What a pretty market. All that money Helicopter Ben pumped into the markets with his QE programs HAS to eventually come out one day and when it does Look Out Below. How easy people forget all that when the picture looks so rosy right now.
Coops where are you? Give these people some insight before they lose every penny they have.
What a pretty market. All that money Helicopter Ben pumped into the markets with his QE programs HAS to eventually come out one day and when it does Look Out Below. How easy people forget all that when the picture looks so rosy right now.
Coops where are you? Give these people some insight before they lose every penny they have.
Would tend to agree with this also. Have most of my daughters college fund in cash because I think equities are overvalued. But I'm also kind of a permanent bear, and if your timeframe is truly long term it shouldn't matter too much.
Being a bear has been wrong for over 6 years, unless you were able to short particular companies that have done poorly. Obviously QE programs and ZIRP have boosted asset prices and pulled forward future earnings, but they were needed due to a financial epidemic, an antiquated tax system and an administration that has put forward policies that have been wet blankets on the economy(Obamacare/Dodd Frank). If we can get some fiscal help from the politicians(kinda big if) then this economy could move towards 4% GDP while normalizing rates. I would much rather have our economy than any other country right now. Yeah, equities may be valued on the high side, but they look a lot more attractive than bonds/CDs/MMK if you have a 5+ year time horizon.
You might want to park some of your money in a closed end junk bond fund like HIX. Currently paying about 12%-- but that will fluctuate. Trades below NAV. And with this one I would not reinvest dividends-- just take the cash every month.
What a pretty market. All that money Helicopter Ben pumped into the markets with his QE programs HAS to eventually come out one day and when it does Look Out Below. How easy people forget all that when the picture looks so rosy right now.
Coops where are you? Give these people some insight before they lose every penny they have.
I "think" rates may rise this month. First time I've felt that way in years.... Can't confirm 100% yet though.
Does something like HIX get great dividends at the expense of the principal long term? Seems like the 12% dividend yield is too good to be true. From $15 bucks in 2000 to what it is now around $6.60
Does something like HIX get great dividends at the expense of the principal long term? Seems like the 12% dividend yield is too good to be true. From $15 bucks in 2000 to what it is now around $6.60
It's junk bonds, so it goes where the market goes. They've been paying .069/month for some time now-- and, they announce their distributions 3 months out, so it'll be .069 thru Feb. at least. You need to monitor XHGIX which gives their NAV at the end of each day. It was $7.32 yesterday, and the fund trades at a discount to the NAV. So, they're buying back some shares--
To capitalize on this, one can buy ticker TBT.
A 2x inverse on the bond market,
Are you going to buy this,Coops?
Winner, not to bust balls, but haven't you mentioned this like 3 times already in the stock thread in the past 3 months or so. Did you ever read any of my replies? Unless timed perfectly the slippage will deteriorate any profits you may have coming. this how these double triple etfs work. they are for day trading only or max 7 day hold
Underwraps, I believe I bought it around August in which I thought rates would rise in Sept. As you know they didn't but I've held on thinking they will rise in Oct. , Nov. and now I think they will go up in December.
I believe the slippage will not deteriorate the profit or will at least allow me to break even if they rise in Dec.
If they don't, I'l re-evaluate and if they do I will re-evaluate too.
Leveraged ETFs: typically built for day traders
Leveraged ETFs often have multiples like 2x or 3x or ultra in their names. That just means the ETF aims to deliver two or three times the return on its stated index.
In other words, a 2x Russell 2000 Index ETF is trying to deliver twice the return of the Russell 2000 Small Cap Index. If youre counting on a market rally, you might be attracted to these ETFs to capitalize on a market increase with limited cash down.
Heres the wrinkle many investors dont understand: Leveraged ETFs try to deliver the multiple on the index return on a daily basis. If you hold leveraged ETFs for more than one day, you may not get the multiple of the index return youre expecting, even if your forecast is correct. In fact, you can end up with a loss not at all what you might expect. You can blame a concept called beta slippage for this; its an effect of compounding that impacts leveraged ETFs held longer than one day.
How leveraged ETFs can spin out of control
Imagine youre trading a 2x leveraged ETF that promises twice the return of XYZ index. You buy 1 share of the ETF for $100, and the underlying index is at 10,000.
If XYZ index shoots up 10% the next day to 11,000, your leveraged ETF would increase 20%, to $120. If, however, the index drops from 11,000 back down to 10,000 the following day, thats a 9.09% decline. Your leveraged ETF would go down twice this amount, or 18.18%.
A decline of 18.18% from the $120 leveraged ETF price would leave you with a share worth $98.18. The index wound up right where it started - but your ETF would be down 1.82%!
Why does this happen? Most leveraged ETFs rebalance their assets daily with an eye towards delivering the multiple of the indexs returns only on that day. The holding period of your trade is not taken in to account, so your return may be quite different.
If the index keeps moving in the same direction every single day, this does result in better-than-expected returns for the longer period. But any reversals in the indexs direction render a leveraged ETF worse off than youd expect based on its multiple. It only takes one reversal day for this effect to kick in.
As you can see, leveraged ETFs have an additional layer of complexity. If you decide to hold a leveraged ETF for longer than one day, be sure to check your holdings daily, at a bare minimum, to see that their value is in line with your expectations. If you decide to use this ETF for an intra-day trade, be sure to factor in commission costs when assessing the risks. The more frequently you trade, the more commission costs you will incur. Of course, keep in mind that any use of leverage increases your risk exposure and can lead to greater losses.
Inverse ETFs: still tricky, but upside down
Inverse or short ETFs have a similar compounding problem. An inverse fund tries to deliver returns that are the opposite of the indexs returns. That is, if the index goes up 1%, then the inverse ETF should go down 1%, and vice versa. Bear market funds in this category were attractive to lots of investors during the 2008-09 market downturn.
Take our previous example of XYZ index, but in the opposite direction. You buy 1 share of the inverse ETF for $100, and the underlying index is at 10,000.
If the index falls from 10,000 to 9,000 in one day, a decline of 10%, then an inverse ETF purchased for $100 will rise to $110 an increase of 10%. So far, so good. If the index then climbs from 9,000 back up to 10,000 on the next day, this is an increase of 11.11%. The ETF will fall by 11.11%, from $110 down to $97.78, resulting in a loss.
Even though the index finished where it started, the inverse ETF performs worse than expected because of the daily rebalancing.
Just like long leveraged ETFs, inverse funds do provide better-than-expected returns if the index moves only in one direction but even one reversal in direction will throw a wrench in the works. If you decide to hold an inverse ETF for longer than one day, make sure you monitor your holdings each day, at a minimum. If you decide to hold an inverse ETF as an intra-day position, be mindful of commission costs when evaluating these opportunities. The more frequently you trade, the more commission costs you will incur.
Inverse + leveraged ETFs = double trouble
If an ETF is both inverse and leveraged, this problem gets worse if the ETF is held longer than one day. If youre looking for leveraged inverse exposure for longer than a day, you may be better off using other strategies to achieve this. Again, keep in mind that additional leverage will have costs and magnified risks.
Still a doubter? Check out the numbers.
The following table compares S&P 500® index returns from January through June 2009 to the returns of a 2x leveraged ETF, a -1x inverse ETF, and a -2x leveraged inverse ETF, all based on that index.
The S&P 500 was up 3.163% for that period. If you didnt know any better, you might assume a typical 2x leveraged fund would return 6.33%, a -1x inverse fund -3.16% and a -2x leveraged inverse fund -6.33%. But that simple math ignores the compounding effect described above.
All three funds performed a lot worse than you might have expected due to the problem of compounding (fund expenses were a minor factor here, too). Amazingly, all three funds had negative returns, even though the index itself rose!
I didn't read everythinf wraps wrote, but TBT is at best a 2 hour buy and sell for me. Leveraged ETFs are crap IMO, basically like a rigged carnival game. Mario really fucked day traders up today, but gave Yellen the last bit of ammo she needs to hike rates. Full speed ahead UNLESS we get a suprise tomorrow morning, but would have to be GIANT miss for fed to reverse course at this point. Best trade now is start shorting everything housing related IMO, 30 year starts rising and everything freezes. Market is so fragile right now, they think they priced in a rate hike, but the correction will happen. 2016 will be bad, real bad. Rates must rise because fed is backed into a corner. Blood in the streets folks, and Hillary will only essacerbate the problems. Whole financial sector will look different in a few years..., how you make money off this? Not that hard....
I understand and appreciate your concerns regarding to TBT.
I think it will go up much higher than 49/50(what I bought it for) if rates rise in December and then I can sell it.
Shorting high yield junk bonds may be a good buy now too.
Symbol :SJB
Winner, not to bust balls, but haven't you mentioned this like 3 times already in the stock thread in the past 3 months or so. Did you ever read any of my replies? Unless timed perfectly the slippage will deteriorate any profits you may have coming. this how these double triple etfs work. they are for day trading only or max 7 day hold
i did this with SKF in 2009 when the stress tests came out...didnt work out well ha
i think some of their data shouldve delineated between all corporate debt and non-financial corporates, as they even pointed out in their writing the banks arent in bad shape. but the piece overall is good IMO
i think some of their data shouldve delineated between all corporate debt and non-financial corporates, as they even pointed out in their writing the banks arent in bad shape. but the piece overall is good IMO
Banks aren't in good shape... Rate increase with help with NII, but the balance sheet restrictions are really squeezing profitable units out.
Banks aren't in good shape... Rate increase with help with NII, but the balance sheet restrictions are really squeezing profitable units out.
I disagree. They certainly won't be as profitable in peak times because regulators have gutted their higher margin businesses like you allude to but they're also becoming more like utilities where earnings are smoother, due to the same regulations you're referring to. I guess it's relative to perspective because when I say they're in better shape I'm saying they're in better shape to withstand a downturn that I think is coming. and as you said they will benefit from rising rates which I also think is coming. Look at banks like UBS and they're focusing on asset management business revenue because they're predictable and safe cash flows vs trading revenue which you never know.
Now whether this is good for the market as a whole, I don't think that's the case at all. But if we're talking just the banks I think they're in a lot better shape than mosT give them credit for. Coops what part of the business are you in?
How will they benefit from rising rates if that will strangle the consumer. Well yeah earnings are smoother and they would be for anyone who borrows at 0% and lends at 3 to 15% These next couple of years coming you will see the highest consumer CC Bk filed.
Most banks are sitting at an all time high for deposits, any increase in rates will benefit. I'm not talking about the consumer, they are fucked. Chase started charging for deposits this summer and other banks are discussing it as well. If that's not a sign everyine is fucked, I don't know what is. A banks main purpose is to take deposits, and now they want to charge? Jesus Christ. The charges for now are more for hedge funds, etc. that leave deposits At banks, but I'm sure this will trickle down once it gains traction. Once again, this is all regulation related, SLR and LCR premiums banks have to pay attention to, which weren't around pre crisis. And St. Joes, I work in regulation.... Go figure...
How will they benefit from rising rates if that will strangle the consumer. Well yeah earnings are smoother and they would be for anyone who borrows at 0% and lends at 3 to 15% These next couple of years coming you will see the highest consumer CC Bk filed.
The Fed has rates at basically zero. Increasing by 25 bps is not going to affect the consumer much. This is a very Dovish Fed and Fed Chair and I can't imaging them hiking rates too fast. They may even go one and done just to get off zero. If market sells off because of the first Fed increase in 9 years, it will be a buying opportunity. Also, the Fed raising rates should not affect long term rates much, which are not controlled by the Fed unless they do something unconventional like asset purchases.
I'll be re-balancing my portfolio and will load up on aerospace/defense ETF's and anything military/military contractor related. There is so much bad shit going on in the world and I don't see any country spending less on it's military/defense budget for the foreseeable future. if equities or the markets start tanking due to rate hikes, world instability, terrorism, etc this sector will be a great overall hedge.
I personally disagree that a rate hike will have a major effect on the housing market, we are in a completely different environment then we were in 08. International buyers don't need financing and neither do P.E. firms/REIT(s) that are buying out residential properties all over U.S. interesting times!
We have something that is in Southern California that may be of interest for you if you know the market out here. I will send the info to Ed, You can get my contact info from him as well.
Would have commented on this a couple years ago but was not willing to pay the $10.
The Only Investment Guide You'll Ever Need -- Andrew Tobias
One Up On Wall Street -- Peter Lynch
Beating The Street -- Peter Lynch
Contrarian Investment Strategies: The Next Generation -- David Dreman
Common Sense On Mutual Funds -- John Bogle
Why Smart People Make Big Money Mistakes and How To Correct Them -- Gilovich/Belsky
Comments
Coops where are you? Give these people some insight before they lose every penny they have.
Would tend to agree with this also. Have most of my daughters college fund in cash because I think equities are overvalued. But I'm also kind of a permanent bear, and if your timeframe is truly long term it shouldn't matter too much.
I "think" rates may rise this month. First time I've felt that way in years.... Can't confirm 100% yet though.
It's junk bonds, so it goes where the market goes. They've been paying .069/month for some time now-- and, they announce their distributions 3 months out, so it'll be .069 thru Feb. at least. You need to monitor XHGIX which gives their NAV at the end of each day. It was $7.32 yesterday, and the fund trades at a discount to the NAV. So, they're buying back some shares--
http://finance.yahoo.com/news/certain-closed-end-funds-advised-130000147.html
To capitalize on this, one can buy ticker TBT.
A 2x inverse on the bond market,
Are you going to buy this,Coops?
Winner, not to bust balls, but haven't you mentioned this like 3 times already in the stock thread in the past 3 months or so. Did you ever read any of my replies? Unless timed perfectly the slippage will deteriorate any profits you may have coming. this how these double triple etfs work. they are for day trading only or max 7 day hold
I believe the slippage will not deteriorate the profit or will at least allow me to break even if they rise in Dec.
If they don't, I'l re-evaluate and if they do I will re-evaluate too.
Thanks, wraps
Leveraged ETFs: typically built for day traders
Leveraged ETFs often have multiples like 2x or 3x or ultra in their names. That just means the ETF aims to deliver two or three times the return on its stated index.
In other words, a 2x Russell 2000 Index ETF is trying to deliver twice the return of the Russell 2000 Small Cap Index. If youre counting on a market rally, you might be attracted to these ETFs to capitalize on a market increase with limited cash down.
Heres the wrinkle many investors dont understand: Leveraged ETFs try to deliver the multiple on the index return on a daily basis. If you hold leveraged ETFs for more than one day, you may not get the multiple of the index return youre expecting, even if your forecast is correct. In fact, you can end up with a loss not at all what you might expect. You can blame a concept called beta slippage for this; its an effect of compounding that impacts leveraged ETFs held longer than one day.
How leveraged ETFs can spin out of control
Imagine youre trading a 2x leveraged ETF that promises twice the return of XYZ index. You buy 1 share of the ETF for $100, and the underlying index is at 10,000.
If XYZ index shoots up 10% the next day to 11,000, your leveraged ETF would increase 20%, to $120. If, however, the index drops from 11,000 back down to 10,000 the following day, thats a 9.09% decline. Your leveraged ETF would go down twice this amount, or 18.18%.
A decline of 18.18% from the $120 leveraged ETF price would leave you with a share worth $98.18. The index wound up right where it started - but your ETF would be down 1.82%!
Why does this happen? Most leveraged ETFs rebalance their assets daily with an eye towards delivering the multiple of the indexs returns only on that day. The holding period of your trade is not taken in to account, so your return may be quite different.
If the index keeps moving in the same direction every single day, this does result in better-than-expected returns for the longer period. But any reversals in the indexs direction render a leveraged ETF worse off than youd expect based on its multiple. It only takes one reversal day for this effect to kick in.
As you can see, leveraged ETFs have an additional layer of complexity. If you decide to hold a leveraged ETF for longer than one day, be sure to check your holdings daily, at a bare minimum, to see that their value is in line with your expectations. If you decide to use this ETF for an intra-day trade, be sure to factor in commission costs when assessing the risks. The more frequently you trade, the more commission costs you will incur. Of course, keep in mind that any use of leverage increases your risk exposure and can lead to greater losses.
Inverse ETFs: still tricky, but upside down
Inverse or short ETFs have a similar compounding problem. An inverse fund tries to deliver returns that are the opposite of the indexs returns. That is, if the index goes up 1%, then the inverse ETF should go down 1%, and vice versa. Bear market funds in this category were attractive to lots of investors during the 2008-09 market downturn.
Take our previous example of XYZ index, but in the opposite direction. You buy 1 share of the inverse ETF for $100, and the underlying index is at 10,000.
If the index falls from 10,000 to 9,000 in one day, a decline of 10%, then an inverse ETF purchased for $100 will rise to $110 an increase of 10%. So far, so good. If the index then climbs from 9,000 back up to 10,000 on the next day, this is an increase of 11.11%. The ETF will fall by 11.11%, from $110 down to $97.78, resulting in a loss.
Even though the index finished where it started, the inverse ETF performs worse than expected because of the daily rebalancing.
Just like long leveraged ETFs, inverse funds do provide better-than-expected returns if the index moves only in one direction but even one reversal in direction will throw a wrench in the works. If you decide to hold an inverse ETF for longer than one day, make sure you monitor your holdings each day, at a minimum. If you decide to hold an inverse ETF as an intra-day position, be mindful of commission costs when evaluating these opportunities. The more frequently you trade, the more commission costs you will incur.
Inverse + leveraged ETFs = double trouble
If an ETF is both inverse and leveraged, this problem gets worse if the ETF is held longer than one day. If youre looking for leveraged inverse exposure for longer than a day, you may be better off using other strategies to achieve this. Again, keep in mind that additional leverage will have costs and magnified risks.
Still a doubter? Check out the numbers.
The following table compares S&P 500® index returns from January through June 2009 to the returns of a 2x leveraged ETF, a -1x inverse ETF, and a -2x leveraged inverse ETF, all based on that index.
The S&P 500 was up 3.163% for that period. If you didnt know any better, you might assume a typical 2x leveraged fund would return 6.33%, a -1x inverse fund -3.16% and a -2x leveraged inverse fund -6.33%. But that simple math ignores the compounding effect described above.
All three funds performed a lot worse than you might have expected due to the problem of compounding (fund expenses were a minor factor here, too). Amazingly, all three funds had negative returns, even though the index itself rose!
I think it will go up much higher than 49/50(what I bought it for) if rates rise in December and then I can sell it.
Shorting high yield junk bonds may be a good buy now too.
Symbol :SJB
i did this with SKF in 2009 when the stress tests came out...didnt work out well ha
Perfect timing. I'm sure buying puts was much more profitable
for sure, i was dumb and didnt appreciate what youre pointing out regarding the leveraged ETFs.
this is a pretty good piece too:
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015/11/The%20Ninth%20Inning%20of%20the%20High%20Yield%20Bubble.pdf
i think some of their data shouldve delineated between all corporate debt and non-financial corporates, as they even pointed out in their writing the banks arent in bad shape. but the piece overall is good IMO
Banks aren't in good shape... Rate increase with help with NII, but the balance sheet restrictions are really squeezing profitable units out.
I disagree. They certainly won't be as profitable in peak times because regulators have gutted their higher margin businesses like you allude to but they're also becoming more like utilities where earnings are smoother, due to the same regulations you're referring to. I guess it's relative to perspective because when I say they're in better shape I'm saying they're in better shape to withstand a downturn that I think is coming. and as you said they will benefit from rising rates which I also think is coming. Look at banks like UBS and they're focusing on asset management business revenue because they're predictable and safe cash flows vs trading revenue which you never know.
Now whether this is good for the market as a whole, I don't think that's the case at all. But if we're talking just the banks I think they're in a lot better shape than mosT give them credit for. Coops what part of the business are you in?
The Fed has rates at basically zero. Increasing by 25 bps is not going to affect the consumer much. This is a very Dovish Fed and Fed Chair and I can't imaging them hiking rates too fast. They may even go one and done just to get off zero. If market sells off because of the first Fed increase in 9 years, it will be a buying opportunity. Also, the Fed raising rates should not affect long term rates much, which are not controlled by the Fed unless they do something unconventional like asset purchases.
Take the 10 year SPY chart and overlap it with the Copper chart.
I personally disagree that a rate hike will have a major effect on the housing market, we are in a completely different environment then we were in 08. International buyers don't need financing and neither do P.E. firms/REIT(s) that are buying out residential properties all over U.S. interesting times!
The Only Investment Guide You'll Ever Need -- Andrew Tobias
One Up On Wall Street -- Peter Lynch
Beating The Street -- Peter Lynch
Contrarian Investment Strategies: The Next Generation -- David Dreman
Common Sense On Mutual Funds -- John Bogle
Why Smart People Make Big Money Mistakes and How To Correct Them -- Gilovich/Belsky
R40 stands for retired at 40.
That is all.