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  • The Next Big Short Strategy: Rise And Fall Of Fixed Income ETFs [View article]
    Hihi, thank you for your comments. The point of the article was to demonstrate (A) which ETFs are good candidates to short [given their idiosyncratic risks] once yields start rising and (B) what P&L and risk impact those model trades could generate. Hence, no immediate action is required..

    The benchmark rate forecast in the article was given as a baseline "food for thought". The objective is not to predict/forecast anything but to understand how to extract maximum value once the rates are on the move.. (beyond saying that everything fixed income will drop in price ....)...
    Jan 5, 2015. 02:59 PM | Likes Like |Link to Comment
  • The Next Big Short Strategy: Rise And Fall Of Fixed Income ETFs [View article]
    Dear Luciom, thank you for reading the article. I agree that is hard to predict the future. Nevertheless, please review Yellen's conference today and read: Please see their most recent Fed Fund rate projects for 2016 (as well as rates action today).
    Despite oil, the Fed Funds Rate according to Fed's median (See the url for a full breakdown of their opinions):
    Dec 2015 - 1.125%
    Dec 2016 - 2.5%
    Dec 2017 - 3.625%

    Dec 15: 2.25%
    Dec 16: 4.25%

    Indeed, the forecast is overly bullish and dissenting / stimulating, and just like the article pointed out, was based on the previous, 2004-2006, pattern of Fed Fund rate increases which will be different this time (Yellen says there will not be 25bps repeated increases this time but data dependent -->.. inflation expectations, 2% inflation goal, etc..). Nevertheless, the increases will happen, and the most immediate impact will happen when the Fed Rate reaches 2% (Current Fed median projection of 2.5% by Dec 16, ours 2.25% by Dec 2.25%, normal interest rate is 3-3.25% according to Yellen..). So, realistically we will be close to the Fed Fund rate 2% territory by summer 2006, meaning our forecast is only off by 50bps. The rest (impact of the Fed Fund rate increase on the bonds is described in the article and you can calculate Fixed Income ETF losses with a fairly high degree of probability, assuming that you trust Fed's rate projects). Understandably, Fed will be watching out for inflation, employment levels, and commodity prices.
    Dec 17, 2014. 03:13 PM | Likes Like |Link to Comment
  • The Next Big Short Strategy: Rise And Fall Of Fixed Income ETFs [View article]
    Dear "homebuilder_watcher": the article indeed describes a fairly extreme scenario, something that might happen in the 1-2 year future as indicated. The purpose of the article is to demonstrate quantitatively how quickly things can go from comfortable boom to pathetic bust for many fixed income ETFs (under extreme case scenario). I tend not to side with the real money PM's and sell-side forecast calling for generally milder rates long-term. There is always a reason why someone will say something about the rates, and often times the news is politically motivated. What would a reasonable person do if he/she were managing/sitting on trillions of long portfolios of high grade bonds with the fixed income liquidity at multi-year low? A reasonable person (and everyone else in the industry, call it a groupthink) would obviously be doing their best to justify their next bonus and prop up a self-fulfilling prophecy of "low rates forever" mega wonder by writing articles, practicing self-conviction, etc. Understandably, let's not underestimate the power of the behaviorial finance and low rate expectations.... Nevertheless, please remember that most of the portfolio managers, forecasters, and strategists (including MBS/CDO geniuses and home builders) did not see 2007-2008 coming (even remotely). Lehman Bros.. Who dat??
    And, well, many of them did not feel funny at all after Fall 2008. I currently tend to discount the mass-marketed & populist idea of "low rates forever". The same people who now tell you about the low rate "bonanza forever" spent some time unemployed back in 2007-2009, chilling on the couch, that's after their spectacular losses and cheerful mediocre forecasts... Just because something has been happening for some time now (including new issuance, low UST yield, etc.) does not mean this will last forever. Hope this clears and thank you for reading.
    Dec 3, 2014. 06:30 PM | Likes Like |Link to Comment
  • 7 Stocks Worth Considering if You Think Selling Is Nearing an End [View article]
    ERX is one the best hedging instruments, along with Gold. Please read my article:
    Aug 10, 2011. 04:39 AM | Likes Like |Link to Comment