Financial News Friday – June 27, 2014

Market Structure Nightmare Comes True in Barclays Dark Pools Action (Bloomberg)

In recent months the New York Attorney General’s office has made a pledge to target unfair market practices that are allegedly conducted by high frequency trading firms. This pledge has most recently led to the office filing a suit against Barclays.

The New York Attorney General’s office alleges that Barclays allowed high frequency traders free reign of its dark pools (private anonymously traded securities markets) to the detriment of its retail and institutional investors. The office states that Barclays aided high frequency traders while assuring investors that they were not discriminating trades to the benefit of high frequency traders.

Supreme Court Essentially Kills Aereo, Broadcasters Breathe A Sigh Of Relief (Forbes)

Broadcasters and their legal teams can now relax, the Supreme Court has ruled against Aereo. Aereo is (likely to be was now that this ruling has occurred) the service that allows subscribers to rent antennas and watch broadcast TV over the internet for around $8 per month.

Unfortunately for the broadcast networks, Aereo, unlike cable companies, refused to pay retransmission fees to the networks for broadcasting their content to subscribers. Two of the networks had threatened to move away from their broadcast model and onto a paid cable model if the ruling did not go their way. The suit escalated until the Supreme Court, on Wednesday, decided in a 6-3 ruling that Aereo is required to pay the networks retransmission fees for their content.

Employees Who Stay In Companies Longer Than Two Years Get Paid 50% Less (Forbes)

According to a recent Forbes article, staying in a position at a company for more than 2 years is bad for your paycheck. The article cites that an average employee can expect is 3% of their pay each year, which is around 1% in real terms after you take current inflation into account.

Meanwhile an employee who jumps ship from a company often can expect to have higher raises when they join a new company. Unlike an employee’s current company, a new company is not limited to offering a set % raise of an employee’s salary or only offering promotions for a certain number of employees each year. While having too many jobs in a 10 year period could prevent some employers from hiring an employee, the article suggests that that risk is worth the potential increase in pay.

The Blow To Retirement Plans From A Late-in-Life Divorce (NY Times)

Divorce settlements can often deplete a divorcee’s savings as investment assets are divvied up during a settlement. This can leave many divorced spouses in a untenable position, where they have fewer assets to sustain their retirement and few working years remaining to bolster assets.

Divorce advisors in the article suggest to make the break-up an amicable one the best you can, as lengthy settlement disputes can often result in downsized living standards. Retirees are recommended to hire financial and accounting consultants to help determining the fair and equitable sharing of assets. For example, $1,000,000 in a traditional 401(k) is worth less than $1,000,000 in a Roth IRA after taxes are considered. Pensions and retirement benefits should also be considered during the divorce settlement proceedings.

The Ivy Leagues and Diversification (Pragmatic Capitalism)

To give you some background, since the Financial Crisis of 2008, a recent trend within investment management has been the Endowment Portfolio or Ivy Portfolio. The strategy is named for its use by schools such as Harvard and Yale, due to their excellent returns in the era prior to the Financial Crisis.

During that time period the model delivered exceptional returns by investing in “alternative” asset classes that were very illiquid to the general public, such as natural resources and private equity.

Since then the strategies have received much publicity and many investors have been clamoring to invest in these types of illiquid securities through the creation of publicly investable products in the form of ETFs and mutual funds. As the article points out, since the Crisis, the endowment exceptional returns have all but evaporated. Many investors may continue to invest in these types of products in the near future, due to their success in the past.

However, it’s important to remember that different strategies perform better different economic environments. A strategy that performs better in the prior business cycle may not be as effective in the succeeding business cycle, especially when the strategy becomes in vogue on Wall Street.

Once a strategy becomes the next big thing, its prime has typically passed and its excess returns have evaporated amongst the many investors now using the strategy. So, think carefully before you jump on to the alternative investment train.