Search results for: Search

The Search for Earth Proxima

Since astronomers first discovered exoplanets in 1995, we’ve come to learn that there are a staggering amount of planets out there in the universe. But, we have yet to find one that’s habitable, aside from our own. The Search for Earth Proxima is a short documentary about a group of scientists and their mission to build a telescope to hunt for an Earth-like planet around our closest neighbor: Alpha Centauri.

The Search for Earth Proxima

The Search for Earth Proxima from Speculative Films on Vimeo.

Source: Speculativefilms

Inverting Wall Street’s Research Business Model




Over the past few weeks, I have been highlighting all of the blog redesigns we have been rolling out in the office. If you are here reading this, you are already familiar with The Big Picture, and probably know Josh’s Reformed Broker. Ben, Josh, Mike, Tony as well as this site have all received a thorough update — light, fast loading, mobile-friendly (up next is Kris).

I have consistently been asked by people over the past decade “Why bother doing this?” Why go through all of the effort, time and expense to publish specific research, analyze markets and investor behavior, and then publish it — for free?

To fully answer that question, we need to place what we do in the context of Wall Street’s traditional business model for research.

Not too long ago, company-specific, market and economic research played a significant role in Wall Street’s financial ecosystem. All of the large bulge bracket brokerage firms (and most of the rest) had a robust research department. They would release reports on specific companies, analyze broad market trends, discuss the state of the economy. It was the destination job on Wall Street for wonks coming out of school, a glamorous gig for MBAs and CFAs.

And, it attracted enormous fees from clients:

  • Institutional firms at one time paid 15 cents/share and higher as trading commissions. This got them detailed company analysis, and so much more: Access to the early calls on any market moving news tracked by analysts that might not immediately be available publicly. Upgrades and downgrades, changes in earnings forecasts, whisper numbers all helped mutual funds, hedge funds, pension funds and endowments add Alpha;
  • Underwriting raised investment capital from the investing public on behalf of public firms by issuing securities (IPO, secondaries.) and debt (Bond issuance); Clients clamored for the hot issues, it grew into a huge profit center;
  • Mergers & Acquisitions counsel was provided for companies in terms of structuring deals, financing them, evaluating their fairness, etc.
  • Private banking was offered to executives at all of the above covered firms. This included everything from managing their own internal ESOP to assets for the execs.

All of the above is perfectly valid approach to making money and servicing clients; it used to be extremely lucrative. Today, it is a service and a moneymaker, but far less so than it once was.

But what is most noteworthy about this is what’s missing from the list: Serving the investing public. It is not found anywhere on that list, as that was never the business model of Wall Street. Indeed, as we learned during the analyst scandals following dotcom collapse, oftentimes, the public was not only not served, but done an active disservice. That is not a valid way to do business in financial services.

Over the ensuing 15 years, the world changed. Adapt or Die was the internet’s challenge, as everyone’s business model was threatened. Media slashed budgets; insightful economic and market analysis was in short supply, even Wall Street changed up its research model.

It was into that environment that this blog was born. The initial intentions were modest, without fantasies of disrupting the big guys. It was simply a quiet place to express some thoughts and to explore a few ideas.

But the world was rapidly changing. Blogs became a place where people went to to get insight and expert opinion on issues they were not hearing from Wall Street research or main stream media. Straightforward analysis — with no promise of a commission transaction or compensation of any sort — freed up authors to write about whatever they wanted, however they wanted.

If people read it or not was almost besides the point as sites became a forum for the honest exploration of important finance, economic, market and investing topics. It was a big deal when we achieved 20,000 and then 100,000 hits. Leading up to the financial crisis, readers found a rich ecosystem discussing ideas that had never really gotten past the gatekeepers in traditional media or finance.

Which leads me to our present business model.

If the precise opposite of the Wall Street version discussed above can be imagined, thats what ours would look like. If theirs looks is a pyramid — highest gross fees at top, huge numbers of lower fee paying at the bottom — the vast majority of their research clients paying them for access to password gated content along with all manner of ancillary services, ours is free. We (Josh,BenMike, Tony, Kris as well as this site) give away lots of insightful perspectives on markets and investing without any expectations of compensation from the vast majority of our readers. Its an inverted pyramid.

We hope to accomplish numerous things by this process:

• Educate readers as to what is actually going on in the markets and the economy — and what it means;

• Teach people a smart way to invest their own money;

• Explain the risks their own actions create from a behavioral perspective;

• Reveal the many ways The Street can take advantage of them;

• Explain to even sophisticated institutional investors how they should best position their portfolios;

• Have an intelligent debate about the larger regulatory issues covering this field;

• Explain investing with an historical, data-driven, evidence-based approach.

We do this because we are driven by a fire within that compels us to do it. We know too much about the wrong ways things are done in our profession, ranging from conflicted advice to overpriced products to the myriad ways salespeople use fear and greed to separate unsuspecting folks from their money.

I used to joke, saying I blog “to help quiet down the voices in my head,” but many a truth is spoken in jest. The nonsense and frustrations we all witness in this industry everyday is a red hot ember that drives us, a prime motivator to push back against the endless firehose of bullshit that the Wall Street machinery manufactures. The single biggest and most profitable product that the Finance Factory cranks out every day is bullshit, and each version of it is slicker and better and more dangerous than whatever came before. Bullshit 3.0 caused the financial crisis, I lose sleep worrying about what Bullshit 4.0 is going to do.

To answer our original question: Our research business model is to create a countervailing narrative to this endless flow of money-losing foolishness. We know that not everyone will be saved, but we can at least provide enough information, data and commentary that an intelligent web surfing investor can find ways to save themselves from the Finance Factory’s finest foolery.

I assume some small percentage of readers might think, “Hey, these guys are smart, they know what the real deal is, I’d like them to manage my assets.”

If 1% of readers become clients of RWM, that would be lovely (reach us at In the meanwhile, we end up sharing lots of great insight with the public who desperately need something better than what they have been forcefed.

If we can do well by doing good, that is a model I believe we can not only live with, but be proud of also.

MiB: Paul Desmond of Lowry’s Research

This week on our Masters in Business interview, we speak with Paul Desmond of Lowry’s Research. He began at Lowry’s in 1964 and has been there ever since. (Lowry’s is the oldest continually operated technical research firm in the United States).

Desmond is the winner of numerous technical awards, including the Charles H. Dow award. He is known as a technical analyst’s analyst.

The full podcast is available on iTunesSoundCloud and on Bloomberg.  Earlier podcasts can be found on iTunes and at

Next week, we speak with Mario Gabelli of Gabelli Asset Management.

MiB: Paul Desmond of Lowry's Research

This week on our Masters in Business interview, we speak with Paul Desmond of Lowry’s Research. He began at Lowry’s in 1964 and has been there ever since. (Lowry’s is the oldest continually operated technical research firm in the United States).

Desmond is the winner of numerous technical awards, including the Charles H. Dow award. He is known as a technical analyst’s analyst.

The full podcast is available on iTunesSoundCloud and on Bloomberg.  Earlier podcasts can be found on iTunes and at

Next week, we speak with Mario Gabelli of Gabelli Asset Management.

Firing a Researcher on Fiduciaries for Breaching A Fiduciary Duty

Over the years, I have written and spoken positively about the fiduciary standard (see e.g., this or this or this). Simply stated, a fiduciary is obligated to put the client’s interest first. Period. It is higher duty of care owed to clients than the traditional broker “suitability standard.” I’ll say more another time about why the new Department of Labor standards are the correct approach.

However, a recent development is so rich with irony that I could not wait to comment.

It is no surprise that the financial services industry not presently governed by the higher standard is against the new rules that the Department of Labor has proposed for making 401(k) and 403(b) advisers. It requires that all compensation-related retirement plan  advisers must act as fiduciaries.

The reason for the opposition is simple: It potentially costs the industry a boatload of money. The change in standard requires the  adviser to put the client’s interest ahead of even the  adviser’s own pecuniary interests. That is a huge change.

The thinking behind the Labor rules is that retirement investment costs have slowly inched up, to the point where now they take a meaningful chunk out of people’s nest eggs. The SEC, despite aresearch report and staff recommendation that all  advisers and brokers move to the fiduciary standard, has been politically unable to accomplish that goal.

Former SEC Chairman Arthur Levitt has called the lack of congressional support for the rule is a “national disgrace.” The White House Council of Economic Advisers estimates retirement savings with the fiduciary rule could be more than $200 billion over 10 years.

The Department of Labor gets to regulate 401(k)s because they are part of employees’ total compensation package. They do not have the same political process as the SEC, and perhaps most important to this aspect of regulation, they don’t have five political appointees of which a majority are required for any rule change. Hence, the Labor Department was able to do by fiat for 401(k)s what the SEC could not do for the entire industry.

There is a lot of money involved. How much? As an example, let’s consider the lowly 12b-1 fee. It is a marketing fee paid to various agents to use their mutual funds. To grossly oversimplify this, think of it as a similar fee that food companies pay supermarkets for prime shelf space. Mutual fund companies pay brokers to carry these funds on their platforms.

To show you just how warped this corner of the industry is, 12b-1 fees can be as much as 0.25 percent of assets, and somehow “still call itself a no-load, or no-commission, fund” according to a Wall Street Journaldiscussion of fees; they are allowed to be as high as 1  percent.

That adds up. Morningstar crunched the numbers, and determined that for “the industry overall, the figure is from $12 billion to $15 billion.” To give that some context, the total annual U.S. box-office receipts for domestic film sales are less than that at $10 billion; the National Basketball Associations total revenues — ticket sales, television broadcast rights, clothing, licensing deals, merchandise, etc., are only $7 billion. This little fee that you probably did not know about is bigger than the NBA, bigger than Hollywood.

And that’s just one small fee. The total of all fees involved likely exceeds $100 billion. With all that money at stake, the industry threw a lot of firepower to protect its fees and fight the changes. It hired lobbyists, paid think tanks for position papers, wrote op-eds and hired a bunch of flunkies to promote its views on social media.

Here is where it starts to get interesting.

Many of the people working against the implementation of the fiduciary standard are hired guns. You might think that in fighting against an implementation of the fiduciary standards, the players involved would, well, take care to not violate whatever duties of care they owe to their various employers.

You know, like a fiduciary would.

We learned via the Washington Post blog Daily 202 that a non-resident Brookings scholar, Robert Litan, failed to comply with a rule the think tank has “prohibiting those who are generally not paid by the institution from associating their congressional testimony with the think tank.”

In other words, from acting in their own self-interest instead of in the interest of the firm they are ostensibly performing research for.

Senator Elizabeth Warren, the former Harvard Law School professor, is in favor of the fiduciary standard. She noted the violation of Brookings rules, calling its report “highly compensated and editorially compromised work on behalf of an industry player seeking a specific conclusion.” The researcher was fired by Brookings.

The study had a single sponsor, the Capital Group, which also manages $1.4 trillion through its subsidiary American Funds. They also oppose the Department of Labor’s rules.

It just goes to show what happens when you try to serve two masters.

Originally published as: A Fiduciary Critic, Representing Whose Interest?



Searching for Higher Wages

Searching for Higher Wages
Luis Armona, Samuel Kapon, Laura Pilossoph, Ayşegül Şahin, and Giorgio Topa
Liberty Street Economics, September 2015


Since the peak of the recession, the unemployment rate has fallen by almost 5 percentage points, and observers continue to focus on whether and when this decline will lead to robust wage growth. Typically, in the wake of such a decline, real wages grow since there is more competition for workers among potential employers. While this relationship has historically been quite informative, real wage growth more recently has not been commensurate with observed declines in the unemployment rate.

Of course, there are several other important determinants of wage growth that are missing from this useful yet simplified correlation. Typically, an individual’s earnings path is thought of through the lens of a “job ladder” model. In this framework, a worker may enter the labor market unemployed, actively searching for a suitable job. Once securing employment, she can search on the job for better employment, and can be selective about which jobs to take because she has her current job as a fallback. One of these opportunities might lead to a better quality match and thus higher wages. At this point, the search might begin again, until an even better job is found, and wages grow yet again. Hence, we can think of workers climbing a job ladder through their working lives, with each rung of the ladder leading to better quality jobs and pay gains.

If a significant portion of wage growth can be attributed to job-to-job transitions that are associated with movements up this ladder, the job-to-job transition rate would be an important indicator for wage growth. Normally, movements in the unemployment rate and in job-to-job transitions (workers moving from one job to another without going through unemployment) go hand in hand (see the pre-2000 period in the chart below). However, in recent recessions and recoveries, this link has weakened considerably (see the post-2000 period). If wage growth is driven primarily by job-to-job transitions, then perhaps recent changes in the job-to-job transition rate—rather than the unemployment rate—can do a better job of explaining the recent dynamics of real wage growth.

Unemployment and Job-to-Job Transition Rate

We use data from a special survey fielded in October 2013 as part of the New York Fed’s Survey of Consumer Expectations to shed some light on the implications of job-to-job transitions for wage growth and other job attributes. In particular, we look at current job outcomes of respondents in our survey, and are able to distinguish between workers who started their current jobs immediately after ending their previous jobs versus those who experienced a nonemployment spell between their previous and current jobs.

We find that—even when looking at similar workers—those who came into their current job through a job-to-job transition fare significantly better than those who experienced a period of nonemployment, along many dimensions.

The table below shows various (current and previous) job characteristics for these two groups of workers. We see both current and starting wages are significantly higher for those who arrived at their current jobs via job-to-job transitions than for those who experienced a spell of nonemployment. In fact, those who experienced nonemployment on average receive hourly wages similar to those on their previous job—signaling little or no wage growth. On the contrary, those who had a job-to-job transition experienced significant wage growth relative to the ending wage at their previous job.

Current versus Previous Job Characteristics

This finding holds even after conditioning on various demographic characteristics of these workers. As shown in the chart below, which plots the log ratio of current and previous wages conditional on various observables, differences in these characteristics are not responsible for the differential changes in wages among these two groups. Certainly, we cannot rule out the possibility that these workers are of different unobservable quality. However, the ending wage at their previous job is very similar across both types of workers, as we have seen in the above table, suggesting similar unobservable worker quality across these groups. (Hours at the previous job were similar, too.)

Distribution of Log Differences of Starting Current Job and Previous Wages

In addition, those who experienced a nonemployment spell between two jobs have significantly shorter tenure at their current job, as we see in the table below. To the extent that lower quality job matches are likely to be of shorter tenure than higher quality matches, this further suggests that workers who made job-to-job transitions enter higher quality employment relationships. Similarly, they are significantly more likely to receive benefits at their current job. So, not only are their wages higher, but other nonpecuniary attributes of the job are also better.

Characteristics of Current Job

Finally, those who experience a spell of nonemployment prior to their current job are much more likely to be searching again for a new job. Two in five workers coming from nonemployment are actively searching again versus 23 percent of those who did not experience a spell of nonemployment. As the chart below shows, those who search more (while employed) are significantly less satisfied with their current job. Thus, based on their current search behavior, workers who make job-to-job transitions seem to be more satisfied with their current match than those who experienced a spell of nonemployment.

Proportion Searching for New Job

In sum, the survey evidence suggests that workers who do not experience a spell of nonemployment fare better than those who do in terms of job quality. They have higher wages, are more likely to be receiving benefits, and are more satisfied with their jobs as is evident from their search behavior. All these factors are consistent with the job ladder story which attributes wage growth largely to job-to-job transitions that move workers to better quality matches. These findings support the idea that perhaps we should explore the importance of job-to-job transitions—rather than movements in the unemployment rate alone—when thinking about the recent dynamics of wage growth.

The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Luis Armona is a senior research analyst in the Federal Reserve Bank of New York’s Research and Statistics Group.

Samuel Kapon is a former senior research analyst in the Bank’s Research and Statistics Group.

Laura Pilossoph is an economist in the Group.

Ayşegül Şahin is a vice president in the Group.

Giorgio Topa is a vice president in the Group.