10-29-2014 Book Discussion: The End of the Risk-Free Rate: Investing When Structural Forces Change Government Debt
Wednesday, October 29th, 6:00pm to 7:30pm
Speaker: Ben Emons
Chair: Don Brown, CFA
A Book Club Committee Sponsored Event
Last year Ben Emons did a lunch presentation for this book, “The End of The Risk Free Rate”, which was well received. In August we hosted a dual same day lunch and a book discussion for Ben Emons’ book “The Financial Domino Effect”. To round things out we have invited him to return for another book discussion event to discuss issues generated by his book “The End of The Risk Free Rate”.
“The End of The Risk Free Rate” discusses how to look at the investing world in a different way. The "risk free rate" is a feature of a fiat currency system where a reference or benchmark is used to value financial assets.
The 2008 financial crisis and subsequent European sovereign crisis of 2010-2012 has shown what was once assumed to be a stable investment like a T-bill or government bond has become a volatile instrument with credit characteristics. This may have changed the way risk premiums should be evaluated.
When looking at the risk free rate, it has components that were not thought of prior to the 2008 crisis. Restructuring, social-political developments, private sector involvement, financial repression, and interest rate volatility are elements of a "new risk free rate." Investors should be aware of these elements when evaluating corporate, municipal, mortgage backed, high yield bonds as well as equities. The risk premium earned is perhaps at a different level and this book shows with practical examples and quantification.
Another implication is there are no "alternative" risk free rates. Often said that as government bonds are less appealing due to low returns, there are alternatives like corporate bonds or emerging market sovereign debt perceived to be "safer." This book demonstrates with extensive analysis that is not the case and how investors should use this information when judging investments.
The End of the Risk Free Rate does not mean the end of investing in bonds. The book makes neither the case that bonds are no longer suitable investments. On the contrary, The End of the Risk Free Rate provides a framework and practical analysis investors can arm themselves with to better understand the complexity of the investment universe that is functioning no longer on the premise of something that is "risk free."
Ben Emons’ Biography
Ben Emons is a senior vice president and a portfolio manager in the global portfolio management group at Pacific Investment Management Company (PIMCO), Newport Beach, California. Prior to joining PIMCO in 2008, he was a portfolio manager at Nuveen Investments in Los Angeles, focusing on government bonds and derivatives. He has 18 years of investment experience and holds an MBA from the University of Southern California Marshall School of Business and a master's degree in international finance from the University of Amsterdam.As a participant in the CFA Institute Approved-Provider Program, the
CFA Society of Los Angeles has determined that this program qualifies
for 1 credit hours. If you are a CFA Institute member, CE credit for
your participation in this program will be automatically recorded in your CE Diary.
Registration Links (Must register to attend)
CFALA Members: $10.00 (place cursor on amount for link)
Non-members: $15.00 (place cursor on amount for link)
*If you would like to conference call into the book discussion, please contact email@example.com for information.
Time: 6:00pm: check-in and reception with wine and pizza
6:30pm: book discussion
Location: Biltmore Court
520 S. Grand Ave., Suite 370
Los Angeles, CA 90071
Parking: Self-Parking at Pershing Square (located directly across the street on Olive St.): $10.00.
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