Broken Pie Chart

There are now over $12.5 Trillion dollars outstanding of negative yielding bonds. That's right, theoretically you are paying some country to lend them money. In reality you don't write a check twice a year. The idea of a negative yielding bond may not make much sense. Derek Moore will explain how negative yielding bonds work and how much more sensitive (and therefore risk) they are to changes in interest rates. Plus explain how the time value of money is thrown off by these low or negative rates.

How can a bond's yield be negative?

Why would someone buy a bond that has a negative interest rate?

How a bonds price being above par might make the yield to maturity negative

Does someone really have to write a check to a government if they buy a negative yielding bond?

What is the modified duration of a negative yielding bond?

Why the time value of money is thrown out off by using a negative or zero discount rate

What the after inflation yield or return would be accounting for inflation

How alternative income strategies utilizing option premium selling might be an alternative strategy

Challenges low or negative bond yields present to investors

Is Greece's 7-year bond yield really lower than the US 7 Year Treasury Bond yield?

Mentioned in this Episode:

Contact Derek www.razorwealth.com

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

Want a Bond refresher? Derek Moore talks about how bonds work, what effects prices and rates, and how to look at corporations and their debt.

How do bond ratings work and what do they mean?

What is the interest coverage ratio?

What is the corporate debt ratio?

Differences between government and corporate debt

How interest rates effect bond prices

What is the yield to maturity?

What is the yield to call and why do corporations call bonds early?

What is a bonds coupon rate really mean?

What is modified duration and how does maturity and coupon rates effect it?

Mentioned in this Episode:

Podcast on US Budget, Debt, and Is it possible to pay for Universal Basic Income?

https://razorwealth.com/get-the-facts-to-win-your-debate-around-us-deficits-budgets-and-spending-including-universal-basic-income-ubi/

Podcast where I go into how bonds modified duration affects market values

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

Contact Derek www.razorwealth.com

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

Broken Pie Chart | Episode 31

With Derek Moore

Is The Federal Reserve Really That Bad At Long Range Economic Forecasts?

Show Summary:

In this episode Derek Moore discusses how the Federal Reserve economic survey projections have been off, especially for long run economic forecasts. He also clarifies the difference between the Fed Funds Rate, Discount Rate, and IOER or Interest on Excess Reserves. Plus, Derek explains where to find the probabilities for the Fed Funds rate by looking at the CME Fed Funds Futures.

Should the Federal Reserve even be doing long range forecasting?

How St. Louis Fed President James Bullard once left his long-range interest rate dot blank?

What is the Federal Funds Rate?

What is the Federal Reserve's Discount Rate?

What is the Interest Rate on Excess Reserves (IOER)?

What is the Federal Reserve's Dot Plot?

How to find Fed Funds probabilities of interest rate changes

Where to find historical Federal Reserve Dot Plots

Mentioned in this Episode:

St. Louis Fed President James Bullard says Fed can't do long range projections https://theotrade.com/dramatic-shift-feds-bullard-says-fomc-stop-making-long-run-projections/

Fed Funds Futures Probabilities of Rate Cuts or Rate Rises https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html

Federal Reserve Monetary Policy Calendar and Historical Dot Plots https://www.federalreserve.gov/monetarypolicy.htm

Contact Derek Moore www.razorwealth.com

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

In this episode Derek Moore helps to clarify the difference between a real return (adjusted for inflation) and a nominal return. This is especially important when looking to increase your purchasing power. Plus, Derek simplifies the difference between taking a simple average and a geometric average. The difference may surprise many people.

What is a real return versus a nominal return?

What is the formula to calculate an inflation adjusted real return?

Difference between a simple average annual investment return and a geometric average annual return

How has gold performed as a hedge historically?

Gold's real historical returns including inflation adjusted real geometric returns

Gold has gone 30 years plus without providing a positive compounded return

Alternatives to using gold include buying broad index-based ETFs and hedging

The benefits of using options to hedge downside risk.

Mentioned in this Episode:

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

Part 2 Myths of the 60/40 Portfolio https://razorwealth.com/part-two-discussing-myths-around-the-classic-60-40-portfolio/

How Purchasing Power of the Dollar is Eroding Due to Inflation https://razorwealth.com/how-purchasing-power-of-the-dollar-is-eroding-plus-why-inflation-hurts-investors/

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Jay Pestrichelli is back to join Derek Moore in a discussion around options. Particularly myths around options investing. Why we don't do individual stock analysis and picking. How someone with low-cost basis in a concentrated stock position can hedge. And are coconut's more dangerous than sharks?

• • Why use Broad Index Exchange Traded Funds for diversification
• • Why we don't do complex individual stock analysis
• • Why doing stock valuation is complex due to making guestimates on the future
• • What is a concentrated stock position?
• • What is low cost basis stock position?
• • Myths around options including that they are only for short term traders and most people only lose money
• • How to hedge new IPO's like Uber and Lyft
• • Synthetic dividend capture option strategies
• • How to hedge individual stock positions
• • Are coconuts more dangerous than sharks?
• • Jay Pestrichelli's Yahoo Finance TV appearance

Mentioned in this Episode:

Jay Pestrichelli talks options with Yahoo Finance https://zegafinancial.com/blog/jay-speaks-with-yahoo-finance-about-what-volatility-means-for-investors

Do Coconuts kill more people than Sharks? https://www.snopes.com/fact-check/coconuts-kill-more-sharks/

Jay Pestrichelli's book Buy and Hedge https://www.amazon.com/Buy-Hedge-Rules-Investing-Minyanville/dp/0132825244

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Often investors notice that after an earnings announcement a stock has the potential to move depending on the news. But what type of volatility or movement was expected before the announcement? Using implied volatility, we can look at how option premiums are pricing in potential expected moves. Derek Moore explains how the numbers work and how you can see what a one standard deviation expected move is once you know where to find implied volatilities of the underlying stock or index.

• • What is the VIX Index
• • How does the VIX measure volatility via options premiums on the S&P 500 Index.
• • What is implied volatility or IV?
• • What does the implied volatility translate to regarding expected stock movement?
• • Formula using implied volatility to calculate expected single standard deviation ranges
• • Why does implied volatility rise sometimes prior to an earnings announcement?
• • What is the straddle option strategy?
• • Why long straddle options positions are a more complicated trade than you think.
• • How to calculate expected one standard deviation ranges for any number of days
• • What is the VIX futures curve?
• • Inverted VIX curve

Mentioned in this Episode:

VIX Futures Curve

www.vixcentral.com

CBOE VIX Explanation

http://www.cboe.com/vix

Podcast on Inverted Yield Curve

https://podcasts.apple.com/us/podcast/yield-curve-inverted-plus-explaining-different-ways/id1432836154?i=1000433804263

What is the Yield Curve Inversion and Why People Care Podcast?

https://podcasts.apple.com/us/podcast/what-is-the-yield-curve-inversion-and-why-people-care/id1432836154?i=1000418244386

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

Derek Moore and Jay Pestrichelli are back with part 2 of their discussion around the myths prevalent in the 60/40 portfolio. This week they highlight how bonds with low yields may have even more potential interest rate risk than investors think. Plus, they elaborate on why some diversification strategies fail touching on increased risk of the All-Weather Portfolios and Risk Parity Strategies. Finally, they expand on the "Hedgers Opportunity" where a good hedged equity strategy may allow investors to miss much of a selloff and have a chance at buying more shares when prices are depressed.

• • How is sensitivity to interest rates determined for bonds?
• • How is Modified Duration or Macaulay Duration altered by time to a bonds maturity and coupon percentage rates?
• • What would happen to bonds prices should interest rates rise?
• • How interest rates rising would affect the real return for bond investors
• • What is the All-Weather Portfolio concept?
• • What are the assets in an All-Weather Portfolio?
• • Why the All-Weather Portfolio concept may have more risk than before?
• • Why using historical back testing for All Weather Portfolio Strategies may not pick up future expected returns and risks
• • What is the Risk Parity Strategy?
• • How a Risk Parity Strategy leveraging up the fixed income or bond component may have more risk than people think
• • How changing correlations between equities and bonds could break the Risk Parity Strategy
• • What is the Hedgers Opportunity and how a good hedged equity strategy can allow potential investments and lower prices?
• • How alternative strategies like Hedged Equity have more defined outcomes including downside floors than normal diversification.
• • Discussion of real versus nominal returns

Mentioned in this Episode:

Part I Podcast Myths of the 60/40 Portfolio with Jay Pestrichelli and Derek Moore http://brokenpiechart.libsyn.com/discussing-myths-around-the-classic-6040-portfolio-part-i

Contact Derek Moore www.razorwealth.com

The Hedgers Opportunity by Jay Pestrichelli https://www.investmentnews.com/article/20190401/BLOG09/190409991/the-hedgers-opportunity

Historical Gold Prices https://fred.stlouisfed.org/series/GOLDAMGBD228NLBM#0

How do Treasury Inflation Protected Securities TIPS work? https://www.thebalance.com/how-do-tips-work-417128

Derek Moore and Jay Pestrichelli are back with part 2 of their discussion around the myths prevalent in the 60/40 portfolio. This week they highlight how bonds with low yields may have even more potential interest rate risk than investors think. Plus, they elaborate on why some diversification strategies fail touching on increased risk of the All-Weather Portfolios and Risk Parity Strategies. Finally, they expand on the “Hedgers Opportunity”

You've probably heard about the so called "Unicorn" IPOs or Initial Public Offerings on CNBC. With Lyft already public and Uber, Pinterest, Air B&B, and more on the way, everyone will finally get a glimpse of the financials for all these names. Do they make money? How much or if they lose money, how big is the loss? For those looking forward to finally getting a look inside these companies it can be like Christmas morning. We'll review what information is disclosed and then compare Amazon and Pets.com S-1 information from back in the late nineties.

• • What is an S-1 filing by a company slated to do an IPO
• • What type of information can be gleamed from a firms S-1
• • Reviewing Risk Factors, Use of Proceeds, Revenue, Earnings, and Balance Sheet date.
• • Using Lyft's S-1 to review various financial metrics
• • Remember the sock puppet Pets.com from the Dot.com era? A look back at their interesting risk factors from S-1
• • What were some risk factors from Amazon's initial public offering S-1 document?
• • When will Uber's financials via their own S-1 be available?

Mentioned in this Episode:

Uber's S-1 Financials https://www.sec.gov/Archives/edgar/data/1543151/000119312519103850/d647752ds1.htm

Lyft S-1 Document https://www.sec.gov/Archives/edgar/data/1759509/000119312519059849/d633517ds1.htm#toc633517_7

Pets.com S-1 IPO document https://www.nasdaq.com/markets/ipos/filing.ashx?filingid=1440847

Amazon S-1 IPO document https://www.nasdaq.com/markets/ipos/filing.ashx?filingid=1249014