Derivatives the new 'ticking bomb'

[jk]

Re: Defusing 'ticking bomb' w/alternative investments.

Do you think the US real estate debacle is over? SRS

Do you think the US financial debacle is over? SKF

Do you think the US equity markets have seen their lows? Any of the reverse index funds.

Do you think US treasuries will continue down for another 20 years? Inverse yield funds. RRPIX is one.

The anwers I suggested assume all your answers are "no," but "knowing" you, who know what your answers will be?

I think for you to even broach the notion of diversification is a step in the right direction.

http://www.investmentpostcards.com/2...2008/#more-674



I have no freaking idea of who King is or what he knows. But if things are as seriously bad as he suggests, then perhaps Monday is a big day. What will the fools in the US do if there were to be some coordinated drop in bank rates over our tonight? That there were ~260 points up in 2-3 minutes on the DJI on Tuesday on the news of TSLF, which will not actually do any business as I understand until the 27th or 28th of March. Imagine if something happens, coordinated rate cuts, in real time? Would the market go up a thousand points in an hour?

metalman, I am positioned to the short-side using some of the things I mentioned above, but I am nervous, and I in no way feel assured my positioning is correct.

if there is intervention in the form of coordinated rate cuts, the dollar index will rise and u.s. equities will rally, but gold will take off like a rocket.

[GRG55]

Re: Defusing 'ticking bomb' w/alternative investments.

if there is intervention in the form of coordinated rate cuts, the dollar index will rise and u.s. equities will rally, but gold will take off like a rocket.

In the very short run this is likely, but I have trouble seeing the US equity markets rising for any length of time with a strengthening US Dollar.

[jk]

Re: Defusing 'ticking bomb' w/alternative investments.

In the very short run this is likely, but I have trouble seeing the US equity markets rising for any length of time with a strengthening US Dollar.

yes, i agree. [but i always think equities should go down, so i try to restrain myself. sometimes with success.]


edit: correction. not always. i really thought equities should go up in 1982. and in 2003 i liked small caps. so every 20 years or so....

[raja]

Re: Defusing 'ticking bomb' w/alternative investments.

Oh, shoot, that's why I've not been making any money on that bet! Actually, I haven't been making any money on my 3.5% position in RRPIX, which is a bet that the 30-year bond price will go down and the yield will go up.

What you wrote is correct, and RRPIX, Rising Rate, will make money if US long bond rates ever starts a secular trend up. Reckon that will ever happen? I reckon it will, I just obviously have been too soon in placing my bet.

I get it now.
If a 30-year bond moves down in price, that means rates are going up. So as Treasury rates rise, RRPIX goes up.

Seems like a good investment to me . . . .
However, would a comparable strategy be to buy and continually reinvest short term Treasuries -- and collect the albeit meager interest for awhile. Then, when Treasuries rates start their rise, the reinvestments will capture that upward movement.
Or is RRPIX leveraged in such a way as to magnify profits more advantageously?

[Jim Nickerson]

Re: Defusing 'ticking bomb' w/alternative investments.

I get it now.
If a 30-year bond moves down in price, that means rates are going up. So as Treasury rates rise, RRPIX goes up.

Seems like a good investment to me . . . .
However, would a comparable strategy be to buy and continually reinvest short term Treasuries -- and collect the albeit meager interest for awhile. Then, when Treasuries rates start their rise, the reinvestments will capture that upward movement.
Or is RRPIX leveraged in such a way as to magnify profits more advantageously?

Raja, You have been stuck it seems on this treasury bills thing forever, and forever ago, I stop reading your posts on it, them. The best way to make money seriously is buy low and sell high, and I don't know of any absolutely safe way to do that--nor do I think does anyone else who is honest. There are myriad ways, instruments into which one can invest. Find them, pick a few and invest.

[GRG55]

Re: Defusing 'ticking bomb' w/alternative investments.

I get it now.
If a 30-year bond moves down in price, that means rates are going up. So as Treasury rates rise, RRPIX goes up.

Seems like a good investment to me . . . .
However, would a comparable strategy be to buy and continually reinvest short term Treasuries -- and collect the albeit meager interest for awhile. Then, when Treasuries rates start their rise, the reinvestments will capture that upward movement.
Or is RRPIX leveraged in such a way as to magnify profits more advantageously?

If your portfolio had (has?) been entirely in US Treasuries how much purchasing power have you lost in the last 5 years, 1 year, 6 months, even the past one week?

[raja]

Re: Defusing 'ticking bomb' w/alternative investments.

If your portfolio had (has?) been entirely in US Treasuries how much purchasing power have you lost in the last 5 years, 1 year, 6 months, even the past one week?

Since you ask . . . (also, Jim requested elsewhere that other people post their portfolios):

32% in 6-month Treasuries
28% TIPS & I-Bonds
17% in trading cash: buying in and out of shorts (SRS, SKF, DOG and the like), gold, silver, currencies (FXY, FXF), etc.
11% gold and silver
10% in real estate (our house)

I'm running a 65% annualized profit on the trading part of my portfolio, and earning 2.35% above "official" inflation on my TIPS. I bought about half my gold at around $590/ounce, the rest at various prices on the way up.

I'm retired, and I don't want to go back to work, so my strategy is to preserve my wealth.
I fear gold more than Treasuries.
Barring hyperinflation, Treasuries will gradually loose a small percentage each year to inflation . . . for a few years. Gold could lose half its value in a month. I don't think it will do that -- I'm an EJ-believer -- but I'm not going to bet a large portion of my savings on that.

My strategy going forward is to continue speculating a little with PM and market shorts, invest more in PM, and sit tight with the Treasuries. When the real estate market bottoms sometime in the next few years, I plan to pick up some bargain real estate. I'm expecting that the US gov't will have to raise Treasury interest rates to find bond buyers, so I plan to lock in some long-term bonds at high rates.

I'm not in commodities. Missed that boat.
The push and pull there is the demand-deflation due to recession vs. the dollar depreciation. But I also notice that commodities tend to dip when the market dips, and since I'm expecting a market crash, I don't want to be in any stocks except market shorts and PMs.

And then, there is the "black day" scenario . . . .
Our home, which we recently moved to, is a 12-acre mini-farm in a low-population rural farming community. We have a huge garden, two cows, chickens, and I just bought some walk-behind tractor equipment for small scale grain-growing. For recreational purposes, I bought some beer- and winemaking equipment, and a evaporative still for spirits (and alcohol fuel for the tractor). Also, acquired some firearms and lots of ammo for hunting deer, etc . . . hoping that's the only reason we'll need them. I guess this is my investment in commodities . . . :eek:

[Jim Nickerson]

Re: Defusing 'ticking bomb' w/alternative investments.

Since you ask . . . (also, Jim requested elsewhere that other people post their portfolios):

32% in 6-month Treasuries
28% TIPS & I-Bonds
17% in trading cash: buying in and out of shorts (SRS, SKF, DOG and the like), gold, silver, currencies (FXY, FXF), etc.
11% gold and silver
10% in real estate (our house)

I'm running a 65% annualized profit on the trading part of my portfolio, and earning 2.35% above "official" inflation on my TIPS. I bought about half my gold at around $590/ounce, the rest at various prices on the way up.

I'm retired, and I don't want to go back to work, so my strategy is to preserve my wealth.
I fear gold more than Treasuries.
Barring hyperinflation, Treasuries will gradually loose a small percentage each year to inflation . . . for a few years. Gold could lose half its value in a month. I don't think it will do that -- I'm an EJ-believer -- but I'm not going to bet a large portion of my savings on that.

My strategy going forward is to continue speculating a little with PM and market shorts, invest more in PM, and sit tight with the Treasuries. When the real estate market bottoms sometime in the next few years, I plan to pick up some bargain real estate. I'm expecting that the US gov't will have to raise Treasury interest rates to find bond buyers, so I plan to lock in some long-term bonds at high rates.

I'm not in commodities. Missed that boat.
The push and pull there is the demand-deflation due to recession vs. the dollar depreciation. But I also notice that commodities tend to dip when the market dips, and since I'm expecting a market crash, I don't want to be in any stocks except market shorts and PMs.

And then, there is the "black day" scenario . . . .
Our home, which we recently moved to, is a 12-acre mini-farm in a low-population rural farming community. We have a huge garden, two cows, chickens, and I just bought some walk-behind tractor equipment for small scale grain-growing. For recreational purposes, I bought some beer- and winemaking equipment, and a evaporative still for spirits (and alcohol fuel for the tractor). Also, acquired some firearms and lots of ammo for hunting deer, etc . . . hoping that's the only reason we'll need them. I guess this is my investment in commodities . . . :eek:

That boat may come back to shore before you know it.

Were I given to envy, I think you are in an enviable position. Unless something changes and things stop changing, markets are going to go up and down. Being retired, you have time after planting and harvesting, to pay them attention. If there seem to be no attractive opportunities for your taste now, just stay alive, they'll come back around.

The only thing, Raja, about posting your positions is that it gives you credibility. Edit: I trust you got yourself a rooster too.

[Rajiv]

Re: Derivatives the new 'ticking bomb'

You should also see the two videos The Crash of 2008 - What Did Goldman Sachs Know ? posted by Sapiens

[FRED]

Re: Derivatives the new 'ticking bomb'

You should also see the two videos The Crash of 2008 - What Did Goldman Sachs Know ? posted by Sapiens

Related links:

Goldman's "ready." Are you? (June 2007)

The hog is in the tunnel

Open Letter to Federal Reserve Chairman Ben S. Bernanke

[GRG55]

Re: Defusing 'ticking bomb' w/alternative investments.

Since you ask . . . (also, Jim requested elsewhere that other people post their portfolios):

32% in 6-month Treasuries
28% TIPS & I-Bonds
17% in trading cash: buying in and out of shorts (SRS, SKF, DOG and the like), gold, silver, currencies (FXY, FXF), etc.
11% gold and silver
10% in real estate (our house)

I'm running a 65% annualized profit on the trading part of my portfolio, and earning 2.35% above "official" inflation on my TIPS. I bought about half my gold at around $590/ounce, the rest at various prices on the way up.

I'm retired, and I don't want to go back to work, so my strategy is to preserve my wealth.
I fear gold more than Treasuries.
Barring hyperinflation, Treasuries will gradually loose a small percentage each year to inflation . . . for a few years. Gold could lose half its value in a month. I don't think it will do that -- I'm an EJ-believer -- but I'm not going to bet a large portion of my savings on that.

My strategy going forward is to continue speculating a little with PM and market shorts, invest more in PM, and sit tight with the Treasuries. When the real estate market bottoms sometime in the next few years, I plan to pick up some bargain real estate. I'm expecting that the US gov't will have to raise Treasury interest rates to find bond buyers, so I plan to lock in some long-term bonds at high rates.

I'm not in commodities. Missed that boat.
The push and pull there is the demand-deflation due to recession vs. the dollar depreciation. But I also notice that commodities tend to dip when the market dips, and since I'm expecting a market crash, I don't want to be in any stocks except market shorts and PMs.

And then, there is the "black day" scenario . . . .
Our home, which we recently moved to, is a 12-acre mini-farm in a low-population rural farming community. We have a huge garden, two cows, chickens, and I just bought some walk-behind tractor equipment for small scale grain-growing. For recreational purposes, I bought some beer- and winemaking equipment, and a evaporative still for spirits (and alcohol fuel for the tractor). Also, acquired some firearms and lots of ammo for hunting deer, etc . . . hoping that's the only reason we'll need them. I guess this is my investment in commodities . . . :eek:

Well done Raja. You have a portfolio that works for you, and that's the only thing that counts at the end of the day.

I was getting the distinct impression, from many of you posts, that you were in little else other than T-bills.

Finally I agree with Jim N. There's a good chance we'll get another good entry for commodities. The trick will be to recognize it for what it is and have the courage to make the purchase.

[c1ue]

Re: Derivatives the new 'ticking bomb'

Investing in treasuries is very much like vacuuming nickels in front of the steamroller.

It is all fine until you get run over.

[qwerty]

Safest Currency Deposits?

With credit worthiness fears, I'd rather not deposit a lot of cash with a bank.

In the US there is Treasury Direct and in the UK, National Savings and Investment which are backed by the government.

Anyone know the mechanics of investing in Government cash or short term deposits outside of the US and UK?

How would one go about getting one's hands on Swiss 1yr notes for instance?

[raja]

Re: Derivatives the new 'ticking bomb'

Investing in treasuries is very much like vacuuming nickels in front of the steamroller.
It is all fine until you get run over.

Bad analogy . . . .
With a steamroller, it's a quick death.
With Treasuries you're bled to death slowly over time by inflation . . . . unless you're predicting hyperinflation, c1ue? :eek:

[Guest]

Re: Derivatives the new 'ticking bomb'

Raja -

Please take note of the 30%+ money supply growth (and rising) Rajiv was commenting on. "hyper" or not, that's a pretty stiff headwind for your treasury positions to preserve wealth against. At what point in this already feverish growth rate do we slide subtly into the "hyper" numbers?

At those money growth rates, erosion of US fixed income assets appears to be progressing reassuringly gradually, but in a stealthy way it is really more like a ravenous wolf. You can maybe fix it handily enough by upping your allocation to PM's another full ten percent.

I would absolutely hold the whole idea of the desirability of "yield" fixed income investments at arms length however, as it obscures a negative real yield often enough which can be dangerously unquantifiable at times precisely like the present one. An increase of a gold allocation is probably mis-timed for right now though, as the prospect of a sizable correction is getting very high.

However increasing allocation to PM's requires one to have confidence in the large future prospects of this asset class via a perception that inflationary problems will persist and grow sharply further, and you appear to be one of our greater skeptics in that regard? You may be right in that skepticism, but 30%+ growth in current money supply is not reassuring that the near future trend is complying with your relatively cautious allocation to inflation proofing your assets.

Otherwise there are many interesting things you are doing with your investments and retirement plans. It sounds great in many respects. I very much envy you the small farm, and your new lifestyle! ;)

With Treasuries you're bled to death slowly over time by inflation . . . . unless you're predicting hyperinflation, c1ue? :eek: