Broken Pie Chart

The Wall Street Bets community executed a short squeeze through Reddit on stocks like GameStop and AMC Theatres this week. But what is a short squeeze? How did they and others buying stocks and options cause the stock to go up at least in the short term? Is short selling bad? Why potentially some brokers had to halt trading in certain names? A look back to the late nineties when internet chat rooms were pushing stocks. Examples of the little investor turning thousands into millions, and vice versa. How short sellers can root out fraud in companies with examples. Jay Pestrichelli and Derek Moore get into this and more in this very timely and fascinating episode.

What is a short squeeze?

What is the GameStop short squeeze?

How did Reddit group Wall Street Bets execute a short squeeze?

How some people have made a lot of money

How other people may lose a lot of money?

What is short interest ratio?

What is short interest as percent of float?

What is a delta or gamma squeeze in options on stocks?

Large in the money option open interest in GameStop at expiration

How short selling adds liquidity.

What are short days to cover metric?

Short sellers uncovering fraud in Amazon Prime documentary the China Hustle.

Short sellers with Enron, Nikola, Wirecard

Trading halts and liquidity requirements on brokerages

Congressional hearings coming on Robin Hood and Wall Street Bets GameStop activity

Examples of pump and dump in 2000 by Michael Lewis in New York Times

Short selling was found useful even in 1918.

How short selling in itself does not bankrupt companies.

How short selling that drives price lower can impact ability for secondary equity offering.

Mentioned in this Episode:

Explaining Delta and Gamma Options Squeeze Robinhood vs Softbank Whale https://brokenpiechart.libsyn.com/robinhood-option-traders-vs-the-softbank-whale

Derek Moore's Book Broken Pie Chart https://amzn.to/2YoxRaF

Documentary "The China Hustle" on Amazon Prime Video https://amzn.to/39uBJgm

Michael Lewis article on 16-year-old penny stock trader 2001 https://www.nytimes.com/2001/02/25/magazine/jonathan-lebed-s-extracurricular-activities.html

ZEGA Financial www.zegafinancial.com

Jay Pestrichelli's Buy and Hedge Book on Amazon https://amzn.to/2YoJDSg

Lately things like the Universal Basic Income (UBI) and Social Security are debated on TV. Commentators throw around numbers and whether a program can be paid for. Plenty of debate on each side but why not understand for yourself where all these numbers are coming from. In this episode Derek Moore covers what makes up the Federal Budget, Tax Revenue, Interest Payments on Debt, and how much something like a UBI would cost so you can decide. Plus, the effect rising rates and increases in debt with have on annual net interest payments as a percentage of the Federal Budget.

What is the Universal Basic Income or UBI?

How much would a Universal Basic Income cost?

How much is the current US debit held by the public?

What is the annual amount of interest paid annually on the US debt?

What are the mandatory, discretionary, and net interest payments of the US Federal Budget?

How much does Social Security, and Medicaid, Medicare cost?

Difference between total US debt and debt held by the public

What interest rate does the US pay on its national debt?

What percentage of the federal budget does net interest payments on debt make up?

What and when were the largest annual budget deficit in the US?

Effective historical tax rates versus marginal tax rates

How much free cash flow do the largest corporations generate annually?

For each additional Trillion in debt, how much more interest needs to be paid?

For each 1% increase in interest rates, how much do interest payments rise?

Mentioned in this Episode:

Average interest rates on US Treasury Securities https://www.treasurydirect.gov/govt/rates/pd/avg/avg.htm

Annual interest on US debt outstanding

https://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm

Gross debt versus debt held by the public explanation

https://www.crfb.org/papers/qa-gross-debt-versus-debt-held-public

Federal surplus or budget deficit historical chart

https://fred.stlouisfed.org/series/FYFSD

Breaking down the 2020 US Federal Budget

https://www.thebalance.com/u-s-federal-budget-breakdown-3305789

2010 US Census breakdown of adults 18 and over, 62 and over, and total population

https://www.census.gov/prod/cen2010/briefs/c2010br-03.pdf

Historical tax revenue as percentage of GDP by year

https://fred.stlouisfed.org/series/FYFRGDA188S

Historical effective tax rate on top 1%

https://taxfoundation.org/taxes-rich-1950-not-high/

Historical top federal income tax bracket rates

https://bradfordtaxinstitute.com/Free_Resources/Federal-Income-Tax-Rates.aspx

With this month's increase in US Treasury interest rates the talk about inflation came up quite a bit in the financial news. But what causes inflation? What are the different types of inflation? How is inflation measured?

Different causes of inflation

Cost Push Inflation

Demand Pull Inflation

Hyperinflation

Structural Inflation

CPI Index

Hedonic Adjustments to CPI

Substitutions in CPI measurement

Velocity of Money

Productivity Measurements in Economy

Mentioned in this Episode:

What is Velocity of Money and Impact on Inflation? https://brokenpiechart.libsyn.com/does-falling-money-velocity-point-to-lower-inflation

Inflation breakeven 10 year on St. Louis Fed site https://fred.stlouisfed.org/series/T10YIE

Inflation rate US https://fred.stlouisfed.org/series/FPCPITOTLZGUSA

Razor Wealth Management www.razorwealth.com

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547

Recently there have been many discussions on the valuation of the S&P 500 based on forward earnings multiples. But what role do bond yields have in that evaluation? Does the implied P/E ratio of the Baa bond yield or US 10 Year Treasury yield imply that stocks have more room to run? In any case, why not just buy but hedge as a strategy?

S&P 500 Index earnings yield

Inverse of P/E ratio is the E/P earnings yield.

Baa bond yield to calculate the implied P/E ratio

Baa bond yields vs US 10 Year Treasury yields to compare to stock earnings yield

How to calculate the earnings yield on stocks

How to calculate the implied PE ratio from bond yields

Forward PE ratio calculation

Earnings estimates vs reality.

How earnings estimates and earnings can change

Bond yields vs Earnings Yields

Mentioned in this Episode:

Book Buy and Hedge https://amzn.to/3bq8FYM

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547

Razor Wealth Management www.razorwealth.com

Baa Corporate Bond Yields https://fred.stlouisfed.org/series/BAA

JP Morgan Guide to the Markets https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/guide-to-the-markets/

Podcast on Hedged Equity Strategies https://podcasts.apple.com/us/podcast/why-investors-need-a-protective-hedged-equity-strategy/id1432836154?i=1000418366567

Derek Moore and Jay Pestrichelli team up once again to discuss how probabilities are used to understand where to sell short options to generate premium. Discussed in this episode are who is on the other side of the short volatility trade, how changes in implied volatility impact expected multiple standard deviations of expected movement, and how value at risk VAR impacts option premiums. Plus, they discuss how professional management adds value especially when option spreads widen and volatility increases.

Using probabilities to generate short high probability option positions

Expected underlying index moves based on varied levels of implied volatility

How large investment banks take the opposite side of the trade looking to reduce Value at Risk (VAR)

Difference between being patient for opportunities versus and always in the market strategy

What happens to option spreads when markets sell off?

Value at Risk VAR impact on institutional hedging as dynamic volatility hedging increases

Why sell options on large diverse indexes as opposed to individual stocks

Netflix example of implied volatility right before earnings and expected moves

Single stock risk using Netflix and Disney examples of over 10% moves down after announcements

Mentioned in this Episode:

Jay Pestrichelli and Derek Moore talk myths of the 60/40 portfolio

https://razorwealth.com/discussing-myths-around-the-classic-60-40-portfolio-part-i/

How are options priced and what is short volatility?

https://razorwealth.com/how-are-options-priced-and-what-is-short-volatility-podcast/

What implied volatility on options tells us about stock earnings expectations?

https://razorwealth.com/what-the-options-market-tells-us-about-expected-stock-moves-around-earnings/

Razor Wealth Management www.razorwealth.com

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547

Lately some high-profile companies have gone public using the IPO process. But how does it work and what are the differences between a traditional IPO listing and a Direct Listing IPO? Is Bill Gurley right when he says companies are leaving too much money on the table?

AirBnB IPO price pop

IPO Process – Investment banks and selling syndicate

Direct Listing IPO

Greenshoe IPO provision

Bill Gurley advocates for direct listings

IPO price vs trading price

Spotify and Slack as direct listing IPOS

How do IPOs raise money for early investors and companies?

Don't use market orders on IPOs first day of trading

Mentioned in this Episode:

Derek Moore's book Broken Pie Chart https://amzn.to/3iKpRcx

Podcast on S-1 IPO filings and Unicorn IPOs https://brokenpiechart.libsyn.com/the-unicorn-ipos-are-coming-what-their-s-1-filings-divulge

Contact Derek www.razorwealth.com

Some investors wonder whether it would be better to have bad returns early or bad returns late? Surprisingly unless someone is withdrawing funds or bringing in money it does not matter. But when does it matter? It can be quite a significant different during the withdrawal stage. Learn about how the sequence of returns comes into play depending on what phase you are in.

Is it better to have bad investment returns early or late?

Three main phases of an investor's lifecycle

Contribution Phase, Base Maximization Phase, Withdrawal Phase

Dollar cost averaging

Retirement and inflation

Withdrawal rates in retirement

Mentioned in this Episode:

Derek Moore's book Broken Pie Chart https://amzn.to/3iKpRcx

Downside Hedging in Portfolios https://directory.libsyn.com/episode/index/show/brokenpiechart/id/7043961

Contact Derek www.razorwealth.com

Viktor Nebehaj guests on the episode to discuss how app-based brokerage Freetrade is looking to help millennials break down barriers and costs to make investing a habit. How technology has reduced friction in helping them get started. Why they and others like Robinhood have been able to acquire investors even though the legacy brokers offer the same or more. How do companies like his make money when commissions are zero?

Freetrade bringing ease of investing to Europe and the world

How companies like Freetrade reach non investors traditional brokerage firms don't

How you reduce the friction and make it easier to get started.

How Freetrade derives revenue as a different model from traditional brokerages

Different ways of marketing for to find non-traditional investors

Opportunity for investors using an always with you investment app

How technology is reducing barriers and costs in general

Price deflation for consumers and trade offs for now free services like google gmail

Fractional share revolution for investors who want to own stocks

Owning individual stocks vs index ETFs to build knowledge

Mentioned in this Episode:

Freetrade https://www.freetrade.io/

Derek Moore's book Broken Pie Chart https://amzn.to/3iKpRcx

Contact Derek www.razorwealth.com

The Wall of Worry pertains to investors always worrying as markets climb higher. So what are some of the bull and bear cases on the markets, valuations, inflation, interest rates, stocks and bonds? Jay Pestrichelli is back on the program to discuss all these and hedging strategies as alternatives.

What is the Wall of Worry for investors?

Are Bonds even worth it given such low interest rates?

Potentially better portfolio hedges than bonds

The bull and bear case for inflation

Why higher money supply has not exactly meant higher inflation

Money velocity

CAPE Ratio, Shiller PE

Are valuations high or does prior 20-year growth rate say returns can be good over next 10 years?

Being long stocks with no bonds but being hedged?

Is gold an effective hedge?

What does the President and Senate control say about future stock market returns?

Mentioned in this Episode:

Derek Moore's book Broken Pie Chart https://amzn.to/3iKpRcx

Jay Pestrichelli's book Buy and Hedge https://amzn.to/3lvSz2d

Video and articles mentioned on podcast at ZEGA Financial Site https://zegafinancial.com/blog

Podcast reviewing historical market performance by President and Parties https://directory.libsyn.com/episode/index/show/brokenpiechart/id/15806990

Contact Derek www.razorwealth.com

Clean your garage this weekend to find something to sell on EBAY to fund your investment account. Where to go to open an investment account. How to buy fractional shares of companies. Should I buy a fund or individual stocks when starting out? Schwab vs Robinhood?

Schwab and Fidelity stock slices for fractional share purchases

How to buy your first stock

Dollar cost averaging periodic investment each month

Minimums for investments

How to find money to put towards investments (clean out your garage)

Individual stocks vs mutual funds or ETFs

Reducing friction in the brokerage space for new investors

Doesn't Schwab do everything Robinhood does?

Mentioned in this Episode:

Derek Moore's book Broken Pie Chart https://amzn.to/3iKpRcx

Podcast reviewing historical market performance by President and Parties https://directory.libsyn.com/episode/index/show/brokenpiechart/id/15806990

Contact Derek www.razorwealth.com