After JPMorgan’s $2 billion loss that’s likely related to the London whale (love that nickname), Jamie Dimon’s rants against the evils of Wall Street regulation and the Volcker rule look shakier than ever. Now i’m not usually one for heavy regulation- I do think governments hardly have the expertise to tell businesses/banks how to run themselves, but at the same time, the size of the finance industry in today’s day and age is getting somewhat out of hand.
To put things into perspective, research done by a NYU finance economist showed that even though the internet age has brought leaps and bounds in financial technology and innovation, the costs of have actually increased more than the benefits, implying that the finance sector today is actually more inefficient than a century ago.
Phillippon, the economist, takes into account the output of finance e.g. matching savers with borrowers, pooling risks, and producing information through price changes, and the costs, total compensation for providing such services. He then estimated the unit cost of the financial middleman, which was 1.3 percent of all financial assets percent in the early 1900s and amounts to some 2.3 percent currently, with much of the rise having occurred since the 1970s.
Now i know it’s just one research paper by an academic, but if the way he’s calculated the costs and benefits is reliable, then this really an interesting bit of information to consider when weighing the pros and cons of regulating Wall Street.
The Business Week story has more details.
With the world entering another protracted deleveraging cycle, we are set to enter another decade of low returns. At a recent presentation, a top executive from one of the largest sovereign wealth funds in the world said the typical ‘buy and hold’ strategy for equities would no longer work. Gone are the equities boom of the 80s and 90s. It is no wonder then, that the super rich of the world are increasingly looking at other sorts of alternative investments to park their money.
In the last few years, rare whiskeys have become more highly sought after by investors. Even Johnnie Walker, which isn’t normally associated with top-end scotch, recently sold their ‘diamond jubilee’ collectors’ bottle for $150,000 each. Whiskey could be the new “wine-investing”, and one guy is already planning to open a club in New York for whiskey investors.
The global demand for the potent amber fluid has been steadily rising over the last few years, leading to triple-digit returns for investors and collectors of the top-performing whiskeys, according to Whisky Highland, a firm that provides valuations.
According to the FT, single malt scotch whisky experienced the best gains in value last year and is far more sought after than blends or foreign whisky. Also, for investing stick to solid brand names out there like your Macallans, glenfiddich etc. to minimize risk. For instance, a Macallan Royal Marriage which cost £150 and now sells for around £500.
As a whiskey fan, i’m happy to hear that the next time i go out shopping for scotch, there will be more excuses to get the higher grade stuff. But then again, knowing me, it may be to hard to resist breaking open the bottle instead of keeping them and selling later for a profit.
But not to despair for fans like me. Besides whiskey, the girls’ best friend is also set to become more widely held as a financial investment, with the SEC reviewing a proposal to create the first diamond-backed exchange-traded fund. Will diamonds be the new gold?