arbitragr
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Posts posted by arbitragr
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It's sad ... but ... Warren's generation is slowly giving way to the next.
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... maybe it's tabloid. :)
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I think for currency in particular, I would probably seriously have a look at futures. It doesn't take much to open an account.
For small contract sizes you can try the e-micros: http://www.cmegroup.com/trading/fx/e-micros/e-micro-canadian-dollar_contract_specifications.html
March contract chart: http://finance.yahoo.com/q?s=M6CH10.CME
And larger contract sizes you can go with standard contracts: http://www.cmegroup.com/trading/fx/g10/canadian-dollar_contract_specifications.html
If you're with IB I think they consolidate all trading in one account.
http://i163.photobucket.com/albums/t314/ripleyx/cad-usd.png
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As an example:
Currently the USD/CAD = 1.060, and inverse CAD/USD = 0.9433
If the USD/CAD falls by 2 cents to say 1.040 then;
USD equity portfolio will fall in CAD terms by
= (100K x 1.040) - (100K x 1.060)
= -$2000 CAD
To hedge this we can use the USD/CAD e-micro contracts.
A USD equity portfolio of = $100,000 USD
1 e-micro USD/CAD contract = $10,000 USD
Contracts required to hedge = Portfolio value / contract size = 100K/10K = 10
Therefore you need 10 contracts to hedge. Because we believe the USD/CAD will fall in value, we would need to SHORT.
i.e. Hedge position value = 10 contracts x 10K = $100,000 USD
Value of futures contract in CAD at initial time of hedge = 100,000 x 1.060 = $106,000 CAD
Value of futures positoin in CAD at ending time of hedge = 100,000 x 1.040 = -$104,000 CAD
Profit/(loss) on hedge = -104,000 + 106,000 = $2000 CAD
The hedge should neutralize your USD equity portfolio position.
Margin requirements are small compared to options. For 1 e-micro USD/CAD contract:
Initial margin = $500 approx. --> 10 contracts = $5000
Maintenance margin = $350 --> 10 contracts = $3500
Thus you would only need at most $5000 in cash (5% of your portfolio) to hedge.
For the larger CAD/USD contract, initial margins are about 2.5K, which is 2.5% of a 100K portfolio. With the larger CAD/USD futures contract product (CDM10), because it's the reverse CAD/USD you would do the reverse of the above hedge and go long the CDM10.
In theory it might be a bit off, because of basis risk and the difference between spot vs. futures pricing, but not too much if you set your positions correctly.
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Fair enough.
I was just comparing the downside of different hedges.
If you want to completely neutralize your position, which is what I assumed the posters on this thread wanted then you could use futures - no loss, no gain (i.e. lock in a certain level of profit) - futures will neutralize your position completely if you set the amount of contracts right in proportion to your portfolio. You can go large (with S&P futures) or small size contracts (with S&P mini contracts) to adjust it properly. If you hold cash and some stocks long, you will still be exposed to losses. You're right but, you could also just sell all your positions and hold cash. The original poster talked about an S&P hedge, and I just wanted to give him alternatives.
To hedge the risk in a portfolio you would take (value of portfolio / value of assets in one futures contract) = number of contracts to short. *note: in theory you would also multiply that ratio by a risk adjustment e.g. Beta or a 'hedge ratio', but let's not worry about that.
This would allow you to stay out of the market for a while, on the sidelines until you feel comfortable to pull off those hedges.
If not then you could sell and hold cash or buy an option.
However with the option chains I'm seeing, long term out of / near the money put options don't come cheap.
They're like $2.5-$5.0 per option for something like WFC.
For something like SPY at-the-money puts from Jan10 through to Dec10 cost about $2.5-$11 per contract.
you could also try futures-options as well. so you can get an option contract for the S&P ES-mini.
I'm not recommending a 'dirty' hedge at all, the original poster alluded to it, and I'm just throwing up ideas.
Me personally I would probably just sell the damn thing and hold cash. But not everyone can do that, like fund managers who have mandates, or farmers who hold inventory.
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usually have to open a separate account.
most major online brokers should be able to open one i.e. IB, optionsxpress ... etc ... maybe even think or swim too.
with regard to hedging discussion as before ... i think there are even single stock futures on major large caps like WFC ... so you can even hedge at the individual security level.
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I would prefer buying futures over options. e.g. ES-minis.
Why pay a premium?? It's a waste of money.
Or you can just by an inverse ETF or short SPY.
I don't know anything about how futures work. Would you short the minis to hedge?
The inverse ETFs have horrible slippage problems and don't perform anything like they should over periods of time. They replicate the daily change only. When you short SPY you have to pay out for distributions, so there's a premium there as well.
The slippage problems mainly happen with leveraged ETFs.
Shorting the minis ...?? Yeah pretty much. No premium. Only thing you have to watch out for is margin.
Margin requirements on futures are usually more liberal than options.
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I guess everyone would move here if we had a Tiger Woods. Good thing I can type fast.
Tiger would prefer to move to Canada right now.
I was right about this. ;)
Maybe not Canada, but he'd still like to move. ;D
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I would prefer buying futures over options. e.g. ES-minis.
Why pay a premium?? It's a waste of money.
Or you can just by an inverse ETF or short SPY.
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I read same thing everyone else reads.
But I also listen to the radio.
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I guess everyone would move here if we had a Tiger Woods. Good thing I can type fast.
Tiger would prefer to move to Canada right now.
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I thought you were bearish on CRE Sanjeev? ;)
I think alot of the opportunities have reached fair value almost.
Anyways, I agree with the trust structure or the REIT structure.
This is the best way from a tax perspective. Anything else will put you at a disadvantage since all other key real estate investment companies usually use the REIT structure where the operating cash flows are distributed out to unit holders (AFFO, FFO) and taxes are applied at the individual level.
For some types of real estate taxes are only applied on capital gains and not income (e.g. Timber/Forestry).
So this is your best bet.
However I'm not from Canada so the legal specifics I'm not too sure about. Nonetheless, many jurisdictions around the world operate similar structures for real estate.
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Commodities and resources.
The market is looking for a place to park their money.
In 2004 after the tech wreck it was housing.
This time around with rates at the same low rates of 0-1%, my gut feel is that it will head into commodities (again).
Front page news is always BRIC.
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Unlike residential real estate, I suspect the correction in commerical prices has not stabilized and will be significantly greater from the peak. Cheers!
http://www.bloomberg.com/apps/news?pid=20601087&sid=aQ9I9q6Z0DaM
Unlike residential, CRE's downturn coincides with the Federal Reserve printing massive amounts of money.
Money printing --> filters through to banks --> banks lend out to, among other borrowers, CRE developers ---> CRE developers and investors buy real estate ---> asset prices get pushed up.
There is more liquidity right now, and in a liquid environment asset values get pushed up. I personally don't think it's going to be as bad.
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For as long as the Fed keeps rates artificially low, we will continue to see all that money poured into hard assets.
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http://www.bloomberg.com/apps/news?pid=20601087&sid=aiZE.BBJzcWA&pos=7#
Nov. 14 (Bloomberg) -- John Paulson disclosed that his hedge-fund group acquired 300 million shares of Citigroup Inc. during the third quarter, while selling its entire stake of Goldman Sachs Group Inc.
... Betting on Recovery
Paulson ranked second in fund-manager earnings last year, according to Institutional Investor’s Alpha Magazine. His Credit Opportunities Fund soared almost sixfold in 2007 through wagers that subprime mortgages would sour. He started the Paulson Recovery Fund in 2008 to invest in financial firms hurt by mortgage writedowns.
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Definitely off-topic, but I know there are some football fans here, if not Colt and Patriots fans. My boy Manning pulled his team through one more time against the amazing Brady. Unbelievable finish to this game! 9-0 baby! Cheers!
Patriots were too full of themselves and had the gaul to go for a passing play on the last play of their possession at 2:00 minute warning mark, when they were 4th and 2. Serves them right. They should have punted the damn thing.
(Note: we are only allowed to discuss off-topic subjects if Sanjeev says so :D)
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Buffett uses investment float to fund his investments - he believes it is safer than all other forms of "financing".
Insurance float.
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GE calls/LEAPS are interesting.
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Commercial real estate looks interesting to Prem.
Do you still think there's gonna be a major crash Sanjeev?
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I like optionsxpress.
they specialize in options.
not sure if it's cheaper. but they have lots of analytical tools and choices for options traders.
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By the name, wouldn't you need to be a CFA to attend?
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Michael Norton, Jeana Frost and Dan Ariely (2007), "Less is More: The Lure of Ambiguity, or Why Familiarity Breeds Contempt". Journal of Personality and Social Psychology. Vol. 92, 97-105.
http://web.mit.edu/ariely/www/MIT/Papers/less.pdf
Haha ... smart alec.
I would disagree with the conclusion however. I still worship WEB, despite figuring out more about him and unravelling his myth. Some of his principles about life and investing I hold dearly on a day to day basis.
It's just quite suprising to know from an investment standpoint, how hard he works and sometimes that, he needs to guard his investment ideas closely for case of competition. A bit like a magician never tells his secrets. ;)
And I think that's quite natural, and understandable to be honest. My overwhelming feeling is that he tries to be a teacher, and wants the masses to invest in a safe and conservative way rather than embarking on risky investments like CDS, derivatives, short term trading, arbitrage etc ... even though he participates in them himself, b/c only he, and other professionals like him are qualified and have the experience to do so.
A bit of paternalism. Which is good, on the whole.
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David Lau has put together some truly fantastic notes from Seth Klarman's annual meeting on October 29th. We are seeing all the same things as Seth, although we think the base case for real estate is the most probable in the U.S.
Are you still bearish on CRE Sanj?
I think there's a valid case, however CRE in major cities like NY shouldn't be a problem in my opinion.
Difference between residential and CRE is that now, the Fed is intent on keeping its accomodative stance for an extended period, which means lots of cheap money to fund projects and push up asset prices. I don't think it will be as severe a collapse as residential.
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I am the biggest admirer of Buffett you'll ever come across but even I can admit that Buffett contradicts himself when it comes to words and actions. It's well-known among Buffetteers. In fact, that's why so many of us differentiate between the "public Warren" and the "private Warren." There is nothing controversial or "unattractive" about Arb's assertions.
... I just knew I wasn't alone in feeling this. I just had a feeling ... the more I find out about WEB, the more I find that I don't know ... and that things are alot more complicated than meets the eye.
would you borrow to buy Fairfax at current prices given the following terms
in General Discussion
Posted
If you want to get leverage on your investment there are other ways besides borrowing on margin.
Market valuations are not exceedingly cheap to make an all in bet.
What is the margin loan rate?