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SanDiegoNonSurfer

SanDiegoNonSurfer
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  • VXX Vs. XIV: Enhancing Profitability In The Volatility Sector [View article]
    "the spike high and then they come back toward the middle"

    RT, I do agree (and had previously agreed) that this is a useable behavior of the VIX. What I'm pointing out is that the VIX has distributional and temporal patterns that suggest far better strategies.

    Martingale gambling strategies (doubling down) are based on the assumption one is betting on a martingale. Reversion to mean strategy assumes a non-platykurtic distribution. Both assumptions are violated by the VIX. When designing trading strategies, the actual patterns of the VIX as a process provide much better guidance than strategies based on extremely non-VIX-like processes.
    Apr 27, 2015. 11:01 AM | Likes Like |Link to Comment
  • New studies link rising number of earthquakes with oil and gas drilling [View news story]
    "My comment was meant as sarcasm"

    I was going to point that out...you beat me to it :-)
    Apr 26, 2015. 01:15 PM | 2 Likes Like |Link to Comment
  • New studies link rising number of earthquakes with oil and gas drilling [View news story]
    Thanks, BlueOkie (like your handle :) I think the challenge in California would be finding some spare water!
    Apr 26, 2015. 01:13 PM | 1 Like Like |Link to Comment
  • New studies link rising number of earthquakes with oil and gas drilling [View news story]
    Fred, you're right that my attitude towards earthquakes is colored by having lived much of my life in California. But remember that an earthquake can happen almost anywhere. I once awoke to an earthquake in the middle of the night in Manhattan...knew immediately what it was, then started back to sleep since it was moderate and rolling until I remembered, hey wait, you're in NYC!

    But being from California doesn't make it untrue when I point out that releasing fault stress in small increments is much better than letting it build up to a more damaging quake. I'm not against better management of wastewater disposal. We'll need it eventually, and the sooner we start doing rational management, the better off we'll ALL be (O&G companies included).

    What I'd like to see is an engineering-based analysis addressing: Can we leverage the pressurization that injection causes to *reduce* earthquake risk? Perhaps we can use subterranean pressures to manage groundwater, protecting it from contaminants? Lots of possibilities here. But only if we come at this rationally.
    Apr 26, 2015. 01:07 PM | 1 Like Like |Link to Comment
  • A High Income, Balanced CEF Portfolio With Reasonable Risk [View article]
    Thanks, John. I'm a bit of an iconoclast when it comes to CEFs. It's on my radar to write an article on CEF metrics someday, hopefully get some useful feedback...still procrastinating on that :-)
    Apr 26, 2015. 12:50 PM | Likes Like |Link to Comment
  • A High Income, Balanced CEF Portfolio With Reasonable Risk [View article]
    "Saying you never buy a CEF at a premium to NAV is similar to saying you never buy a stock with a current P/E above 15."

    OTOH, many low P/E stocks are value traps. A company with P/E = 4 is often a company in runoff.

    z-value is a better measure of "discount" than price-to-NAV. ROC and UNII help evaluate the future. I typically look at all these metrics and also scan the top holdings when evaluating a CEF. And you're right: volatility is also a factor for me when considering a CEF.
    Apr 26, 2015. 12:08 PM | Likes Like |Link to Comment
  • A High Income, Balanced CEF Portfolio With Reasonable Risk [View article]
    I have a small position in ESD, which is similar to EMD. But not because I think it's undervalued wrt NAV. I have it for exposure to emerging market debt.

    Note that ESD cut its distribution in Sept 2014. At the time, price was 11-12% below NAV. The distr. cut was followed by a substantial decline in share price and a declining NAV. That huge "discount" did nothing to prevent a serious loss of value. If anything, the low price-to-NAV ratio was a warning about the market's negative forward expectations.
    Apr 26, 2015. 03:24 AM | Likes Like |Link to Comment
  • A High Income, Balanced CEF Portfolio With Reasonable Risk [View article]
    "Market judgement imho would be most correct with the individual issues that make up the CEF"

    That's the market's valuation on current holdings, not on future holdings. No one knows what the fund's composition will be in the future, but since each fund has a "style" (its management, sector(s), charter, etc.), a fair market price should include consideration of the fund's style and the future growth expectations in its sector space in addition to its current asset values.

    I do also consider UNII when evaluating CEFs, and I look at whether the trends for price and NAV are diverging or converging (or crossing).
    Apr 26, 2015. 03:06 AM | Likes Like |Link to Comment
  • New studies link rising number of earthquakes with oil and gas drilling [View news story]
    "The two largest, so far, were 5.6 magnitude in Prague, OK in 2011 and I believe there was a 5.3 magnitude somewhere in Colorado"

    An earthquake of this magnitude can only occur if there were already significant stresses built up. If indeed wastewater injection precipitated an early release on the built-up fault-zone stresses (before these stresses became big enough for a 7.8 event), that's a good thing, not a cause for concern.
    Apr 26, 2015. 02:02 AM | 1 Like Like |Link to Comment
  • New studies link rising number of earthquakes with oil and gas drilling [View news story]
    "serious issue"

    Why are small earthquakes a serious issue? Why are they an issue at all? I'd much rather have many earthquakes too small to feel than one big one that built up because stress wasn't relieved.
    Apr 26, 2015. 01:55 AM | 3 Likes Like |Link to Comment
  • A High Income, Balanced CEF Portfolio With Reasonable Risk [View article]
    "GOF trades at a 9.41% premium to NAV"

    What matters is not the relationship of price to NAV, but rather price to expected future NAV. A similar concept is P/E. When you buy shares in a company, you're buying a share of its expected future earnings. When the price to current earnings ratio is low, that tells you the market has low expectations in the company's ability to grow its earnings. A high P/E reflects market expectation of high earnings growth.

    Likewise, the price-to-NAV ratio for a CEF should reflect the market's expectation for the fund's ability to maintain its distributions and/or grow its NAV. I think the commonly used terms "discount" and "premium" are highly misleading. It's not a "good deal" (discount) to buy a fund with a rapidly declining NAV. For example, a fairly priced fund that's interest rate sensitive should have a share price below its NAV when rates are expected to rise. That's not a discount or a bargain, it's a fair market valuation that reflects the expectation of declining future NAV.

    Quick look at GOF through that lens, it does appear over priced -- but not because its price is higher than its NAV. The reason it looks overpriced is because it doesn't appear to be growing its NAV. In fact the recent trend has been a declining NAV. Given its NAV trend, looks to me that a fair price for GOF would be something a few percent below its NAV.
    Apr 26, 2015. 01:44 AM | 1 Like Like |Link to Comment
  • VXX Vs. XIV: Enhancing Profitability In The Volatility Sector [View article]
    RT, a martingale is a stochastic process. There's a good wikipedia article on "martingale" if you'd like a backgrounder, but basically the next value of a martingale is independent of all prior values. There's inherently no way to predict the next value of a martingale from its history.

    I think you may have missed the point of my linked post, so let me try restating it in different words. A mean reversion strategy is a good strategy for a gaussian process, simply because the mean is the expected value. But the VIX is not only a fat-tailed process, it also has a temporal pattern of staying to one side or the other of its mean for years at a time.

    Why does that matter? It matters for three reasons:

    The first is simply opportunity cost. You don't want to wait years for a modest payoff, nor a decade for a fairly big one. Your capital can be put to better use.

    The second is that VIX-based products don't exactly track the VIX. This is most important for pro-VIX products such as VXX and UVXY, which experience rapid time decay. The VIX may spike to, or past, its mean in a year or so, but meanwhile your holding has decayed so far you still lose money.

    Third, you're not playing the odds in this strategy. You'd instead be playing against the odds.

    You're right that buying a contra-vix ETP when the VIX spikes is a good strategy. But it's an opportunity that comes relatively infrequently. And holding that position until the VIX returns to or passes its mean would be playing against the odds. You can easily find better exit strategies.
    Apr 25, 2015. 12:18 PM | 2 Likes Like |Link to Comment
  • Fed Governor Powell Opens Discussion About Supply Side Damage [View article]
    David, Thank you for correcting me on that (QEP)! You're right that I meant asset swaps. I'm pretty sure that's what's normally meant by "another round of QE", but I hadn't previously encountered the term QEP. I do recall Dr. Bernanke describing a number of what he called "extraordinary measures" the Fed could take to extend monetary policy beyond the zero bound, just hadn't seen that called QEP.
    Apr 25, 2015. 11:55 AM | Likes Like |Link to Comment
  • Fed Governor Powell Opens Discussion About Supply Side Damage [View article]
    Thanks for the gracious reply Asbytec. I'll be interested to see what you think after the read.
    Apr 23, 2015. 09:46 PM | 1 Like Like |Link to Comment
  • Fed Governor Powell Opens Discussion About Supply Side Damage [View article]
    David, as usual, your discussion of macro context was interesting and informative. Thank you for the insights.

    You're wrong, however, in thinking the Fed's going to launch another round of QE. That's not on the table at all.
    Apr 23, 2015. 09:29 PM | 2 Likes Like |Link to Comment
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