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Gerald Yu

Gerald Yu
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  • A Canary In Real Estate's Coal Mine [View article]
    I'd like to highlight a point made by danstvguy which was not discussed: How many eyeballs an article gathers is to a large extend related to the title. The authors who write "catchy and sometimes inflammatory" titles will get more eyeballs, regardless of the quality of the articles.

    (I'm not talking about this particular article. I think it was useful reading the article along with the comments.)

    This is a weakness in SA. You can "Follow" or "Unfollow" authors, that's it. When you read garbage, there's nothing you can do. Most of us are not able to remember all the names of the authors. I would really like a personal point system. I can add one point to an author for a good article and subtract one point for a bad article. That way when I click an article, I can quickly see whether it is an author that have say, negative five score, in which case I'll skip the article and save some time.

    I'm not looking to sharing this score with others, but I just like to have an automated way to track and weed out the writers who write great titles but trashy articles. They probably spend more time on the title than the content.

    I suggested this to SA a few weeks ago, but surely nothing will be done from just a single comment from a new user.

    As a result those authors who write junk but excel at writing good titles will continue to get more eyeballs than they deserve.
    Jun 16, 2013. 06:06 AM | 2 Likes Like |Link to Comment
  • VIX Contango Oscillator - Profitable Observations [View article]
    Thank you for the info.
    Jun 11, 2013. 04:51 AM | Likes Like |Link to Comment
  • Chinese Housing Dwarfs The Past Booms In The U.S. And Japan [View article]
    Yes. I only have problem with the word "pegged".

    Every country controls or manipulates or influences or nudges their currency one way or another. Sometimes it is good for other countries and sometimes not, but always aiming to / trying to improve the long term well being of that country.

    It was US Treasury Secretary John Connally who famously said the USD "is our currency, but your problem."
    May 30, 2013. 11:47 PM | Likes Like |Link to Comment
  • High Frequency Trading: Harmful Or Helpful? [View article]
    Any "liquidity" that HFT adds is when the particular security is already liquid. If a security becomes illiquid, HFT won't help. It's like giving you more rain during rainy season. Who needs it? The liquidity argument is intentionally mis-leading to trick only the un-informed readers.

    HFT adds little to no value to the capital market. They don't make investment decisions. They are a waste of talent of computer professionals and a waste of computing power. These people should bring their computers to Africa and help build bridges instead.

    There is no reason to have millisecond or god-forbid nanosecond trades. Company fundamentals do not change in a day. By slicing time too thin, it is no wonder liquidity is reduced. It is only in the exchanges' interest to slice time so thin, so you need "liquidity providers" and more trades. I think we can have one-second auctions. This way there are about 400 to 500 auctions each day, one-second apart, where the trades are more meaningful and liquidity is concentrated. 1,000 of the millisecond trades will be concentrated, minus the HFT false liquidity. The result is that much fewer actual trades will be made, because when the price discovery function is improved, fewer trades will result. Each price movement is supported by many more bids and asks and trades. The trades are more meaningful and the prices are more informative.

    Of course the exchanges will be earning a lot less and HFT will close. But that is exactly what we want.

    The secondary equity market is there to support the primary market, where entrepreneurs and enterprises can raise capital and finance businesses. All the other parts of the financial system that do not support the intermediary function, which exist only to serve themselves, should be eliminated.
    May 30, 2013. 11:28 PM | Likes Like |Link to Comment
  • Chinese Housing Dwarfs The Past Booms In The U.S. And Japan [View article]
    My gripe is with the US media, who develops an "enemy" for the brain-washed public to hate. At different times the enemies are different countries. It is much more exciting and easier to explain the world like a black or white comic book. You get more eyeballs and sell more paper. My gripe is that the inward-looking US public soaks it all up without question.

    CNY appreciated 30%+ while the US media says it is "pegged". If it was indeed "pegged" it would have appreciated 0%.

    The point is that you can call its adjustment slow, or you can even say something like "a 30% appreciation is virtually pegging it to the USD". But if you say "pegged" and do not mention the 30% change, it is just plain dishonest.

    I don't think you are trying to deceive. I think you used the hate message promoted by the US media without checking the facts first.

    "Under a free market the currencies would adjust to ensure a balance of trade."
    This is not true. Japan has had a surplus for years and years and a free flowing currency. JPY adjusts and adjusts and still maintained a surplus. The surplus is only now closing, more because of demographics. Free market is good but it doesn't solve all the problems.

    Please note that during those years when JPY appreciated, Toyota rose to become the #1 carmaker. The fact that the US slipped from the #1 carmaker spot was not because of currency.

    The US media says China is a foe and Japan is a friend. Double standards all the way.
    May 30, 2013. 12:18 AM | Likes Like |Link to Comment
  • Chinese Housing Dwarfs The Past Booms In The U.S. And Japan [View article]
    This article is a good update for those who are not aware of the China housing bubble. A bubble that has been around for some time and it's anyone's guess when it will crumble.

    I understand the author's belief in a free market economy, and his dislike of a centrally planned economy. I understand the author's dislike of communism and belief in democracy. But I disagree with the author's argument that it is central planning that caused the bubble. If it was central planning and/or communism that caused the bubble, we wouldn't have seen a housing bubble in the US, would we? At the time Chairman Bernanke testified that it was the free market forces that drove up the real estate prices. Yeah right.

    My view is that the China bubble is in some way similar to the US bubble. Various parties focus on their own interests and strangely cooperated into forming a bubble. In the US these were mortgage sellers, real estate agents, big bank derivative traders and sales, builders, politicians, etc. In China these were regional & local governments, builders, banks, investors, etc. None of these parties alone wish to create a bubble. But the incentives aligned and made it happen.

    My understanding is that the Beijing central government have been aware of the problem for some time. But they have not been successful in altering the behavior of the various parties. All of the symptoms described by the author are openly discussed in TV talk shows (available on YouTube).

    By comparison it was the US government during the US bubble who was oblivious and in denial, while famous investors and scholars were giving clear warnings.

    At the end neither the government that is aware of the bubble, nor the government that denied the bubble, is successful in preventing it from happening.
    May 28, 2013. 05:36 AM | 1 Like Like |Link to Comment
  • Chinese Housing Dwarfs The Past Booms In The U.S. And Japan [View article]
    "In the article there is an interesting discussion on policy, but considering that China's main monetary policy is to peg their currency to the US Dollar at a highly competitive rate, and then deny that they are manipulating their currency"

    You may think China is pegging its currency to USD, that the appreciation of CNY is too slow. But for the record, changes in CNY value relative to the USD has been:

    2006 +3.40%
    2007 +6.86%
    2008 +6.97%
    2009 +0.01%
    2010 +3.33%
    2011 +4.96%
    2012 +1.03%
    2013 YTD +1.77%

    Cumulatively from December 2005 until now, CNY has appreciated 31.8% vs the USD.

    It is still a long way from where it was in the 1980s. True. But the current speed of appreciation is fast, IMO, for a nation whose per capita income is still just a fraction of the US.

    The per-capital annual disposable income of urban households in China for 2012 is CNY 24,565. The US Disposable Personal Income Per Capita Nominal Dollars SA is $38,247.0 as at Mar 2013. So while the US is feeling sorry for herself that China is "pegging" its currency to gain advantage, let's try to keep these numbers in mind. (Source: Bloomberg)
    May 28, 2013. 04:52 AM | Likes Like |Link to Comment
  • VIX Contango Oscillator - Profitable Observations [View article]
    Hi Stephen,

    Thank you for writing this.

    I don't quite understand the Contango percentage. For the Average Contango of 4.17%, would that translate to a lost of 4.17% per month? It seems very costly to hold the VXX.

    All of the negative Contango (backwardation) days are when the VIX is sky high, periods when one would not want to start betting on the VXX. So the backwardation only occurs when you don't want it.

    Does that mean the highest contango periods were when the VIX is very low, when I want to hedge the most?

    I'm thinking, say when the VIX is low in the teens, the contango carry cost may have risen to 10% per month. So if I'm just two months too early, I'm losing 20%+ already?

    May 26, 2013. 11:01 AM | Likes Like |Link to Comment
  • Why Passive Index Investing Is Merely An Illusion [View article]

    "Now you need to prove an index and fund exists which does not do active stock selection."

    No I don't need to prove anything. I told you something you didn't know but you don't appreciate it. You can keep reading the legal fine print and imagine that it helps your investments.

    Or you can accept that you got this one wrong. Hey I am wrong all the time. Investing is to keep finding out that we've just did something wrong, and be thick skin enough to persist or revise as necessary.

    Now I do need to tell you and Tim that your understanding of Active Investing is not what is commonly understood. Please read the first sentence on this Wikipedia page Typically Active Investing tries to beat an underlying benchmark. For VTI, the manager is trying to do a good sampling that minimizes the Tracking Error between the fund and the index. This is Sampling, not stock selection.

    I suggest you read about Active Investing, Passive Investing, Tracking Error, Sampling and other indexing methodologies before hitting the Send button.

    Well that's more free advice than I should give. I've had enough from someone who doesn't appreciate my sharing the knowledge that I took a very long time to accumulate.

    Sugar Charlie & curls-100,

    You are right it doesn't make sense to get overheated. But I couldn't resist not replying this time...
    May 23, 2013. 11:03 PM | 1 Like Like |Link to Comment
  • Why Passive Index Investing Is Merely An Illusion [View article]
    FYI the DJIA is not managed by the Wall Street Journal. Both the DJIA and the S&P 500 are managed by the same company "S&P Dow Jones Indices, LLC", a subsidiary of The McGraw-Hill companies. (See

    For those who think all index managers and index fund managers are cheating and evil, then sure you shouldn't buy them.

    For me, I think many of them genuinely try to make their indices / funds representative of their target markets. They put a lot of thought / math / statistics into making their indices and funds work. When I want some equity risk but don't have the time to pick enough stocks, index funds / ETFs are considered.

    For the more efficient market segments such as US Large Cap, the small dispersion of performance between managers do not justify using an active fund manager. So ETFs / index funds should be considered. (Please read David Swensen.) For less efficient markets, active management can make a meaningful difference and are worth the fees.
    May 23, 2013. 09:51 AM | 1 Like Like |Link to Comment
  • Why Passive Index Investing Is Merely An Illusion [View article]

    By "do much better" I mean there are indices that better reflect the capital markets and economies they try to represent.

    The two most famous indices that use price indexing are the DJIA and the Nikkei. They were created when we did not have computers to calculate market-weighted indices. So they just add up the prices of the stocks and divide by a factor.

    If you insist on beating up DJIA and call that the representative of indices, then you should also understand that the DJIA can accept neither GOOG nor AAPL as members. Because their per-share prices are so high, they would dominate the entire index. For an American index that tries to represent its economy but does not have neither GOOG nor AAPL, it is pretty "bad". So there are indices that do "better". SPY & VTI represent the US stock markets "better" than DJIA.

    The goal of passive investment is to invest in an economy (or a sub-set of an economy). I hope this illustrates the point of why beating up DJIA is not a worthwhile pursuit. DJIA is well respected but have limitations that investors should know.

    If you want to beat up DJIA further, call me. I'll help. But DJIA is not a representative of modern day indices.

    You pointed to the "fine print" that the lawyers put in to protect the fund manager, and call that outrageous. Perhaps so, but so is all of the US. US is run by lawyers who disclaims everything. You can get a research from a bank that says "buy buy buy" at the front but in the fine print say "we offer no advice". If you ever find an ETF that meets all of you criteria to be passive, I'll bet that ETF also have those disclaimers.

    The research that can show whether VTI is able to produce returns that are representative of the US board market, is to compare the total return of VTI to that of the US broad market. Reading the fine print doesn't tell you whether VTI was able to achieve it.

    You also want to know that 1) full replication and 2) sampling are common methods for index funds to achieve the goal of producing returns close to the target. Other methods may involve derivatives, futures, etc.

    Sampling is often used for indices that are very very large. It is because when you get to the bottom of the index, the weight is so small that those members make little impact to the index. Also as you get to the smallest cap stocks, the liquidity is so poor that getting in and out would likely be more costly than the benefit to the ETF holders.

    So I took a look at VTI, and near the bottom of this $31.16 Billion ETF is the holding of 964 shares of "Bowl America Inc", ticker BWL/A, with market value of this holding around $12.5k. Let's say Bowl America goes up by 100 times, it would give VTI a 0.004% performance. Excluding stocks smaller than BWL/A probably won't affect the total return very much.

    The 75% "missing" from VTI, including illiquid shares, penny stocks, etc. The cost to include such shares is likely to be large. It makes little sense to buy all of the "missing" 3,000 small stocks in odd lots and illiquid markets. What you call "cheating" actually helps make VTI a better fund.

    If you don't really understand how things work, it's best to read rather than make the dramatic insulting comments.
    May 23, 2013. 07:05 AM | 1 Like Like |Link to Comment
  • Why Passive Index Investing Is Merely An Illusion [View article]

    There are indices that do much better jobs than the DJIA. By picking on the Dow, you are using the old index that was designed when we only had slide rules and no computers, and extrapolating that to all indices.

    So the next time you think of passive investing, DON'T focus only on the DJIA. It's not fair.
    May 21, 2013. 12:31 AM | 1 Like Like |Link to Comment
  • Dividend Cuts: The Pin That Could Pop The Stock Market Bubble [View article]
    In general, management don't cut dividends lightly. For that to happen, usually it needs declining earnings (not revenue), or large write-downs. So even before we see dividend cuts (or at the same time as dividend cuts), there should be news about falling earnings or large write-downs, which are probably the areas to focus on.
    May 6, 2013. 12:04 AM | Likes Like |Link to Comment
  • Bail-Out Is Out, Bail-In Is In: Time For Some Publicly Owned Banks [View article]
    Hi Ellen,

    Thank you for the articles.

    Can you talk about what happens to the assets held at the bank accounts? Do the deposits rank junior to bonds and stocks held in the bank accounts?

    If the securities held in the accounts at the banks can also be confiscated, that would increase contagion, which the regulators may not like, because the bailed-in bank would need to sell those assets when re-capitalizing. But if not, then it means you are "safer" holding securities at the TBTF banks rather than cash. The system is encouraging you to take risk rather than hold cash, because cash has an additional layer of risk than say stocks or funds or bonds or Treasuries.

    If so, knowledgeable investors should do trades at the big banks, but keep unused cash at the vanilla community banks.

    May 5, 2013. 11:21 PM | Likes Like |Link to Comment
  • The Biggest Lie About The Real Estate Recovery [View article]
    Rather than say the private equity funds would get deals discounted by 50%, perhaps you can assume that most of the funds are leveraged 100%, so they have twice the amount to buy homes. The conclusion would not change but the reasoning should be closer to reality.
    May 2, 2013. 03:55 AM | 1 Like Like |Link to Comment