Tag Archives: Susanna Gibbons

2020 Annual Dinner Recap

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Written by: Tharaniitharan Panchalingam, Junior studying Finance and MIS at the Carlson School of Management and Fixed Income Analyst at the Carlson Funds Enterprise

The 2020 CFA Society Minnesota Annual Dinner featured Rick Rieder at BlackRock, with questions moderated by Society volunteer Susanna Gibbons, CFA, Carlson School of Management. Rick Rieder is BlackRock’s Chief Investment Officer of Global Fixed Income, Head of the Global Allocation Investment Team in the Multi-Asset Strategies Group, a member of BlackRock’s Global Operating Committee and Chairman of the firm-wide BlackRock Investment Council. In addition to this, he is a member of the Borrowing Committee for the U.S. Treasury and is currently a member of the Federal Reserve Bank of New York’s Investment Advisory Committee on Financial Markets.

The presentation got off to a humorous start with Rick sharing how his multiple flight delays in New York had him running around the Downtown Minneapolis looking for our venue! After he gathered his breath, he went into what his day was like. In the morning, he presented to the New York Fed on his outlook of the global economy and the policies that ought to be implemented. After this Rick mentioned how he was on a call with Elon Musk to give his thoughts on Tesla’s expected share sale to raise capital. Rick concluded by saying that Elon Musk is probably the smartest person of our generation.

We then went into conversations about Fixed Income; Rick believes that debt is far too cheap and that we are in an environment where spreads are unbelievably tight but, there is still a massive demand for US based fixed income assets, which further puts pressure on the US and global economy. He also stressed that due to the nature of the market, Fixed Income managers must not “stretch in 2020” and that hitting five percent would be an accomplishment.

He also touched on technology and how companies that have significant investments in R&D are creating this “incredible growth paradigm,” while those that don’t invest aren’t experiencing much growth, if any.

This led to one question that caught my attention. Susanna asked Rick, “what do you think of Negative Interest Rates and what are commercial banks’ alternative?” Rick immediately responded with “I think that negative interest rates are the dumbest invention of all time.” He went into why and stressed that it breaks down the traditional investment paradigm and that in Europe, because of the way businesses operate, growth will be extremely hard to come by. Rick said that Europe needs to create “exogenous growth” by investing in innovation. Europe’s innovation is stifling and as a result, don’t benefit from the dramatic growth that it has the potential for. He also said that Japan is in the same predicament and that there may be a time in the future where Japan will default on significant portions of its debt.

We ended the night talking about equities being very cheap relative to credit and that we will see a turn or two in equity multiples over the next few quarters.

All in all, this was a tremendous night. Rick has such a wealth of knowledge and his ability to weave a coherent picture with the data he analyses is incredible. We had great food, great company and a very insightful hour-long conversation! We hope to have Rick back soon!

Spatchcocked

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Susanna Gibbons, CFA

Always on the lookout for a better way to prepare a Thanksgiving dinner, I recently came across what I believe to be the latest and greatest method: Spatchcocking. By removing the backbone of the Turkey, you are able to lay the Turkey flat on a cookie sheet, and roast it in a little over an hour. According to my research, the bird will cook thoroughly & evenly, and the shortened roasting time (not to mention height in the oven) makes preparation incredibly efficient.

Interestingly, it appears that spatchcocking is also the rage on Capitol Hill. After a year with few achievements to show for it, there are many members of Congress who appear to have very little left in the way of a backbone. As a result, the current tax plan is being rushed through the legislative process at an incredible pace. Whether this level of efficiency is as desirable in re-writing the tax code as in cooking turkeys seems highly questionable.

As investment professionals, how can we make sense of this process, and incorporate the proposed changes into our analysis? I don’t think we can. There seems to be overwhelming agreement that the tax code is too complex, and needs to be simplified, and that taxes (especially corporate taxes) are too high, and need to come down. The headline grabbing number of reducing the statutory tax rate from 35% to 20% suggests that a lot more money will be dropping down to the bottom line, and this belief has fueled the continued rally in equities.

However, if you look at what corporations actually pay in cash taxes, the Companies in the S&P 500 are, in the aggregate, paying an effective tax rate of – you guessed it, 20%. If the deductions and tax breaks that currently riddle our system are eliminated at the same time, there shouldn’t be any drop in taxes paid. Instead, you will see a shift in the winners and losers. Some companies that currently pay next-to-nothing will have to start writing checks, and others will likely get some relief.

It is virtually impossible to anticipate all of the implications of such a significant structural shift in the tax system. The Commonwealth of Puerto Rico provides a cautionary tale as to the dangers of such dramatic shifts. In the 1970s, Congress passed Section 936 of the tax code to encourage manufacturing companies to locate on the island, which spurred growth. When the tax break was eliminated in the 1990s, it kicked of a long cycle of deterioration from which Puerto Rico has yet to extricate itself.

Now, I am not arguing that we ought to use the tax code to achieve such narrow policy objectives. In fact, I think it is a terrible idea. I mean – Section 936? That’s a lot of sections of code.  I do think that simplification is good idea. But unwinding this mess will be hard. Our entire economy has evolved alongside this current tax system over years, and companies have structured themselves, made investment decisions, and planned for a future based on that system. A complete and sudden shift will be economically jarring. There is enormous complexity to simplification, and the risk of unintended consequences will be high.  Before running off spatchcocked to push through this turkey of a bill, I really hope Congress slows down a little. Instead of ending up with a tasty roast, the long-term impact of hasty tax reform could be pretty foul.

How I Became a Quant

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Susanna Gibbons, CFA

The International Association of Quantitative Finance (“IAQF”) has been participating in a series of panels around the country titled “How I Became a Quant”, one of which was hosted locally by the University of Minnesota’s MCFAM (Minnesota Center for Financial and Actuarial Mathematics in the School of Math) on Friday, April 15 2016.  The discussions are focused on providing students and practitioners a personal view into the careers of a range of quantitative finance professionals. I had the good fortune to be asked to participate on the panel which presented in the Twin Cities, along with Anna Kincannon, Capital Planning Manager at Bremer Bank; Dharini Loknath, Petroleum Products Analyst at Cargill, and Michael Szwejbka, SVP Risk Analyst at US Bank. The panel was moderated by Chris Prouty, an instructor with the Master of Financial Mathematics (MFM) within MCFAM and exotics trader at Cargill.

To be clear – I am not a quant, nor did they expect me to be one. I introduced myself as a “Quant-a-be” (rhymes with “wannabe”), which basically means that my career in fundamental analysis, portfolio management, and asset management has repeatedly crossed paths with our more quantitative brethren, while my actual skills remain mired in prose and poetry rather than mathematics. In spite of my deficiencies, the discussion was excellent, and focused on a few key themes.

First, all of the panelists were in agreement over the importance of communication skills, and the need to work closely with business units on the development and implementation of models, whether they are risk management, decision making, or business analysis tools.  Without clear understanding of the business need, it is very difficult to develop successful tools, and yet much of our industry remains sharply divided along quantitative / not-quantitative lines. There is great opportunity for students who are successful in developing their skills in both areas.

Second, the panel dwelled on history for some time, and the importance of knowing exactly how we have gotten to where we’ve gotten. There is a lot to be learned from understanding market failures of the past, and the role that quantitative finance may (or may not) have played in those episodes. While the development of quantitative models seeks to guide forward-looking decision making, they are based to a large degree on history, and having a solid understanding of that history can help to identify key assumptions and potential weaknesses.

Third, there was a fair amount of conversation around the role that quantitative finance currently plays in the banking world, particularly around the implementation of the capital planning process and stress testing required by the Federal Reserve under CCAR. While there is not necessarily strong agreement around the ultimate effectiveness of CCAR, it is clear that this has become, and will continue to be a driving force around the employment of students with strong quantitative skills.

Finally, there were many topics covered of a significantly more technical nature, during which time I felt rather like Winnie the Pooh roaming the Hundred Acre Wood, humming a little hum to myself until something came ‘round which I recognized. And perhaps, in the end, that is all that we can ever do as Investment Professionals. By I really do believe that the continued evolution of quantitative finance provides those of us who wander with the best of hope of charting a course through the woods.