Throwing Out PowerPoint 2

by Rick Nason, PhD, CFA

Partner, RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com

 

In my previous blog I talked about changing over from PowerPoint to another presentation software.  There are several reasons for doing so, and to be frank a big part of the reason was to shake up my presentations.  We all need to make a change now and again to get our creativity mojo back.  (Am I dating myself by using the term “mojo”?)

 

PowerPoint is a great piece of software that has probably been abused more than anything else out there.  However there is no denying that it is a workhorse.

 

The one problem that I always had with PowerPoint though was the linearity.  It was one slide after another in a preprogrammed sequence.  It was hard to zig, when you needed to zig, and equally hard to zag when zagging was called for.

 

Risk management systems tend to be like that as well.  They tend to be workhorses for linear processes.  However risk is rarely linear.  Risk by definition zigs and zags.  Does your risk management system allow for you to zig and zag as well, or is it standard issue linear PowerPoint?

 

Has Austerity Gone Too Far? Unconventional Wisdom

by Don Alexander, MBA

Associate, RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com

  

As we noted in our blog dated Feb. 24^th on Risk Washing, managers/companies (policymakers) often cloak themselves with conventional risk management measures to produce results.  However, there are times when conventional policies may not produce the desired result.Giancarlo Corsetti & Gernot Mueller discuss the application of fiscal austerity and when it might not produce desired results in a VOXEU piece called Has Austerity Gone Too Far, Feb. 20^th,

 

Numerous countries facing debt problems have recently embarked on fiscal tightening.  Yet it is not clear if it is a cure or a self-defeating strategy.  The measures adopted so far are not seen as sufficient to stabilize market concerns about debt sustainability.     

 

The weak output growth caused by fiscal austerity when combined with a renewed economic slowdown may itself fuel market doubts about government solvency.  Higher funding costs, combined with lower activity, might thus worsen fiscal positions, defeating the very purpose of the initial tightening measures.  The evidence suggests that where sovereign risk is high, fiscal tightening remains an important avenue to reduce deficits while limiting the cost to economic activity. 

 

There are cases in which monetary policy is constrained in supporting aggregate demand and governments should avoid immediate fiscal contraction while committing to a credible medium-term deficit reduction.  The authors note the fundamental importance of sovereign risk for macroeconomic stability.  The problem is that countries experiencing debt and sovereign-risk issues are more vulnerable to adverse borrowing conditions in the broader economy. 

 

This has three implications: (1) fiscal multipliers are lower when sovereign risk is high; (2) pro-cyclical fiscal policy may help macroeconomic stability; and (3) there’s a need for policies beyond austerity.  The authors suggest policies to counter the output costs of fiscal austerity.  One way is to reduce the impact of sovereign risk on private-sector borrowing conditions.  Options include: existence of strongly capitalized banks; policies that may offset higher sovereign risk premia; and the availability of extra funds to provide liquidity.

 

Fiscal austerity is a necessary condition to bring down deficits and reduce sovereign risk.  However, in certain cases of high sovereign risk, austerity may have unintended consequences and other options are needed to contain sovereign risk premia and/or limit the impact on broader economic conditions.

 

As with risk management, conventional policies may not always produce the desired results.  Do you have this problem?   

 

For more on this follow the link: www.voxeu.org/index.php?q=node/7642

 

Rick and TED(x)

by Michael Arbow, MBA

Partner, RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com

 

It is with great pride that RSD Solutions wishes to announce that Rick Nason (Partner) will be speaking at the TEDx event in Halifax on March 11^th.  Rick will be providing the audience with insights he gained from his experiences as a trained physicist working on Wall Street.  This mash-up of science and business allowed for him to develop a unique perspective on risk and risk management which has become the foundation for his soon to be released book “It’s Not Complicated: The Art and Science of Complexity in Business”.  Interestingly, in all the years of TED talks, this will be the first in risk and risk management.  For this to we are also proud of Rick for pushing the barriers of risk management acceptance.

 

For more on TEDx in Halifax, NS and a background to Rick please follow the link: http://tedxhalifax.ca/

Throwing Out PowerPoint 1

by Rick Nason, PhD, CFA

Partner, RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com 

 

This seems to be a week of creating presentations.  I like presenting, but creating presentations is not really my favorite activity.  All of my best presentations are bespoke and are designed to zig when the audience wants to (or needs to) zig, and to zag when that is what the situation calls for.  PowerPoint is a wonderful tool, but it locks you down into a linear path when sometimes the situation calls for more flexibility.

 

To that end I have gone in search of new presentation software.  One that will allow for a more non-linear approach.  I found one that I liked Prezi (www.Prezi.com), and will be testing it out in front of a live audience later this week.

 

Prezi is quite easy to use, but there is still a nagging worry in the back of my mind.  The point is that I know PowerPoint.  My audience knows PowerPoint and what to expect with PowerPoint.  I am not sure how they will react to a whole new presentation style?  How will I react to a whole new presentation style?  What if I make a mistake with the new presentation format? Will people laugh at me?  No one I know has used this software, and I have only seen the presentations with it on the internet – and we all know that they were probably edited a thousand times to make sure they ran smoothly.  Oh my, I can come up with a thousand different things that might go wrong.  Well, actually I can only come up with four or five things that might go wrong, but I am sure that there are at least a thousand things that might go wrong ….

 

Does the above paragraph of whining and useless worry sound like you and your risk team when it comes to trying something new?  I bet it does.  Times change, things change, people change, and organizations change.  You and your risk department also need to change.  Now – where is that Word Perfect file that I just downloaded from my Tandy computer?

 

Throwing Out PowerPoint 1

by Rick Nason, PhD, CFA

Partner, RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com 

 

This seems to be a week of creating presentations.  I like presenting, but creating presentations is not really my favorite activity.  All of my best presentations are bespoke and are designed to zig when the audience wants to (or needs to) zig, and to zag when that is what the situation calls for.  PowerPoint is a wonderful tool, but it locks you down into a linear path when sometimes the situation calls for more flexibility.

 

To that end I have gone in search of new presentation software.  One that will allow for a more non-linear approach.  I found one that I liked Prezi (www.Prezi.com), and will be testing it out in front of a live audience later this week.

 

Prezi is quite easy to use, but there is still a nagging worry in the back of my mind.  The point is that I know PowerPoint.  My audience knows PowerPoint and what to expect with PowerPoint.  I am not sure how they will react to a whole new presentation style?  How will I react to a whole new presentation style?  What if I make a mistake with the new presentation format? Will people laugh at me?  No one I know has used this software, and I have only seen the presentations with it on the internet – and we all know that they were probably edited a thousand times to make sure they ran smoothly.  Oh my, I can come up with a thousand different things that might go wrong.  Well, actually I can only come up with four or five things that might go wrong, but I am sure that there are at least a thousand things that might go wrong ….

 

Does the above paragraph of whining and useless worry sound like you and your risk team when it comes to trying something new?  I bet it does.  Times change, things change, people change, and organizations change.  You and your risk department also need to change.  Now – where is that Word Perfect file that I just downloaded from my Tandy computer?

 

Reassessment of Euro Risk

by Don Alexander, MBA

Associate, RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com

 

 

The Euro rebound is stronger than anticipated as investors and central banks show an increased appetite for euro denominated paper as signs of a Greek debt crisis start to fade.  The rise in oil prices and surge in central bank reserves has triggered the demand for currency diversification. The euro is one of the few safe currencies that can absorb the growth of reserves.  As we have noted in our blogs of Feb. 26^th and Feb. 15^th, USD or Canadian dollar based investors may want to hedge potential euro exposure.

 

Analysts expect the demand for euro denominated assets to persist temporarily as oil prices remain elevated and central banks, especially in emerging markets, continue to diversify reserves.  This temporary demand for euro denominated may receive temporary support from political tensions in the Middle East and the false sense that problems in the euro peripheral countries have been resolved.  Longer-term, the risks to the euro remain to the downside as the sovereign debt crisis has evolved into a banking crisis and projected economic stagnation in Europe relative to the rest of the world.

 

Spreads on sovereign debt declined since the proposed settlement for Greece was reached.  There is a link between the decline in bond spreads and the ECB announcement the creation of the long-term refinancing operations (LTROs).  There is concern that banks will borrow from the ECB at low rates and buy sovereign bonds whose yields are higher, especially where banks are subject to local political pressure.  Policymakers realize that one of the necessary conditions to stabilize financial markets was the need for an explicit guarantee (such as the ECB) for sovereign debt.    

 

However, this move along with the other temporary financing facilities falls short of what is needed.  Greece and Portugal will not be able to grow with their existing debt burdens.  This could result in contagion spreading to Italy and elsewhere.  European growth is projected to be flat to negative for 2012 and only a modest in 2013, especially with significant budget cuts.

 

The temporary financing could make things more dangerous.  Any wave of sovereign defaults would create problems for the ECB as nearly euro one trillion in sovereign debt is due for rollover in the next 12 months.  The sale of overseas assets by European financial institutions to bolster capital and continued reduction of sovereign exposure by private investors could add to euro pressure.  European politicians have failed to address any of the underlying long-term structural issues facing euro such as monitoring and implementing policies deficit reduction among member states.

Matthew 25

by Rick Nason, PhD, CFA

Partner, RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com 

 

Matthew Chapter 25 in the New Testament of the Bible contains the well known story of the master who went on an extended trip leaving three different servants in charge of three different sums of money. 

 

To one servant the master left a large sum of money and the servant managed to double the amount through prudent investment by the time the master returned from his trip. 

 

The second servant who was given a medium amount of money was also able to double the amount for his master through making wise investments. 

 

The third servant was given a small sum of money to manage.  This servant was afraid of losing any money for his master, so he went and buried the money in a safe place until the master returned.  Upon return the master was furious with this servant for his misguided uber-conservatism.

 

While I do not believe that Jesus had risk managers in mind when he told this story, but he might have.  The question is what kind of a servant are you?  Another good question to ask is what kind of a risk master do you serve? 

 

 

Untitled

by Don Alexander, MBA

Associate, RSD Solutions Inc.

www.RSDsolutions.com

info@RSDsolutions.com 

 

Charles Wyplosz in a recent communique discusses the shift in risk from various European countries to a “de facto” implied guarantee by the ECB  (The ECB’s Trillion Euro Bet, VOXEU, Feb. 13^th.).  The amounts could be staggering as the ECB is taking enormous risk.  Currently, the ECB is holding over euro 200 billion in sovereign bonds from recent intervention and will face nearly euro 1 trillion rollover of European sovereign debt in 2012.  

 

Eurozone sovereign spreads have recently declined with the exception of Greece.  Charles Wyplosz argues that a good part of the drop in spreads is due to the perception that the ECB is “de facto” acting as the guarantor for Eurozone government debts.  The ECB leadership suggests that the decline in sovereign spreads is the result of country reforms. 

 

There is a link between bond spread contraction and the ECB’s long-term refinancing operations (LTROs).  The LTRO bought euro zone leaders time to get their act together.  Fiscal deficits are slowly declining as the sovereign debt overhang persists, the EU banking system remains undercapitalized (current estimates of euro 100 – 200 billion), and a euro-wide recapitalization facility for banks is missing.  Analysts suggest one method for crisis resolution is through the explicit guarantee of government debt. 

 

Previously, ECB officials argued this was not their mandate; it created moral hazard, exposed the system to increased financial risk and reduced politician’s incentive to make the necessary cuts.  The new ECB regime made the LTRO available to commercial banks, but does not do enough to resolve the crisis such as providing a long-term growth strategy.  Greece and Portugal will be unable to grow with their existing debt burden and this may also be the case risk for Italy and other countries as contagion takes hold.  

 

LTROs could make things more dangerous, especially if banks use LTRO cash to acquire more sovereign bonds.  Banks could borrow money from the ECB at very low rates (about 1%) and buy bonds whose yields are much higher.  A wave of sovereign default could turn these bonds into toxic assets and a trillion-euro problem.  The more the banks accumulate these bonds the riskier the situation becomes.  The problem is compounded by the fact that banks are regulated by national authorities and under pressure to increase their domestic bond holdings.

 

The ECB seems to be making a bet that the market is swayed by its recent action and provides a stable equilibrium.  Holding sovereign debt will be seen as safe and the ECB has saved the euro at a minimal cost.  However, the reversion to a stable equilibrium is not guaranteed.  Should markets conclude crucial policy actions are missing, the debt defaults will spread and Eurozone banks might fail imposing a massive cost to taxpayers and leading to further euro problems.

 

The ECB has bought time for authorities and has involved taking on enormous risks.  The lack action on long-term restructuring of the underlying euro treaty and the promotion of a long-term growth strategy could negate their action.

 

For more information on this follow the link:  http://www.voxeu.org/index.php?q=node/7617