Do mutual funds make crises worse?

For many years one of the best jobs on Wall Street in terms of a mix of job safety and compensation, was to be a fixed income trader-cum-salesman working for a major bank with a deep balance sheet, which could hold illiquid securities on its prop account, to dispose of as the "flow" (or clients) required, and on unsupervised and unregulated terms that were simply a verbal arrangement between the bank trader and the end client, usually a counterparty trader working for a major institutional buyside shop, including mutual or hedge funds.

The underlying question in Bill Gross' latest monthly letter, built around Jeremy Stein's (in)famous speech earlier this month, is the following: "How do we know when irrational exuberance has unduly escalated asset values?" He then proceeds to provide a very politically correct answer, which is to be expected for the manager of the world's largest bond fund. Our answer is simpler: We know there is an irrational exuberance asset bubble, because the Fed is still in existence. Far simpler. From Pimco Rational Temperance

Persistent economic weakness is sapping the ability of governments to tackle the growing threat of climate change and risks a global “perfect storm” of intertwined financial and ecological collapse, the World Economic Forum has warned.

Bilal Habib, Ambar Narayan, Sergio Olivieri, Carolina Sanchez-Paramo, 19 April 2010A shortage of real-time data hinders evaluations of the impact of the global crisis on developing countries. This column uses a “microsimulation” approach to assess the poverty and distributional effects in Bangladesh, Mexico, and the Philippines.

Over the next few weeks investors will be focused on how best to make their retirement savings grow. The solution for many will once again revolve around plowing their annual contribution into high-cost, underachieving mutual funds, which have been the go-to investment vehicle for Canadians for years. It’s a tough cycle to break, but one that investors should consider in favour of many other more attractive opportunities if they want to make the most of their investments.

Andrew Berg, Nikola Spatafora, 24 May 2011What effect did the global financial crisis have on low-income countries? This column examines data from the last forty years to help place 2007–2009 in perspective. It finds that global crisis was largely transmitted to low-income countries through external demand shocks that were not tremendously large relative to historical volatility.

Stocks have staged a remarkable rally with no major corrections. In a new research note to clients, Citi global equity strategist Robert Buckland discusses what happens after 20 percent rallies in the stock markets.  Specifically, he looks for what the key drivers were that extended previous 20% rallies.