tag:blogger.com,1999:blog-8515247115132134144.post6743372411840412836..comments2024-02-17T12:34:01.400-08:00Comments on Illusion of Prosperity: The Sarcasm Report v.109Stagflationary Markhttp://www.blogger.com/profile/04568993350246477976noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-8515247115132134144.post-86393528379625715852011-06-21T02:04:56.580-07:002011-06-21T02:04:56.580-07:00Who Struck John,
Now I see where you were going w...Who Struck John,<br /><br />Now I see where you were going with it.<br /><br />In any event, I doubt using derivatives to hedge against long-term inflation risks is going to work. It requires investors on the other side of the trade to bet against long-term inflation. Further, it requires those same investors to remain solvent (counterparty risk) if long-term inflation appears.Stagflationary Markhttps://www.blogger.com/profile/04568993350246477976noreply@blogger.comtag:blogger.com,1999:blog-8515247115132134144.post-71126671529410991902011-06-20T23:44:25.427-07:002011-06-20T23:44:25.427-07:00How does a muni get paid back? By property taxes,...How does a muni get paid back? By property taxes, mostly. What happens if the taxes aren't paid? Well, after three years, the property gets seized and auctioned.<br /><br />Compare with a mortgage, where foreclosure can start a lot sooner.<br /><br />Both fundamentally depend on property values. Now, a city does have other revenues, and can paper things over longer. But if we're going to get another 20% drop in property values, I'm not liking munis. I'm really not liking derivatives of munis.<br /><br />If I look at pension obligations of cities, and factor who got the haircut when GM and Chrysler got bailed out (hint, not the pensioners), and what that means when cities go bankrupt, I don't like munis at all, at all ...Who Struck Johnhttps://www.blogger.com/profile/06359715705053814488noreply@blogger.comtag:blogger.com,1999:blog-8515247115132134144.post-83452520800377092982011-06-20T21:36:23.135-07:002011-06-20T21:36:23.135-07:00Here's what I think of when I see claims that ...Here's what I think of when I see claims that derivatives will be used to track inflation over the long term.<br /><br /><a href="http://finance.yahoo.com/q/bc?s=USO+Basic+Chart&t=my" rel="nofollow">United States Oil Fund (chart)</a><br /><br /><i><b>The investment seeks to reflect the performance, less expenses, of the spot price of West Texas Intermediate (WTI) light, sweet crude oil.</b> The fund will invest in futures contracts for WTI light, sweet crude oil, other types of crude oil, heating oil, gasoline, natural gas and other petroleum based-fuels that are traded on exchanges.</i><br /><br />Three words: <b>Not Even Close</b>Stagflationary Markhttps://www.blogger.com/profile/04568993350246477976noreply@blogger.comtag:blogger.com,1999:blog-8515247115132134144.post-86896245056744501612011-06-20T21:31:44.714-07:002011-06-20T21:31:44.714-07:00Who Struck John,
I'm certainly confused.
If ...Who Struck John,<br /><br />I'm certainly confused.<br /><br />If a municipal bond defaults then what does that have to do with foreclosures?<br /><br />In any event, I would certainly not consider my self to be a municipal bond guru. That alone would make me not want to invest in them. Tack on derivatives and I'm even less likely.<br /><br /><i>...the fund seeks a more tax-efficient approach to managing inflation risk primarily through its use of derivatives such as Consumer Price Index (CPI) swaps over Treasury Inflation Protected Securities (TIPS).</i><br /><br />I want no part of that. All I know is that if all derivatives were priced accurately then for every derivatives winner there must be a derivatives loser. Derivatives are a zero-sum game.<br /><br />They can hedge against risk, but I don't see how they hedge against nearly sure things (such as long-term inflation).Stagflationary Markhttps://www.blogger.com/profile/04568993350246477976noreply@blogger.comtag:blogger.com,1999:blog-8515247115132134144.post-90279576358390050382011-06-20T21:19:25.481-07:002011-06-20T21:19:25.481-07:00For the muni, that is. It takes 3 years before yo...For the muni, that is. It takes 3 years before you can seize the property for taxes.Who Struck Johnhttps://www.blogger.com/profile/06359715705053814488noreply@blogger.comtag:blogger.com,1999:blog-8515247115132134144.post-86012417261929148202011-06-20T21:18:30.106-07:002011-06-20T21:18:30.106-07:00Clearly investors in the fund don't grasp that...Clearly investors in the fund don't grasp that the difference between a MBS and this kind of derivative is that foreclosure takes a lot longer.Who Struck Johnhttps://www.blogger.com/profile/06359715705053814488noreply@blogger.com