing riots in Egypt and
Tunisia Driver of geopolitical trends and conflict
Oil in the Middle East Farmers in the Bread Basket
Certain countries are rich in valuable commodities
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How are Commodities Traded?
Regulated Exchanges standardization
Spot trading Forward contracts Futures contracts
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Even More Funky Investments
Insurance Linked Securities Cat Bonds
Convertible Bonds Parking Meters
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Trading – A Holistic View
Exchanges Equities Options Commodities Derivatives?
Over the Counter Fixed Income Currency Derivatives
High Frequency Trading
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The Reason For Complexity
To be able to capture all different risk/reward preferences
To be able to capture a view on the market
And maybe to confuse…
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Questions & Discussion
Where was I unclear? What do you want to know more about? The future of trading? Complexity of investments…
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