Month: May 2014

What’s a Hedge Fund?

mark tuminello hedge fundsIt may come as a surprise to finance professionals, but many people don’t truly know what a hedge fund is.  The following is a very broad and simple look at hedge funds and how they work.

First, a hedge fund is a privately owned company.  This is different from a mutual fund, which is a public corporation.  The point of a hedge fund is to invest money and make enough money that they significantly outperform the market.  When you invest in a hedge fund, they reinvest your money into other financial instruments.  Because hedge funds are private, they are not subject to regulation from the Securities and Exchange Commission (SEC) like a mutual fund is.  This makes them more risky.  On the flip side, there can be higher returns.

Lack of financial regulation is just one factor that makes investing in hedge funds so potentially lucrative.  Another factor is the way they pay their managers.  Hedge fund managers are compensated with a percentage of the returns they earn.  If you’ve invested in mutual funds and had to pay fees despite poor performance, you’ll understand why this idea is so attractive.  Hedge fund managers have real motivation to make money for their clients.

The types of financial instruments used by hedge funds also sets them apart, such as derivatives like collateralized debt obligations, futures contracts, and options.  Using these tools, hedge fund managers can profit even when the stock market is going down.  Products like these use only a little money (also known as leverage) to control quantities of stocks and commodities.  These devices can offer high returns, but are completely speculative.  It’s all about correctly predicting whether the stock market will rise or fall over the life of the investment – hedge funds pay out by a particular place in time.

While hedge fund managers are paid a percentage of earnings, they don’t share risk in the same way.  If the fund loses money, they simply receive no compensation.  In this way, managers of hedge funds are risk tolerant.  The risk is completely on the investor.  Investors also become part owners of the LLC, which means they could lose their investment if the hedge fund goes bankrupt.  Also, options have to be delivered within a certain amount of time.  Hedge fund managers try to time the market, which some say is practically impossible.  Even if managers are correct about the longterm results, an unexpected economic event could cause them to lose the investment.

New hedge fund regulations were enacted in 2010, with the Dodd-Frank Wall Street Reform Act now regulating the industry.  Hedge funds above $150 million now register with the SEC.  There are many new regulations in effect that are designed to protect investors, banks, and the national economy.

from Mark Tuminello – latest post by Mark Tuminello

NYC Arts Education Lacking In Poor Neighborhoods

mark tuminello arts educationNew York City has a well-earned reputation for being a home for the arts. Thousands of artists live there, the city boasts the world’s largest performing arts center, and citizens are hungry for music, visual art, film, performing arts, etc. Considering all of this, I was surprised to read an article in The Atlantic about the serious lack of arts education in public schools in the city. In fact, the city’s comptroller just announced that New York received a failing grade in terms of providing access to arts for students.

The recently released State of the Arts report finds that low-income schools are severely lacking access to arts education, refreshing the discussion of the benefits of arts education on overall learning. Mastering soft skills in the arts is generally seen as a way to be better prepared for a career these days. So much of the economy is now a ‘creative economy,’ and this kind of economy demands original thinking. It may be that New York is only setting up wealthy students with these kinds of skills. Some have argued that lower-income students need the most exposure to creative subjects.

Data that was analyzed to create the rating includes how many full or part time certified arts teachers employed, if there were any formal partnerships with cultural or arts organizations, and if there was a space dedicated specifically for arts. Mapping out the schools that don’t have much to show in any of these categories basically runs right along income trends, with over four hundred middle schools and high schools in the city falling short of the legal minimum (yes, the minimum is mandated by state law). 42% of the failing schools are in the south Bronx and central Brooklyn.

The Center for Arts Education, led by executive director Eric Pryor, notes that this is the result of a number of factors. Local politics have hurt arts programming in schools. Giuliani established the Project Arts program, which allocated money for arts partnerships and programming. Bloomberg’s approach was different, giving principals automony to allocate their own funds. During this time, struggling schools gutted arts projects. Money was still coming to the school as a result of Project Arts, but schools could spend it on whatever the principals saw fit.

No Child Left Behind also had an impact. Standards-based teaching became a priority for schools, with test results being monitored closely in order to rate a school’s worth. Testing rarely included anything concerning the arts. In this way, arts education was slashed along with physical education and foreign language education.

from Mark Tuminello – newest post from the blog of Mark Tuminello

Why Comic Book Fans Are Upset With Amazon

New post from Mark Tuminello –

mark tuminello comixologyThis new story on Vox about comic books was very interesting. If you’re not familiar with the world of comic books, which I am certainly not, there is an app that has dominated the online comic book world for two years. Comixology is the highest-earning iPad app in the Apple App Store (non-game app, that is). The app provides a way for people to purchase comic books with the tap of a finger, and displays them in all of their graphic glory.

In April, Amazon announced they were purchasing Comixology, which makes sense. Amazon is a major player in the world of book sales, dominating the online space. A spokesperson from the app made a statement that the company, brand and apps, wouldn’t be changed or otherwise affected by the purchase. But we’ve heard that before.

There are always changes when a company is acquired. Last week, users of the Comixology app found that Amazon had removed one-touch buying. We are now seeing a bevy of online backlash from users and publishers alike. Part of the reason Comixology was performing so well, was that it was very easy to use. Downloading comics was so easy, in fact, that analysts believe users spent more money. Sales tripled between 2011 and 2012, with $57 million in sales. They were a major player of comics moving into the digital space, with an estimated 20% of comics being purchased and consumed through internet apps.

The change made by Amazon seems minor, but the impact may be enough to give other comic book apps the opportunity to become new industry leaders. Apparently the buying process now involves several steps of verification of an account, and sends users out of the app and into the device’s web browser. Comixology is now a non-free pdf reader with links to purchase comic books. Users of the app are upset, because that’s not the app functionality that they bought last year.

Many comic book writers are coming forward to complain about the app, and users are finding themselves losing interest in some of their purchases during the purchase process.

The reason Amazon made the move is to remove the purchase from the iTunes infrastructure. Why let Apple get a piece of the pie when Amazon can be the sole beneficiary? It looks like they haven’t adequately measured the risk with the benefit. Removing the single most important part of an app, intuitive and easy purchasing, will kill it.

from Mark Tuminello

Climate Change Is Cheap, According to Krugman

Mark Tuminello’s latest blog post –

mark tuminello paul krugmanEconomist Paul Krugman blogs regularly on the New York Times, and I highly recommend subscribing. He updates every couple days with short posts on a diverse number of topics, but always with an economic perspective. He’s a reliably good writer, and he’s even more reliable as an economist. In his latest post on the blog, Paul Krugman discusses how a recent study organized by the US Chamber of Commerce to encourage opposition coming regulations.

You can read Krugman’s post, Cheap Climate Protection, in full here.

In anticipation of regulations from the Obama administration, the Chamber of Commerce organized a study to illustrate what the impact would be on the industry and the country. The expected regulations will be an attempt to reduce the output of greenhouse gases. Krugman was skeptical that the numbers would be correct, but was surprised to see that they had ordered the analysis from an outside company in an interest of preserving credibility.

The official report from the Chamber includes some spinning, according to Krugman, but the bare numbers told a different story. What the research showed was that economic burden of reducing greenhouse gas emission would be quite small. Krugman even goes so far as to call the costs ‘cheap,’ in consideration of how significant the greenhouse gas emissions would be.

To make that significant impact on greenhouse gases, reducing emissions by 40% by 2030, the price would be 50.2 billion per year. As a headline, that can seem alarming. Krugman compares that number with the expected GDP of the United States during that time. Altogether, we can expect it to be $21.5 trillion. That makes the cost of very real action to curb our greenhouse gas emissions just 0.2 % of GDP. That doesn’t sound so bad, does it?

Where there is less of a silver lining is the expected loss of jobs. There would be over 200,000 jobs lost during the next fifteen years because of the regulations. That doesn’t represent a good economic plan. Even still, Krugman points out that in a nation with 140 million workers, 200k isn’t so bad considering the benefits of making the cuts.

Ultimately, Krugman comes to the conclusion that the economics of climate protection look quite easy. Now the question is how the report will be received, and then whether the regulations pass.

from Mark Tuminello

May 22nd 1856: Caning of Charles Sumner

Whenever you get down about the current political world…just look back and see that the light is winning.


Image The Caning of Charles Sumner – note the inactivity (and sometimes glee) of the bystanders, Sumner’s noble poise, and the facelessness of Brooks (this way he could stand in for the whole South)

On this day in 1856, Senator Charles Sumner was beaten almost to death by Representative Preston Brooks. Sumner, an abolitionist from Massachusetts, had recently made a speech in the Senate entitled ‘The Crime Against Kansas’. In this impressive six hour speech, Sumner decried the violence in Kansas between pro-slavery and anti-slavery settlers (who were fighting over the future of slavery in the territory) and specifically targeted slavery itself and Southerners. One character he singled out was South Carolina Senator Andrew Butler, who Sumner openly accused of taking one of his black slaves as a mistress. This was considered an affront against his honour, and his relative Preston Brooks sought revenge. Brooks considered challenging Sumner to an Old-South…

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