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Linus Wilson

 
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  • 0% Rates And QE Forever? [View article]
    Pick up a basic undergraduate textbook. If it has a chapter on bonds it will discuss liquidity premium theory and the typically upward sloping term structure of interest rates. If there were not liquidity premiums for longer term bonds, then the market forecasts for interest rates would be biased upward. That is because the realized short rates are much lower than predicted by pure expectations theory.
    Oct 22 02:38 PM | Likes Like |Link to Comment
  • 0% Rates And QE Forever? [View article]
    TIPS are quoted as the extra coupon above (+) or below (-) inflation. 10-yr TIPS pay Inflation + 29bps and 5yrs pay inflation -4bps. That is a liquidity premium of 33bps per year on the 10yr vs. 5yr on 10/20/14. See http://1.usa.gov/yFD89A
    Oct 21 05:40 PM | Likes Like |Link to Comment
  • 0% Rates And QE Forever? [View article]
    Re: liquidity premiums, Look at the coupons for 5yr and 10yrs. The coupon is about 40bps higher for the 10yr v. 5yr TIPS http://bloom.bg/eMLJq8
    Oct 21 01:45 PM | Likes Like |Link to Comment
  • 0% Rates And QE Forever? [View article]
    The upward sloping yield curve through most of data series for bonds implies that there is a liquidity premium for 10 years vs. 2 years et cetra. Thus, a pure expectations model will tend to overstate the bond markets' expectations of short rates well out in the future.
    Oct 21 10:09 AM | Likes Like |Link to Comment
  • 0% Rates And QE Forever? [View article]
    I like your tip about the Barrons data.
    Oct 21 10:03 AM | Likes Like |Link to Comment
  • 0% Rates And QE Forever? [View article]
    bookmdano: JasonC below makes a good point about the "quality" of jobs. If anything the long-term trend is towards more employment for the skilled and less employment for the unskilled and lower paid.

    The St. Louis Fed FRED site has data on the workforce participation below age 55. That shows a much lower decline in participation than the number including people at or near retirement ages. I think that indicates most of the workforce participation rate decline is mostly caused by the baby boomers entering retirement.

    The Fed cannot affect structural or demographic employment issues with monetary policy. Our economy is becoming more complex not less. Besides the baby boom trends, people are spending more time in post-secondary education than ever before. That is a drain on workforce participation. Those who don't have in demand skills and find it too hard to obtain them leave the labor force entirely.
    Oct 21 09:58 AM | Likes Like |Link to Comment
  • 0% Rates And QE Forever? [View article]
    Also...Jason C, you may be omitting liquidity premiums and ignoring the call options embedded in the bonds, but not the notes. A pure expectations model may not be ideal if you really are fine tuning bond positions.
    Oct 20 05:56 PM | Likes Like |Link to Comment
  • 0% Rates And QE Forever? [View article]
    I think this post http://seekingalpha.co... disputes your conclusion that the bond market is pricing in short rates of 3.5% to 3.75%. I suspect the author is using a slightly using a more complex model or different data to get the 3.11% peak forward rate.
    Oct 20 05:34 PM | Likes Like |Link to Comment
  • 0% Rates And QE Forever? [View article]
    That was a little too much info for me, but was good material for an intro to bond valuation lecture. The 2 year rates are way inconsistent with the Fed's interest rate forecasts. (The ten year is too, but forecast error is large after 2 years.) See http://seekingalpha.co... or the note which does the strip math you are talking about at http://bit.ly/ZLTmBp . If you think market prices are always efficient, you should buy an index fund. I don't think the market is always priced efficiently.
    Oct 20 03:22 PM | 1 Like Like |Link to Comment
  • What The Plunge In U.S. Treasury Yields Means For The Next 10 Years [View article]
    As for inflation, consumer's expectations of inflation 2.8% are much higher than the bond market's or the Fed's target of 2.0%.
    Oct 17 10:54 AM | Likes Like |Link to Comment
  • What The Plunge In U.S. Treasury Yields Means For The Next 10 Years [View article]
    Nice work as always! I'm going to try to digest the meaning of your scenario analysis, which looks very rigorously done from the surface. A peak forward rate of 3.11% shows the madness of the U.S. bond market. Prices imply that Fed funds in 30 years will never go near its long-term average of 3.75%. These are depression level bond prices when unemployment is 5.9%. I know the many small investors are still shell-shocked from 2008, but I wonder if too many bond traders are 25 and have 0 historical perspective.
    Oct 17 10:47 AM | 1 Like Like |Link to Comment
  • Earnings Vs. Ebola [View article]
    I never quoted my fund's performance or discussed my fund in the blog. Accredited investors can request the fund's performance at http://bit.ly/19IphVj or look it up at one of various hedge fund listing services.
    Oct 15 03:17 PM | Likes Like |Link to Comment
  • Earnings Vs. Ebola [View article]
    Average earnings beat is 2.3%. That does not sound over optimistic, statistically. That sounds pessimistic on average.
    Oct 15 03:09 PM | Likes Like |Link to Comment
  • Earnings Vs. Ebola [View article]
    4.5% is not equal to 25%
    Oct 15 02:59 PM | Likes Like |Link to Comment
  • Earnings Vs. Ebola [View article]
    The Factset link. If you think the multiple is too high, don't buy and even sell.
    Oct 15 02:36 PM | Likes Like |Link to Comment
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