Xyrus's Comments

UNG Trading 101

Sat, 05 Sep 2009 09:45:49 -0400

With the premium on this "ETF" you'd be better off finding something else to play with.

~Shawn

Will the Efficient Markets Hypothesis Survive This Crisis?

Wed, 12 Aug 2009 15:57:05 -0400

I don't think there's an either or. I think it is spectrum ranging from a completely inefficient market to an efficient market.

An efficient market would essentially look like brownian motion. In a perfectly efficient market, timing would be nothing but a matter of luck. There would be no way to beat the market.

However, that is not the market we have. The question isn't whether the markets are inefficient or not. The question is are the inefficiencies prominent enough for one to be able to take advantage of them.

Most of the inefficiencies in the market are short duration and/or small discrepancies. Only well connected or deep pocketed investors would be able to play these well. But more importantly, a lot of them are random as well.

So another question is, if a market has inefficiencies that a short, small, and/or random, at what point does it become indistinguishable from an efficient market? In other words, can there exist a market that has inefficiencies that you can't time?

It's my opinion that we do have a mostly efficient market for MOST investors, i.e. the inefficiencies are either too small, too short, too random, or some combination of the three that really only the big players can truly take advantage of them.

~X~

Not All Commodity ETFs Are Created Equal

Wed, 12 Aug 2009 15:18:41 -0400

It might make more sense to do two ratios with a common base. I'd do a ratio of gas to gold and oil to gold and plot those. I think that would paint a clearer picture.

~X~

Spread the Wealth with Gold: Three Longer Term GLD Option Strategies

Wed, 12 Aug 2009 15:04:49 -0400

Except gold doesn't really increase in value. Gold is a store of value. There are few industrial uses of gold, and a relatively small amount of gold is dug up every year. This keeps the amount of gold fairly stable.

Other commodities such as silver, platinum, and oil, on the other hand really do increase and decrease in value since they have wide industrial uses and, at least in the case of oil, it is being depleted and cannot be replaced easily.

Chances are when gold goes up in price in your currency, your currency has weakened yielding a low (if any) gain in your pocket. So you may have bought gold at $500 and sold at $1000, but that does little good when the currency depreciated by 50% during that timeframe (and now you've got to pay taxes on the gain, though in real terms you've gained nothing).

Gold is a good hedge against inflation, but it isn't the best investment if you're looking to grow your money.

~X~

Why Everything You've Heard About Leveraged ETFs Is Wrong

Wed, 05 Aug 2009 14:32:29 -0400

A small correction. These ETFs only perform well when the market is trending continuously. If it only trends in fits and spurts, these still aren't a good hold.

Even in a low volatility market if the market isn't trending for any length of time these ETFs will lose value. Even if the index is wobbling by only fractional percents a day.

The instruments are day trading and at best swing trading tools. Holding them for weeks or months at a time isn't wise unless you're going to be watching it every day (or have stop losses in place), or you know for a fact the markets are going to be in a continuous trend for a long time.

~X~

Silver ETFs: Inaccurate Inventory Records

Mon, 03 Aug 2009 21:11:52 -0400

From apmex site: 1 oz rounds 15.63 for quantities < 100

New York spot price for silver is 14.21 according to kitco.

That's a 10% markup, and that's not even for a solid name like Engelhard. If you want Engelhard that's a whopping 18% markup.

There is not a single dealer (other than idiots on E-bay maybe) that don't sell their metals at a significant markup, and yes 10% is significant.

I've got better things to do with 10% of my money than giving to middlemen.

~X~

On Aug 03 06:12 PM snoopy2 wrote:

> The spread between the buy and sell prices of physical gold in even
> small volumes (source APMEX.COM) is generally about 2-3%? You need
> to change dealers (or at least start buying from me - I'll only charge
> you 10-20% extra, LOL)

Silver ETFs: Inaccurate Inventory Records

Mon, 03 Aug 2009 14:36:07 -0400

Yeah, buy physical gold and silver where dealers can rip you off for a 20%-40% markup. Good investing sense right there.

Unless you're buying vast quantities, the markup on physical bullion is ludicrous. This article sounds more like a shill commercial than anything else.

~X~

Leveraged ETF Ban Spreading Like the Flu

Wed, 29 Jul 2009 14:43:58 -0400

To Ryan Freund: The only way you can hold these for weeks or months and expect anything reasonable is in a low volatility trending market. Good luck with that.

In any other market the daily churn will destroy you eventually, as is demonstrated by the chart. So you better have your timing right an KNOW were the market is heading or you're going to be left holding the bag if you're hanging on to these as a long term investment.

And for missing_link:

"Months-long graphs like the ones you show here only prove that you're intentionally trying to mislead people about their performance..."

I see no misleading here. They were pointing out that this instruments aren't suitable for long term. They're not. They are not arguing short term performance, or daily performace (though those also haven't always been the best either).

MOST people don't trade, they invest. IRAs, 401Ks, PRAs, all of these types of accounts are opening up to ETFs, if they aren't already. These are not suitable investment vehicles, but they're great trading vehicles.

Banning them outright is silly, however banning them from long term investment accounts or retirement accounts is more reasonable.

~X~

Holy Cow! Look at the Treasury Auction Schedule

Thu, 23 Jul 2009 20:15:15 -0400

Come on people, please try and educate yourself.

THE US CANNOT DEFAULT ON ITS DEBT.

There's no way it could. A default is a failure to make payment, and we can ALWAYS make the payment since all the debt is denominated in US dollars. All that needs to happen to make the payment is to print more dollars (inflation).

This, of course, isn't a good thing. And sure the countries holding the debt won't be happy, since we'd be paying them with weaker currency. But we can ALWAYS make the payments.

Until our debt is denominated in other currencies, the US has a 0% chance of default. Inflation, yep. Hyperinflation, you bet. Default, not gonna happen.

~X~

Why Leveraged ETFs Are Bound to Deteriorate

Mon, 13 Jul 2009 14:57:27 -0400

Widestrides said:
"But wouldn't ANY volatile stock be subject to the same "decay?" If a biotech stock goes up 10% one day and down 10% the next, it also is not back to even. It has decayed 1%"

Only if you sold it.

A stock doesn't decay. The price of the stock is always the price of the stock. Your return is whatever you sell it at minus whatever you bought it for, regardless of any volatility in the price.

The problem with these ETFs is that they don't hold their positions. Every day they reset. In other words, they are directly exposed to the daily volatility of their underlying assets. That's where the decay happens. The more volatility in day to day price, the worse the decay gets.

Normal index tracking ETFs don't suffer these issues much since most of them don't rebalance that often. But any ETF, or more to the point, any investment strategy that moves in and out of the market "quickly" will end up suffering from decay if they aren't exceptionally careful. And since these ETFs operate "blindly" (no active management) then they will undoubtedly bleed dry over time, especially in markets like we've been having lately.

~X~

On Jul 13 12:40 PM widestrides wrote:

> But wouldn't ANY volatile stock be subject to the same "decay?" If
> a biotech stock goes up 10% one day and down 10% the next, it also
> is not back to even. It has decayed 1%.
>
> So it is the volatility that creates the danger, and true these leveraged
> ETFs are leveraged by design, but they aren't necessarily volatile.
> True, they have been this past year, but this has been a volatile
> year and a "perfect" storm to decay these ETFs. But if they trend
> your way or if you "rebalance" them yourself, you can take the decay
> out of them.
>
> GL

Boston Fed: We Don't Understand Foreclosures

Wed, 08 Jul 2009 13:59:09 -0400

I'd be interested in the number of people who are just walking away from properties, even if they can continue to make payments.

After the last big crash in real estate in the early 90's, it took some areas more than ten years to recover (and some of that recovery was the new bubble).

So what I think a number of people are doing are looking at how underwater they are and whether or not their home will recover in 7 years (when a foreclosure falls off your credit history).

For someone who has lost 20-30% of their equity so far, having a foreclosure on their record for 7 years might appear to be the better deal, especially when it seems clear that the home prices won't recover in that period.

A foreclosure is bad, but if you otherwise have stellar credit you can recover from it quickly enough. In a couple of years, you could buy a home for a lot less.

I'm not saying that this is a good thing. But if you had a home in Vegas or Florida that has lost 50%+ of it's value, then walking away might not sound like such a bad idea.

~X~

On Justin Fox and the Efficient Markets Hypothesis

Tue, 07 Jul 2009 14:08:30 -0400

What I'd like to see is a discussion on how one could tell the difference between an efficient market and an inefficient market with short and/or unpredictable inefficiencies.

I don't think that this is a black and white issue. In my opinion, there is a spectrum from efficient to inefficient. If inefficiences are short/random enough that it becomes difficult or impossible to take advantage of for 99.9999% of investors then there is really little difference between an efficient and inefficient market. However, if the inefficiencies are more predictable/longer lasting then it becomes more plausible that an investor can beat the market.

~X~

The U.S.'s Aaa Credit Rating Doesn't Add Up

Wed, 24 Jun 2009 14:24:09 -0400

The US, by definition, cannot default on its debt since all the debt is in dollars. The US always has the option to inflate the currency to pay the debt.

If our debt were denominated in Euros, then we would be in trouble. Instead, we can go the way of the Weimar republic.

We will ALWAYS be able to pay our debts. Whether or not we repay it with anything of worth is different matter altogether.

~X~

A Return to the Gold Standard? Forget About It!

Fri, 19 Jun 2009 15:48:21 -0400

Anyone who talks of commodity backed currencies and stability is either an idiot or ignorant.

Even when gold and silver were the primary currencies, recessions and depressions occurred and were often quite long and painful. The Great Depression still managed occurred, despite being on gold standards. The recession/depression of the late 19th century still occurred. Britain faced more than one financial crisis throughout it's long history despite being on a "gold standard" for most of it. The Roman Empire still managed to suffer a terminal financial collapse despite using gold and silver.

There is nothing magical about at commodity backed currency. It is just as prone to financial disaster, and in some cases can make them more pronounced.

There is also nothing inherently valuable about gold or silver. They're just metals. You might as well have a currency based on quartz or lead. The only value in those metals is what people agree to, which is the same principle as fiat currency. The only difference between gold and a fiat currency in this regard is that it's harder to manufacture gold (mining vs. printing).

Any money is just a convenient standardized way of expressing value, not value itself. Whether its metal or paper makes no difference, except when it comes to financial policy (in which case it's easier to deal with paper).

~X~

Barney Frank Wants to Regulate Your Pay

Fri, 15 May 2009 14:39:28 -0400

If humans were moral creatures by nature, then reforms like the ones Frank seems to favor would be laughable (and indeed unnecessary).

However, as humans have demonstrated time and time again, we are not moral creatures. When large amounts of money and/or power come into play, it's amazing how far people will twist their moral compass in order to justify their actions.

While perhaps the policies themselves may not be the best thought out, they are trying to address a fundamental problem: How do you stop companies and the people who run them from being...well...a$$holes.

If you get compensated for the number of sales you bring in, you're going to do anything you can to increase sales. Similarly, if you get compensated for the performance of stock price, you're going to do what it takes to get the stock price up.

The problems start when morality gets pushed into a distant second relative to profits. That's when things like sweatshops and poisoning third world shanty towns with toxic waste and destroying the world financial system start showing up.

A free market is amoral. It does not work for the greater good, nor does it work for the greater evil. It works for profits, and anything that doesn't affect the bottom line negatively is fair game. If running your own third world nation of slaves improves that bottom line and keeps the customers and investors lining up, then so much the better.

So how do you keep the markets (and people in general) moral? By removing regulations? Hardly. By adding more? Slippery slope. It has been, and always will be, a careful balancing act.

~X~

Why Stock Charts Are Misleading

Wed, 13 May 2009 13:57:13 -0400

Why not throw in inflation adjustments as well. Then we can seee how much they're really worth.

~X~

Easing of Mark-to-Market Rules: Good for Banks, Bad for Investors

Thu, 02 Apr 2009 15:09:44 -0400

Really? Lazy investors?

Does anyone have a problem with me putting my net worth at $1 billion even though my assets are worth $1 million thanks to the market?

Can I walk into a bank and ask for a $1 million loan using my house as collateral because I think it's worth at least $2 million even though the market says otherwise?

No. And the reason why is because an asset is worth only as much as someone is willing to pay for it. Period. End of story.

I can't say my stock holdings are $10K if the market is only willing to pay $5K for them. I may think their good investments and that they're worth $10K, but the market says otherwise.

It doesn't matter if a bank thinks its collection of MBSs is worth $X. If the market thinks it's only worth $Y, then that is what they're worth.

To put this another why, how comfortable would you feel about putting your money in a bank that uses an asset that the bank itself valuates. What happens if a financial crisis begins and that asset value plummets? What happens if the bank needs to liquidate those assets? The value of those assets are what market will pay for them, and if that's ten cents on the dollar you're screwed.

Allowing banks to put on their own valuations onto their assets is giving the wolf keys to the hen house.

I wonder how long it will be before we get another MCI or Enron.

~X~

Active ETFs Continue to Lead Their Passive Peers

Wed, 18 Mar 2009 15:12:32 -0400

You know, it's easy to beat the market when it's a bear. Just go to cash, which by design the passive funds cannot do.

But let's take a look at the longer performance history. VTI easily beats PQZ. PMA is slightly better than OEF. And PSR and VNQ are neck and neck, though that means little as PSR has only been around for a short period of time.

Continue to monitor by all means, but I wouldn't go so far as to say the actives are leading the passives.

~X~

William Issac: Mark-to-Market Has Destroyed $1 Trillion in Lending

Tue, 17 Mar 2009 14:21:30 -0400

Then why can't I go into a bank and ask for a $500K HELOC on $300K home?

My house is an asset. It's a long term asset. But when I sell I can't sell it at some price based on what I think it will be worth in the future. I have to sell it at what the market is willing to pay for it.

The market is saying these securities aren't worth the paper they're printed on. That's what they are worth. Period. End of story. If the bank was forced to liquidate TODAY, then they prices they get for the securities is what it is TODAY, not some imaginary number at some future date.

Valuing any asset that you're using as collateral in financial transactions in anything other than what you can sell it for TODAY is idiotic and dangerous. MCI and Enron both played that financial shell game and we know where that game ended.

I want my bank to be on solid ground based on it's real valued assets, not some magical number. There is NO guarantee that these instruments will be worth anything in 5 years, or 10 years. There are very very few sure things in the market, and I hardly qualify CDS's or any other derivative as anywhere close to sure things.

No, the markets are working exactly as they're supposed to. The market views these products as excessively risky, and thus are priced according to that risk. No amount blowing sunshine and rainbows up investors backsides is going to change that fact.

It may be viewed as unfair. But the markets are unfair. Tough. I have to take my losses, as does every other investor.

~X~

Low Share Price CEFs Have Significant Advantage in a Market Recovery

Fri, 13 Mar 2009 13:51:09 -0400

Those huge yields should be big blinking red warning signs. How much of those distributions is ROC?

According to CEFA, the answer is MOST OF IT. One of the reasons why the prices are so low is that they are depleting their asset base by returning it to their investors. That is not a good thing.

When it comes to CEFs and their distributions, you need to be very careful. The CEFA site allows you to look at income yield vs. market yield. If you see something returning a market yield of 15% but their income yields is only 5%, you might want to take a harder look at the CEF.

~X~

Eight Monthly Dividend Stocks

Mon, 09 Mar 2009 13:57:59 -0400

Better check to make sure that dividend doesn't include return of capital. A 10% yield means nothing if 7% of that yield is depleting the capital resources of the stock/fund itself.

~X~

The Mark-to-Market Bank Trade This Week

Mon, 09 Mar 2009 13:55:04 -0400

Suspending mark-to-market is the equivalent of sticking your fingers in your ears and going "LA LA LA!".

The reason why the securities are illiquid is because no one wants to take on the risk of a debt security that was evaluated using a faulty model and now is exhibiting spectacular default rates.

If you eliminate mark-to-market, then you'll need to have some other way to evaluate this garbage since those securities. They aren't going to trade anywhere near 88 cents on the dollar because only a complete financial idiot would believe we've seen the worst of the defaults.

There is no trust and there is no confidence. Removing mark-to market will do nothing to change this, or what price these securities sell for. They are trading at junk because given everything that we've seen, they are junk.

~X~

Focusing on Commodity ETFs: Hyperinflation Seems Inevitable

Tue, 02 Dec 2008 13:57:14 -0500

Incorrect. DBC is an ETF.

~X~

On Dec 02 12:52 PM cma cma wrote:

> DBC is also an ETN, I believe, sponsored by Deutsche Bank.

The Fall of Index Funds

Tue, 02 Dec 2008 13:52:35 -0500

Wow. Just wow.

You're looking at a very limited subset of time and proclaiming indexing is dead based on your "foreseeable" future. That's incredibly naive.

As an exercise, list all mutual funds that have beat the S&P since 1980, barring expenses. You may note that the number of funds that have done so is exceedingly small.

People who index don't look at 5 or 10 year records. They look at 20, 30, or 40 year records. They look at dollar cost averaging, which you completely omit.

Why don't you get some real long term market statistics and compare actively managed mutual funds to index funds. You may just learn something.

~X~

Buy-Write Option Strategy Generating Nice Profits

Mon, 01 Dec 2008 21:08:45 -0500

There is also BWV, the ETN version of the Buy Write. Along with this there is the closed end funds, but they have much higher expense ratios.

CEFs: BEO, MCN, BEP, ETB, ETV, ETW.

Normal cautions and due diligence on these folks.

~X~

Airlines: Land Mine or Gold Mine?

Wed, 12 Nov 2008 19:27:30 -0500

How are airlines going to go up when nobody is flying?

Like most other sectors, airline performance is driven by consumer need. With the world economies collectively in the tank, I don't see the airlines are going to do any better than other consumer driven sectors.

~X~

Market Not Risky Enough for You? Try These Two New Triple-Levered ETFs

Sun, 09 Nov 2008 20:23:35 -0500

These and other levered products do not return 300% of the index. They return 300% of the daily percentage increase or decrease. In a volatile market, you better be sure you know the difference, as your returns may not be anything close to what you expect.

Read the prospectus and then do the math on a couple of scenarios. You're return degrades over time in a volatile market. These are really better to hold in a trending market, unles you're going to day or swing trade.

~X~

Global Stock Markets: In the Grip of Fear?

Sun, 12 Oct 2008 13:02:01 -0400

There is fear driven selling and there is logic driven selling. In this case, thy happen to coincide.

One of the reasons why all these announcements of bailout and such don't sem to have any impact is because there is no truth hat these measures will do anything. That is backed up by the fact that they haven't one anything. Almost as soon as one plan is approved it either needs to be immediately increased or another plan has to be created.

That ends up painting a picture that even our "leaders" really don't have a clue to how large and deep the credit crisis really is. Until they're more certain, people in general are going to sit it out on the sidelines and cash out.

This is as much a crisis in confidence and trust as it is a financial crisis. Face it, the general populace has been lied to many time over the past in regards to the crisis. Firms have reassured their investors only to have to back track weeks later. Banks have reassured their depositors only to have the FDIC come in and take them over.

If people don't trust banks, companies, or their leaders then they aren't going to put their money anywhere near them.

And did I mention that the bailout package was extremely unpopular but was rammed through congress anyway?

Here's the truth. No one knows how bad this is going to get. The Lehman settlement showed us one thing, that things are worse than they seem. Institutions still are not being 100% forthcoming. They will be forced to over the next couple of years, but until that happens the market is going to be a roller coaster at best.

~X~

A Magic Multiplier?

Sun, 28 Sep 2008 21:40:27 -0400

The best way to get out of a hole is to dig a deeper hole. Then, from where you're standing, you're not in a hole.

The banks screwed everyone over, and now we are bailing them out with our money. Absolutely brilliant.

The banks need to fail. The pain needs to be felt. Nothing will change otherwise.

~X~

Eight ETFs to Preserve Your Wealth

Sun, 28 Sep 2008 21:26:16 -0400

WIP gives you foreign inflation-linked exposure to government bonds.