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29

economics thought excercises part 1: getting the feel

July 20, 2011 – Comments (45)

So it happened that a couple of months ago I had a long drive, 7 hours in fact, and I got to thinking.  We have all these "schools" of economic thought, we have the keynesians who think governments should deficit spend like mad during recessions and save during the boom years, we have austrians who tend to oppose government activity in the economy in general and make some nice points about malinvestment and such.  We have all of this discussion of monetary policy and interest rates and stuff, we have this, we have that.  In all honesty I have never had any interest in economics save forced interest via my participation in markets these last 2.5 years, I had an econ class in college but I was drunk that semester and all I remember is supply and demand setting pricing and "there is no such thing as a free lunch".  I struggled to make sense of it all, all these views (who frequently believe they are in conflict) and I couldn't.    [more]

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26

Understanding hyperinflation: courtesy of a mountain man

July 07, 2011 – Comments (14)

There is a man in these parts, who would call me one of his perhaps 5 friends, called Monrow.  Monrow stands about 6'4, weighs near as krikies 300 pounds, has an unkempt beard and a black pony tail down the middle of his back.  He owns a small handful of businesses, recently leaving these parts to start another in a town a couple hours away.   He is easily one of the most memorable characters I have come across, and thats saying something as i've met some pretty interesting people.    [more]

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26

Understanding ETF decay part 2: leverage reset decay

May 30, 2011 – Comments (2)

In my last post, we took a look at contango and backwardation and how they can affect the performance of an ETF or ETN.  In this one we will take a look at the other way that ETFs can decay over time.  This will focus on the leveraged, resetting ETFs like FAZ, FAS, TZA, TNA, and so forth.  This is actually a fair bit simpler than contango/backwardation.    [more]

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39

Understanding ETF/ETN decay part 1: Contango and Backwardation

May 29, 2011 – Comments (9)

Its widely realized that many ETFs and ETNs decay.  Fees may contribute to this, as may managers just sitting at a desk somewhere and hitting the bid or the ask on various things all day with no concern for the nickel in between.  After all, its not their money.   But there are two large fundamental causes for decay that outweigh these little things.  The first is the effect of contango/backwardation which affects many futures based ETFs and ETNs, primarily commodity and volatility types (USO, UNG, VXX, TVIX, etc.).  The second is the compounding/decay effect of daily, weekly, or monthly resetting of leverage on various leveraged ETFs.    [more]

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22

A date with the devil: peeking at VIX related ETFs and ETNs

May 27, 2011 – Comments (27)

Lets talk about a couple of those amazing, decaying, spiking, then decaying once again messes that are VIX related ETFs and ETNs.  It seems like every other article on seeking alpha has some hedge-fund-manager-wannabe recommending that people buy them.  Guys on Real Money Silver are long them.  Famous bloggers talk about them, they are considered by so, so many to be an "intelligent hedge".   After last summers fireworks, VXX has gained asort of following that just doesn't go away.  TVIX is like double-leveraged VXX, and I have seen this recommended here and there also.   [more]

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