Sebrock

The Convertibles Collapse Offers Investment Lessons for All Investors

Great article, thank you. I've come to one obvious conclusion and that is that leverage can not substitute for good returns. Wall Street has become mediocre because easy leverage has given funds the appearance of good returns and let's face it not everyone can be on the positive tail. If they are then you can surely bet that the market is either not very efficient or that the system is levered.

When an arbitrage strategy is not self funding and truly hedged (by means of cash flows where if you are in an illiquid position, the cash flows will still keep you earning a return) and the non-levered returns are the same as yields on much simpler instruments, then you get out, not leverage up.