The hottest Capital Markets Substack posts right now

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Trading Catastrophe

Net Interest • 5 implied HN points • 21 Feb 25
💰 Finance Investing Insurance Risk management Capital Markets Asset Classes
  1. Hurricane Andrew changed how insurers think about risks. They realized they needed better coverage and to assess risk differently.
  2. Catastrophe bonds, or cat bonds, became popular after Hurricane Andrew. They allow investors to earn interest while helping insurers cover major losses.
  3. Today, cat bonds are expanding into retail markets, making them accessible to everyday investors. They have shown good returns, even as disasters become more frequent.

Capital Cycles and AI

Mule’s Musings • 629 implied HN points • 13 Jan 25
💼 Business Capital Markets Investment strategy Technological Innovation Market Trends
  1. Everything goes in cycles, including money. When investors see high returns, they jump in, but eventually, too much investment leads to lower returns.
  2. The current boom in AI feels different because it lacks a strong feedback loop that typically drives rapid investment increases. We're not yet seeing the big jumps in value that signal a bubble.
  3. Power and data centers are crucial for AI's growth, but they have slow response times. This means there might be overbuilding, which could lead to shortages and demand outstripping supply in the future.

The Transcript Editor's Commentary

The Transcript • 99 implied HN points • 18 Oct 24
💰 Finance Economics Investing Monetary Policy Capital Markets Earnings Reports
  1. JPMorgan and Wells Fargo recently reported stable profits, showing no significant changes in the economy. This suggests that businesses remain steady despite economic shifts.
  2. The Federal Reserve's recent decision to lower interest rates has helped lift capital markets positively.
  3. The effects of monetary policy, like interest rate changes, often take time to show in the economy, explaining why things seem unchanged right now.

Private Equity Explained

Concepts of Finance 🧠 • 939 implied HN points • 13 Apr 23
💰 Finance Investments Private Equity Funds Capital Markets Economic Impact
  1. Private equity firms invest in existing businesses to help them grow and become more profitable, sharing in the profits as a result. It's like giving your friend's business a boost with your investment.
  2. These firms raise money from wealthy individuals, pension funds, charities, and banks to create a fund for their investments. This means they pool money from different sources to make bigger investments.
  3. Private equity can create jobs and drive economic growth, but it also has a reputation for being tough on company management and workers during operational changes. Understanding its impact helps you see how it can touch everyone's life.
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Thinking about Writing Down your Investment?

SaaS Engineering • 137 implied HN points • 07 Jan 24
💰 Finance Investments Venture Capital Startups Valuation Capital Markets
  1. Understanding the difference between preferred and common stock is crucial for calculating holding values.
  2. Writing down investments only makes sense if a company's value decreases below the size of its liquidation preference relative to the investment.
  3. High valuations may not always benefit investors due to misaligned incentives, especially in scenarios where the company's valuation is higher than its true worth.

Risk Capital and Markets: Temporary Pull Back or Long term Retrenchment?

Musings on Markets • 579 implied HN points • 02 Jul 22
💰 Finance Investing Market Trends Risk management Capital Markets Economic Factors
  1. Risk capital is money invested in risky assets, while safety capital is for safer investments. Finding the right balance between these two is important for a healthy economy and market.
  2. Market changes in risk capital can lead to higher risk premiums and impact the pricing of both stocks and bonds. When risk capital is scarce, default spreads increase for riskier investments.
  3. The current market may be facing a long-term pullback in risk capital due to factors like inflation, which can affect stock prices and investors' willingness to take risks.

Country Risk: The Mid-year Update for 2022

Musings on Markets • 519 implied HN points • 14 Jul 22
💰 Finance Investment Analysis Capital Markets Economic Indicators Sovereign debt
  1. Country risk varies significantly between different nations. Countries with stable economies and strong political systems are generally safer for investments than those with instability or violence.
  2. Corruption and legal protections are vital factors influencing country risk. High corruption levels can increase costs for businesses, while strong legal systems provide better support for contracts and property rights.
  3. Recent global events, like the conflict in Ukraine, have raised risk levels across many countries. This has resulted in higher costs of capital for investors and increased equity risk premiums globally.

The first rule of systemic solvency club...

The Jolly Contrarian • 159 implied HN points • 24 Mar 23
💰 Finance Banking Investing Capital Markets Financial Regulations Financial Instruments
  1. Bank runs often reflect lack of confidence, and denials of trouble can signal trouble.
  2. Tier 1 capital in banking is crucial for financial stability and ensuring debts are paid.
  3. Alternative tier 1 capital, like AT1, provides a buffer in crises but can behave like debt or equity, impacting investors differently.

What SVB really means for climate tech

Climate Money • 78 implied HN points • 29 Mar 23
💰 Finance Capital Markets Climate tech Liquidity Startup Financing Investment Risk
  1. SVB's collapse impacts capital markets, leading to fear and hesitation in committing funds.
  2. Climate tech companies are disproportionately affected by the liquidity crunch due to their capital needs and revenue profiles.
  3. Founders in the climate tech space should be prepared for higher financing risk and seek alternative forms of capital.

It’s cheaper being green

Klement on Investing • 1 implied HN point • 02 Dec 24
💰 Finance Investing Capital Markets Sustainability Cost Analysis Corporate Finance
  1. Going绿色可能会更便宜，很多公司发现绿色项目的资本成本比传统项目低。
  2. 公司更愿意投资绿色项目，因为他们认为这些项目的回报率更高。
  3. 这个趋势在过去几年中增强，特别是在环境、社会和公司治理（即环境、社会和公司治理）投资变得流行之后。

The Turning Point

Equal Ventures • 19 implied HN points • 08 Jan 21
🕹 Technology Innovation Capital Markets Democracy Society History
  1. Innovation cycles start with epochal events and lead to wealth accumulation, societal disruption, and increased wealth gaps.
  2. During Turning Points, society becomes contentious with growing inequality, political polarization, and historic patterns of chaos.
  3. The future may bring either a Golden Age of broad prosperity or a darker path of dismantling institutions, emphasizing the need for historical understanding and empathy.

Share Count Confusion: Dilution, Employee Options and Multiple Share Classes!

Musings on Markets • 19 implied HN points • 26 Jul 18
💰 Finance Valuation Equity Options Capital Markets Corporate Governance
  1. Young companies often face expected dilution, which means they will need to issue more shares to raise money. This can affect their value per share, as more shares mean the value is spread thinner.
  2. Stock-based compensation (SBC) can complicate valuations because it adds shares into the mix, affecting overall value. It's important to account for both past options and future grants to get a clear picture of share value.
  3. When companies have different types of shares that carry different voting rights, it can create confusion in valuations. Each share type must be valued separately to accurately determine their worth.

Alternatives to the CAPM: Part 3: Connecting cost of debt to cost of equity

Musings on Markets • 0 implied HN points • 30 Apr 11
💰 Finance Capital Markets Investment Theory Risk management Corporate Finance Investment Risk management Capital Markets Financial Analysis Corporate Finance
  1. It's easier to figure out the cost of debt because you can see the interest rate when borrowing. This makes it a more straightforward number to use when looking at a company's finances.
  2. You can estimate the cost of equity by comparing it to the cost of debt and factoring in the volatility of both stocks and bonds. If the cost of debt is 8%, the cost of equity might be higher, like 12%, if stocks are riskier.
  3. This method works best for big companies with significant debt. However, it has limits because equity risk and bond risk are different, so care is needed in using this approach.

Emerging versus Developed Markets: The margin shrinks in 2010

Musings on Markets • 0 implied HN points • 31 Jan 10
💰 Finance Investment Analysis Market Trends Economic Indicators Risk Assessment Capital Markets Market Analysis Investment strategy Economic Trends Risk Assessment Valuation Techniques
  1. Emerging markets are seeing more companies being publicly traded, which makes their financial markets grow and become stronger. This is especially true in big economies like India, China, and Brazil.
  2. Liquidity issues are now affecting both emerging and developed markets, showing that crises can happen anywhere. Emerging markets are becoming more liquid as local investor bases expand.
  3. The risk of government default is being reconsidered, as some developed market governments show vulnerabilities. People are starting to value companies in emerging markets more based on their fundamentals rather than government risks.

Myth 4.1: If you don't like betas (or modern portfolio theory),you cannot do a DCF!

Musings on Markets • 0 implied HN points • 04 Nov 16
💰 Finance Valuation Investing Risk Assessment Capital Markets
  1. Discounted cash flow (DCF) analysis needs a discount rate, typically estimated using beta to assess risk, but not everyone agrees on using this method.
  2. Investors can use alternative risk measures if they don't like betas or modern portfolio theory, such as based on historical earnings or other company characteristics.
  3. It's important to recognize that while betas can help estimate costs of equity, there are other ways to evaluate risk that might better fit different viewpoints on investing.

The Rise of SPACs: IPO Disruptors or Blank Check Distortions?

Musings on Markets • 0 implied HN points • 09 Jun 21
💰 Finance Investment Capital Markets Regulations Corporate Finance Market Trends
  1. SPACs, or Special Purpose Acquisition Companies, have become a popular way for private companies to go public quickly. They raise money first and then look for a company to buy, which can save time compared to traditional methods.
  2. While SPACs can offer benefits like faster deals and more flexibility, they also come with downsides. The sponsors often benefit the most, which can leave regular investors with less value in the end.
  3. The rise of SPACs is linked to current market trends, such as low interest rates and high stock prices. However, as markets change, the weaknesses of SPACs may become more apparent.

January 2017 Data Update 3: Cracking the Currency Code

Musings on Markets • 0 implied HN points • 20 Jan 17
💰 Finance Valuation Currency Investment Risk management Capital Markets Economic Indicators
  1. Understanding currency is really important for evaluating companies. You can't just ignore how different currencies affect cash flows and the value of assets.
  2. You should be able to value a company in any currency without changing its actual worth. The key is to keep your estimates consistent across cash flows and risk rates.
  3. When estimating future exchange rates, a simple approach is to consider how inflation rates differ between currencies. It helps you make better valuations without overcomplicating things.

Alternatives to the CAPM: Part 5. Risk Adjusting the cash flows

Musings on Markets • 0 implied HN points • 30 Apr 11
💰 Finance Investment Valuation Risk management Econometrics Investing Risk management Valuation Financial Theory Capital Markets
  1. You can adjust cash flows for risk in two main ways: estimating expected cash flows across scenarios and using certainty equivalent cash flows. Both methods aim to accurately reflect investment risk.
  2. Certainty equivalent cash flows account for risk by using a safer value an investor would accept instead of the expected cash flow. This helps to quantify how risk-averse someone is when valuing their investment.
  3. Risk adjusting cash flows isn't necessarily easier than adjusting discount rates. It's important to know when to apply simple methods, like focusing on safe cash flows or dividends, but also to recognize their limitations.