Clippings 2016

Recommended reading, economic debates, predictions and opinions.
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NormR
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Re: Clippings 2016

Post by NormR »

longinvest wrote:Finiki's Variable Percentage Withdrawal (VPW).
Btw, who made / is responsible for the spreadsheet?
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Shakespeare
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Re: Clippings 2016

Post by Shakespeare »

NormR wrote:
longinvest wrote:Finiki's Variable Percentage Withdrawal (VPW).
Btw, who made / is responsible for the spreadsheet?
http://www.finiki.org/w/index.php?title ... on=history
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Re: Clippings 2016

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NormR wrote:Btw, I got the article from Moshe A. Milevsky's twitter. So, follow both @RetirementQuant and @NormanRothery and pay attention to Prof Milevsky's objections.
Your twitter links are both to yourself, you narcissist: I think you meant https://twitter.com/RetirementQuant
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Re: Clippings 2016

Post by longinvest »

Descartes wrote:I think you meant https://twitter.com/RetirementQuant
Those tweets are protected; I can't see them. :(
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NormR
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Re: Clippings 2016

Post by NormR »

Descartes wrote:
NormR wrote:Btw, I got the article from Moshe A. Milevsky's twitter. So, follow both @RetirementQuant and @NormanRothery and pay attention to Prof Milevsky's objections.
Your twitter links are both to yourself, you narcissist: I think you meant https://twitter.com/RetirementQuant
LOL, oops, corrected. :)
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Re: Clippings 2016

Post by like_to_retire »

longinvest wrote:Those tweets are protected; I can't see them. :(
Yeah, same here. Maybe because I don't have a Twitter account.

"This account's Tweets are protected.
Only confirmed followers have access to @RetirementQuant's Tweets.."


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adrian2
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Re: Clippings 2016

Post by adrian2 »

Shakespeare wrote:
NormR wrote:
longinvest wrote:Finiki's Variable Percentage Withdrawal (VPW).
Btw, who made / is responsible for the spreadsheet?
http://www.finiki.org/w/index.php?title ... on=history
The short answer is longinvest.
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Re: Clippings 2016

Post by longinvest »

adrian2 wrote:
Shakespeare wrote:
NormR wrote: Btw, who made / is responsible for the spreadsheet?
http://www.finiki.org/w/index.php?title ... on=history
The short answer is longinvest.
While I'll admit having taken the lead on developing VPW, there were many contributions, by Bogleheads members, for ideas (like automatically adapting to one's asset allocation), presentation (with much help from LadyGeek with the spreadsheet and wiki texts), and simplicity. It's LadyGeek who created the Finiki page in May 2014.

The whole VPW idea was inspired from post-age-70 RRIF minimum withdrawal rules. What distinguishes it is that:
  • the last withdrawal age is configurable (in the spreadsheet version) and defaults to age 99, and
  • the withdrawal percentages are set according to the portfolio's asset allocation.
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Re: Clippings 2016

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And a heartfelt thank you to all of you.

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ghariton
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Re: Clippings 2016

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Value of negative-yielding bonds hits $13.4 trillion (USD):
The value of negative-yielding bonds swelled to $13.4tn this week, as negative interest rates and central bank bond buying ripple through the debt market.

The universe of sub-zero yielding debt — primarily government bonds in Europe and Japan but also a mounting number of highly-rated corporate bonds — has grown from $13.1tn last week, according to figures compiled by Tradeweb for the Financial Times.
I wonder how pension funds and insurers ae dealing with this,

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Re: Clippings 2016

Post by brucecohen »

ghariton wrote: I wonder how pension funds and insurers ae dealing with this,
A few weeks ago a bond fund manager told NPR that institutions intend to actively trade negative-yield bonds, not hold them long term.
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Re: Clippings 2016

Post by longinvest »

brucecohen wrote:
ghariton wrote: I wonder how pension funds and insurers ae dealing with this,
A few weeks ago a bond fund manager told NPR that institutions intend to actively trade negative-yield bonds, not hold them long term.
They want to play musical chairs with them. Interesting.
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Re: Clippings 2016

Post by AltaRed »

Is that musical chairs or re-arranging those on the Titanic?
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Re: Clippings 2016

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Its ok I am sure they can create some complex derivatives that nobody understands that will sell well.
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Market Timing

Post by Park »

This is from a 2010 morningstar interview. It's a comment from Frank Kinniry of Vanguard on market timing:

http://www.morningstar.com/cover/videoc ... ?id=353908

"Kinniry: We've looked at it, long and hard. And actually, we have a real reason to look at this and spend a lot of time looking at it, and really the only thing we've found that has some merit is at the stock/bond mix, meaning we don't see a lot between U.S. and international or growth and value or size, but we do see some ability of tactical allocation in the extremes and really the extremes are limited periods in time where this occurs. So, 1998-1999, when you saw a valuations at unprecedented levels, one could have said the equity market was set up for potentially lower returns, and in 2009, believe it or not, at the bottom, the equity market looked about as attractive as it had in 20 to 25-plus years.

And so there is a lot of noise in the middle, but there are some small windows in time where the stock/bond mix, you may want to shade, and we would say only small shades if you were 60/40 stock/bonds, maybe it would go up 5% or 10% in your equities or down 5% or 10%, but really never making wholesale moves.

Benz: And arguably a rebalancing strategy would kind of get you there.

Kinniry: Absolutely, a rebalancing strategy is probably the best way to take advantage of some of these opportunities without making wholesale changes; that's exactly right."
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Re: Market Timing

Post by Flaccidsteele »

So, 1998-1999, when you saw a valuations at unprecedented levels, one could have said the equity market was set up for potentially lower returns, and in 2009, believe it or not, at the bottom, the equity market looked about as attractive as it had in 20 to 25-plus years.
...maybe it would go up 5% or 10% in your equities or down 5% or 10%, but really never making wholesale moves...a rebalancing strategy is probably the best way to take advantage of some of these opportunities...
Rebalancing once every 10 years to capture a 5% or perhaps 10% "opportunity" in a given year. I could agree with that. Personally I would just park it and forget it. But I'm not very hard working.
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Re: Clippings 2016

Post by squid »

longinvest wrote: They want to play musical chairs with them. Interesting.
Actually, literally, no interest at all! :D
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The Yield Curve For Novice Investors

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https://www.thestreet.com/story/823419/ ... tocks.html

"short end of the yield curve reflects the interest rate set by the Fed, since the three-month-bill yield, though a market yield, is normally in the same neighborhood as the fed funds rate...Of course, the steepness of the yield curve also depends on the yield of the 10-year note, which is set by the market. But the short end of the curve is the primary determinant of its slope. In other words, the curve steepens mainly because the Fed is lowering the fed funds rate, and it flattens mainly because the Fed is raising the fed funds rate...

generally speaking, stocks do better with a moderately positive or fairly steep yield curve, relative to the long-term average of 200 basis points..

an investor would have done well to buy growth stocks when the yield curve became flat (crossing under 200 basis points) and value stocks when the curve became steep (crossing over 200 basis points). "Value stocks do better when inflation is expected to rise and the economy's expected to get stronger, because earnings pick up," he explains. "Growth stocks do better when the economy is soft, either in recession or slowing, and inflation is low, because the companies with pricing power tend to be growth stocks rather than economically sensitive value stocks.""
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Buy With Mortgage Versus Renting

Post by Park »

http://www.obliviousinvestor.com/impute ... purchases/

Above is the best link I've found, as to whether one should rent housing versus buying it with a mortgage. Below are excerpts from the link.

Expected Return = D + G – C, where

D = imputed rental dividend,
G = inflation-adjusted growth in home value, and
C = costs (insurance, property taxes, and maintenance)

The imputed rental dividend is the payoff from buying the home that comes from not having to pay rent...for example, if a home had a $180,000 price and it replaced a $1,000 monthly rent bill, its imputed rental dividend would be 6.67% annually. ($12,000 ÷ $180,000.)

assume property taxes, insurance, and maintenance total approximately 3% of the home’s value each year

Historically, inflation-adjusted home prices have increased at a rate of approximately 1% annually

expected Rate of Return = 6.67% + 1% — 3% = 4.67%

imputed rental dividend is tax free, as is the capital gain resulting from the sale of a home...4.67% expected annual return is an after-tax return

the home purchase only makes sense if our prospective home buyer can take out a mortgage with an after-inflation interest rate of below 4.67%.

Inflation-Adjusted Interest Rate = Interest Rate – Rate of Inflation

you have to use the rent which you otherwise are going to pay if you don’t buy a home, not what the home would rent for. People usually buy a larger or nicer place than what they would rent. If your alternative to buying a home is to stay in the current rental, you should use that rent as the rent savings number.

If a home is selling for 20 or 25 times its annual rental value, it’s going to be quite difficult to earn a worthwhile rate of return.
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Re: Clippings 2016

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Intersting article in the Economist (Aug 20th, 2016) on the american mortgage market and the US govt's current role in it:

Comradely capitalism - How America accidentally nationalised its mortgage market
The supply of mortgages in America has an air of distinctly socialist command-and-control about it. Some 65-80% of all new home loans are repackaged by organs of the state. The structure of these loans, their volume and the risks they entail are controlled not by markets but by administrative fiat.

No one is keen to make transparent the subsidies and dangers involved, the risks of which are in effect borne by taxpayers. But an analysis by The Economist suggests that the subsidy for housing debt is running at about $150 billion a year, or roughly 1% of GDP. A crisis as bad as last time would cost taxpayers 2-4% of GDP, not far off the bail-out of the banks in 2008-12.

America’s housing system has always been unusual. In most countries banks minimise their risk by offering short-term or floating-rate mortgages. American borrowers get a better deal: cheap 30-year fixed-rate mortgages that can be repaid early free. These generous terms are made possible by the support of a housing-finance machine that funnels cheap credit to homeowners and, in doing so, takes on the risk, thereby shielding both the borrowers and the investors.
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Re: Clippings 2016

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Climate change could be profitable: Hydro-Quebec CEO
... Martel said that sometime around 2050 rainfall is expected to increase in Quebec, especially in the northern region of the province where the utility has its main dams...
http://www.cjad.com/cjad-news-quebec-be ... quebec-ceo

Predicting rain 34 years out? I wouldn't bet the farm on it.
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Re: Buy With Mortgage Versus Renting

Post by Flaccidsteele »

Park wrote:If a home is selling for 20 or 25 times its annual rental value, it’s going to be quite difficult to earn a worthwhile rate of return.
Sadly this isn't common sense.
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Uses Of Options For Investors

Post by Park »

I spent some time learning about options, and came to the conclusion that their uses were limited for me. Yes, selling options can generate income. But selling stock to generate income is usually cheaper and more tax efficient. Options can be used to manage risk. But they're expensive and last at best for 3 years; commonly, they're much shorter than that. Any money that I have invested in stocks is designed with more than a 3 years time horizon in mind. Finally, one can use options to speculate. Options are versatile: you can bet on the market going up, down or sideways. You can also make a bet on volatility. When you buy the option, your risk is limited to the cost of the option, and that's an advantage. If you're confident on your bet, options allow one to make a very precise bet. But once again, options are expensive and with their time frame, are more for the trader than the investor. To speculate successfully with options, you have to get the direction, timing and magnitude of the bet right. That's not easy.

For an investor like myself, I did find one use of options. They're one of the few ways to obtain leverage in a tax advantaged account; that's with deep in the money calls. But when one looks at the effective interest rate on deep in the money calls, the only options that made sense were on SPY. And at the present valuation of the S&P500, I don't want to buy call options on SPY.

http://www.theglobeandmail.com/report-o ... e20424020/

The above link is a Globe and Mail article by Tim Cestnick. The article discusses options as a tax planning method. Assume you own a stock with a large unrealized capital gains. You're concerned that the stock may decline in value, but you'd like to defer paying the cap gains tax on a sale. Buy a put that expires in January of next year. That will protect you from a decline until the next taxation year. So you can defer paying taxes for a year. Also, Tim Cestnick mentions that tax brackets and tax credits may be indexed to inflation. So your tax next year may be less. The article was published in 2005, and I don't know if indexation is still in effect. The tax deferral and tax savings has to outweigh the cost of the option.

Any other uses of options for investors, as opposed to traders?
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Re: Uses Of Options For Investors

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Park wrote: Any other uses of options for investors, as opposed to traders?
If you are willing to own the stock as a long term hold, you can sell put options.
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Re: Uses Of Options For Investors

Post by Park »

deaddog wrote:
Park wrote: Any other uses of options for investors, as opposed to traders?
If you are willing to own the stock as a long term hold, you can sell put options.
http://www.forbes.com/sites/baldwin/201 ... 5f322478ca

The above link discusses selling put options, and mentions that Warren Buffett does it. Looks like a good way to generate income. But I stlll think that DIY dividends for me is cheaper and more tax efficient.

P.S. About paying for the put used for tax planning purposes, one could use a collar strategy.
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