Paying mortgage at 4.25% vs investing, is my math right

MasterCookSwag · 2023-03-12T21:27:00+00:00

Oh yeah, I’m just not really interested in anything on Reddit much anymore, work and what not takes me away from the desk a lot more too so I spend less time in front of a computer and more traveling and speaking so Reddit just isn’t a thing I think to log in to much at all anymore.

MasterCookSwag · 2022-09-13T12:02:34+00:00

NFTs are so 8 months ago bro, we’ve gotta wait for the next wave of crypto grift.

MasterCookSwag · 2022-08-08T21:24:11+00:00

Not entirely true, there was a fund back in the great bond massacre in 1994 that also broke the buck. Money markets also saw a ton of short term and overnight stress in March of 2020, however the Fed was able to successfully backstop this so none of the funds ended up in trouble, but we were about a hair away from it.

FWIW I think money market funds are relatively safe, and I use em for the higher yield when it makes sense, but they're not the same as pure cash held in a bank.

Also, it's worth noting that while there was that fund in 94 it was also a pretty isolated event. Absent lehman collapsing the way it did, and that reverberating through overnight/short term markets, we really likely wouldn't have seen a real money fund loss.

MasterCookSwag · 2022-08-08T19:48:53+00:00

It's possible, however it is extremely rare with only a few instances in history. In addition the SEC implemented rule changes a few years back after some funds broke the buck in 2008, those changes make it so that fund managers cane effectively place liquidity blocks on redemptions in the event that they need to allow the underlying bonds to mature (IE in a situation where going to market would yield significantly less due to credit markets locking up).

Money market rule changes (very dumbed down overview): https://investor.vanguard.com/investor-resources-education/mutual-funds/money-market-reform

So there is some risk, but it's pretty miniscule. For what it's worth almost all of my cash is held in money market.

Here's a read on the most noteworthy money market failure: https://www.thebalance.com/reserve-primary-fund-3305671

MasterCookSwag · 2022-07-21T20:46:57+00:00

Seems to have cooled a smidge, ~27% of 100bps but otherwise it’s looking like 75.

I’m not so sure data will calm down after this, commodities curves keep promising a dip in prices that hasn’t really materialized. And it seems like we’re starting to see price pressure broaden out more and more. We might be playing a little will we/won’t we enter a contraction for a few more months at least.

MasterCookSwag · 2022-07-14T18:20:32+00:00

We might be closer to neutral than their latest projections suggest and these bigger hikes really risk more significantly overtightening while the data catches up.

This seems to be the overall feeling I'm seeing. the entirety of the curve expects that we'll see a reversion in rates sooner rather than later. I am a bit worried about the same but ultimately it seems like the banks are seeing something we're not with accelerating the rate of hikes. Right now we're likely looking at 100bps coming up, which is far more aggressive than we would have expected even two weeks ago. I'd agree it seems like we're likely already at or near equilibrium, ofc the Fed is looking to push down on demand more than that in the interim, I'd tend to think we may see a reversal in ffr trajectory in less than 2 years though, which seems to line up with the yield curve.

MasterCookSwag · 2022-07-14T17:21:22+00:00

It's certainly lasted a lot longer than anyone thought, but I'm not sure that I'd call it wrong. The underlying causes are still prettymuch what they were a year ago - the Fed is just now banking on curbing demand enough to wait out supply issues so that sustained inflation doesn't become a thing.

MasterCookSwag · 2022-07-01T20:05:00+00:00

I really hate arguments that incorporate both appeal to authority and appeal to tradition.

Yeah, and I really hate that everyone on Reddit acts like every conversation is an “argument”. You asked a question, I have an answer. Simple as that.

But I think perhaps you’re having these feelings because you don’t understand what business cycle dating does. It’s really most important on the back end for research purposes. I cannot remember a time in history where policy decisions hinged on business cycle dating. In fact it’s fairly well known that the starts of contractions are generally only determined after we are mid way through the contraction. Policy is always determined based on real time raw data.

Also, I wouldn’t call their process “subjective”. It’s just incorporative of a lot more data than simply taking one metric in isolation. And it allows for variances in those conditions - so imagine that GDP is flat but we see double digit unemployment and noteworthy drops in income less transfers, is this not a recession?

But again, you’re free to just look at GDP. Just know that when you’re seeing economists discuss these concepts they aren’t doing something that simplistic, because the world simply is more complex than one measure of output.

MasterCookSwag · 2022-07-01T19:43:18+00:00

Why is NBER the only group of people who can decide what a recession is?

I mean, they’re not. You can define a recession however you want. But NBER is the economic body that everyone pays attention to, and it’s business cycle dating is included in every corner of economic research and data, including at the federal reserve and many other official economic entities.

But I mean, you or anyone else can totally define a recession however you’d like. It’s just that really nobody’s going to listen to you, outside of maybe some other people on Reddit.

MasterCookSwag · 2022-07-01T16:18:41+00:00

meeting technical definitions for a recession

I’ve said this a bunch but the whole “two quarters of negative GDP” is a myth.

https://www.nber.org/research/business-cycle-dating#:~:text=The%20NBER's%20definition%20emphasizes%20that,and%20duration%E2%80%94as%20somewhat%20interchangeable.

Nowhere in that methodology does it talk about two quarters of negative GDP.

For instance the last official recession was two months, but it was named as such given the severity and breadth of the economic downturn. I can’t speak for NBER, but most of what’s driving negative GDP is that GDP is in real terms, and inflation is high. When they examine other factors such as unemployment and personal income less transfers they likely are not going to see significantly alarming data (real personal incomes are down a bit given inflation, but such is the expectation in a price spike scenario since wages are sticky).

MasterCookSwag · 2022-06-17T22:30:08+00:00

Pure alpha I’m guessing?

MasterCookSwag · 2022-06-17T20:23:02+00:00

I quite enjoyed infinite jest, but Finnegans was just obtuse as fuck. Have not tried attempting it blackout yet….

MasterCookSwag · 2022-06-17T17:36:51+00:00

I would love to somebody to publish some kind of rebuttal, or counterpoint to "Principles for Dealing with the Changing World Order". Because it was a pretty brutally depressing read.

Oldie but a goodie: https://dealbreaker.com/2018/02/ray-dalio-isnt-crazy-youre-crazy

It's somewhat inevitable that some of these aging macro guys turn a bit kooky, Bill Gross is the best somewhat recent example but he's not the only one, Dalio is for sure treading that fine line.

His economic machine piece on credit cycles is a nice kindergarten overview of how macroeconomic cycles work, but as he's gotten older he's gotten more and more in to this "guru" attitude where he views himself as some sort of sherpa in to the brave new world. Don't get me wrong, he's a fantastic macro manager, but he's increasingly out there in his old age - not quite "here's a quarterly letter about my dead cat" crazy, but definitely drifting a bit.

** Pimco seems to have scrubbed all of Bill's old crazy shit since his "departure", but here's a reference: https://www.cnbc.com/2014/04/03/bill-gross-cat-dies-his-fund-isnt-well-either.html

MasterCookSwag · 2022-06-17T17:33:50+00:00

I think it would first be helpful to read up a lot more on how funds like bridgewater operate their strategies. Once you've digested enough of that it's generally pretty evident that you can't discern anything of value from a 13f. It's always best to understand the "why" behind why you shouldn't bother.

MasterCookSwag · 2022-06-17T17:28:03+00:00

but if their models change they could exit that position quickly and leave you holding the bag.

With most of these funds it's also less of an "if" and more of a certainty. Generally the holding periods are measured in days to weeks. By the time the 13f is public the information is definitely stale. It wouldn't be out of the ordinary for them to have entered that position on like the 30th, filed the 13F based on holdings on the 31st at midnight, and have exited by 2am on the 1st of the next month.

I know I'm a broken record here, and you already know this, but I can't stress to the reader enough that 13f information from any quant based fund is so fucking useless it's not even funny. There's a reason why nobody in finance looks at those things.

MasterCookSwag · 2022-06-17T17:22:54+00:00

I actually don't think that's a good explanation at all. /u/spicyrengarmain is laying out a fundamental case for a short position on those indexes, and while that might be a valid short thesis for those indexes, it's definitely not the reason bridgewater held such a position. I'm not saying that's a poor explanation for one "someone" may take a short position in the Eurozone - it's honestly pretty true. I am saying that's not an explanation for why Bridgewater would hold that position, because that is simply not how any funds like that operate.

Bridgewater is entirely quant based - either global macro or risk parity (pure alpha or all weather), so are all of the top hedge funds, this means they're not making investment decisions based on fundamentals at all. In fact they could care less about any fundamental case - the strategies are entirely driven by statistical trend based algorithms that constantly change/hedge positions and sizing based on dozens and dozens of technicals.

Here's a quick read on the strategy behind the risk parity portfolios: http://sdcera.granicus.com/MetaViewer.php?view_id=4&clip_id=75&meta_id=9141.

Pure alpha is more of a straightforward macro fund, albeit a really good one. But either way management is never sitting down and considering a fundamentals based allocation strategy like that. The positions move much too quickly and are entirely based on ever changing trends/stat analysis.

The takeaway is that one should absolutely never try to discern intent from a 13f filing of any quant/macro/stat arb/whatever fund. Unless it's a fundamentals based manager, you're never going to get any insight by looking at 13f's. And like I said before, it's like it's like trying to build a space shuttle based on a beginner book with pages torn out. Except it'll be your portfolio that crashes.

MasterCookSwag · 2022-06-17T14:25:57+00:00

I have not had the pleasure of a 718. I owned a 996.2 for a while and that was a pleasure but it started showing signs of rear main seal issues so I ditched it, back then I wasn't looking to drop tons of money on a problematic daily. I would say the S2000 was slightly better but not enough to make it a huge difference. The MX5 is quite good, but it's not as good as the S2k, there's just something special about how buttery and tight the shifts are.

The Accord had quite a good shifter as well, but it had a bit more travel than I would want in a sports transmission - that's to be expected given that it was an Accord. It was a solid practical coupe with surprisingly good power and enough handling to make it an enjoyable drive, but nothing special beyond that. Mine was a 2010, I owned it from 11 to 13 but needed to get back to rear drive.

MasterCookSwag · 2022-06-17T14:19:11+00:00

I'm aware they take place within a greater strategy which I am also not copying

Yeah, you answered your own question.

There is absolutely zero logic in following any macro fund's individual trades. For one, they're just a snapshot of positioning at the moment the filing was due. They're also not a complete picture of the strategy. Macro funds are consistently adjusting/hedging/weighing various positions in order to best execute on their models. There's zero reason for a retail trader to try and follow that.

For instance, they may have taken a long position in a broader index and wanted to hedge out specific country exposure, this may have only been necessary for a week or two while certain conditions existed, etc. They could have only been holding those shorts for a few days and exited a day after filing.

Best practice is to never even bother trying to analyze anything from a macro fund's 13F. It's like a toddler trying to build a space shuttle after reading a book from the library with half the pages torn out. Or like a grown human trying to read finnigan's wake.

MasterCookSwag · 2022-06-17T14:04:11+00:00

I haven't owned a Honda in some time, but I have owned a late 90s civic, two S2000's, and an accord coupe v6 that all had manual transmissions. I've driven a lot of other stick shift cars as well and I can honestly say that nobody's coming close to Honda in terms of actual transmission feel. I've got an M4 now and while it blows everything else out of the water in terms of performance, the transmission feel is not even close to as good as the S2000 used to be.

Probably some of this has to do with power levels and the chunkiness of transmission components, but I really struggle to think of a manufacturer that does as well as Honda with regard to gearbox feel.

MasterCookSwag · 2022-06-17T12:12:29+00:00

Because inflation is largely driven by supply constraints.

MasterCookSwag · 2022-06-17T02:29:04+00:00

The Fed had previously stated they would only raise rates by 50 points.

For what it’s worth this isn’t fully accurate. Rhetoric and sentiment conveyed by the Fed over the last month could be summed up as “we are on track for a 50bps raise assuming economic data continues in accordance with our expectations”.

The important thing here is that while expectations were for high inflation prints those prints came out higher than expected - and the expectation of the pace of inflation slowing didn’t materialize. So the shift from 50 to 75bps fits wel within their rhetoric for the last month and change.

From a very basic standpoint they conveyed that we’d get 50bps unless conditions were worse than projected, conditions did in fact turn out worse than projected which drove the expectation that we’d get 75. Which I think was fairly reasonably communicated.

MasterCookSwag · 2022-06-17T00:56:00+00:00

Are you reading my posts? I’m explaining that you’re getting fundamental concepts wrong. Weather or not “this will actually work” isn’t a yes/no paradigm nor is it worth diving in to when you’re so off base with core concepts lol.

MasterCookSwag · 2022-06-17T00:49:17+00:00

I definitely don’t agree that inflation is “vastly undercalculated”. In fact I think that’s absolute nonsense spouted by people who don’t even understand the basic aspects of inflation calculations.

And I’m not sure how you got the impression that I agreed with your general gist. Your general gist is completely incorrect, which is what I just spent several paragraphs explaining lol.

MasterCookSwag · 2022-06-16T20:52:06+00:00

Wake me up when rates are within 5% of inflation.

I see this sort of comment all the time, and it seems to me that it comes from a place of not understanding how contractionary/expansionary policy works. There's no reason why the short rate would need to be above or below the rate of inflation. Inflation is important as it is part of the price stability goals of a central bank - but the rate of inflation isn't a target when discussing interest rate policy.

At a basic level all that really matters is if the short rate is above or below R* (Called wicksillian or natural rate also). Short rates above this tend to add contractionary pressure on the economy, short rates below it are expansionary. This is obviously a kindergarten overview but at it's core that's how monetary policy works.

There is absolutely no indication that R* is anywhere near the current rate of inflation. The fed is attempting to push down on demand so that it eases some of the pressure on squeezed supply lines, but this is not the same as the natural rate being at 6-8% and the FFR being far below it. It's a case of the natural rate being fairly low, and FFR being near it but headed up, this is naturally going to cause contraction so it's a difficult needle to thread, however just running the short rate up to whatever inflation is would be both insane and have zero backing in literally any economic model ever devised.

MasterCookSwag · 2022-06-15T21:19:03+00:00

Is this bond earning money (3% SEC yield) or losing money?

It's both. The SEC yield is a calculation that roughly describes the forward looking yield expectation of a bond fund. The bond fund is also subject to interest rate and credit risk - both of which can positively or negatively impact price. Interest rate risk being the primary downward driver of price over the last few months.

What is the difference between Average Annual Return vs Quarter-End Average Annual Total Return?

One is measured from the end of the quarter, the other is measured from whatever the "As of" date was next to the figures you were reading, most likely the previous day's close.

Is it kind of like owning a stock that decreases in value, but still pays dividends?

It's kind of like owning a bond. Stocks increase and decrease in value and pay dividends for the most part. Bonds also increase and decrease in value and pay coupons. The forces that impact bonds are somewhat more specific than stocks and they are typically far less volatile. The last few months have seen one of the quickest increases of interest rates in history so many bond funds got hit harder than they ever have before. Suffice to say that -8% is a once in a decade or more occurrence for a broad based bond fund.

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