pacalis

New York Fed Treasury Spread Model: Zero Chance of a Double-Dip Recession

As a predictive device it doesn't look that helpful. Looking at the above...
1. two of the five peaks don't have a recession associated with them,
2. Of the peaks that do have a recession associated with them the recession comes at the end of the first, start of the second, end of the third.
3. The slopes are so steep at the start of the spread that even if the yield curve was a good indicator, you would probably miss the boat from the indicator.

On Dec 02 03:11 PM Perry Sadorsky wrote:

> Actually, the yield curve (or Treasury spread model as it is referred
> to here) is fairly reliable. Smartmoney.com has a "Living yield curve"
> exhibit where you can see how it has changed on a monthly basis for
> the past 30 years.

New York Fed Treasury Spread Model: Zero Chance of a Double-Dip Recession

Whew, so that's good news! Now I can buy that bridge I've been wanting.

Do Black Swans Negate Option Premiums?

Again interesting. As you note my comment was in regards to using index data to make the case for individual stock strategies. If you are trading option on the index there is something else that's potentially more interesting and difficult to parse. The implied volatility is a measure of the expected volatility of the index at some point in time whereas the real volatility is a measure of actual volatility and also, in part, an artifact of the re balancing of the index. What's curious here is that the spread between the two should be some function of the re-balancing of the index.

Written another way, put buyers on the index may be losing because the re-balancing reduces volatility in the index (through selection/ survivorship bias), whereas put buyers on individual stocks might be winning because on the whole shocks to the negative are much more common (fatter negative tail on the distribution of returns). Thoughts?




On Nov 25 11:35 PM Surly Trader wrote:

> You are correct in saying that the tails are fatter if you held the
> individual names in the index and did not rebalance. Since we are
> trading options specifically on the index which is rebalanced (and
> stocks are replaced) then the spread shown represents actual results.
>
>
> As for showing these results on individual stock options...it is
> difficult. I have seen studies from investment banks that show similar
> results. The problem comes with the immense amount of data and illiquidity
> of single name options. I can tell you that selling implied volatility
> on just one or two names is not a good idea ;-) That also means
> that you need more investable money to implement a multi-single stock
> delta neutral hedging strategy.

Do Black Swans Negate Option Premiums?

This is a very interesting conversation. Adding to "too complex's" general comments, I'll suggest that specifically the use of index data isn't so much irrelevant as it is misleading. Index data suffers from selection bias in that failed firms are adjusted out of index data time series... How I interpret this is that more than the tails just being fat, the negative end of the tail is necessarily fatter than the index data shows. Again this leans towards an argument for only "going long" black swans.


On Nov 25 10:00 AM I'm too Complex wrote:

> - Then, you bring up Boudarengo's work and I am starting to think
> you missed the Black Swan's point.The Black swan is on its whole about Statistical regress fallacy: our belief that the structure
> of probability can be derived from data.
> ie: Believing the future can be derived from the past.
>
> Historical data, as the one you bring up to illustrate your point,
> as one problem. It's historical.Time series analysis is irrelevant
> in the estimation of Black Swans.

There Goes the Housing Recovery

"Speaking of wasted taxpayer money, 3:30 PM approaches. Someone wake up Larry Summers."

Hahaha - very nice.

Ten Reasons for an Imminent Stock Market Crash

I find this analysis simplistic. We can go point by point if you like.
1. Services are the least sticky in terms of geography - so it's hard to book a long term comparative advantage in services. Moreover, they can be eroded by IT. BTW people aren't coming to the US for services, services (financial, healtcare etc...) are shifting overseas.
2. I agree, US GDP will grow much more than $13T. That's becuase your metric of value is price in USD which is falling.
3. Massive trade IMBALANCE (not balance) you mean. And it's not rebalancing. The rate of growth in the trade gap has slowed, but it's still a gap adding to our debt obligations every quarter. It's like using our credit card to pay our minimum balance on our credit card. Eventually it ends. Here's a lesson though, we can pay for our (fixed) debt if we inflate our obligations away, which is not the point your making.
4. If you're thinking the key to US productivity is its educated labor force, a point that I agree with, you should be alarmed by trends in the comparative strenght of the US labor force. So stop chuckling. And stay in school.

On Oct 01 11:19 AM Peter Iwanowicz wrote:

> I always chuckle a bit when I read statements like this. Mostly because
> they are just that; statements with little to no contextual proof.
>
>
> 1. While its true that US manufacturing has dropped relative to services,
> this is not a bad thing. In fact, from a international finance textbook
> POV we want this to happen. It's gains from trade 101. Other countries
> can provide goods at a lower cost than we can, they specialize in
> it, we pay less for them, our real wage goes up.
>
> 2. The US can issue the amount of debt we can because the "collateral"
> on that debt (US tax dollars) is arguable the biggest in the world
> and the cash flow is pretty guaranteed. As long as the US continues
> to generate a $13T GDP and growing, we should be able to issue debt
> as we please.
>
> 3. Every time people say we run a MASSIVE trade balance I immediately
> understand how inept they are at understanding Int. Trade. First
> of all, the US CA is ~1.0% of GDP. Are you really saying that if
> we went from -1.0% of a drag on GDP to -1.5% our economic system
> would be a wreck?? Laughable. Second, contextually there is NOTHING
> wrong with a negative CA. It just means that (in the US's case) we
> didn't value savings very highly because the cost to spending and
> not save, the interest rate giving up by not saving, was very low
> for some time. The CA has recently begun to rebalance because Americans
> are saving again (I wonder WHY?)
>
> 4. Oh btw in economic classes, we usually breakdown output of various
> entities (countries, companies, etc.) into two groups, goods and
> services. Just because we don't produce goods doesn't mean we cannot
> have a growing economy. In fact, I would argue since Americans have
> one the most educated labor forces, we are benefiting by gains of
> trade by focusing on being the most productive in producing services
> (health care, financial, legal, etc.). Also reread point #1.

Five Reasons the Market Could Crash This Fall

All this doom and gloom.... My view is that recent bullish trends are grounded in the simple recognition that boomers are simply getting way more productive. Profits are down because of fantastic wage increases and incentive-based profit sharing. And unemployment figures just represent the number of loafers on longer term holidays. No worries! :)

The Worst Case Scenario (Someone Has to Say It)

Any mid to long run projection that doesn't begin and end with a discussion of CHINA is going to miss the boat.

This US centric view of economic dynamics is one of the reasons that the US and sadly, brain-dead Europe, aren't pulling us out of this anytime soon.

The Worst Case Scenario (Someone Has to Say It)

Any mid to long run projection that doesn't begin and end with a discussion of CHINA is going to miss the boat.

This US centric view of economic dynamics is one of the reasons that the US and sadly, brain-dead Europe, aren't pulling us out of this anytime soon.

Stimulate Spending with No Mortgage Payments for a Year

Jon, $1T to fix social security is silly.

I suggest we get behind the Pelosi-Biden $1T plastic surgery medical-aid package, the same one that members of the house get, becuase it's been shown that more attractive people make more money.