Search found 395 matches

by lee1026
Fri Oct 08, 2021 4:42 pm
Forum: Investing - Theory, News & General
Topic: Would residential real estate be a good hedge against hyperinflation?
Replies: 50
Views: 6020

Re: Would residential real estate be a good hedge against hyperinflation?

German real estate largely held its value in real terms during the great hyperinflation.

This is why when it was time to stabilize the currency, the German authorities introduced the Rentenmark, a currency backed by a basket of land owned by the authorities and that stabilized the currency.
by lee1026
Fri Jan 17, 2020 12:42 pm
Forum: Investing - Theory, News & General
Topic: Isn’t Inflation Much Larger Than 2%?
Replies: 289
Views: 23747

Re: Isn’t Inflation Much Larger Than 2%?

I graphed the CPI for the San Francisco Area against the national graph. Spoilers: it is a lot higher in the Bay Area! If you live in the Bay Area, you just face a lot more inflation than the typical person.

https://fred.stlouisfed.org/graph/?g=pWRA
by lee1026
Tue Aug 06, 2019 6:53 pm
Forum: Investing - Theory, News & General
Topic: New and Improved CAPE is Higher!
Replies: 33
Views: 4098

Re: New and Improved CAPE is Higher!

Earnings yield is a real figure, since the corporations in question generally own real things.

Using REITs as an example because they have simple(r) balance sheets, rents on those apartments are going to go up with time.
by lee1026
Thu Jul 26, 2018 6:07 pm
Forum: Personal Consumer Issues
Topic: Engineers come in.
Replies: 108
Views: 10788

Re: Engineers come in.

The requirement for comp-sci was 3 upper division math classes, we got to pick which ones we wanted.
by lee1026
Thu Jul 26, 2018 5:58 pm
Forum: Personal Consumer Issues
Topic: Engineers come in.
Replies: 108
Views: 10788

Re: Engineers come in.

I will go against the grain here. I did my CSEE in 2006-2009, and I absolutely cruised through the first year and half (on a double courseload, no less!). The classes will get drastically harder as things go on; intro calc is child's play compared to the upper division math classes that you will be forced to take. If you are struggling with the first classes, I don't see how you will pass the later ones. Maybe everyone here is just harder working than me, but I would absolutely drop into something that "suits" me more. I personally dropped out of Mech-E after statics proved to be much too much work for me. I think the thought process was "I can work hard and be a B student in Mech-E, but I can cruise and be an A+ student in c...
by lee1026
Sat Mar 03, 2018 6:26 pm
Forum: Personal Investments
Topic: Best way to short the equity market
Replies: 135
Views: 12916

Re: Best way to short the equity market

If you are looking for a pure short, CME's S&P 500 futures is fairly good. It allows for a lot of leverage, so you can probably get as much exposure as you want on just that cash account. It is extremely liquid and cheap to trade, with no borrowing fees that are normally attached to these things. If you want to limit how much risk you take, you buy index PUTS on the index. For shorter time horizons, liquidity is pretty good. I've also read this "unlimited downside risk" which is another way of saying that the thing shorted could go to infinity in price. We all know that things aren't going to infinity in our lifetimes, so whenever I see that phrase, I always laugh at the hyperbole. Things can't go to infinity, but the S&P ...
by lee1026
Wed Feb 21, 2018 3:03 pm
Forum: Investing - Theory, News & General
Topic: U.S. stocks in free fall
Replies: 36221
Views: 4684325

Re: U.S. stocks in freefall

VBTLX's yield changes on a nano-second basis. Anytime its price changes, so does its yield.
by lee1026
Mon Feb 22, 2016 9:48 pm
Forum: Personal Finance (Not Investing)
Topic: where to get 3% real with the least amount of risk?
Replies: 56
Views: 9573

Re: where to get 3% real with the least amount of risk?

No reasonably safe bond is going to yield 3% right now. 10 year TIPS are trading at 0.5%.
by lee1026
Wed Feb 17, 2016 7:49 pm
Forum: Non-US Investing
Topic: why large difference yield US$ vs euro corporate bonds
Replies: 8
Views: 1292

Re: why large difference yield US$ vs euro corporate bonds

I think the difference is in the duration. On the US fund, the bond fund have a duration of 12 years. The 20 year treasury is at 2.24%. On the Euro fund, duration is 5 years. The 5 year bund is at negative 0.3%.

That is a difference of 2.5%, which is around the same gap that you see in the fund yields.
by lee1026
Tue Feb 16, 2016 8:04 pm
Forum: Personal Finance (Not Investing)
Topic: Is it crazy for me to anticipate living on a budget like this when I graduate? Is it even possible?
Replies: 60
Views: 6113

Re: Is it crazy for me to anticipate living on a budget like this when I graduate? Is it even possible?

Lots of people are saying that salary estimates are I don't think software engineers are making 105k just out of college. Salary.com shows the average salary at 100k, which would mean that fresh out of college would be less and with experience they would be more. I'm in a different type of engineering so perhaps not as familiar as others though.
When I was a new grad a long time ago, I made somewhere on the order of 135K after accounting for stock grants and bonuses, so I don't think 105K is particularly unreasonable.
by lee1026
Fri Feb 05, 2016 6:58 pm
Forum: Investing - Theory, News & General
Topic: Today's dumbest investment advice
Replies: 32
Views: 5548

Re: Today's dumbest investment advice

Academic research suggest that buying stocks right before the ex-dividend cutoff and then selling it right afterwards is a profitable thing.

http://people.stern.nyu.edu/mgruber/wor ... ffects.pdf

Key line from the paper: Almost all research on the movement of stock prices on ex-dividend days has found that prices decline by less than the dividend.

Armed with an IRA somewhere like Robin Hood, this might actually be a good idea.
by lee1026
Sun Jan 31, 2016 4:25 am
Forum: Investing - Theory, News & General
Topic: The last 15 years
Replies: 100
Views: 21284

Re: The last 15 years

As you say, the length of time it tends to take markets to revert to more normal valuations could be radically different in the future - considering the impact hedge funds can have on market behaviour, as well as potentially index investing .. But that doesn't matter .. Valuations are a very simple principle (as noted above) - turning them into estimates is a much fuzzier science In real terms, CAPE has tended to be most predictive over about 15-20 years .. This chart demonstrates historical correlations over different time periods My google-fu is failing me quite a bit, but a few years ago, people tend to say that CAPE is predictive over 10 years. Now, it is 20 years. CAPE is a roughly 20 year old theory, so these timings are very suspici...
by lee1026
Fri Jan 29, 2016 2:13 pm
Forum: Investing - Theory, News & General
Topic: The last 15 years
Replies: 100
Views: 21284

Re: The last 15 years

Remember CAPE isn't designed to estimate 10 year returns ... Mean reversion is a long-term tendency - not a 10-year tendency ... What the chart should show you is that all valuation metrics estimate 10-year returns within a reasonable margin error
I thought CAPE became popular precisely because it did a good job of estimating 10 year returns in backtesting? So what does it estimate? 15 year returns? 20?

To a certain extent, the time period selection is subject to another data mining fallacy - since you are defining after the fact what "long term" actually means, it will always look good.
by lee1026
Wed Jan 27, 2016 11:23 pm
Forum: Personal Investments
Topic: Starting off 2016: If you had $15,000.00 to invest, what would you do with it?
Replies: 21
Views: 3530

Re: Starting off 2016: If you had $15,000.00 to invest, what would you do with it?

If somebody did know a way to reliably achieve such returns they'd borrow to the hilt and take all the money for themselves. They wouldn't tell you, or me, or even waste their time reading bogleheads.org.
I know how to achieve 10% returns every month reliably - the only downside is that when the scheme fails, you lose everything. But your chances of winning any particular month is actually pretty decent.
by lee1026
Wed Jan 27, 2016 4:36 pm
Forum: Investing - Theory, News & General
Topic: The last 15 years
Replies: 100
Views: 21284

Re: The last 15 years

Thing about Fama-French and value is that they picked a very odd metric for value - price to book ratio. While everything in a company's report is in some ways different from reality, book value is especially bad. Book value tells you what a company paid for its current assets minus statutory depreciation, not what they are worth. This even goes for things that are even trivially easy to value, such as say, the value of IBM shares held by berkshire hathaway, which sits on Berkshire's books for far less than its actual value. You can tell me that Ben Graham did value investing, but I am pretty sure that he tried to figure out what things are actually worth, not just using the book value. So if you want to argue anything based on "value ...
by lee1026
Tue Jan 26, 2016 1:21 pm
Forum: Investing - Theory, News & General
Topic: The last 15 years
Replies: 100
Views: 21284

Re: The last 15 years

Shiller didn't come up with the concept - Ben Graham had been cyclically adjusting his P/E ratios at least half a century earlier But was it famous? I wasn't alive in the early 80s; I wouldn't know. But the fact that we always call it Shiller P/E suggest that it wasn't. And generally with these things, details matter. 10 years vs 8 years vs 5 years or since the last recession. Whether the earnings are inflation adjusted or in nominal terms. What kind of earnings is used, and so on and so forth. Shiller's method was probably used because it is easy to compute and it works well in sample, but I don't think you get to say that someone did something similar long ago, and therefore it is out-of-sample. If you want to use the date for out of sam...
by lee1026
Tue Jan 26, 2016 10:36 am
Forum: Investing - Theory, News & General
Topic: The last 15 years
Replies: 100
Views: 21284

Re: The last 15 years

How is international results out of sample? Shiller had access to all of these data when he came up with the concept in the early 1990s. Out of sample would be to use the data from early 90s to now, and only use the mean P/E from 1871-1992. Under those circumstances, shiller P/E fails to predict 10 year returns.
by lee1026
Mon Jan 25, 2016 5:08 pm
Forum: Investing - Theory, News & General
Topic: The last 15 years
Replies: 100
Views: 21284

Re: The last 15 years

When you read stories about things like the Dell-EMC deal, you end up with an impression that either stocks are incredibly undervalued, or that (junk) bonds are incredibly overvalued.

The key line from the analysis:

Dell will spend less on the annual financing cost (interest expense and principal payments) of the $49.5 billion in debt used to purchase EMC, than EMC did on equity dividends and share buybacks in the last 12 months.

EMC isn't a value company; EMC isn't a company that is paying all of its profits out to shareholders; and yet you can issue junk bonds to buy the company, and the net flow of cash to shareholders would be bigger than interest and principal payments combined.
by lee1026
Fri Jan 15, 2016 3:46 pm
Forum: Investing - Theory, News & General
Topic: U.S. stocks in free fall
Replies: 36221
Views: 4684325

Re: U.S. stocks in freefall

NYSE is closed, but the CME will be open and trading.
by lee1026
Wed Jan 13, 2016 12:23 am
Forum: Personal Consumer Issues
Topic: Deleted
Replies: 56
Views: 8687

Re: Powerball math: annuity is better?

And more importantly, you will be paying taxes on the earnings from the lump sum. Getting this kind of money into an IRA can be tricky.
by lee1026
Tue Jan 12, 2016 8:22 pm
Forum: Investing - Theory, News & General
Topic: Lottery into SPY
Replies: 17
Views: 2592

Re: Lottery into SPY

The S&P 500 market should have enough liquidity to absorb $400 million with ease. You will probably want to break it up a bit, but it should go though in one day without much trouble. Volume on SPY is 172 million shares by day. You would be dealing with 2% of that. Drop in the bucket....

If I were doing this, I would just put in a giant deposit into a mutual fund, and make it the fund manager's problem to actually buy and sell. The big S&P 500 funds are big enough that $400 million won't mean much to them.
by lee1026
Tue Jan 12, 2016 5:06 pm
Forum: Personal Consumer Issues
Topic: Deleted
Replies: 56
Views: 8687

Re: Powerball math: annuity is better?

Why is everyone using 5% as an interest rate? The payment will increase by 5% a year; that have nothing to do with the break even rate of return needed on the lump payment to come out ahead of the annuity.
by lee1026
Tue Jan 05, 2016 4:58 pm
Forum: Investing - Theory, News & General
Topic: When will Value outpeform Growth?
Replies: 62
Views: 8864

Re: When will Value outpeform Growth?

In theory, if you know that assets with high market beta will perform no better than assets with low market beta, then you can generate a positive return by going long on the low beta stuff and short the high beta stuff. I have seen papers to this effect, but it doesn't seem to be a popular thing to do around here.
by lee1026
Thu Dec 24, 2015 3:31 pm
Forum: Investing - Theory, News & General
Topic: Shorting stocks during a crash?
Replies: 28
Views: 4188

Re: Shorting stocks during a crash?

Because there are so many people trying to do it, you will pay a premium to get stock on loan-- at least I imagine so.
I don't think this is true, at least for things like indexes. Even in 2008, shorting the S&P remained easy.
by lee1026
Fri Dec 11, 2015 4:08 pm
Forum: Investing - Theory, News & General
Topic: Stocks and bonds move in opposite directions and improve results? Really?
Replies: 129
Views: 15560

Re: Stocks and bonds move in opposite directions and improve results? Really?

I think your digging in the data and others have thoroughly discussed this. But, folks saying negative correlation is desirable is a HUGE pet peeve of mine.If one likes to short markets, then okay negative correlation works in this scenario. But, if one is a buy and hold investor, anything that is negatively correlated with core assets is a real drag (such as cash).
If there a magical fund offered such that annual returns are always guaranteed to be the inverse of S&P 500 + 5%, this fund would have negative average returns. But I would still buy as much of this fund as you would possible let me since it cancels out the risk from my stock investments but doesn't cancel out all of the return. If I want more risk, I would simply lever up.
by lee1026
Fri Dec 11, 2015 3:52 pm
Forum: Investing - Theory, News & General
Topic: Stocks and bonds move in opposite directions and improve results? Really?
Replies: 129
Views: 15560

Re: Stocks and bonds move in opposite directions and improve results? Really?

If 100 people are looking to buy a house in Malibu, and supply only extends to 50, then price goes up until we reach an equilibrium Agreed. The number of sellers and buyers depends on the price, and any differences in the number of sellers and buyers in a liquid market is mediated by a change in price. That is, if the stock market fell today, it means that there is more willing sellers than buyers at yesterday's price. But the number of sellers and buyers at this instant at the instant price still matches. More importantly for the money needs to go somewhere argument, however, is that the number of dollars that the sellers got and the number of dollars that the buyers paid needs to match, and the dollars that the buyers used to buy from ne...
by lee1026
Fri Dec 11, 2015 3:18 pm
Forum: Investing - Theory, News & General
Topic: Stocks and bonds move in opposite directions and improve results? Really?
Replies: 129
Views: 15560

Re: Stocks and bonds move in opposite directions and improve results? Really?

So perhaps it's better to forget the term "money", and just focus on "value"
I don't think there is any rule that the value of all assets needs to remain constant?
The number of stocks, bonds and gold don't change, but when there are more sellers than buyers, the value of (say) stocks goes down ... And when there are more buyers than sellers, the value of (say) gold goes up
Err.... what does it mean to have more buyers than sellers? In dollar weighted terms, the number of buyers and sellers must always match.
by lee1026
Fri Dec 11, 2015 2:07 pm
Forum: Investing - Theory, News & General
Topic: Stocks and bonds move in opposite directions and improve results? Really?
Replies: 129
Views: 15560

Re: Stocks and bonds move in opposite directions and improve results? Really?

And that estimation comes from buying and selling - and when stocks crash, it means there are more sellers than buyers, and those sellers will need to move their money somewhere else
I don't think that is accurate - the amount that sellers sell and the amount that buyers buy needs to be exactly the same. So the sellers needs to move their money somewhere else, but the buyers also had to sell something to get the money to buy it in the first place.
by lee1026
Fri Dec 11, 2015 2:28 am
Forum: Investing - Theory, News & General
Topic: Stocks and bonds move in opposite directions and improve results? Really?
Replies: 129
Views: 15560

Re: Stocks and bonds move in opposite directions and improve results? Really?

Why can't there simply be less money in the world after the crash? The money doesn't have to go anywhere. It can just disappear.
by lee1026
Thu Dec 10, 2015 7:34 pm
Forum: Investing - Theory, News & General
Topic: Stocks and bonds move in opposite directions and improve results? Really?
Replies: 129
Views: 15560

Re: Stocks and bonds move in opposite directions and improve results? Really?

There are lots of other places money can flow to. Real estate, farmland, livestock*, etc. You also have to take into account that sometimes, there just isn't as much money in the economy as it used to be. E.g. great depression.


*Okay, I will be REALLY surprised if livestock becomes an investment "thingy", but it can happen.
by lee1026
Thu Dec 10, 2015 5:01 pm
Forum: Investing - Theory, News & General
Topic: Stocks and bonds move in opposite directions and improve results? Really?
Replies: 129
Views: 15560

Re: Stocks and bonds move in opposite directions and improve results? Really?

The only thing to argue about is whether the recent negative correlation is robust, reliable, and can be expected to persist, or whether it's a fluke that can end at any time.
One thing to consider is that correlations are not prices; there is nothing wrong (in theory) with buying bonds when the correlations are good and selling them when the correlations are bad. Unlike prices, you are not automatically buying when it is high and selling when it is low. And it does seem like that correlation changes last decades at a time.

E.g. If we go for a whole year where the correlation on stocks and bonds are positive when measured on daily data, sell bonds.
by lee1026
Tue Dec 08, 2015 2:11 pm
Forum: Investing - Theory, News & General
Topic: Stocks and bonds move in opposite directions and improve results? Really?
Replies: 129
Views: 15560

Re: Stocks and bonds move in opposite directions and improve results? Really?

Stop beating this dead horse unless if you want me to start posting when they move in the same direction. It is going to happen a lot.

(And I am on your side here!)
by lee1026
Sun Dec 06, 2015 5:15 pm
Forum: Investing - Theory, News & General
Topic: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?
Replies: 70
Views: 6762

Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

So there is two separate things being discussed here. There is the leverage ratio of any given bank, which is calculated based on the ratio between its assets and its equity. There is also the money multiplier, which is is based on the ratio between base money and near money. So when the Fed adds more base money, it allows the creation of more near money based on the money multiplier. When you deposit money into the bank, it doesn't do much for them in terms of letting them expand their balance sheet. The confusion comes from when people confuse the Fed adding more base money and you making a deposit. Of course, if you found a giant stack of cash in a cave somewhere (base money) and deposit it into the bank, it also allows the bank to creat...
by lee1026
Sun Dec 06, 2015 4:07 pm
Forum: Investing - Theory, News & General
Topic: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?
Replies: 70
Views: 6762

Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

One problem is that there is disagreement about how money is created. Budget deficits play a role in this. The Federal Reserve Bank has a big role in this. But it seems that most money is created in the banking system where in essence your deposit can be leveraged 10 to 1 into loans. Debt is money in today's economy.
The banking system's leverage is calculated based on a bank's equity, not deposits. A bank's equity comes from selling shares, not people depositing money into checking accounts.
by lee1026
Sat Dec 05, 2015 1:09 am
Forum: Investing - Theory, News & General
Topic: Stocks and bonds move in opposite directions and improve results? Really?
Replies: 129
Views: 15560

Re: Stocks and bonds move in opposite directions and improve results? Really?

First if one believes the recent 'mode of oscillation' of the two markets, which does tend more to negative correlation, is here to stay. It would be impossible to prove upfront one was right about that, but it could be so.
One way to figure out if the market expect for the correlation to stay is by finding a stock/bond ETF that have an active options market and see how its implied volatility compares with stock and bond volatility. Unfortunately, I have not been able to find one.
A Bond holder is taking a "short position" in a company and the issuer is trying to make sure they loose
Huh? Bondholders want the company to do well. Badly ran companies are the ones that default.
by lee1026
Fri Dec 04, 2015 7:13 pm
Forum: Investing - Theory, News & General
Topic: Stocks and bonds move in opposite directions and improve results? Really?
Replies: 129
Views: 15560

Re: Stocks and bonds move in opposite directions and improve results? Really?

I agree that there isn't that much annual data. But then again, why do you need annual data? Use daily data instead. There have been an awful lot of days, and we have a large data set of those.

Using daily data for S&P 500, (SPY) and the Vanguard Long-Term Treasury fund (VUSTX), we find a correlation of -0.24 from 1993 to today. But then again, the correlation have been a lot more negative recently then it have been in the past, so it may not continue into the future.

https://www.portfoliovisualizer.com/ass ... Y%2C+VUSTX
by lee1026
Fri Dec 04, 2015 2:57 pm
Forum: Investing - Theory, News & General
Topic: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?
Replies: 70
Views: 6762

Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

The money in your back account is not part of M0. And if you want to use M1 or M2 or M3 or M4 or M5 or M6 all you have to do is put your paycheck in Vanguard Federal MM and it's still not part of the money supply (Tip of hat to Valuethinker). And if you use M7 some bright spark will invent yet another type of near money. Controlling this would require an unusually creative, active and powerful government, probably the exact opposite of the inclination of most hard money advocates. To be somewhat silly about it, the premise of near money is that you can easily exchange it for base money, right? If the supply of near money is extremely large, and the supply of base money is extremely small, wouldn't any person be able to bring down the syste...
by lee1026
Fri Dec 04, 2015 1:46 am
Forum: Investing - Theory, News & General
Topic: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?
Replies: 70
Views: 6762

Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

I think the rather fundamental reason why velocity can't go too high is that people don't want to instantly spend money. I get my paycheck, I buy things, but there is generally a period of time in the middle where I am holding on to currency. If it takes me two weeks to spend my paycheck, then the fastest velocity can be is around 26. And that is assuming that my employer is running paycheck to paycheck, which I really hoping that they are not doing.

Banking can speed this up, but the while the banking multiplier (roughly defined as M3/M0) can be high, it still won't get us into hyperinflation range.
by lee1026
Thu Dec 03, 2015 10:27 pm
Forum: Investing - Theory, News & General
Topic: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?
Replies: 70
Views: 6762

Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

I think that the velocity of money is relatively bounded. Velocity of money is the GDP/M0 (by definition), looking around the world, we see countries where the velocity of money is around 5-10* (AU), and we see countries where the money velocity is 0.5 or so. (Japan) I am not aware of any countries that is more extreme in either direction then these two. So if you move from one extreme to the other, prices go up by 50x. It isn't what I call stable or desirable, but it isn't what I would call hyperinflation either.

*That is, the monetary base is around 10-20% GDP.
by lee1026
Thu Dec 03, 2015 6:46 pm
Forum: Investing - Theory, News & General
Topic: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?
Replies: 70
Views: 6762

Re: Historically, was gold's "value" simply that it was a convenient, yet hard to counterfeit symbol?

Gold coins were plagued by debasement through clipping and sovereigns decreed the value of the coins at the face value, as opposed to the value of the gold in the coin. Fun fact time - once upon a time, Asian countries had so little faith in their own governments that they used silver coins minted by the US government. "Modern" coins are largely immune to clipping, due to how they are designed, since the shape is regular enough that attempts to clip is blatantly obvious. Metal based currencies are not a good idea for a number for a number of reasons, but I don't think the logistics are all that daunting. For daily trade, convince (an) outside party (or parties) with an reptation to keep to mint coins in convenient sizes. If they ...
by lee1026
Tue Dec 01, 2015 5:34 pm
Forum: Investing - Theory, News & General
Topic: Wealthfront
Replies: 5
Views: 1722

Re: Wealthfront

Another issue is that they may not be great at running investments. They seem to suffer from performance chasing as much as your average consumer. For example, when I checked their suggest investments this time last year, they had a largeish allocation to natural resources in the form of commodity funds. After the staggering fall in commodity prices, the allocation to natural resources became energy stocks. If you had money with them, you probably brought high, sold low. The history of investing like a retail investor suggest that this may not be greatest idea in the world.

I suspect they will do the same with other investments as well.
by lee1026
Mon Nov 23, 2015 8:28 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 944
Views: 300132

Re: Should I use margin to buy a balanced fund?

The argument is that shorter dated treasuries have a better sharpe ratio than longer ones. Since we are using hilariously large amounts of leverage anyway, all that matters is the sharpe ratio, not absolute return.
by lee1026
Fri Oct 30, 2015 4:26 pm
Forum: Investing - Theory, News & General
Topic: Market timing 2-year treasuries using Martingale-style bets
Replies: 87
Views: 8513

Re: Market timing 2-year treasuries using Martingale-style bets

He isn't so much momentum trading so much as he is swing trading. Buying the dips and selling the highs.
by lee1026
Thu Oct 29, 2015 6:35 pm
Forum: Investing - Theory, News & General
Topic: Market timing 2-year treasuries using Martingale-style bets
Replies: 87
Views: 8513

Re: Market timing 2-year treasuries using Martingale-style bets

Now that I have had more time to think it though why my knee jerk reaction is that this won't work, let me explain in proper detail. For something as short as the 2 year treasury, you can model out the "correct" interest rate on the 2 year by computing a set of probabilities on whether the Fed is going to raise interest rates at the each meeting. If there is no term premium, then interest on the 2 year is going to go up and up as time wears on, simply because with each passing day, we are getting closer to a Fed meeting day where they might raise rates. The same effect happens in reverse when the yield curve is inverted, because each day will bring you closer to a Fed meeting day where they might lower rates. So now, it becomes cr...
by lee1026
Wed Oct 28, 2015 3:22 pm
Forum: Investing - Theory, News & General
Topic: Market timing 2-year treasuries using Martingale-style bets
Replies: 87
Views: 8513

Re: Market timing 2-year treasuries using Martingale-style bets

For things that are as far out as 2 weeks, how you model the roll will start becoming extremely important.

As an aside, if you think this will work, the correct answer isn't to try to lower your "cost basis" but to simply make money buying the dips and then selling a few ticks over.
by lee1026
Tue Oct 27, 2015 10:29 pm
Forum: Investing - Theory, News & General
Topic: Market timing 2-year treasuries using Martingale-style bets
Replies: 87
Views: 8513

Re: Market timing 2-year treasuries using Martingale-style bets

Five-sigma case: The yield increases from 0.66% to 0.76%. The NAV of my bond position drops by 0.10% * 2 = 0.20%. I increase my position to 3x, so my effective yield is 3* 0.76% = 2.28%. It will take 365 * 0.2%/2.28% = 32 days to recover the loss from dividends. ***Note that 0.20% is still within the daily volatility of a 2-year treasury ETF x3. If you think 5 sigma event is only going to cost you 20 bps, I don't think this is the trade for you; you should be trading options. The option market is pricing a standard deviation at around around 6 bps. so a 5 sigma event is around a fall of 30 bps. I won't worry about an increase in the borrowing rate for now, and in any event, when you buy a future, you lock in a financing rate until the futu...
by lee1026
Tue Oct 27, 2015 1:27 am
Forum: Investing - Theory, News & General
Topic: Market timing 2-year treasuries using Martingale-style bets
Replies: 87
Views: 8513

Re: Should I use margin to buy a balanced fund?

We can forget about futures for a moment and focus on regular bonds/bond fund fundamentals. When yields increase and bond prices go down, we point at reinvesting dividends and say we are buying bonds with the new (higher) yield. If we hold and continue to reinvest dividends long enough , we will hit a point of indifference where the the total return from the new bonds at the higher yield would match the total return of the old bonds at the lower yield. This isn't technical analysis; it's math. The math don't really apply to treasury futures. This is only the case as long as your borrowing costs remain constant, which have been true for the last few years, but may not remain true in the future. And since that risk is the risk that you are a...
by lee1026
Mon Oct 26, 2015 1:58 pm
Forum: Investing - Theory, News & General
Topic: Market timing 2-year treasuries using Martingale-style bets
Replies: 87
Views: 8513

Re: Should I use margin to buy a balanced fund?

Implied finance costs for stock futures and bond futures are very different, mostly because on the stock side, you are asking the lender to take on the risk that the dividends will be cut. On the bond side, the dividend is effectively T-Bills. Implied financing for bond futures is roughly LIBOR. 0.25% ish.
by lee1026
Mon Oct 26, 2015 1:24 pm
Forum: Investing - Theory, News & General
Topic: Market timing 2-year treasuries using Martingale-style bets
Replies: 87
Views: 8513

Re: Should I use margin to buy a balanced fund?

Who's even the market on the short side of short-term Treasury futures, other than speculators hoping for rate increases? Traders hedging a tiny bit of term risk out of short-term distressed credit plays? Some more complicated derivatives swaps/hedging scheme? Institutional arbitragers collecting the spread in the imputed borrowing costs for those on the long side?
Speculators are net short:
http://www.reuters.com/article/2015/10/ ... L320151023

Lots of people want to bet that the Fed will raise rates, by the looks of it.