Luck -o- the Irish

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    • Wed Oct 29th 16:57 PM | Rating: 0 0
      Commented on:
      Atmel: Merger Arbitrage Opportunity Par Excellence
      ....and they declined
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    • Sat May 19th 23:27 PM | Rating: 0 0
      Commented on:
      The Next Home Equity Surge
      The way I see it is that Rex uses that $300,000 number as a way to get past a prepayment penalty. Rex holds a $300,000 lien ($80K advance payment and $220K due later); however, they would still have a note payable of $220,000 (to the borrower), so them going bankrupt would not matter. The lien is offset by the note payable; therefore if Rex were to be liquidated you cannot through liabilities out the window and only keep assets. They will be offset first, and if Rex were liquidated (went bankrupt) then some other creditor would be there to get the $80K.
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    • Thu May 17th 22:53 PM | Rating: 0 0
      Commented on:
      The Case Against Leveraged ETFs
      I've talked with some folks from Rydex, and I think Roger is close on the amount of cash they actually use to get the leverage, and it appears to fall between 5 and 10%, but I need to revisit the prospectus to see if it is spelled out. I think another huge concern is the tax bite. SSO distributed over $3 per share cap gains last year and MVV distributed almost $5 per share. I don't want 3 to 6% of my client's money coming out as short term cap gains each year, and what happens in a volatile year that goes up and down, and winds up down. You could still wind up with huge short term cap gains on a down position, so it is tough to use these in a taxable account unless you diligently tax harvest. One strategy I did use with these was to follow up with bi-weekly target rebalance. Therefore, if one rose too far (ie. became either 10%, 13%, 16.4%, or 20%) overweighted, I would sell to bring the asset allocation back into alignment. Furthermore, when an asset class fell a certain percentage below it's targeted asset allocation amount, I would then add to the position. It is actually inverse to what the fund itself is doing. I found that this helped to smooth returns a bit. Yes, it is somewhat labor intensive, but using a low cost firm like Interactive Brokers, which allows global client trades, costs were kept to 20 cents to $2 per trade (yes, you read that correctly).
      Enjoy the discussion. Keep it up.
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    • Thu May 17th 16:11 PM | Rating: 0 0
      Commented on:
      The Next Home Equity Surge
      They do have a website. Things that I noticed were that the typical loan maximum is 13% of the value of the house, and the total debt (including this loan) would not exceed 80% (though that does not mean that it cannot exceed that). Furthermore, they require a minimum FICO of 680, so they want A/A- paper or higher. In addition to this, they have this "equation" of an Advance along with a remainder payment when you sell the house. This "remainder" payment is where they draw in their prepayment penalty (if there is one), which from the looks was similar to a declining CDSC (for basic understanding). It goes 25% year 1, 20% year 2, 15% year 3, 10% year 4, and 5% year 5. Basically, if you sell or default before the end of the specified year, your "remainder" payout is less, and that amount is equal to the percentage stated previously times the "advance" payment (loan amount). This means that if you borrow $100,000 and sell the house in less than 12 months and were working with a 50/50 price appreciation split and the house did not increase, then you would pay them back the $100K PLUS another 25K for a prepayment penalty. Also, the borrower pays closing costs at the beginning. So for homeowners in the 200-300K range, it really doesn't look like you could get more than 25 to 35K. In order to achieve a 100K loan, I am guessng you need a property in the 750K to 1M range, so this products seems to reach for the middle and upper classes.
      If you hold the property for the 5 years, and sell for less than what it was worth 5 years previously, then REX participates in the LOSS, so they may actually get back less or even nothing. Here is a link to the website (freq asked questions)
      www.rex-inc.com/faqs.p...

      I disagree that you would want to take this loan if you are in an area that is appreciating rapidly. In fact, I think you would want just the opposite. You would want to employ this in an area that is not appreciating, then you can use the loan to invest in something that will appreciate. If you have a 500K and borrow 50K, then the house moves to 700K over the next 5 years (because you are in an area that appreciates rapidly), and you have a 50/50 split, then you will not only payback the 50K, but another 100K on top of that. In effect, you will pay back in "interest" TWO times what you borrowed in just 5 years. You would have to take that 50K and net about 14.5% EACH year over that 5 year period just to breakeven. Again, this example may be extreme, but if we are talking about an area that appreciates rapidly, this example shows why you WOULD NOT want this loan as a consumer. If I were REX, I would make those loans all day in highly appreciable areas to "A" credit paper with an LTV at 80% or below. Seems likes a no brainer to me. The risk does come into play...what if people don't move. The notes carry a max of a 50 YEAR term, with two states being less (30 and 40 yr respectively). How will REX make money if no one is selling, unless they issue something similar to a zero coupon backed by the properties. OK, i've rambled on long enough...
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    • Thu May 17th 10:50 AM | Rating: 0 0
      Commented on:
      The Next Home Equity Surge
      This seems to have the feel of a reverse mortgage to me without the age requirements. It's tough to really get a feel for the product though, because the information here is very basic (but a well written article, please do not think I am criticizing you). You really have to get into the details to see if this product has any solid place in the lending community.
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    • Wed May 9th 21:55 PM | Rating: 0 0
      Commented on:
      Can ETF Options Offer Cheap Leverage to Reliably Boost Returns?
      I agree the indexroll.com has some great content as well. I've been backtesting the idea with a little more "spice" (for more aggressive investors). I've played with the notion of using bull credit spreads (using puts) on a bi-monthly or quarterly basis/measurement. These would be out of the money, pretty far out of the money. You have the cash to back a purchase if necessary, but the spread limits downside of selling puts. Furthermore, these is some interesting research on rebalancing based on portfolio moves (i.e. trigger points of portfolio drifts of either 10%, 20% 30%, etc) but doing so on a consistent review (i.e. each week or every two weeks) using those trigger points to increase or decrease positions. Also, I'm putting together different tests on how far ITM the calls should be in a range of 10% to 20% using historical performance as a starting tool. Basically, if we are assuming the same number of contracts (so dollar difference, same share exposure), then shifting from a 10% to 20% or vice versa, in a scaling step (ie 10% to 13% to 16.4% to 20% or the other way) based on the prior year's movement. Going to a lower ITM, hence less downside if the market has had "x" number of up years in a row or moving to a 20% ITM if the market has 3 down years in a row (the S&P 500, for instance). The choice here is to move further ITM to capture a delta as close to 1 as possible or you could purchase additional 10% ITM contracts for added leverage if you are bullish (could buy less if bearish). You could employ this idea on the credit spreads as well. I've also solved the commission problem here, so that is out of the way. This is a work in progress, but backtest results on the S&P 500 from 1987 to 2007 has been very encouraging. Backtests from 1994 to 2007 showed cumulative returns almost double (assuming 5% on the fixed account), and annual returns about 375 to 525 bps higher. As always, I welcome feedback, good or bad. This is a work in progress, and I take all feedback, even if it is critism, so that I can improve upon strategy.
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    • Fri May 4th 11:15 AM | Rating: 0 0
      Commented on:
      ETF Options as Proxies -- Easier Said Than Done
      Jordan...I see what you are saying, and actually agree with you. Also, I don't know that I'd want to go quite so far in the money. For clients over 59 1/2, we actually looked at fixed annuities as well that would allow 10 to 15% withdrawals (for rebalancing in additional to rate of return) and offered higher first year interest rates (in the neighborhood of 8%). The caveat here is the surrender charges and capped withdrawals, but you don't put all your cash here, and if you have the right annuity company, they will allow you to roll the annuity (with no compensation, but that is ok because it benefits the client) into another fixed annuity a year or two later, get the high start rate again, and just extend the surrender period. By withdrawing the 10% per year you are also constantly reducing the amount subject to surrender charges. Combine that with muni's, money market, or short term treasuries, and I think you have an argument.
      Lastly, the only issue I see with Direxion or ProFunds is that they are "daily" leverage, so they are fine in an upmarket but struggle on the down days or the back and forth days, so unless you get a very good rebalancing/averaging strategy with them (just so happen to have one, but it is a lot of work), you won't get a true 2x or 2.5x on an annual basis.
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