snake_doc

As opposed to oil, battery prices are highly influenced by China’s grip on the battery value chain at least until 2030.

Just as China will influence steel and aluminum prices through central planning, battery prices are unlikely to remain higher than current peak as long as the government continues its current stance on stable prices.

For retirees, it depends. If they are in a target date fund, which most retirees are, the funds adjust their bond holding’s duration to minimize interest rate risk. The target date funds should have lowered the duration of the fixed income portfolio (ie from long dated to short dated) once they approach the target date.

The impact to short duration bond portfolios is not as drastic. A 2-year bond issued at .5% yield will lose maybe 5% in price when interest rate moves up to 3%. This is roughly what happened: https://fred.stlouisfed.org/series/DGS2

Why not use Fed’s preferred measure PCEPI for longer term aggregate inflation adjustments? CPI is not adequate for long term adjustments for a variety of reasons.

The common capital market comparison for these equity returns is against real risk-free returns. That benchmark is largely missing here.

> The private equity industry -- excluding VC, which represents a tiny share of total capital raised -- relies extensively on leveraged buyouts (LBOs), i.e., borrowing to juice returns.

In 2021, buyout was ~30% PE funds raised, VC was ~10%, growth was ~10%. “Tiny” is not true anymore. https://www.bain.com/insights/private-equity-market-in-2021-...

You’re completely ignoring the capital markets differences between public and private assets. Companies require capital to operate, capital has a cost, the cost is different depending on which capital market you fundraise from.

The size of these markets are different, their demands on returns and time horizons are different. This provides a much better variety of capital choices for companies searching for capital. If only the public equity market existed, the capital market would be very inefficient. This is microeconomics 101, increase choice/variety to most efficiently meet demand without creating deadweight loss.

The US treasury yield curve is not a predictive model.

It’s a fundamental component of the global economy. It is in the “ground truth” for market demand and supply for cash flows across time horizons, at a point in time.

“Eventually, one runs out of greater fools.”

—Burton Gordon Malkiel, “A Random Walk Down Wall Street”

It is categorically incorrect to keep referring to the policies as fraudulent.

Russian’s enacted capital controls protects the value of the ruble internally. Had they not enacted capital controls and the central bank not intervened, the Russian people’s existing ruble would depreciate much faster. These are protective measures against the effects of sanctions, with real positive benefits domestically that regular Russians enjoy.

It’s not fraudulent because domestic Russians mostly benefits from the propped up currency. Without it, domestic economics would plummet and regular Russians would face harsh economic outcomes. The central bank works hard to prevent that outcome.

Currency manipulation is not fraudulent. It is a well accepted and studied sovereign tool in monetary policy. Geopolitical dynamics may deem it unsavory, but it is a tool that is grounded in supply and demand dynamics. A failed manipulation strategy leads to a country’s default.

> It’s also fraudulent, as the article states.

That’s not what the article states, it says it’s a rate that is not accessible to most traders. ie a FX desk at a Western bank probably can’t get those rates, as it probably involves dealing with the Russian central bank by having a ruble account which is against sanctions.

There’s a difference between fraudulent pricing vs. new quoted price due to supply/demand order barriers and/or mandates.

Bloomberg cites $4B exposure for JPM.

https://www.bloomberg.com/news/articles/2022-03-18/as-tiger-...

Not too many banks do it, but it’s conservatively done, 3-6pts above risk free and at 10-20% of collateral: https://www.bloomberg.com/news/articles/2022-03-18/as-tiger-...

Usually love Connie’s writing, but this is a pretty bad headline. It’s factual, but conflating 2 facts that are not casual.

Tiger didn’t deplete their VC fund because of their hedge fund losses, that would be an incorrect understanding. The funds are insulated from another. Tiger simply deployed a lot of their VC fund already, hence depleted.

Separately , Tiger—like SoftBank— levers their VC funds, so it’ll be interesting at which point JP Morgan and other underwriters start calling in the margin if private stakes are written down.

FT direct source for hedge fund losses: Tiger Global hit by $17bn losses in tech rout https://on.ft.com/37uCacr

Please don’t be pretentious by citing a “law” dictionary on HN. Even that definition is not completely accurate under California state law.

This is a general forum, the verb “rob” can be used with other meanings more generally[1], “to deprive of something due, expected, or desired”.

[1] https://www.merriam-webster.com/dictionary/rob

I disagree, because macro view investment managers exist. Also, fixed income instruments react very predictably to macro trends. ie Ackman’s recent bet on interest rates that paid off [1]

Entire prop trade desks exist to bet on macro news like labor job reports, on many different asset types through derivatives like index futures, FX futures, etc… This is very easy to observe if you view tick data for these derivatives before and after news is released.

While macro view is less relevant on a single equity, it’s very much a proven way of investing in a variety of asset classes.

[1] https://www.institutionalinvestor.com/article/b1vl6gf18v9f5v...

Yes, absolutely right no argument there.

Intuitively, prepayment risk can be broken down into interest rate risk and default risk in its most basic terms when compared to a coupon bond. The risk relates to duration and cash flows. Early prepayments decrease duration, and decrease expected cash flows, which can be thought of in relation to interest rate risk and default risk.

I guess I prefer when complex topics are broken down back to their principal parts.

Ultimate it is the Fed’s decision though. But anyways your calculations make sense, but it all falls part if you don’t do them in real terms. Because in nominal terms, the solution to your equations is simply hyperinflation or start a new currency, a la Argentina.

Minor comment on the infinite game assumption from a game theory perspective . Stripe is clearly deviating, which means that they have made a payoff calculation that it’s better to do say despite being punished by Plaid and other players.

That’s a bit of a straw man argument. Why would the Fed want 5% nominal rates for 30+ years?

Also, the Fed mostly thinks about output and rates in real terms when thinking about the long term.

Technically it is a constraint on monetary policy. But the US is no where close to where it is a concern, and it only usually matters in countries where there is a history of sovereign debt defaults. The US treasury debt is deemed by global financial markets as risk free.

While nothing is incorrect in the explanation, it's an overtly complicated way to understand the intuition.

Mortgages are fixed income instruments. There are 2 types of mortgages, fixed rate and adjustable rate. The article focuses on fixed rates, as adjustable rate mortgages are different for a variety of reasons.

Fixed income instruments are roughly priced like this:

Yield ~= risk free rate (corresponding duration treasury rate) + interest rate risk premium + default risk premium

1. Risk free rate (=corresponding treasury rate) is going up. Fed is pushing the entire yield curve up through Fed Funds and QT, not just the short end.

2. Interest rate risk premium is going up, because it is much more uncertain (compared to 2008-2018, or 2020-2022) where risk free rate will be in 1 years from now, much less about 5 years from now. We don't know what the Fed will end up doing. To understand this risk, you have to understand the duration of an instrument[1] and incorporate the uncertainty about the risk-free rate.

3. Default risk premium is uncertain, because the question depends on whether are we going to have a recession? Recession may depend on whether the Fed can engineer a soft landing.

So yes, 30yr mortgage rates will go up, because #1 is going up, #2 is going up, and #3 is maybe going up.

[1]https://www.blackrock.com/fp/documents/understanding_duratio...

Bloomberg Terminal

In equity markets, risk is measured in volatility or the standard deviation of return. By definition a short and long position of an equity has the same volatility or standard deviation of returns. You may be using the term risk colloquially, but your understanding of leverage under a short sale is also misguided. If you short a stock and have cash to cover, you don’t need leverage. If you short a stock and the position is in the black, you don’t need leverage. You only need leverage if your short position is in the net negative. Yes, you may have to pay borrowing costs for the stock, but that’s just normally known as transaction costs. Until you require leverage to keep the short position open when it’s net negative or you used the cash proceeds, you are not leveraged.

If your goal is to manage the maximum loss from a short position, it’s much easier to short the stock and buy a protective put. This gives you perfect exposure to your bet, while allowing you to manage your loss exactly.

The time component is always implicit in both a vanilla short position or a synthetic option-based short. It's just easier to "see" in vanilla options, because it's priced in explictly. If you don't want to pay the cost up front by using long-dated options, just buy short-dated ones and roll them. The costs are likely similar as long as you construct the synthetic short position correctly.

https://en.wikipedia.org/wiki/Put–call_parity

i.e. When you short a vanilla equity, you'll likely have transaction cost of borrowing the stock as an interest rate over time. This cost is incurred as you keep the position open. This cost is related to the cost of capital for the shares you've borrowed. Cost of capital is an implicit cost on time.

To construct a synthetic short (using options/bonds), you basically short a synthetic equity. A synthetic equity can be constructed through a long call position, short put position, and long bond position. This synthetic will mostly replicate the the stock's return. To turn it into a synthetic short, you just do the reverse, short a call, long a put, and short a bond.

In many ways, compared to a vanilla short position or a synthetic short via derivatives, you are implicitly accepting higher risk to “short” via this manner. This is generally a bad idea as it’s hard enough to arbitrage the same equity on different exchanges[1]. Now imagine trying locate perfect negative substitutes for an equity…

[1] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=525282

Many products are made inferior/worse for the purposes of price discrimination. Inkjet printers, lap tops, Tesla vehicles, etc…

Remember that Tesla can just send a OTA update to remove artificial software limits on the same battery capacity during disasters (Model S and X with the same battery capacity).

Some of economists may argue the Visa/Mastercard duopoly in the EU is a collusive monopoly position that hurts merchants and consumers.

You can use the NFC chip, just dissemble your phone and remove it and create your own circuit board to use it. Who is stopping you? Oh, you want to use it on iOS? Well that’s an entirely new complaint…

Imagine if an user of a Visa credit card must be allowed to use the same magnetic stripe on the Mastercard network. Do you support that? How is Apple doing anything different?

It's not as simple as looking at the stock of outstanding shares to determine issuance, as it's a net figure.

In terms of new issuance, FB spends billions in stock based compensation each year since 2012, all of these are new issuance under the equity incentive plan. It was ~$9.164B for FY2021 alone.

In terms of buybacks, FB started buying back stocks in 2017 and has continued since. In FY2021, they spent ~$55.47B to buy back stocks.

Therefore, outstanding shares have been decreasing since around 2020. But this doesn't mean the company stops issuing shares. The more stock prices fall, the more equity they would need to issue to compete for talent, or alternatively supplement with cash. Long term, stock prices is one of many measures of how the company would be able to raise capital (stock based compensation is an indirect way of raising capital).

Data from Bloomberg: https://postimg.cc/Lq0sNCJV

The interaction between capital and savings from an aging population is critical, as it delays the impact of population decline on output growth.

Japan is an excellent case of when labor population has declined/stagnated since 1990s.