90% Of Green Energy Stocks Will Go Bankrupt... So Buy The Sector? [View article]
* Good point: a lot of investors are biased pro-green just because it's the right thing to do. Don't do that if you can't afford it.
* Ignored point: some states have solar subsidy programs that make local solar farms a sure-win investment, also support regional self-reliance which in turn supports national stability.
* Ignored point: every argument for ignoring alternative energy hinges on the assumption that the USA has plenty of gas, coal and oil for the next 50 years, some say 100 years. What about after? These people just don't care about the next generation, period.
What amazes me is that even the same people who say "hoard more gold" are saying "drill more oil."
This ubiquitous drill-baby-drill bias clearly demonstrates the power of fashion, greed and ideology to overcome reason. While it makes some sense to burn gas or coal, oil is uniquely critical to chemistry, plastics and military defense. The last thing we should be doing with oil is burning it. Even in pure financial terms, tomorrow's oil is worth far more than today's dollars. And however superlative our extraction technology may be today, it will surely be twice as efficient in 50 years. Every drop of native oil that we burn is incredibly stupid, and I can hardly respect the economic sense of anyone who does not see this.
Jobs-jobs-jobs? Sure this is the political priority, because very few people have the sense of investors. The ancient Hawaiians trapped fish, ate fish and lived well. The McCormick Reaper was invented in the 19th century. One farmer feeds 5,000. The computer multiplied productivity yet again. And yet somehow--here in century 21--we simply must drill more oil to get enough jobs...? Where does it end? Nowhere obviously until the human race starts exploring for brains half as much as exploring for gold and oil and stops living like stray cats.
There is every reason for everyone even China to care about America because it is a bastion of economic stability. However if we cared about this country half as much as those who made the Alaska and Louisiana purchases, we would be buying up foreign drilling rights, while locking up our native oil reserves for 50 years. China is doing the buying and planning, we are doing little more than squandering while whining that the squandering is never enough--led on of course by oil companies and their narrowly dedicated investors.
1. John Overstreet has admitted in the comments that there might be something to some of the comments raised about gold manipulation. I would look forward to a new article by John addressing those possibilities. 2. My bottom line: every major gold bug newsletter tracked by the Hulbert Financial Digest did terribly for 2001-2010 in spite of their gold. I subscribed to some hoping they could give me some tips about which mines and when etc. But soon realized if they are so clueless about general investing how can they be trusted to know anything about gold except gold is good, buy gold? 3. If there is manipulation, so that is one more thing manipulated. "Insider trading" for equities is supposed to tell a lot. Sometimes yes, sometimes no. Even when we have such information, not everyone can make use of it. If you really know what you are talking about, good for you. But I certainly have no way of knowing that you know. I am curious but seriously, I have other things to do. 4. There is one reason for Northwestern hemispherelings to hold gold above other investments. That is, it is the only investment whose value can survive two things: a shifting of the earth's crust and one's own stupidity. After a lifetime of savings we can make bad investments and leave nothing to our grandchildren. For both those benefits, you do not buy GLD. Instead you hold small increments in several safety deposit boxes in several bank locations. And make sure your account is deemed active once a year and the bank personnel does not handle your key. 5. Otherwise for Northwestern hemispherelings you do not make more from being savvy with gold than with value investing or any of innumerable savvy speculations. I do like any kind of oil and high-value mining stock because like a good basketball they bounce well, giving me confidence to buy low sell high. And meanwhile there is a lot of stuff in the ground there, as opposed to betting that Blackberry will or will not bounce back to trounce the Ipod or some Korean will trounce them both, etc., etc. 6. Less-stable economies are quite different. Riots or tsunamis break out, you break out Euro 50's or US$50's to help get on the taxi or the plane, or to help others afford malaria medication or etc. Western cash is compact and effective. But the way things are heading, someday they might not work. Slightly more clunky gold or silver bracelets will then work better. Don't leave home without a few. 7. Myth: other precious materials are better than gold. I believe diamonds are soon to plummet after the patent runs out for Moissanites which are not imitations but man-made twin sisters. Nobody will want a teeny diamond ring when they can get a huge moissanite made in China or Korea. Just one example of innumerable materials whose values might go way up but way down. Gold is not much different from them in its instability and combination of scientific and aesthetic uses except the added tradition as money. Gold = money = relative added stability = the big difference. 8. Myth: gold will save you in a great depression. Not if you sell it during the depression, when everyone else is selling theirs--unless it's a rare inflationary depression. What you need to add is lots of dogfood to survive the depression without selling the gold. That's the ticket. 9. Please name me one gold bug who is saying, "Disaster! China is buying Fort Knox!" --but who is NOT saying, "Disaster! We are not allowing enough oil to be drilled! We need to drill away more of our native oil!"
My friends, oil = black gold with a big difference. When you buy gold, you do not burn it away forever. And there are many forms of energy. But only oil is also chemistry, construction and national defense. The future of America does not depend on who has more oil right now. The future depends on who is The Last Man Standing with native oil reserves. China is buying up those reserves all over the world. Americans both 'liberal' and 'conservative' are instead focused on so-called "energy independence" by burning up our native assets asap. That is like saying the faster you spend your life savings the more "independent" you are. So I do not spend much time thinking about gold nor do I trust Gold Bugs to have much sense of reason.
So I personally do suggest 1/5 portfolio in physical gold--but at least 2/5 in individually-traded TIPS, which are market-inverse and do you far better most of the time. http://bit.ly/XWUYq0
It Can Happen Here: The Confiscation Scheme Planned For U.S. And U.K. Depositors [View article]
Re: "...brokerages and money market accounts are FAR safer than banks... The problem is that people in general assume the risk of cash is low relative to other types of investments and forget that the risk of cash is a continuous 5%+/year drain..."
Matt, you certainly have a valid point but let us qualify that please...
1. I know a number of elderly people who are struggling to hold a job because they lost most of their retirement savings in the market in 2008 and could not afford to await the rebound while paying their bills. 2. During 2008, it was the government that bailed out financial corporations, not the other way around. So don't tell me it is somehow safer to trust in the solvency of corporations than in the government. 3. The 2008 bailouts were not popular, and next time around will be less popular, and with good reason. And with no bailouts of the too-big-to-fails, then the whole system of SIPC and the stock market will collapse like dominoes. 4. Also, if the FDIC uses the dirty tricks expressed in this article, there will be a clean sweep of all politicians. So it is possible for FDIC to collapse but there will be serious reluctance at least. Whereas if SIPC-insured money-market accounts collapse, everyone will say so what, you knew the risk.
I claim no in-depth banking knowledge but if the allegations of this article are true, the only secure investment seems to be individually-purchased US Treasury TIPS. (Not TIPs ETFs of course.) Maintain a ladder, trade the ladder, and you have minimal taxes plus market gain potential, with no loss potential. Also some (not much but some) automatic inflation-protection in case of an inflationary recession.
Gold? Don't kid yourself. This only helps in an inflationary recession, and most gains will be taken by taxes if not confiscation. I recommend physical gold for dire emergencies and bequeathing to grandchildren, but that is about it. Gold will rebound like no investment, but during the crash is the time to buy it, not to rely on it.
Although of course it is quite true that we also need to make market investments. "Inflation is invisible taxation." And the more we invest, the more inflation, and the more need to invest. Have you never thought to question the sanity behind economists always complaining about the "slowing RATE of growth"? Why should a sane system need any GROWTH at all? But not only do we rely on GROWTH, but a high RATE of growth = exponential = unsustainable = pyramid scheme. We admit it boldly, we learn it in universities, an none of us monkeys even thinks to question the obvious. Here we are in century 21, and somehow cannot even feed ourselves without a pyramid scheme economy that must end in disaster or at least repeated disasters.
Ancient Hawaiians were much more evolved. They had infallible methods for trapping fish, went to the traps to eat, then went dancing and surfing. Their only glitch was the lack of birth control methods, which they solved by a little routine headhunting. This part of their system was perhaps equal, certainly no worse, in comparison to our two world wars, our 50 or so ongoing regional wars, and our routine stock market crashes = global economic cannibalism.
The 2 Best Options Strategies, According To Academia [View article]
I fail to understand the exact method of the Synthetic Stock and Long Call strategies in the 1996-2006 study. I have emailed the author, Professor Doran, as follows. I also invite anyone here please to reply if you can. http://bit.ly/10Lte4x
I fail to understand, how is it that the 1-yr OTM Long-Call strategy (and evidently the Long-Call component of the Synthetic Stock strategy) avoids losing -100% during the 2001-2002 crash? If I read correctly, for long strategies studied, "options are always held to expiration." (p. 6) Therefore, any 1-yr OTM S&P Long-Call must expire worthless during 2001-2002--I would assume?
Although I am a beginner with options, my extensive research on long-short equity investing concurs with the finding that 1-yr long-calls and put-writes must be highly advantaged. The results for the SS strategy, that combines these two, implies a long-term leverage that doubles the expectation for the S&P, while only multiplying the maximum drawdown by about 1.5. (Judging by figure 2 on page 34.) My own calculations concur that a similar expectation should be possible.
Obviously however, this is a dangerous strategy, and there is something about the exact method that I do not properly understand. Any comments would be appreciated.
The Best And Less Of Long-Short Equity Investing [View article]
UPDATE. New suggestions for portfolio allocation. Most investors are either timid or motivated. If motivated, they don't need suggestions. The average investor is timid and needs to keep any do-it-yourself (DIY) small and simple. With this understanding, for the average investor I now suggest...
* 1/10 of total portfolio in DIY buy-and-hold index ETFs. * 1/10 of total portfolio in DIY trend-trading the same ETFs--based either on the 300-day SMA of the S&P-500--or subscribing to trend-trading signals which might be better, if substantial long-term backtesting is provided, and which includes slippage allowance. * If total portolio is small, I would suggest focusing on an S&P-600 small-cap ETF with low overhead and substantial volume. * For additional equity investing, seek out long-short mutual funds that usually equal or better the S&P. * Do not neglect to maintain a ladder of directly-purchased TIPS. This is much safer than any other investment, including FDIC deposits. (But avoid TIPS ETFs. These are not safe at all, but totally subject to market whims.)
The 2 Best Options Strategies, According To Academia [View article]
Thank you for the empirical data on options strategies! I have been searching for data like this for several weeks.
Of most interest to me is the graph on page 34 of the 2006 study: "Synthetic Stock Portfolio Returns by Time to Maturity." If I understand correctly, this shows that 1-year call-buying can successfully create 2x leverage. However the 2001-2002 downturn seems disproportionately increased from about -40% to -60%.
Several respectable options tutorials imply that call-buying is equivalent to 10x or so leverage and that option leverage is better than margin leverage. It seems that options are feasible for creating leverage, but 2x is the best you can expect. Option leveraging also seems likely to be more stressful and less controllable than using margin or otherwise borrowing if you can do so at 2% interest.
VIX: What Is It, What Does It Mean, And How To Use It [View article]
Thank you Mr. Williams for the patient explanations. I am taking several options courses in which IV and VIX seem to be key elements which are not fully explained. Your points that "IV can be very wrong" and that there needs to be "my personal IV" are especially refreshing. Before any formal training, I devised my own formula for option-buy valuations, based on premium Asks and deltas and consequent expense and leverage and 1/2 my average expectations for the underlying picks based on long-term simulation studies. I found option-buying for some positions to seem a much better bargain than others on that basis, and am having some success buying on that basis. So far, my formal training does not seem to encourage any such method of systematically determining "value-according-to-me" -- but perhaps I should continue to refine my home-made system all the same.
It Can Happen Here: The Confiscation Scheme Planned For U.S. And U.K. Depositors [View article]
* This is a professionally written and independently thinking article which reminds me of a lady who wrote about Latin American debt in the 70's. Sorry can't remember her name.
* The stock market system is basically a slow-motion pyramid scheme which has almost destroyed the world every 50 years or so and then been modified to last another 50. Meanwhile in these "corrections" a lot of people starve and are thrown out of windows, and that is inevitably what enables the rest of us to survive and make money--for awhile.
* Meanwhile in the course of attaining a PhD in economics or investing, we are taught to look at this year and next year and maybe next decade, but never to join the big dots. So all these highly-trained people in a highly mathematical profession end up ignoring 1+1=2 in the big picture. And anyone who says anything different is brushed aside, just as a tribe of monkeys would brush aside any little monkey who suggests maybe they ought not to raid a pile of bananas in front of them.
* For example consumer spending (=not saving) and population growth (=unsustainability) are "good" for economies. No politician can stay in office who even thinks otherwise. Ronald Reagan became one of the most popular presidents in history, and to this day remains an icon no Republican or Democrat dares criticize, yet who mainly played chicken with the soviet union while putting the country on credit card debt headed for infinity.
* Is an appropriate response for "banks too big to fail" to increase the FDIC insurance limit from $125k to $250k? This is utterly irrational and yet this is what was done. If it remained $125 we could stimulate more bank diversity and if there is a crisis there is simply less to insure. As everyone knows there still would not be the capability to cover a WWIII style economic crisis--but at least we could give I.O.U.'s for half the money and hold the world together, maybe. Or so I used to think.
This "give everyone bank stock for their money" is more ingenious! So, 300 million people suddenly have bank stock to sell with nobody possibly to want to buy it. Guess what happens to the value of that stock? Duh. Politically unfeasible perhaps, assuming democracy survives rather than some Blade Runner style corporate feudalism. But, if we threaten to do that, and then maybe "compromise" by giving everyone 1/4 their money in cash, everyone gets on their knees and says thank you. So very clever.
* One topic is missing from this article: TIPS. US Treasury Bonds are no problem because inflation will make them worthless. If the government can so easily tax or "renegotiate" all FDIC deposits, perhaps that makes TIPS all the more secure because there will be no need to touch them. And a lot of those are in ETFs which the government might utilize to buy back its debt for pennies on the dollar. Hurrah! This is great news if you believe in the USA. Democracy and freedom can survive the ultimate economic crash, albeit somewhat diluted. Unless China decides simply to buy America for pennies on the dollar, with all the gold and oil rights they are buying. Meanwhile both "liberals" and "conservatives" in this country somehow think they are gaining "energy independenc" by burning away our native oil reserves. Ironically, even the same people who advocate gold-hoarding are saying we are not drilling away enough oil. Hmmm... not so good for America or Democracy. Maybe that's why half the people were Chinese in the Blade Runner film about 2019. But I digress...
Look, the bottom line is that there is probably not ten humanoids reading this article who do not assume that there is a God-given necessity to have more housing starts each year and more billionaires and it all grow up to infinity. Regardless of how this contradicts reason, our ancestors were genetically programmed to think this way, or they might not have had so many babies and we might not be here but someone else who does have the necessary off-switch for reason. Inevitably then we end up with the human equivalent of the migration of lemmings or the arctic die-off of rabbits, just on a different cycle. We are not descended from monkeys, we are monkeys. We neuter our cats but do not control ourselves, and it is wrong to suggest any such controls. Why? Because we are not cats, we are rational beings who can contol ourselves. Aha, but isn't that somewhat self-contradictory?
The bottom line is that as long as we think that having stock markets and billionaires is infinitely more important than having dignity and security for every human being--as long as we prefer to periodically grind up and eat people (or at least their savings) in a massive recession every 50 years or so--well then how can we expect to get anything more than what we are asking for, one way or another?
The VIX As A Measure Of Uncertainty, Not Volatility [View article]
This is a very thoughtful article. I strongly agree with the practical conclusions but have a slightly different perspective. VIX may be not so much an uncertainty factor as a certainty factor. When people are certain the market will go up or down, they buy puts or calls, and VIX goes up. Right now, the market has gone up without much behind it and might go up more. And as this article points out, the market also has every reason to go down. So it could go either way. And so few are 'certain' enough to buy a lot of puts or calls and so VIX is low.
However, reading this article, and looking at ^VIX graphs at Yahoo, also have helped me to realize that just like inverse ETFs, there is much greater potential for an upward than a downward spike. So relatively speaking, either 'fear factor' or 'uncertainty factor' may be appropriate. But I slightly disagree with the explanation that complacency sets in. The spikes simply can never be sustained, not because fear has subsided, but because the peak becomes totally unreasonable and everyone has already bought their puts, which they necessarily did with haste in the beginning to cover their long positions. Thus we must have the sudden spikes and thus we must have the less sudden but still rapid subsiding. The 20-year history graphs seem to confirm that there is nothing peculiar about this but it is the necessarily repeated pattern.
Also reading this article, I have decided maybe to buy on Mondays and sell on Fridays when volume always seems much higher, at least in my limited experience.
Record VIX Options Volume And Large Purchases Of VIX Calls [View article]
This post is especially interesting in noting that low VIX means that, by very definition of what VIX is, options premiums are low-priced in general--but meanwhile the premiums on VIX-related options may become high due to the eagerness of call-buyers and wariness of call-writers--based on the knowledge of an inevitable rise in the VIX and limited downside.
VIX Hits 6 Year Low: 1 Move To Make And 1 To Avoid [View article]
Sammy, I am hoping you will please let us know loudly in an article's title if any ETF ever solves the VIX contango problem!
I came here as a student to learn more about these "Vixens" for which your articles are outstanding. So, no need to take me seriously. However I feel obliged to caution against shorting SPY just because VIX is low. In my small opinion, it is better to wait until VIX is high, and use high VIX as an indicator of when to do covered call-writing or traditional covered short-selling--or just temporarily sell off 1/2 to 4/5 of your high-beta positions and buy extra US Treasuries.
I have been struggling to understand why, in spite of being supposedly a "fear factor," VIX is about as low as it has ever been in 20 years ( http://yhoo.it/174muDD#symbol=^vix;range=my;... ) --during a time of the year when the US Market has fallen every year like clockwork in recent years, and by all accounts the US economy remains fundamentally weak, and when Cyprus, Europe and the Emerging Markets are all reeling with vibrations of disaster. Well, some say that low VIX can be due to complacency as well as to fear. But we are anything but complacent! Non sequitor. So I am beginning to suspect that it may be totally incorrect to call VIX a fear factor, in that fear = angst = uncertainty.
On the contrary, in my small opinion, VIX seems more of a "certainty factor." When large numbers of people are certain that the market will go up, or certain the market will go down, they pile in to by their puts or calls. Then premiums go up = VIX goes up.
Solve the VIX contango and then we may have a sure-fire market hedge. But maybe that just can't happen because of the "no free lunch" rule. Meanwhile, the most sure-fire hedge is to maintain a large ladder of direct-purchased TIPS. Hold to maturity if trading values fall, or if trading values rise--as they will if the market falls--then trade the most profitable parts of the ladder. Can-win and cannot-lose.
Much-welcome article. I am a new fan of the concept of VIX, who specifically searched SA for articles on VIX, hoping to discover why in tarnation every VIX ETF seems to do everything except follow the VIX. Ta-da.
VIX: What Is It, What Does It Mean, And How To Use It [View article]
I am just starting to use options for adding leverage to my long-short equity systems... and thank you for this article that potentially clears up a lot of foggy things.... if I understand correctly...
Does the VIX partly explain the apparent discrepancy between expectation and reality for those who buy options to create equity leverage...?
Options tutorials routinely point out that by buying in-the-money with various strike prices, options easily create 10x to 15x leverage. And that this is one of the most popular reasons that many traditional investors, like me, are initially attracted to options. However I also came across some articles stating that research has shown this to be a myth, because the average option buyer performs less well than the buy-and-hold investor...
Meanwhile, tutorials also always explain how "implied volatility" increases the spread between fair value and market prices. So they say, buy option positions with low IV and sell with high IV. But they are rather vague about how to do that. Now if I understand correcttly, it seems that IV = VIX more or less. So maybe we can just go to Finance.Yahoo, ask for the ^VIX index, and see if it is a good day to buy or a good day to cry?
Then after selecting 5-year and adding "compare to" S&P and SH, I find that the VIX is extremely similar to a leveraged version of the inverse-S&P, complete with huge spikes at the beginning of the 2008 crash. http://yhoo.it/165nNic#symbol=^vix;range=5y;
Then in the "comments" here, Mr. Williams explains that a high VIX affects both puts and calls, somewhat regardless of whether the maket is falling or climbing. Well, if I understand correctly, this makes a lot of sense and potentially explains a lot. Because obviously, the best time to buy options is puts at the beginning or calls at the end of a market decline. However every time there is an itty-bitty drop, some people start buying puts to cover their positions. The more the drop, the more people pile in, and the higher the premiums go. So the VIX probably does not predict the market, any more than the market predicts the market, but it just reacts to consumer trends in the same way. You can say the low VIX expresses complacency, but you can also say the high S&P expresses complacency. When in fact, every market peak is just naturally created by over-optimism which is another word for complacency.
And therefore perhaps we cannot expect consistently leveraged gains from options-buying...? The premium prices may eat up the gains...? Because premiums are the highest at precisely those times when buyers would have made the most.... and precisely because the option-writers need to protect themselves..? To make consistently leveraged gains with options, it might be necessary to switch to option-writing when the VIX is high...?
Incidentally, if you delete the "comparisons" and click the "max" button at Yahoo, the VIX goes back to 1990. Right now, Cyprus and Europe are possibly crumbling, Emerging Markets have been floundering, and by all accounts the US stock market is going up mainly because the economy is so weak there is not much else to do with investment money. And every April in recent years, there always begins a serious mini-crash. Yet in spite of this, the VIX is way below 20, almost as low as it has ever been!
So, whether you think the market is going up or down, for options this seems a good time to buy and not a good time to write... That is, if my beginner's understanding of the VIX is somewhat correct. (?)
Article About Starting Hedge Funds Posted At Benzinga [View instapost]
Thank you! I cannot promise this article has practical advice for the average investor. But I do think the subject qualifies as thought-provoking entertainment such as often found at Money.MSN.com.
Also incidentally, after researching about all the hurdles for that article, I am actually planning a for-charity hedge fund myself with modest capital. It does seem doable.
PS. I have decided that if anybody does extensive EMA-based research, they probably should keep it to themselves.
I have already pointed out that using the 300-day SMA on the S&P is a doable trend-trading mechanism. Also that for those with extra initiative, there are better methods to subscribe to and to be discovered. In the discussion for this article and in my long-short article, I have laid out my guidelines and precautions for doing so effectively. Also the pros and cons of trend-trading in general and how to adjust for them. Beyond that, suffice to say that the market benefits from, indeed is created by, everyone coming to an individual conclusion.
Perhaps my most important finding is not in supporting any specific possibility, but in the general implication of finding that a significant possibility can be simultaneously snubbed on one hand and sloppily-embraced on the other by mainstream investment leaders. So much the better for those with individuality, exactitude and initiative, and who are able to reexamine established beliefs with a bit of noggin-power and sweat-equity. Good luck to all.
90% Of Green Energy Stocks Will Go Bankrupt... So Buy The Sector? [View article]
* Ignored point: some states have solar subsidy programs that make local solar farms a sure-win investment, also support regional self-reliance which in turn supports national stability.
* Ignored point: every argument for ignoring alternative energy hinges on the assumption that the USA has plenty of gas, coal and oil for the next 50 years, some say 100 years. What about after? These people just don't care about the next generation, period.
What amazes me is that even the same people who say "hoard more gold" are saying "drill more oil."
This ubiquitous drill-baby-drill bias clearly demonstrates the power of fashion, greed and ideology to overcome reason. While it makes some sense to burn gas or coal, oil is uniquely critical to chemistry, plastics and military defense. The last thing we should be doing with oil is burning it. Even in pure financial terms, tomorrow's oil is worth far more than today's dollars. And however superlative our extraction technology may be today, it will surely be twice as efficient in 50 years. Every drop of native oil that we burn is incredibly stupid, and I can hardly respect the economic sense of anyone who does not see this.
Jobs-jobs-jobs? Sure this is the political priority, because very few people have the sense of investors. The ancient Hawaiians trapped fish, ate fish and lived well. The McCormick Reaper was invented in the 19th century. One farmer feeds 5,000. The computer multiplied productivity yet again. And yet somehow--here in century 21--we simply must drill more oil to get enough jobs...? Where does it end? Nowhere obviously until the human race starts exploring for brains half as much as exploring for gold and oil and stops living like stray cats.
There is every reason for everyone even China to care about America because it is a bastion of economic stability. However if we cared about this country half as much as those who made the Alaska and Louisiana purchases, we would be buying up foreign drilling rights, while locking up our native oil reserves for 50 years. China is doing the buying and planning, we are doing little more than squandering while whining that the squandering is never enough--led on of course by oil companies and their narrowly dedicated investors.
Gold: A Bright Shining Lie? [View article]
1. John Overstreet has admitted in the comments that there might be something to some of the comments raised about gold manipulation. I would look forward to a new article by John addressing those possibilities.
2. My bottom line: every major gold bug newsletter tracked by the Hulbert Financial Digest did terribly for 2001-2010 in spite of their gold. I subscribed to some hoping they could give me some tips about which mines and when etc. But soon realized if they are so clueless about general investing how can they be trusted to know anything about gold except gold is good, buy gold?
3. If there is manipulation, so that is one more thing manipulated. "Insider trading" for equities is supposed to tell a lot. Sometimes yes, sometimes no. Even when we have such information, not everyone can make use of it. If you really know what you are talking about, good for you. But I certainly have no way of knowing that you know. I am curious but seriously, I have other things to do.
4. There is one reason for Northwestern hemispherelings to hold gold above other investments. That is, it is the only investment whose value can survive two things: a shifting of the earth's crust and one's own stupidity. After a lifetime of savings we can make bad investments and leave nothing to our grandchildren. For both those benefits, you do not buy GLD. Instead you hold small increments in several safety deposit boxes in several bank locations. And make sure your account is deemed active once a year and the bank personnel does not handle your key.
5. Otherwise for Northwestern hemispherelings you do not make more from being savvy with gold than with value investing or any of innumerable savvy speculations. I do like any kind of oil and high-value mining stock because like a good basketball they bounce well, giving me confidence to buy low sell high. And meanwhile there is a lot of stuff in the ground there, as opposed to betting that Blackberry will or will not bounce back to trounce the Ipod or some Korean will trounce them both, etc., etc.
6. Less-stable economies are quite different. Riots or tsunamis break out, you break out Euro 50's or US$50's to help get on the taxi or the plane, or to help others afford malaria medication or etc. Western cash is compact and effective. But the way things are heading, someday they might not work. Slightly more clunky gold or silver bracelets will then work better. Don't leave home without a few.
7. Myth: other precious materials are better than gold. I believe diamonds are soon to plummet after the patent runs out for Moissanites which are not imitations but man-made twin sisters. Nobody will want a teeny diamond ring when they can get a huge moissanite made in China or Korea. Just one example of innumerable materials whose values might go way up but way down. Gold is not much different from them in its instability and combination of scientific and aesthetic uses except the added tradition as money. Gold = money = relative added stability = the big difference.
8. Myth: gold will save you in a great depression. Not if you sell it during the depression, when everyone else is selling theirs--unless it's a rare inflationary depression. What you need to add is lots of dogfood to survive the depression without selling the gold. That's the ticket.
9. Please name me one gold bug who is saying, "Disaster! China is buying Fort Knox!" --but who is NOT saying, "Disaster! We are not allowing enough oil to be drilled! We need to drill away more of our native oil!"
My friends, oil = black gold with a big difference. When you buy gold, you do not burn it away forever. And there are many forms of energy. But only oil is also chemistry, construction and national defense. The future of America does not depend on who has more oil right now. The future depends on who is The Last Man Standing with native oil reserves. China is buying up those reserves all over the world. Americans both 'liberal' and 'conservative' are instead focused on so-called "energy independence" by burning up our native assets asap. That is like saying the faster you spend your life savings the more "independent" you are. So I do not spend much time thinking about gold nor do I trust Gold Bugs to have much sense of reason.
So I personally do suggest 1/5 portfolio in physical gold--but at least 2/5 in individually-traded TIPS, which are market-inverse and do you far better most of the time. http://bit.ly/XWUYq0
It Can Happen Here: The Confiscation Scheme Planned For U.S. And U.K. Depositors [View article]
Matt, you certainly have a valid point but let us qualify that please...
1. I know a number of elderly people who are struggling to hold a job because they lost most of their retirement savings in the market in 2008 and could not afford to await the rebound while paying their bills.
2. During 2008, it was the government that bailed out financial corporations, not the other way around. So don't tell me it is somehow safer to trust in the solvency of corporations than in the government.
3. The 2008 bailouts were not popular, and next time around will be less popular, and with good reason. And with no bailouts of the too-big-to-fails, then the whole system of SIPC and the stock market will collapse like dominoes.
4. Also, if the FDIC uses the dirty tricks expressed in this article, there will be a clean sweep of all politicians. So it is possible for FDIC to collapse but there will be serious reluctance at least. Whereas if SIPC-insured money-market accounts collapse, everyone will say so what, you knew the risk.
I claim no in-depth banking knowledge but if the allegations of this article are true, the only secure investment seems to be individually-purchased US Treasury TIPS. (Not TIPs ETFs of course.) Maintain a ladder, trade the ladder, and you have minimal taxes plus market gain potential, with no loss potential. Also some (not much but some) automatic inflation-protection in case of an inflationary recession.
Gold? Don't kid yourself. This only helps in an inflationary recession, and most gains will be taken by taxes if not confiscation. I recommend physical gold for dire emergencies and bequeathing to grandchildren, but that is about it. Gold will rebound like no investment, but during the crash is the time to buy it, not to rely on it.
Although of course it is quite true that we also need to make market investments. "Inflation is invisible taxation." And the more we invest, the more inflation, and the more need to invest. Have you never thought to question the sanity behind economists always complaining about the "slowing RATE of growth"? Why should a sane system need any GROWTH at all? But not only do we rely on GROWTH, but a high RATE of growth = exponential = unsustainable = pyramid scheme. We admit it boldly, we learn it in universities, an none of us monkeys even thinks to question the obvious. Here we are in century 21, and somehow cannot even feed ourselves without a pyramid scheme economy that must end in disaster or at least repeated disasters.
Ancient Hawaiians were much more evolved. They had infallible methods for trapping fish, went to the traps to eat, then went dancing and surfing. Their only glitch was the lack of birth control methods, which they solved by a little routine headhunting. This part of their system was perhaps equal, certainly no worse, in comparison to our two world wars, our 50 or so ongoing regional wars, and our routine stock market crashes = global economic cannibalism.
The 2 Best Options Strategies, According To Academia [View article]
http://bit.ly/10Lte4x
I fail to understand, how is it that the 1-yr OTM Long-Call strategy (and evidently the Long-Call component of the Synthetic Stock strategy) avoids losing -100% during the 2001-2002 crash? If I read correctly, for long strategies studied, "options are always held to expiration." (p. 6) Therefore, any 1-yr OTM S&P Long-Call must expire worthless during 2001-2002--I would assume?
Although I am a beginner with options, my extensive research on long-short equity investing concurs with the finding that 1-yr long-calls and put-writes must be highly advantaged. The results for the SS strategy, that combines these two, implies a long-term leverage that doubles the expectation for the S&P, while only multiplying the maximum drawdown by about 1.5. (Judging by figure 2 on page 34.) My own calculations concur that a similar expectation should be possible.
Obviously however, this is a dangerous strategy, and there is something about the exact method that I do not properly understand. Any comments would be appreciated.
The Best And Less Of Long-Short Equity Investing [View article]
* 1/10 of total portfolio in DIY buy-and-hold index ETFs.
* 1/10 of total portfolio in DIY trend-trading the same ETFs--based either on the 300-day SMA of the S&P-500--or subscribing to trend-trading signals which might be better, if substantial long-term backtesting is provided, and which includes slippage allowance.
* If total portolio is small, I would suggest focusing on an S&P-600 small-cap ETF with low overhead and substantial volume.
* For additional equity investing, seek out long-short mutual funds that usually equal or better the S&P.
* Do not neglect to maintain a ladder of directly-purchased TIPS. This is much safer than any other investment, including FDIC deposits. (But avoid TIPS ETFs. These are not safe at all, but totally subject to market whims.)
The 2 Best Options Strategies, According To Academia [View article]
Of most interest to me is the graph on page 34 of the 2006 study: "Synthetic Stock Portfolio Returns by Time to Maturity." If I understand correctly, this shows that 1-year call-buying can successfully create 2x leverage. However the 2001-2002 downturn seems disproportionately increased from about -40% to -60%.
Several respectable options tutorials imply that call-buying is equivalent to 10x or so leverage and that option leverage is better than margin leverage. It seems that options are feasible for creating leverage, but 2x is the best you can expect. Option leveraging also seems likely to be more stressful and less controllable than using margin or otherwise borrowing if you can do so at 2% interest.
VIX: What Is It, What Does It Mean, And How To Use It [View article]
It Can Happen Here: The Confiscation Scheme Planned For U.S. And U.K. Depositors [View article]
* The stock market system is basically a slow-motion pyramid scheme which has almost destroyed the world every 50 years or so and then been modified to last another 50. Meanwhile in these "corrections" a lot of people starve and are thrown out of windows, and that is inevitably what enables the rest of us to survive and make money--for awhile.
* Meanwhile in the course of attaining a PhD in economics or investing, we are taught to look at this year and next year and maybe next
decade, but never to join the big dots. So all these highly-trained people in a highly mathematical profession end up ignoring 1+1=2 in the big picture. And anyone who says anything different is brushed aside, just as a tribe of monkeys would brush aside any little monkey who suggests maybe they ought not to raid a pile of bananas in front of them.
* For example consumer spending (=not saving) and population growth (=unsustainability) are "good" for economies. No politician can stay in office who even thinks otherwise. Ronald Reagan became one of the most popular presidents in history, and to this day remains an icon no Republican or Democrat dares criticize, yet who mainly played chicken with the soviet union while putting the country on credit card debt headed for infinity.
* Is an appropriate response for "banks too big to fail" to increase the FDIC insurance limit from $125k to $250k? This is utterly irrational and yet this is what was done. If it remained $125 we could stimulate more bank diversity and if there is a crisis there is simply less to insure. As everyone knows there still would not be the capability to cover a WWIII style economic crisis--but at least we could give I.O.U.'s for half the money and hold the world together, maybe. Or so I used to think.
This "give everyone bank stock for their money" is more ingenious! So, 300 million people suddenly have bank stock to sell with nobody possibly to want to buy it. Guess what happens to the value of that stock? Duh. Politically unfeasible perhaps, assuming democracy survives rather than some Blade Runner style corporate feudalism. But, if we threaten to do that, and then maybe "compromise" by giving everyone 1/4 their money in cash, everyone gets on their knees and says thank you. So very clever.
* One topic is missing from this article: TIPS. US Treasury Bonds are no problem because inflation will make them worthless. If the government can so easily tax or "renegotiate" all FDIC deposits, perhaps that makes TIPS all the more secure because there will be no need to touch them. And a lot of those are in ETFs which the government might utilize to buy back its debt for pennies on the dollar. Hurrah! This is great news if you believe in the USA. Democracy and freedom can survive the ultimate economic crash, albeit somewhat diluted. Unless China decides simply to buy America for pennies on the dollar, with all the gold and oil rights they are buying. Meanwhile both "liberals" and "conservatives" in this country somehow think they are gaining "energy independenc" by burning away our native oil reserves. Ironically, even the same people who advocate gold-hoarding are saying we are not drilling away enough oil. Hmmm... not so good for America or Democracy. Maybe that's why half the people were Chinese in the Blade Runner film about 2019. But I digress...
Look, the bottom line is that there is probably not ten humanoids reading this article who do not assume that there is a God-given necessity to have more housing starts each year and more billionaires and it all grow up to infinity. Regardless of how this contradicts reason, our ancestors were genetically programmed to think this way, or they might not have had so many babies and we might not be here but someone else who does have the necessary off-switch for reason. Inevitably then we end up with the human equivalent of the migration of lemmings or the arctic die-off of rabbits, just on a different cycle. We are not descended from monkeys, we are monkeys. We neuter our cats but do not control ourselves, and it is wrong to suggest any such controls. Why? Because we are not cats, we are rational beings who can contol ourselves. Aha, but isn't that somewhat self-contradictory?
The bottom line is that as long as we think that having stock markets and billionaires is infinitely more important than having dignity and security for every human being--as long as we prefer to periodically grind up and eat people (or at least their savings) in a massive recession every 50 years or so--well then how can we expect to get anything more than what we are asking for, one way or another?
The VIX As A Measure Of Uncertainty, Not Volatility [View article]
However, reading this article, and looking at ^VIX graphs at Yahoo, also have helped me to realize that just like inverse ETFs, there is much greater potential for an upward than a downward spike. So relatively speaking, either 'fear factor' or 'uncertainty factor' may be appropriate. But I slightly disagree with the explanation that complacency sets in. The spikes simply can never be sustained, not because fear has subsided, but because the peak becomes totally unreasonable and everyone has already bought their puts, which they necessarily did with haste in the beginning to cover their long positions. Thus we must have the sudden spikes and thus we must have the less sudden but still rapid subsiding. The 20-year history graphs seem to confirm that there is nothing peculiar about this but it is the necessarily repeated pattern.
Also reading this article, I have decided maybe to buy on Mondays and sell on Fridays when volume always seems much higher, at least in my limited experience.
Record VIX Options Volume And Large Purchases Of VIX Calls [View article]
VIX Hits 6 Year Low: 1 Move To Make And 1 To Avoid [View article]
I came here as a student to learn more about these "Vixens" for which your articles are outstanding. So, no need to take me seriously. However I feel obliged to caution against shorting SPY just because VIX is low. In my small opinion, it is better to wait until VIX is high, and use high VIX as an indicator of when to do covered call-writing or traditional covered short-selling--or just temporarily sell off 1/2 to 4/5 of your high-beta positions and buy extra US Treasuries.
I have been struggling to understand why, in spite of being supposedly a "fear factor," VIX is about as low as it has ever been in 20 years
( http://yhoo.it/174muDD#symbol=^vix;range=my;... )
--during a time of the year when the US Market has fallen every year like clockwork in recent years, and by all accounts the US economy remains fundamentally weak, and when Cyprus, Europe and the Emerging Markets are all reeling with vibrations of disaster. Well, some say that low VIX can be due to complacency as well as to fear. But we are anything but complacent! Non sequitor. So I am beginning to suspect that it may be totally incorrect to call VIX a fear factor, in that fear = angst = uncertainty.
On the contrary, in my small opinion, VIX seems more of a "certainty factor." When large numbers of people are certain that the market will go up, or certain the market will go down, they pile in to by their puts or calls. Then premiums go up = VIX goes up.
Solve the VIX contango and then we may have a sure-fire market hedge. But maybe that just can't happen because of the "no free lunch" rule. Meanwhile, the most sure-fire hedge is to maintain a large ladder of direct-purchased TIPS. Hold to maturity if trading values fall, or if trading values rise--as they will if the market falls--then trade the most profitable parts of the ladder. Can-win and cannot-lose.
Time To Go Long On The VIX? [View article]
VIX: What Is It, What Does It Mean, And How To Use It [View article]
Does the VIX partly explain the apparent discrepancy between expectation and reality for those who buy options to create equity leverage...?
Options tutorials routinely point out that by buying in-the-money with various strike prices, options easily create 10x to 15x leverage. And that this is one of the most popular reasons that many traditional investors, like me, are initially attracted to options. However I also came across some articles stating that research has shown this to be a myth, because the average option buyer performs less well than the buy-and-hold investor...
Meanwhile, tutorials also always explain how "implied volatility" increases the spread between fair value and market prices. So they say, buy option positions with low IV and sell with high IV. But they are rather vague about how to do that. Now if I understand correcttly, it seems that IV = VIX more or less. So maybe we can just go to Finance.Yahoo, ask for the ^VIX index, and see if it is a good day to buy or a good day to cry?
Then after selecting 5-year and adding "compare to" S&P and SH, I find that the VIX is extremely similar to a leveraged version of the inverse-S&P, complete with huge spikes at the beginning of the 2008 crash.
http://yhoo.it/165nNic#symbol=^vix;range=5y;
Then in the "comments" here, Mr. Williams explains that a high VIX affects both puts and calls, somewhat regardless of whether the maket is falling or climbing. Well, if I understand correctly, this makes a lot of sense and potentially explains a lot. Because obviously, the best time to buy options is puts at the beginning or calls at the end of a market decline. However every time there is an itty-bitty drop, some people start buying puts to cover their positions. The more the drop, the more people pile in, and the higher the premiums go. So the VIX probably does not predict the market, any more than the market predicts the market, but it just reacts to consumer trends in the same way. You can say the low VIX expresses complacency, but you can also say the high S&P expresses complacency. When in fact, every market peak is just naturally created by over-optimism which is another word for complacency.
And therefore perhaps we cannot expect consistently leveraged gains from options-buying...? The premium prices may eat up the gains...? Because premiums are the highest at precisely those times when buyers would have made the most.... and precisely because the option-writers need to protect themselves..? To make consistently leveraged gains with options, it might be necessary to switch to option-writing when the VIX is high...?
Incidentally, if you delete the "comparisons" and click the "max" button at Yahoo, the VIX goes back to 1990. Right now, Cyprus and Europe are possibly crumbling, Emerging Markets have been floundering, and by all accounts the US stock market is going up mainly because the economy is so weak there is not much else to do with investment money. And every April in recent years, there always begins a serious mini-crash. Yet in spite of this, the VIX is way below 20, almost as low as it has ever been!
So, whether you think the market is going up or down, for options this seems a good time to buy and not a good time to write... That is, if my beginner's understanding of the VIX is somewhat correct. (?)
Article About Starting Hedge Funds Posted At Benzinga [View instapost]
Also incidentally, after researching about all the hurdles for that article, I am actually planning a for-charity hedge fund myself with modest capital. It does seem doable.
Trend-Trading SLYG Beats Leveraged ETFs [View article]
I have already pointed out that using the 300-day SMA on the S&P is a doable trend-trading mechanism. Also that for those with extra initiative, there are better methods to subscribe to and to be discovered. In the discussion for this article and in my long-short article, I have laid out my guidelines and precautions for doing so effectively. Also the pros and cons of trend-trading in general and how to adjust for them. Beyond that, suffice to say that the market benefits from, indeed is created by, everyone coming to an individual conclusion.
Perhaps my most important finding is not in supporting any specific possibility, but in the general implication of finding that a significant possibility can be simultaneously snubbed on one hand and sloppily-embraced on the other by mainstream investment leaders. So much the better for those with individuality, exactitude and initiative, and who are able to reexamine established beliefs with a bit of noggin-power and sweat-equity. Good luck to all.