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  • Let Warren Buffett Handle Your Portfolio
    [Initially published at World Beta]

    Greeting Folks,

    I am a huge fan of Mebane's stuff and this site has taught me a lot. Thus, I just want to go through an example to see if a pure alpha extraction of a Buffet port is going to work.

    Here is how I break it down with today's numbers for a $100,000 port on prices and margin for today. Consider two options. The first might be buying SPY one year at-the-money options. Right now, they would cost about 15% of the port and that is only with a delta of 50 (i.e. an imperfect hedge). You could use emini S&P futures. You would need about 2 and a quarter contracts and your initial maintenance margin would be $13,923( at Interactive Brokers), or roughly 14% of the port, if you could have fractional contracts). You would be asked for more margin if the trade was going your way. You also lose about 1% a year for yours service and there are the trade transactions. I don's see how this is going to work. 3:1 leveraged ETF would require at least 33% of the port (and would work horribly).

    Your example had a 50% hedge so that would require about 7.5% of the port value to hedge with a return of 7.4%? Whoops…. You would be at least minus 1% with your service fee. That is assuming your hedges went well (they aren't always so tidy).

    I would take a good look at the alpha extraction sales pitch. It doesn't seem to add up to me. Am I missing something?

    Cheers from Osaka,
    john
    Dec 19 04:09 am |Rating: 0 -2 |Link to Comment |View article
  • The Pundits I Admire Are Turning Bullish
    "I have no idea where the market will be three or six months from now. But 10 years from now, do you really think the Dow will be trading at 8,000? I sure don't."

    I live in Japan. No one here thinks 10 years is a sure bet for a stock market recovery!

    Cheers,
    john
    Dec 03 02:35 am |Rating: 0 0 |Link to Comment |View article
  • The Run to Safety: Ten-Year Treasury Hits All-Time Low
    "The only way that Treasury yields can go any lower than they are now is if investors become even more terrified than they already are and that just doesn't seem possible.

    Does it?"

    My understanding is that quantitative easing implies buying long term debt to drive down that part of the yield curve. I am not sure i go along with your purely contrarian call. Look at how low japanese 10-year notes went! I would wait until a chart shows a downtrend.

    Cheers,
    john
    Nov 26 23:46 pm |Rating: +2 0 |Link to Comment |View article
  • Triple Leveraged ETFs On Fire
    Why not go long the 3x and short the -3x for some real leverage!
    Nov 26 20:36 pm |Rating: 0 0 |Link to Comment |View article
  • Small-Cap Japan ETFs: Big Things May Come in Small Packages
    Greetings,

    Unfortunately, japanese equity markets and the $/Yen are rather strongly positively correlated, so investors in these u.s. funds are going to suffer from currency situations when things turn around in Japan.

    By the way, J-reits are a great deal as well.

    Cheers from Osaka,
    john
    Nov 26 09:28 am |Rating: 0 0 |Link to Comment |View article
  • Currency ETFs: Consider the Commissions
    Greeting Ray,

    Fair enough my friend.... different strokes and all. Funds like DBV and JEM may be useful, if expensive.

    If there is a bundle to be made, carry trading is likely the best way to do it IMHO.

    Best wishes and thanks for your opinion.

    john
    Aug 28 06:58 am |Rating: 0 0 |Link to Comment |View article
  • Currency ETFs: Consider the Commissions
    Greetings,

    I agree with the original poster on these costs being absurd. Any medium to long term forex strategy is going to be better accomplished with a forex broker. ETF's are a primitive way to get such exposure.

    I am not sure where Ray is getting his quotes from. I show a spread of around .007% for EUR/USD and .039% for USD/MXN. That is more like 5.6x than 100x, my friend.

    For a one year holding period costs are 57x cheaper using the broker OANDA for EUR/USD than the ETF FXE. That is not counting the bid/ask spread on the ETF or commissions, which could jack this up considerably. You have no further costs after that (outside of interest on a negative carry) no matter if you hold for years. So there is virtually no comparison cost wise.

    See spreads and carry interest for Oanda here:
    www.xrof.com/index.htm...

    These ETFs are a scam. This is the cheapest market to trade in the world! Hell, SPY has what like .17% expense ratio?

    Also you didn't mention the tax advantages. If you document yourself as a professional trader, you get 60/40 (LT/ST capital gains) like for futures trading.

    Here is another article similar to yours:

    www.thefinancialwhiz.c.../

    I like Ray, he seems cool and quite thoughtful, but ETFs are blunt, expensive ways to trade currencies not matter how long your holding period.

    Best wishes,

    john
    Aug 27 23:17 pm |Rating: 0 0 |Link to Comment |View article
  • ETF Update: Pharma ETFs, Commodity ETFs, Carry Trade
    Greetings,

    You have repeated Hougan's error. DBV is leveraged 2:1. The prospectus probably should be read by "professionals.&q...

    Cheers from Osaka,
    John
    Aug 25 11:20 am |Rating: 0 0 |Link to Comment |View article
  • DBV: Unlevered Carry Trade ETF for the Masses
    My friend, you might read the prospectus. It is levered 2:1, but I agree its a nice fund.

    Cheers,
    john

    Aug 19 19:18 pm |Rating: 0 0 |Link to Comment |View article
  • Currencies: Dead Cats and Yapping Dogs
    Greeting Ray,

    Thanks for the ongoing articles about FX carry. It is amazing to see how little info there is out there for such an awesome strategy. You are about the only mainstream writer that details it.

    Also, thanks for alerting us to JEM, not sure how i missed that.

    I think that you will find JEM and DBV have strong correlation in a rising to high volatility market, so i am afraid that i don't share your diversity views with respect to regions and countries. Just compare USD/TRY and NZD/JPY over the last couple years to see what i mean. Many people look at fx carry as a trade with a risk premium because the reversals are so violent. I see FX carry collectively as being either ON or OFF.

    I also do not believe the principle moneymaking of FX carry lies in collecting interest, but then i only employ pairs with a spread >3%.

    Nonetheless, i share your enthusiasm. And look forward to more thoughts.

    Cheers from Osaka,
    john
    Aug 19 10:05 am |Rating: 0 0 |Link to Comment |View article
  • Foreign Currency Trading: Can Investors Profit From Trends?
    Mr. Swedroe,

    Thanks for your response. If markets have a risk premium then they have an inherent uptrend. And that is what buy-and-holders are exploiting. Interestingly, risk premium is generally the explanation for why carry trading is persistent.

    Cheers from osaka,
    john
    Aug 10 03:12 am |Rating: 0 0 |Link to Comment |View article
  • Bond Ladders vs. Layering with Bond Funds
    Greetings Mr. Shaw,

    You are as gentlemanly, as you are informative. Boy, ETFs come out so fast it is hard to stay abreast. I hope it sees some volume too.

    Do you have any recommendations about good bond brokers outside of Treasury Direct, say for Zero coupon bonds and corporates? There is an article on here by Larry Swedroe about the hidden mark-up on bonds in the secondary market that was a real eye-opener:
    seekingalpha.com/artic...

    Thanks. Cheers from Osaka,
    john
    Aug 10 03:07 am |Rating: 0 0 |Link to Comment |View article
  • Bond Ladders vs. Layering with Bond Funds
    Nice article, as always. I think there is a Ryan index laddered 1-30 treasury ETF, ticker PLW. This may simplify things considerably.

    cheers,
    john
    Aug 08 22:29 pm |Rating: 0 0 |Link to Comment |View article
  • A Simple Momentum System for Beating the Market
    Puddi said: "Most such systems will make some money some of the time. If any system exists that makes good money all of the time, its inventor isn’t going to be writing a book about it."

    No trading system purports to make money all of the time. In fact, you can have less than 50% winning trades and can still make money. I suggest you read up on some basic trading theory.

    Rudi said: "You didn't reveal any scientific proof because you can't."

    Ah, dude first chill and then look at his peer-reviewed published academic paper! This is one of the most documented, pervasive effects in finance and you guys act like Mr. Faber is some kinda snake-oil salesman!!

    Mebane, maybe these comments are an indicator as to why the momentum effect keeps on working....

    Cheers from Osaka,
    john
    Aug 08 00:29 am |Rating: 0 0 |Link to Comment |View article
  • Yen Cross Basics
    An easier rule might be: any carry trade with more than a 3% interest rate differential is going to have fat tails; if you can't handle this, stay out. There is an escalator up and an elevator down. Entering after, say a six month volatility spike, will increase your safety getting into the carry.

    Cheers from Osaka,
    john
    Jul 28 06:33 am |Rating: 0 0 |Link to Comment |View article

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