FIRST MEETING OF THE EU BUSINESS SCHOOL'S FINANCE CLUB

AM | @agumack

We finally had the first meeting of the EU Business School Finance Club. Congratulations to Luka! Let us remember the date: February 7, 2017. It's all about persevering! We discussed a number of ideas about ... what to do at the Club. The truth is that we still don't know in what direction we are going to take it. We discussed some proposals about running investment portfolios. Nikita showed us how a Swedish bank was sponsoring a portfolio contest at a Latvian university—with both long-term and short-term investments. The winners get real money. Interesting idea! Another participant suggested inviting guests to discuss big data and the use of algorithms in the context of asset management. That would be really useful.

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I briefly discussed my views on what to do at the Club. I am a rather bookish person, so book reviews will always be part of my suggestions. I could review Ruchir Sharma's The Rise and Fall of Nations. Forces of Change in the Post-Crisis World (New York: W.W. Norton, 2016); I already mentioned the chapter about "Good Billionaires, Bad Billionaires" in the course on Ethics in the Financial World. And Prof. Damodaran's book is high on my agenda too (we have already ordered it at EU Business School).

At the next meeting I plan to introduce three 'products':

1. The EU Business School Finance Club's Financial Conditions Index. It combines a number of credit market indicators (spread Treasuries/speculative grade bonds, the US yield curve, the iTraxxEurope Crossover CDS index and the iTraxxBRIC CDS index), a few exchanges rates to the USD, and some commodity prices. It is already up and running, so I'll post shortly about it.

2. The EU Business School Finance Club's Global Dollar Liquidity Indicator. It comprises the stock of foreign central banks' holdings of US Treasury bonds under custody of the US Federal Reserve, and the Fed's own 'Fed credit' item on the asset side of the central bank's balance sheet. See our first post. 

3. The EU Business School Finance Club's Country Risk Index. It combines a series of governance measures —judicial independence, freedom of the press, network readiness and central bank independence— that indicate the strength of political checks and balances in each country. I trust that the diversity of our student base will help us to improve the index over time.

Finally, I provided some views on the extraordinary challenges faced by active asset managers. On the one hand, the Vanguard juggernaut continues unabated. On the other hand, quants appear to be the only salvation for active asset managers. But where does that leave traditional discounted cash flow valuation? Questions, more questions.

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