Broken Pie Chart: Recent Episodes
Derek Moore
The Broken Pie Chart Podcast offers fresh looks at investment portfolio management, economics, markets, retirement planning, and more by simplifying and explaining important aspects of financial markets and the economy in easy to understand ways.
Derek Moore examines markets around historical geopolitical events. Plus, the 2020s are trending to be the most volatile decade and by the way we are up over 80% so far. Then, looking at the pop in gold and crude oil this week and perspective on where those markets are. Plus, a contrarian take that housing is actually cheap. Later talking semiconductor stocks, the US dollar index, inflation, and useless sentiment surveys.
1-year forward inflation expectations U-Michigan survey
Sentiment gets better
Gold breaks out of its most recent range while crude oil breaks back into its prior range
US Dollar bearishness is the prevailing opinion so is it too crowded of a view?
Semiconductors 40%+ off the bottom but still sideways since their all-time high in July 2024
Markets 1-year later after geopolitical events
Will the 2020s have the most 1% +/- days ever?
S&P 500 Index earnings expectations forward 12 months update
Price per square foot US Housing National average
Is housing cheap when considering adjustments for inflation and average square footage?
Mentioned in this Episode
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore looks at how companies in the S&P 500 are not correlated while the equal weighted S&P 500 is correlated closely with the weighted S&P 500 Index. Later, looking at historical rolling 10-year returns in the market and why it’s rare to have periods that are negative over longer time frames. Plus, touching on single stock risk a la Elon Musk, Tesla, and Trump public news hurts Tesla shares. Oh, and we are only 2.4% below the old all-time high.
S&P 500 Index now only 2.4% from a new all-time high
Market Breadth definition and how its narrowing currently
Mag 7 performance dispersion
Elon vs Trump
Rolling 10-year returns in the S&P 500 Index
Single stock risk vs diversified indexes
Mentioned in this Episode
ZEGA Concentrated stock and white paper on Concentrated Stock Hedging https://zegainvestments.com/products/concentrated-stock
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore explains how what sometimes seems obvious isn’t what happens as we can see with inflation numbers that continue to move lower despite consumer sentiment surveys expecting 6.6% inflation in the next year. Plus, NVDA had its earnings and the stock’ forward PE is lower due to the next 12-month analyst estimates being near all-time highs. Plus, sell in May would have been a mistake as markets recovered and are now back to within several percent of all-time highs.
PCE Inflation vs CPI Inflation
NVDA forward PE ratio and earnings EPS estimates
Calendar Spreads vs Diagonal spreads explained
Inflation continues to be lower
University of Michigan consumer sentiment survey says 1-year inflation 6.6%
Atlanta FED GDP Now
EconPi
Mentioned in this Episode
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore talks about seeing stories of exploding 30-year yields but what if they are low compared to historical relationships between the fed funds rate? Then, looking at how correlated the 60/40 portfolio has been over the last 5 years begging the question, did it do anything for investors? Later, looking at NVidia implied volatility ahead of its big earnings release this week to see what the options market is pricing in for a potential one standard deviation move? All this and more this week.
S&P 500 Index net profit margins expected next 12 months
The US Dollar index breaks below its trendline
Nvidia earnings and the options market
Forecasting expected 1-standard deviation moves using implied volatility
Correlations between the S&P 500 Index and the 60/40 portfolio last 5 years
Historical average of the spread between the 30 Year Treasury and the Fed Funds Rate
Should the 30-year treasury yield be higher?
Japan bond yields normalize reaching highest levels going back to 2007
Mentioned in this Episode
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore reflects on market reaction to the 2011 US debt downgrade and explains what S&P, Fitch, and Moody’s have for ratings. Plus, are markets poised for more positive returns based on several indicators? The bear case against the markets would be a reduction in profit margins. Later, Derek reviews some data of future 12-month returns when consumer confidence is low as a contrarian indicator. Finally, looking at several current indicators and random musing in markets for clues about the future. All that and more this week.
S&P 500 Index net profit margins for Q1 2025
Consumer confidence and consumer sentiment are low but is that a good thing?
Looking at how often intra year lows on average are -14% but often markets end higher
12-month inflation expectations are now 7.3% highest since 1981
Hard vs soft data
Velocity of M2 Money Stock
What has been working asset class wise in 2025 YTD
15 biggest rallies since 1950 and subsequent forward total returns
Atlanta Fed GDP Now
Investment banks starting to reduce recession probabilities
Attribution of earnings EPS growth
DeGraaf and Zweig Breadth Thrusts occurring within 1 month of each other
Explaining the difference between Moodys, Fitch, and S&P bond ratings
Moodys downgrades US Debt
Mentioned in this Episode
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore discusses whether MSTR MicroStrategy will wind up in the S&P 500 Index and do we want that given it just holds bitcoin with some ratio between its intrinsic value and the MSTR market cap. Plus, where to look for upcoming prospects for the S&P 500 Index and why the index is actively not passively managed and changes can drive earnings growth. Later, Derek talks through what the Fed did (nothing) and whether they are wrong or not to keep rates steady.
MSTR MicroStrategy potential to join the S&P 500 Index?
Requirements for a company to enter the S&P 500 Index
Why companies entering and leaving helps the long-term growth of the index
Where to look for emerging candidates to enter the S&P 500 Index
Vanguard Extended Market ETF
Should the Fed have lowered rates?
What is the Trueflation index?
CPI inflation for April released this week
Cleveland Fed Inflation Nowcast
Trueflation vs CPI Inflation
Mentioned in this Episode
Cleveland Fed Inflation Nowcast https://www.clevelandfed.org/indicators-and-data/inflation-nowcasting
Sam Ro article on S&P 500 Index company turnover https://www.tker.co/p/s-and-p-500-turnover-goldman-sachs-forecast?utm_source=substack&utm_medium=email
Vanguards Extended Market ETF https://investor.vanguard.com/investment-products/etfs/profile/vxf#portfolio-composition
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore talks through what caused the negative GDP number and compares it to 2022 Q1’s more negative print. Hint, it’s those darn imports and exports. Should you sell in May and go away? Plus, whether the Fed may do anything at the May meeting. Unemployment was ok while inflation hasn’t gone back up so why won’t they cut? What happens 1-year later after an almost bear market (less than -20% drawdown)? All that plus some volatility talk.
Components of GDP
Net exports calculation
When markets have a near bear market how much on average is the market higher 1-year later?
What is an almost bear market?
Unemployment review after Friday’s release
Will the Fed cut rates at the May meeting?
Scott Bessent says the 2-year treasury is telling the Fed to cut
Comparing various CPI inflation rates in March
AAII investors still mega bearish
Barrons polls market people who are most bearish in 30 years
Is the Barrons cover a contrarian signal?
Why the Fed didn’t end inflation in 2022, and their rate increases didn’t do anything
Sell in May and go away?
Best historical time periods for returns
Mentioned in this Episode
Scott Bessent US Treasury Secretary says the Fed needs to cut https://finance.yahoo.com/news/treasury-secretary-scott-bessent-says-225359048.html
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore goes through how markets have bottomed (maybe?) and are now up 10% since then. All the while investment banks have now started moving their 2025 year end targets down. The bear case on corporate net profit margins (and bull case). Plus, how max bearishness against US equities at market lows may have been a contrarian signal. With more earnings this week, Apple’s implied volatility is forecasting what as an expected 1 standard deviation move. Keeping perspective on the markets as the media talks about ends of eras and more.
Apple earnings implied volatility
What is the implied volatility expected earnings move for Apple
FMS manager survey shows fund managers were max bearish near recent bottom
Distance off the low is now +10% after being down -18.90%
All that said, the S&P is down -10% off the all-time high
Investment banks start downgrading their year end S&P 500 Index targets
Bear case for housing due to high mortgage rates
Earnings have been good so far but what about the future?
Comparing mortgage payments at low vs 7% rates
Sentiment and VIX readings near contrarian lows like prior periods
Container shipping container rates are down and that is not inflationary
Container shipping volume and capacity are all down
Mentioned in this Episode
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore talks about airport business as a sign or lack thereof of recessions. Gold makes another all-time high while the safety trade like treasuries and the US dollar aren’t working lately. Plus, looking at typical widening of high yield spreads during recessions compared to today. Later, the VIX Index is still not appropriately pricing in historical volatility given the moves again this week in equity markets. Also, surveys of economists are up to 45% probability of recession in the next 12 months although short of the 60%+ probability in late 2022 and early 2023 so why should we even consider them? Finally, how fund managers were overly long US Equities in December but now after the selloff they are saying they may reduce US equities. A little late no and how even professionals may react, panic, or be influenced by prevailing sentiment.
Gold all-time high
US Dollar and US Treasuries get correlated with US equities and weren’t the safe havens
The airport crowdedness indicator of recessions?
Fundamental EPS estimates are down a little but not much so far so what are they waiting for?
Big earnings week including Tesla and Google (Alphabet)
Fund manager surveys show they were overly long US equities before the selloff
Fund manager surveys also show as equities are in drawdown, they are thinking of selling
High Yield spreads not showing recession levels of widening currently
Typical high yield spread during recessions is 1000 basis points plus
How economists tend to crowd together in their predicting recessions
VIX Index implied volatility (expected) vs actual volatility (historical)
Mentioned in this Episode
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore reviews the surge in bond yields, and why the VIX Index should have been 100-125 this week as there is a mismatch between expected volatility and realized volatility. Earnings season begins but will analysts start downgrading their S&P 500 Index forecast? Why does the market often bottom out ahead of whatever reason its scared happens. Plus, believe it or not over the past 10 days Bitcoin’s historical volatility is the same as SPY. All this and more this week.
Bitcoin volatility vs SPY volatility
Did the market bottom this week?
Comparing volatility in March 2020 to tariff selloff today
Context on how much market moved in a day to a normal year
Intraday move was literally 2 ½ hours for a market to move 9%
Biggest up days cluster around the biggest down days
Bond yields surging is a problem
Treasury Secretary Scott Bessen gets when tariffs are paused for 90 days
The VIX Index wasn’t pricing the crazy daily moves we’ve seen in markets
Why investors shouldn’t panic sell
Mentioned in this Episode
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore is joined by Mike Puck to compare this selloff to others like 2020, 1998, 2015, 2000 and more. Then they talk about how the Trump administration is arriving at their tariff percentages. Later, they discus how the market didn’t price in the eventual announcement. How things like the VIX Index and the High Yield Bond spread Thursday weren’t high enough. Did the market miscalculate the tariff announcement? What is the sentiment among advisors and investors from what we are hearing and are we at max panic yet plus the continued case for hedging.
When do we reach capitulation?
The market is cheaper so will people step in and buy?
The problem analysts have in making forecasts given the tariff landscape
Explaining implied volatility vs historical volatility
Why was the VIX higher after the first bad day Thursday
Discussing how a VIX closes at 45 is significant
Remembering sentiment at different inflection points in the market like 2020, 2015 2000 etc
Markets are back to where they were in August when the Yen Carry trade unwound
Why investors shouldn’t panic
The case for using hedged equity strategies
What does a bottom look like?
Market is much cheaper on a forward valuation basis
What are the economic risks?
Unemployment was fine and the economy was adding jobs so what’s the problem?
Atlanta Fed GDP Update
Mentioned in this Episode
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore reviews two paths for market post -10% correction with and without
a recession. Plus, talking through the difference between expectations miss vs the
actual data through the lens of YoY PCE Core Inflation. Later, confidence in the
stock market plummeted. Oh, and like clockwork, the first investment bank
lowered its year end S&P 500 Index price target and 12-month forward earnings
outlook. Are more coming? And what is going on with the Atlanta Fed GDP now
model? Tune in for this and more this week.
Recession or not in next year may determine market returns from here
Inflation Head Fake but everyone worries
S&P 500 Index Year End Target Update as Barclays lowers EPS and price targets
1 YR Stock Market Expectations Plummet over the last 2 months, largest in 40 years
Implied Volatility pointing to 1.5% 1 standard deviation daily moves in S&P 500
Market sentiment is in the dumpster but is it too much given where markets are?
Markets got back down to over -9% pullback from all-time high
Mentioned in this Episode
Atlanta Fed GDP Now Model https://www.atlantafed.org/cqer/research/gdpnow#Tab1
ECON PI http://econpi.com/index.php
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore is back to discuss markets, volatility, and the economy through the prism of intra year drawdowns, Spot VIX vs Vix Futures prices, and LEI or Leading Economic Indicator. Why are the Fed’s Dot Plots useless (still). Thoughts on the idea that Buffered strategies don’t beat the market. How different markets have performed since the first Fed rate cut in September and much more.
Since September Rate Cut Mag 7 vs SPX vs Equal Weight
Intra Year Drawdowns vs full year return
Comments on AQR post on Buffered funds
VIX Index vs VIX Futures in the coming months
AAII Bull Bear Spreads says way bearish still
Fed dot plots
Fed Funds Futures rate expectations
Multiple Contraction is the reason for the drawdown not a reduction in earnings estimates
LEI Leading Economic Indicator
Mentioned in this Episode
Conference Board Leading Economic Indicator https://www.conference-board.org/topics/us-leading-indicators#:~:text=Using%20the%20Composite%20Indexes:%20The%20Leading%20Economic,economy%20is%20heading%20in%20the%20near%20term.&text=The%20CEI's%20four%20component%20indicators%E2%80%94payroll%20employment%2C%20personal,used%20to%20determine%20recessions%20in%20the%20US.
CME Fed watch Tool https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
Federal Reserve Dot Plots Summary of Economic Projections March 2025 https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20250319.pdf
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore is back to break down the wild week including Nvidia rallying when against the bearish tide. How the US Dollar index pulling back might be bullish for earnings. Plus, have we reached max panic and max bearishness setting up for a near term bottom in markets? Later, looking at the Fear and Greed Index, the VIX Inversion and what that means for markets, and why people are now bullish or bearish based on politics. All that and more!
Fear and Greed Index
Drawdowns vs full year market performance
US Dollar index
US Trade Weighed Dollar Index
University of Michigan Sentiment Indicator Republicans vs Democrats
Nvidia was up close to 8% last week
Micron earnings through Implied Volatility Readings
Long Straddle cost before earnings
VIX Futures curve inversion
Mentioned in this Episode
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore is back together with Jay Pestrichelli this week to react to the market turmoil. What is going on and is this just a revaluation or something worse? Plus, now the Fed Funds’ futures indicate 3 rate cuts. Looking at the Mag 7 selloff compared to the rest of the market. Unemployment was fine so what’s the big deal? Later, looking at whether the options market via the implied volatility readings is pricing in more, less, or just right actual historical volatility. They even take a listener question and read a sad email from an avid listener who is boycotting the show. We hope they come back but this week we dig into everything markets and provide some historical context and whether there are bullish signs.
Peter Lynch on corrections from 1994
Comparing this drawdown to all the others since 2009
Why investors shouldn’t panic
Reminding everyone why it’s good to be hedged to ease your mind around corrections
What are options markets saying via the implied volatility levels and the Vix Index
Comparing 10 Day implied volatility on SPY options vs 90 Day implied volatility
The S&P 500 Index forward PE ration vs earnings estimates
Nvidia bear market territory despite earnings beats and falling Forward PE ratio
Washington DC new unemployment claims in perspective
The unemployment rate of 4.1 percent threads the needle
3 Fed Rate cuts now priced in 2025?
Value of hedging your portfolio
High yield has held up ok so far compared to the equity market
Earnings estimates are still higher, but will analysts cut them due to tariffs?
Uncertainty of Tariffs
Why the Atlanta Fed GDP Nowcast went negative
Balance of trade on exports minus imports due to tariffs gets really wide
Trade deficit expands
Mentioned in this Episode
Peter Lynch 1994 video talking about corrections in markets frequency https://zegainvestments.com/blog/for-investors-worried-about-market-corrections-this-is-why-you-hedge-so-that-you-can-worry-less
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Derek Moore goes through last week’s pullback and Nvidia’s post earnings move. Then, looking at the AAII survey where investors got really bearish. Later, he looks at how the Mag 7 hasn’t made a new high since December but other things have. The yields are dropping at the same time forward PE ratios are lower after a slight increase in forward earnings expectations and the market dropping down.
Nvidia kills earnings but sells off proving investing is hard
Treasury yields ease
Mag 7 vs the total world stock market ETFs
Forward PE levels drop as markets retrace while earnings estimates rise
US Effective Tariff Rate impact of various potential tariffs according to Goldman Sachs
AAII survey goes full bear but is it justified compared to prior periods?
Broadcom earnings and what the implied volatility suggests a 1 standard deviation move is
Did the options market get the post earnings Nvidia move correct?
Mentioned in this Episode
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore and Mike Puck talk about the resurgence of international stocks against the US. Plus, how the rest of the market has a similar performance to the Mag 7, indicating a broadening out of stocks in the S&P 500 Index. Later, they discuss what markets historically have done after being up in January and February. Profit margins are rising outside the Mag 7 names and looking at the expected Nvidia move around earnings based upon the implied volatility levels.
S&P 500 Index 493 vs the Mag 7 year to date
International stocks including emerging markets and developed markets shine against the US
Profit margins continue to rise across the entire S&P 500 Index
RSP vs SPY vs EEM vs EFA year to date performance relative to one another
Average performance since 1950 for the S&P 500 Index after being up January and February
Nvidia options before next week’s earnings announcement
Calculate expected moves in Nvidia based on implied volatility
Pricing the long straddle and short straddle on Nvidia pre-earnings
Mentioned in this Episode
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore revisits the 1994-95 interest rate and market environment against the current backdrop regarding treasury yields and future S&P 500 Index returns. Plus, going through the case for higher for longer, whether that is good or bad for markets, and the adjustment the market would need to go through. Later, quantifying how sensitive the S&P 500 Index is to change in the forward PE ratio by putting into actual numbers and levels. Also, looking at Arista Networks and Alibaba before earnings and what the options market is saying their expected one standard deviation moves might be up or down. Finally, most people look at Real Inflation adjusted GDP, but Nominal GDP growth may be correlated to the 10-year yield and what that means if we go back to pre-GFC nominal growth rates. All this and more.
What is Nominal GDP Growth Rate?
What is Real GDP growth?
The US Dollar index and whether we are out of the zone of significance yet?
Inflation in services remains sticky
Why interest rates staying higher isn’t necessarily a problem for the stock market
Quantifying sensitivity of the S&P 500 Index to small changes in the forward PE multiple
1994-95 vs 2024-25 update around treasury yields, S&P 500 returns
Alibaba and Arista earnings this week and their option implied moves
How to calculate expected move around earnings based on implied volatility levels
Mentioned in this Episode
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Jay Pestrichelli is back with Derek Moore to react to the unemployment report. Was it good or bad for the markets and why? Plus, they review the last trade and tariff war from 2017-2018 and how the market actually did pretty well. Later, the latest survey on forward inflation expectations is now over 5%. Finally, they compare MicroStrategy’s implied volatility to Blackrock’s IBIT ETF and whether the options market is undervaluing MSTR’s IV. All that and more this week.
Markets performance back in 2017-2018 when tariffs were enacted
Inflation expectations shoot up due to tariffs
Stock market performance during the 2017-2018 trade and tariff war
MicroStrategy implied volatility
Comparing MicroStrategy volatility to Blackrock’s IBIT Bitcoin ETF
Looking at the breakeven on a long MSTR straddle and the risks
Reviewing the unemployment report
Will unemployment go down due to new government strategic focus?
AI mentions on S&P 500 earnings calls
83% of mortgage holders have an interest rate below 6%
US Non-Farm Payrolls consecutive positive months
BLS forgot to fill in the monthly change on unemployment report?
Mentioned in this Episode
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore previews Palantir, Amazon, and Google earnings implied volatility expectations based on the option market. Plus, how currency movements may or may not mute new tariffs. Later, Derek answers a listener question on why mortgage rates (and bonds) have a spread between their rate and the 10 Year Treasury yield. Plus, digging into new data that shows analysts producing earnings estimates on the S&P 500 Index are pretty accurate as it turns out. Finally, what is market fragility and are we in a fragility period right now?
What is market fragility?
Analyst estimates vs actuals show analysts might know what they are doing
30-year mortgage rates vs the 10-year treasury
Why is there a spread above treasuries
What is reinvestment risk on mortgage bonds?
Tariffs impact on markets
How currency moves on the Canadian Dollar, Mexican Peso, and Chinese Yuan may blunt tariffs
Will tariffs cause more onshoring and manufacturing in the US?
Sentiment was tariffs would be used as a threat, then they’ll be short lived, so now what?
Mentioned in this Episode
Analysts are pretty good at predicting earnings from Sam Ro https://www.tker.co/p/analysts-earnings-estimates-accuracy
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore previews Apple, Tesla, and Microsoft earnings by looking at the implied moves around earning by the options market. Plus, Bloomberg comes out with a new inflation gauge called The Bacon Egg & Cheese Sandwich index. Later, Derek talks about a new study which shows the percentage of time in recessions by decades. Oh, and reacting to a headline “hedging is for suckers” and why it’s wrong.
Zero Hedge article headline “Downside Protection is for Suckers” reaction
Percent of time in recessions
Bacon Egg & Cheese Inflation Index from Bloomberg
Implied volatility on major companies reporting earnings TSLA, MSFT, and AAPL
How to easily calculate the options market implied 1-day 1-standard deviation move
Why implied volatility moves higher pre-earnings
Cost of a options Straddle trade around earnings
Risks of a straddle trade both buying and selling the straddle
Mentioned in this Episode
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore is joined by guest co-host Mike Puck to talk markets including how people seem to think making money in Bitcoin is too easy and what that means. Plus, why the S&P 500 Index concentration may not be as big of a deal when looking at how the index changes. Comparing the top 10 market weighted stocks in 1997 to today. Later they discuss value vs growth performance, the dollar index, interest rates, and look at the implied volatility of Netflix options before earnings. Finally, they talk about how what seems obvious to all the CNBC talking head guests may not be the case.
Concentration in the top stocks within the S&P 500 Index
Comparing the top weighted companies today vs 1997 in the S&P 500 Index
How today its all tech vs 30 years ago
Why owning the S&P 500 Index is more active than you think
Additions to the S&P 500 Index in 2024 and their performance
Implied volatility in Netflix options pre-earnings
Calculating the implied move around earnings based on implied volatility
Looking at the ATM long straddle before earnings including the risk
Dollar index and EPS in the S&P correlation
Bitcoin believers are starting to think its too easy to make money
Bitcoin maximalists have been rewarded, and Derek is still a skeptic
Value vs Growth and why Value is a tough sell to money managers
Mentioned in this Episode
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore is joined by guest co-host Spencer Wright to discuss the surge in bond yields, the surge in the US Dollar Index, and whether those two things might cause some near-term pain for equity markets. Plus, discussing whether AI Artificial Intelligence is a true next technological revolution and what it means for earnings. Then they talk semiconductors as the picks and shovels of AI and do some technical analysis reviewing the patterns in the S&P 500 Index, the Nasdaq 100, Semiconductors and bond yields. Oh, and there was the unemployment report that markets didn’t like in the moment as it was “too good” because does it mean the Fed is done cutting? All this and more this week!
Bond interest rates surge as 10-year treasury hits 4.7%
UK Gilt Bonds surge to a higher rate than when the government had to step in
Unemployment surprises at 4.1% but market reacts negatively
Fed rate cuts not priced in until October 29th meeting and 1 cut at that
AI Artificial Intelligence – is it the 6th great sea change revolution?
Semiconductors as the picks and shovels of AI
Technical analysis triangle patters
Technical analysis on NDX, SPX, and Semiconductors
The trade weighted dollar index and impact to earnings due to currency exchange
Are high rates bad or just the journey to get there first?
Technical analysis book recommendations
Mentioned in this Episode
Encyclopedia of Chart Patterns by Thomas N. Bulkowski https://amzn.to/4gVExnm
Technological Revolutions and Financial Capital by Carlota Perez https://amzn.to/3Wefgwd
Technical Analysis of the Financial Markets by John Murphy https://amzn.to/3Wefgwd
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore talks about the level of implied volatility in MicroStrategy and its performance relative to bitcoin. Plus, looking at how much future fed cut expectations have fallen for 2025. Later, Derek explains what drives returns looking at the forward p/e ratio vs forward analyst eps estimates for the S&P 500 Index, 2/10s US Treasury spread widening as yields rise, are 10 Year Treasury yields about to break out, and quietly crude oil has been rising. What would that mean for CPI and inflation navigation for the Fed?
Bitcoin vs MicroStrategy
Calculating implied 1 standard deviation moves based on options data
MicroStrategy implied volatility
S&P 500 Index analyst forward 1 year EPS estimates
Forward PE ration level and whether it is a predictor of markets 1 and 5 years in the future
Mag 7 net profit margins, earnings growth, and pe ratio vs the rest of the S&P 500 Index
Looking at max pullbacks for each calendar year and subsequent year end returns S&P 500
Cup and Handle pattern in the 10-Year Treasury yield
Fed Funds futures pricing and probabilities for future rate cuts in 2025 by the Fed
How markets move based on multiple expansion/contraction and earnings estimates
WTI (West Texas Intermediate) oil prices making a move?
Oil as a part of the CPI inflation numbers
Mentioned in this Episode
JP Morgan Guide to the Markets https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore and Jay Pestrichelli round out the year with some 2025 predictions on markets, rates, bonds, oil, bitcoin, the dollar, GDP, inflation, and gold. Plus, does Bitcoin have a Quantum Computing problem? What’s going on with deflation in China and is it the answer to potential tariffs? And news flash, the inverted yield curve is no more as the 10-year treasury yield rises above the 3-month treasury yield. All this and more!
2025 Predictions
China Deflation including 10-year Chinese Government Bond yields falling
China currency valuation, bond yields, and deflation a recipe to nullify US tariffs?
Quantum computer by Google and can it mine Bitcoin?
Will Quantum computers put Bitcoin wallets at risk? (part of our random predictions)
The reversion or un-inversion of the 10 year and the 3-month treasury
The inverted yield curve was the longest ever and didn’t cause a recession
Will the un-inverted yield curve now cause a recession?
VIX Index vs VIX futures spread
Additions and subtractions to the S&P 500 Index
Commodities including coffee, rubber, and cocoa rise
Earnings season soon upon us
Mentioned in this Episode
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore and Jay Pestrichelli react to the Fed meeting where people are calling it a hawkish cut and a reset of future expectations of where interest rates end up. Plus, the Dot Plots say long run PCE Inflation will only go to 3% not 2%. Later looking at the Trade Weighted Dollar Index breakout and if it will become a problem for earnings growth in 2025. Of course, the big news last week was the spike in the VIX as the market had a temper tantrum. Finally, they go into earnings expectation, price to forward sales ratio, real retail sales, and more and even a wacky (or not) Amazon prediction.
Fed Hawkish Rate cut
Fed PCE Inflation Dot Plot 3% long run target
The Fed Pivot or Fed Reset in effect?
The VIX Spikes as the market has a tantrum after Powell press conference
Looking at current forward pe ratio for the S&P 500 Index now
Earnings expectations and the strong US Dollar
The US Dollar breaks out above resistance
Forward Price to Sales ratio getting elevated?
Goods vs services inflation
PPI services is still elevated
Would Amazon ever break out its business units to take advantage of AI and their chip?
Greenspan fed vs Powell
1994 bull market vs this bull market and does it mean longer to run?
Mentioned in this Episode
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore and Jay Pestrichelli gather once again to discuss whether inflation is too high for the Fed to aggressively cut rates more. Then, they talk about the probability of the S&P 500 closing or getting to 7000 by year end 2025. Plus, is inflation still too high looking at Core CPI and CPI Supercore for the fed to cut rates as much as projected. Later, they go into some myths on the US debt and foreign ownership of treasuries, US Dollar Index against some resistance levels, what does paying your fair share in taxes mean, and more.
How probabilities are calculated based on option prices
Current probability of the S&P 500 Index hitting 7000 by year end 2025
Difference between probability of touching and probability of expiring in the money
Looking at the current forward PE ratio and multiple for the S&P
Calculating theoretical year end 2025 S&P price at different earnings and multiples
Is the PE multiple too high?
US Dollar moves higher but coming up against resistance?
Looking at who owns the $34 Trillion US Debt
Percentage of foreign countries who own treasuries
Many people think China owns more treasuries than it currently does
How much does the Fed own of outstanding US debt?
What does paying your fair share in taxes mean?
Income comparisons when including government transfer payments (benefits) and taxes
Data from New York City points to a small number of people paying most of the taxes
CPI Supercore
CPI Core and the Fed targets
Shelter inflation
How big of a company would SpaceX be if it went public?
Broadcom hits $1 Trillion in market cap today
Mentioned in this Episode
CBO report on Distribution of Household Income
https://www.cbo.gov/publication/56575
NYC Department of Taxation https://www.tax.ny.gov/data/stats/taxfacts/personal-income-tax.htm
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore and Jay Pestrichelli cover markets including the news on the CEO of United Healthcare, the Hawk Tuah meme coin alleged scam, unpacking the latest unemployment report, how markets go up 29% or more in a year more often than you’d think, and how the rotation of voting members of the FOMC might be hawkish in 2025. Plus, checking in on the ratio of returns of MicroStrategy vs. Bitcoin. Plus, looking at the 53-month drawdown in the US Aggregate Bond Index and corresponding ETF.
Hawk Tuah crypto meme coin alleged scam, pump and dump, rug pull etc (alleged)
What is a pump and dump, or rug pull?
Why would anyone buy a meme coin?
Reacting to the news on United Healthcare’s CEO being murdered
Understanding single stock risk and hedging
Reviewing the components of the latest unemployment numbers
Difference between the household and establishment employment survey
Was there more unemployment or more new entrants that drove the number?
US Aggregate Bond Index ETF AGG’s years long drawdown
Bitcoin vs MicroStrategy relative performance since the recent all-time high in MicroStrategy
Looking at the relative ratio of performance on the way up and since it’s retraced
Who’s out and who’s in at the Fed FOMC voting committee in 2025
US Average Hourly Earnings
Bloomberg’s AI program to identify how many S&P 500 companies mentioned job cuts
Contribution to the US Unemployment rate
Mentioned in this Episode
US Unemployment report (the one with the unemployment rate percentage)
https://www.bls.gov/news.release/empsit.nr0.htm
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore and Jay Pestrichelli join up once again to talk about whether the forward PE ratio is getting overextended. Then, they discuss where we are in the 4-year Presidential market cycle, years with the most all-time highs, the US Dollar and interest rates, and PCE inflation numbers. Later, they get into the dynamics of the MicroStrategy convertible bonds and how they resemble options. Finally, they talk through the option dynamics on MicroStrategy include what the implied volatility is, what it is implying for a move over the next year, and what the breakeven levels would be on a 1-year option. Hint, it may be crazy!
MicroStrategy convertible bonds explained
MicroStrategy option implied volatility
Price of the 1-year MicroStrategy straddle and breakeven levels
2025 Wall Street S&P 500 Index year end targets
Looking at how many times the markets are average
Inflation is still above the 2% Fed supposed target so what now?
US Dollar index and interest rates
Which year had the most intra-year all-time highs?
1st year of the presidential cycle and the market
Forward PE ratios are extended so is that an issue?
Makeup of the S&P 500 Index companies is different today than 40 years ago
Checking in on earnings estimates
Mentioned in this Episode
Historical Market returns S&P 500, Tbills, Tbonds, gold, and housing since 1928 from Professor Aswath Damodaran and NYU Stern School of Business
https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore and Jay Pestrichelli are back on the big 300th episode to discuss whether Michael Saylor’s ‘Bitcoin Yield’ makes sense and looking at why people are buying MicroStrategy vs just buying Bitcoin. Then they talk Nvidia earnings and how it is getting cheaper on a forward 12-month PE ratio basis even as the price has moved higher. Plus, they look at the options action on Nvidia right before earnings. Speaking of semiconductors, they look at a potentially bearish pattern in the SOX Index, the Dollar Yen pair getting back to August levels, and ask the question if you could have bought Dominos Pizza or Google at their respective IPOs, which one would you have taken and how its worked out.
MicroStrategy market cap value vs the value of their total Bitcoin holding
Wall Street Journal Jonathan Weil article on Bitcoin vs MicroStrategy
What is the Bitcoin Yield?
Forward PE ratio of Nvidia vs its price
Nvidia earnings options action
Performance of Dominos Pizza vs Google since their respective IPOs
Median S&P 500 Index historical performance post-election and after inauguration
US vs international vs The Dollar post-election performance
Argentia ETF post Javier Milei’s election victory bullish move
The Dollar Yen pair moves back towards the old August highs, but does it mean anything?
Morgan Stanley and Goldman Sachs put a 6500 year end 2025 price target on the S&P 500
Mentioned in this Episode
MicroStrategy’s Magical Bitcoin Machine article in WSJ by Jonathan Weil
https://www.wsj.com/finance/investing/microstrategys-magical-bitcoin-buying-machine-uses-some-wacky-math-da7d85d0?st=AUzUiM
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore and Jay Pestrichelli talk through the latest market action including the forward PE ratio looking frothy, yields continue rising, probability of rate cuts dropping, and when and if the US Dollar strength will be a problem. Plus, talking about Barron’s article comparing the market cap of MicroStrategy vs the value of their Bitcoin holdings. S&P 500 Index earnings yield vs the 10-year Treasury yield. Then, they discuss why people are saying we are going to have a coming second surge for inflation. Later, they talk about volatility on Nvidia a week out from earnings and their options, 90+ days delinquent credit card debt rising, and comparing post-election rallies around close Presidential elections.
MicroStrategy market cap value vs the value of their total Bitcoin holding
Post election rallies around close Presidential elections
10-Year Treasury Yields acting different than normal post Fed cutting action
US 2-year Treasury yield vs the Fed Funds target rate
Probability of interest rate cut in December update
US Inflation progress stalled in October?
US Dollar Index pushing through resistance
When the US Dollar strength matters and when it doesn’t
Comparing where we are today with inflation against the 1970s chart
S&P 500 Index risk premium (forward earnings yield minus 10-year treasury yield)
Percentage of US credit card debt that is delinquent reaches highest level in over a decade
S&P 500 Index forward EPS estimates
Barron’s article evaluating MicroStrategy’s premium to its Bitcoin holdings
Mentioned in this Episode
Barron’s Article on Bitcoin vs MicroStrategy valuation
https://www.barrons.com/articles/microstrategy-stock-price-bitcoin-valuation-702281bd
Explanation of US sugar tariffs and the history of behind them https://www.cato.org/policy-analysis/candy-coated-cartel-time-kill-us-sugar-program#an-overview-of-u-s-sugar-policy
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore and Jay Pestrichelli decide who got the S&P 500 Index 6000 prediction right. Then they talk about Bitcoin running to new highs and some theories about a Bitcoin strategic reserve now that Trump is the President Elect. Later, they review some data pointing to bond yields remaining high (or going higher). Then discussing how investment banks S&P targets rise to follow the markets. All that plus a listener email.
Small Cap fund flows into IWM
TLT ETF bond flows
Bitcoin makes new highs and ETF fund flows surge
Hussman 12-year forward estimate nonfinancial market cap divided by gross value-added
Goldman Sachs 12-month S&P Price Target
Markets 12-month forward performance after Fed cuts rates near all-time highs
10-Year Treasury Yield vs. Nominal GDP Growth
Trump to stockpile Bitcoin in a strategic reserve?
VIX and implied volatility collapse post-election
Jay and Derek discuss who correctly called S&P 500 6000 by the end of the year
Mentioned in this Episode
Trump – Stockpile Bitcoin in strategic reserve
https://www.politico.com/newsletters/morning-money/2024/08/05/trumps-latest-crypto-gamble-00172611
Podcast where Jay and Derek predicted S&P 500 6000 back in mid June https://open.spotify.com/episode/5kEdjbbXKuCJ114381jYL8?si=420ed5b0864e4aea
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore and Jay Pestrichelli go through the recent unemployment numbers to see whether it was as bad as reported. Plus, did the recent hurricane throw off the surveys? Then they look at next week’s prediction for interest rates for the Fed Meeting. Derek and Jay pull up the 30-year mortgage rate vs the 10-year treasury and talk about what’s happened since the first Fed cut. Later they look at housing starts vs completions and try to make sense of whether it's bullish or bearish, the market concentration of the top 10 stocks, seasonality in the S&P 500 index, and looking at earnings so far including whether companies are beating and what sectors are doing well. Then stay tuned as Spencer Wright joins Derek to review the data in the upcoming election. Are the polls accurate? How is Trump performing vs Biden and Clinton in previous races? The electoral college states that matter and even a potential election tie. Unemployment disappoints? How the predictions all missed except for Bloomberg survey that was closer Analyzing the jobs data and is it the bad news is good news again scenario ahead of the Fed? Earnings beats and evaluating the EPS and revenue by sector S&P 500 Index seasonality post elections and non-election years Housing starts minus completions and what it means if anything The stock markets current bullish streak Top 10 S&P stocks now 37% of the index US Federal government spending vs. tax revenue 30-year mortgage rates and the 10-year treasury go higher since 1st Fed cut What are fed funds futures predicting for rate cut at next week’s Fed meeting? Is bad weather to blame for low respondent rates to employment surveys? Trump vs. Harris based on the latest polling data Will the polls be accurate this time (correcting polling errors?) Predictions on who will win Comparing Trump’s numbers this year 2024 vs 2020 and 2016 in the swing states Mentioned in this Episode 2024 Presidential Election Interactive Map https://www.270towin.com/ BLS October Employment release https://www.bls.gov/news.release/empsit.nr0.htm 30 Year Fixed Rate Mortgage US Average https://fred.stlouisfed.org/series/MORTGAGE30US US Market Returns by Political Party Historical https://zegafinancial.com/blog/should-investors-be- worried-about-the-election-and-what-to-do-if-you-are Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag Contact Derek derek.moore@zegainvestments.com
Derek Moore and Jay Pestrichelli talk about everyone talking about Goldman’s 3% annual return target for next 10 years. What’s behind their analysis includes whether the S&P 500 Index has too much concentration. Then they discuss what is responsible in retrospect for markets going up or down including profit margins, sales, buybacks, dividends, and EPS. Later, they talk about gold and its huge jump in 2024. Finally, how underwhelming the small caps have been relative to past bull markets, S&P 500 Index constituent turnover, and Apple’s options volatility pre-earnings.
Goldman Sachs base case of 3% annualized return next 10 years
Vanguard’s June 2024 10 year forward annualized return estimates
How market movement is attributed to EPS, Sales, Dividends, Margins, and Buybacks
Historical 10-year constituent turnover for S&P 500 Index
Touching on Meb Faber’s observation of both Gold and the S&P 500 above 25% return for year
Small caps lowest bull market return covering 13 bull markets since 1949
Apple earnings and the option volatility
Cost of the Apple straddle a week before earnings
Uber’s implied volatility pre-earnings week
Spread between the 30-year mortgage and the 10-year treasury yield
What if mortgage rates and long bonds go up not down?
MBS bonds (mortgage backed securities) nuances
Mentioned in this Episode
Goldman Sachs forward baseline 3% annual return forecast next 10 years full report https://www.gspublishing.com/content/research/en/reports/2024/10/18/29e68989-0d2c-4960-bd4b-010a101f711e.pdf
Vanguard June 30th 2024 10 year forward returns forecast https://corporate.vanguard.com/content/corporatesite/us/en/corp/vemo/vemo-return-forecasts.html#:~:text=The%20largest%20shift%20was%20in,Capital%20Markets%20Model%20(VCMM)
Mortgage Spreads and The Yield Curve Economic Brief Richmond Federal Reserve Bank https://www.richmondfed.org/publications/research/economic_brief/2023/eb_23-27
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
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Derek Moore and Jay Pestrichelli are discussing what segments of the market are now working on in October plus whether new auto loan delinquencies are something to worry about. Then, reacting to Barron’s headline saying Warren Buffett selling Apple shares may have resulted in leaving $25 billion on the table. Later, they get into whether the comparisons of Nvidia today to Cisco in the late nineties is a fare comparison and if Nvidia is as overvalued as Cisco was in retrospect. Finally, they delve into the options action on Netflix and earnings, S&P 500 Index changes, and whether this bull market is young or really young depending on how you gauge the start of one.
Russell 2000 Index vs S&P 500 Index vs Nasdaq 100 Index performance in October
Auto Loan Serious Delinquent by 90 days move up to 2011 highs
The age of the bull market and length of previous bull markets
When do bull markets begin?
CSCO Cisco Systems vs NVDA Nvidia comparisons
Forward PE ratio of Nvidia today vs CSCO in 1999 and 2000
Net profit margins comparing NVDA today to CSCO in late nineties early 2000’s
Barron’s article saying Berkshire left $25 billion on the table by selling Apple shares
Amentum AMTM joins the S&P 500 Index while BBWI Bath & Body Works exits
Netflix option volatility at earnings
Would the long or short straddle have worked after earnings on Netflix?
Mentioned in this Episode
Where Markets Go After All-Time Highs by VIX Level | Crazy Earnings Estimates | CPI is Rarely 2% | Latest Interest Rate Probabilities https://open.spotify.com/episode/6U5IIpZmeY3s01GsUS0trt?si=a9a3be7a9a504882
Guggenheim info on Historical cycle trend periods https://www.guggenheiminvestments.com/advisor-resources/interactive-tools/dow-jones-historical-trends
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore and Jay Pestrichelli are back again to discuss whether the level of the VIX Index at all-time market highs is a predictor of future market moves. Then, with earnings season kicking off in earnest, reviewing the analyst lofty estimates including some very surprising numbers for Russell 2000 Index companies. Later, Derek goes through some data that basically says the CPI YoY % change isn’t around 2% too often despite the Feds “mandate” of 2% inflation target. Finally, they discuss NFLX earnings and what the options market is saying plus a few other companies including United Healthcare.
The level of the VIX Index at all-time S&P 500 Index highs and the next 60 days, 3&6 months
Does where the VIX Index is at all-time market highs really matter?
The Fed’s elusive 2% target when looking at monthly data back to January of 2012
How often the year over year (YoY) percent change in CPI is at different levels
VIX Index vs bond volatility seen via the MOVE Index
Netflix (NFLX) and United Healthcare (UNH) options market pre-earnings check in
Implied volatility of options prior to earnings releases
Predictions for the November Fed meeting
Quarterly earnings estimates for the S&P 500 Index over the next two years are bullish
Reviewing the Russell 2000 Index earnings estimates and how lofty they are currently
Looking at growth of next 12 months earnings estimates vs the S&P 500 Index itself
Mentioned in this Episode
VIX Too High at All-Time Market Highs? | Employment Surprises | Interest Rate Cut Expectations Drop| No More Port Strike | Technical Analysis on Markets https://open.spotify.com/episode/7uOX1CRDw8T9q1lNpx2lHc?si=2078c3e6fbec4a2c
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore and Jay Pestrichelli ask whether the VIX is too high given markets are at all-time highs and compare today to some previous periods. Then, they delve into the employment report which surprised in a positive way. Was good news good news for once? What this means for probabilities of future rate cuts by the Fed, the port strike that wrapped up, and a look at some individual tickers and markets from a technical analysis standpoint. Resistance, support, wedges and more on this week’s episode.
Why is the VIX so high with the market at all-time highs
VIX historically at market all-time highs
Looking at 2000 and 2007 VIX at all-time market highs
Dissecting the employment report
Why good news is bad news for those wanting massive rate cuts
Looking at bond yields since the first Fed rate cut
The port strike wraps itself up which is good news for markets
Technical analysis of the S&P 500 Index, Apple, Nvidia, and more
Mentioned in this Episode
S&P 500 Going to 7000? | NAV Erosion Myth | Fed HAS Cut Rates at All-Time Highs| China & Emerging Markets Surge | Answering Audience Questions https://open.spotify.com/episode/4rcKF9Df3YNHkBrlY2yekg?si=253cf93f379a4111
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore and Jay Pestrichelli this week answer some audience questions plus comparing 1995 first Fed rate cut to today’s market and asking if the next year can be a repeat of the 1995-96 period. They also dispel the myth that the Fed has never cut rates when markets are at all-time highs. Later, they look at the China and Emerging markets surge after the Chinese government does a bunch of things to juice markets. In the questions Derek and Jay dispel some myths between NAV erosion and NAV decline. All this and more this week on the Broke Pie Chart Podcast.
Similarities between 1995 and 2024 Fed rates cuts
Why longer duration bond yields may go up not down post Fed rate cut
Emerging market finally having its day in the sun?
China markets go crazy after government stimulus announced.
What does NAV (Net Asset Value) or price mean?
NAV Erosion vs NAV Decline explained
Interest rate changes effect on option prices
The least popular option Greek Rho comes into play
Fed cuts when markets are at all-time highs
Recession or no recession determining next year’s market returns
Oil prices, container shipping rates,
Mentioned in this Episode
Fed Goes Big | Market Performance After Rate Cuts | Election Volatility in VIX Futures Is a Crowded Trade | Year End S&P 500 Predictions https://open.spotify.com/episode/3se9kb5ew488TPYKoVohgn?si=FLXDtZz0TgSKo5f1d-aQjg
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore and Jay Pestrichelli are back to do a post Fed 50 basis point cut analysis. What typically happens a year later in markets after the first interest rate cut? Maybe there isn’t election volatility priced into the VIX and it’s all to do with interest rates. Plus, looking back at the S&P 500 year end 2024 predictions top investment banks made in December of 2023. Hint, it didn’t go the way they expected. How many new all-time highs have we had this year and how does that compare with past years?
More all-time highs
All-time highs by month
Will the market go to 6000?
Jay Powell goes big but what does it mean for markets?
Contrarian corner TIPS Bond ETFs and Gold
VIX Futures over the next couple months
Mentioned in this Episode
Fed Decision Primer | CPI Disappoints? | Market Breakout or Breakdown? | Too Many Cuts Priced In? https://open.spotify.com/episode/6eFhqLyirKKiHKl7yYVDNV?si=08e63f4f058a4d44
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
www.zegafinancial.com
Derek Moore covers what you need to know going into the fed meeting. Plus, reviewing whether the Fed has ever cut rates with a forward price to earnings ratios this high? Then looking at potential technical analysis outcomes on the S&P 500 Index include a cup with handle, triple top, and more.
Historical Forward PE ratios at Fed cuts
VIX Index doesn’t go berserk during Wednesday’s CPI selloff and recovery
Is the market pricing in too many future fed cuts
Comparing CPI Supercore, CPI Core, and CPI from a month over month annualized basis
Does CPI tell us anything about future Fed cuts?
What is a cup and handle technical pattern?
What is a triple top technical pattern?
Mentioned in this Episode
Will There or Won’t There Be a Recession? | Size of First Fed Rate Cut?| Stocks Get Cheaper | Why VIX is Tough to Trade https://open.spotify.com/episode/2PzBKek4qM4HfJQGodsxea?si=9vkdi40ETayaVFPiUlHMOQ
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli are back to talk employment, Fed cuts, recession (or not), forward earnings multiples, VIX, VVIX, crude oil recession sign, currencies, and more!
Looking at 3 2024 stock market selloffs this year
Crude oil as a recession indicator?
Currencies and Commodities driving stocks right now?
Why markets may be trading on technical
VIX and VVIX goings on
Why VIX is tough to trade
S&P 500 Index forward earnings and multiples
First rate cut isn’t always the biggest
Response rates of employment surveys
Non-farm payrolls
Unemployment report breakdown and factors
US Dollar Japanese Yen pair resumes Yen strengthening
Mentioned in this Episode
All the News is Out? | Nvidia Earnings Breakdown | Implied Volatility and Earnings for Nvidia | Is the long bond trade getting crowded?
https://open.spotify.com/episode/2LsHNmpPGY3jKpfS9WnjVt?si=21de3281be394249
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
www.zegafinancial.com
Derek Moore is back to break down Nvidia’s beat, but not beat (whisper number), their growth year over year, their profit margins, and percent they beat on the top and bottom line. Then, looking at the implied volatility and expected move post earnings in Nvidia and how to calculate it. Understanding why sometimes a long straddle option position before earnings makes money and other times it doesn’t. Later, peeking in at the implied Fed Funds rate cut probabilities for the September meeting. Finally, “everyone” seems to be saying its time to buy longer maturity bonds. Is that view getting crowded and why will or won’t long rates move lower because the Fed lowers the Fed Funds rate.
Nvidia earning beat but misses the “whisper” number
After hours trading reaction to Nvidia earnings
Difference between Gross profit and Net profit
Nvidia’s massive profit margins compared to grocery stores
Earning growth year over year
Implied volatility pre-earnings to compute the implied expected stock move
Why option premiums and volatility rise before earnings announcements
How implied volatility gets sucked out of markets post earnings
Long Straddles at the money before earnings characteristics and risks
The Fed is expected to lower the front part of the interest rate curve
What does that mean for the back half of the longer duration bond maturities?
The spread between the 10-year treasury bond and the 30-year mortgage rate
Hindenburg Research negative piece on Super Micro Computer SMCI
Mentioned in this Episode
Hindenburg negative research on Super Micro Computer https://hindenburgresearch.com/smci/
Jay Powell & The “Good Ship Transitory” | Price Caps Proposed by Politicians | Huge Employment Revisions | US Dollar Breaking Down?
https://open.spotify.com/episode/09SZBfu7OSlh5ygHONqY1s?si=SwTdDLMUQS67KHvCjNkZMA
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli once again are here to break down the Jay Powell Jackson Hole statement and the market reaction including latest interest rate projections. Then they comment on the idea proposed by politicians of price caps and whether companies are making record profits based on net profit margins. Later they discussed the huge revision lower in employment number in the establishment survey and whether it’s a big deal or now and why the difference between the monthly releases and the first preliminary annual revision. Finally, they discuss the positive of the US Dollar potentially breaking down for US companies and the latest in volatility markets.
Jay Powell Fed signals the time is now to change policy
The “Goodship Transitory” and Jay Powell
Fed funds interest rate projections
Whether the Fed raising or lowering interest rates made any impact
Huge first preliminary revision by 800k in the establishment employment survey
What Goldman Sachs cited for the reason in the revisions in data
Difference between the monthly employment numbers and these annual revisions
US Dollar index and how a lower dollar helps multinational US company earnings
Politicians are talking price caps and why those never work
Examining a few companies net profit margins to see if they are actually making record profits
Volatility markets including the VIX and VVIX
Mentioned in this Episode
Fastest Correction Ever? | VIX Index Collapse Post Spike | Will the Fed Push Back on a 50 bps Interest Rate Cut? | Latest Inflation Analysis and Soft, Hard, or No Landing?
https://open.spotify.com/episode/1L5RNtfOKAc59TtOODf1dK?si=dzldc_NFSuKuve7nkZc4Ig
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli are back to discuss the surge and record collapse back below 17.6 in the VIX Index. Plus, Reviewing the difference between the VIX Index (not tradable) and VIX Futures relative spike levels. Then, they go into the latest CPI numbers including CPI Supercore to see what is sticky and what is negative. Finally, they discuss whether Chairman Jerome Powel is going to disappoint markets with only a 25-bps cut when everyone seems to want more. All that and more including the yield curve inversion, mentions of job cuts vs AI on earnings calls in Q2, expectations for a soft, hard, or no landing and what the heck that even means.
VIX only takes 7 days to go back below 17.6 after spiking above 35
Comparing previous VIX Index surges and length to come back down
Difference between hard , soft, and no landings
Fed prepares for Jackson Hole meetings and sure to signal its interest rate intentions
Will Powell and the Fed disappoint markets?
Chance that Powel pushes back to not be bullied into rate cuts
Mentions of AI on corporate earnings calls vs mentions of job cuts and employment
Inverted yield curve and what the 2-year bond is predicting for rates in the future
Fed balance sheet below the radar
Will Fed stop letting treasury bonds and mortgage backed bonds run off the balance sheet?
Comparing current and past VIX spikes against the relative spike level of the VIX futures
Mentioned in this Episode
Panic Overdone? | VIX 3rd Highest Spike Ever | How the Strategies Held Up | Short Volatility Trades
https://open.spotify.com/episode/2mF1zkDaqWZLRhumfs0VJh?si=j5sn9DZpS3mmyM3Y5VM_1A
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
Derek Moore and Jay Pestrichelli jumped on a special edition podcast to discuss whether the move in things like the VIX and VIX were warranted given the technical surroundings of the carry trade and where markets went. Looking back at previous VIX spikes and the high yield spread in times of crisis. Plus, discussing how some strategies held up and some insights into what went on. Finally, what a higher volatility regime would mean for strategies that sell options like covered calls or high probability credit spreads.
VIX 3rd highest spike in history going back to 1992
VVIX 4th highest spike ever
Comparing the VIX Index spike to the High Yield Spread
There was no VIX Index back in 1987 but estimates say it would have been highest ever
Are there currently structural problems showing in the US Economy?
Unemployment rate up due to increase in population and size of labor force
Explaining the VVIX Index
Warren Buffet comment about whether you should be invested in stocks
People don’t make good investment decisions when they panic
Market performance historically after major VIX spikes
Comparing the carry trade blowup to August 2015 drop due to the Chinese Yuan move
Mentioned in this Episode
Podcast Market Volatility | Yen Carry Trade Unwind Explained | High Yield Holds Up | Dissecting the Unemployment Rate Rise Causes
https://open.spotify.com/episode/4aBJMdpmanE3Anncxlzfqs?si=zflHqMZuS7OZ5cAL0ae0Sg
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
www.zegafinancial.com
Derek Moore is back to talk through the latest market volatility as the VIX and VVIX both spiked this week. Markets had 2 greater than 2% pullbacks. Reading into the latest unemployment rate data. Plus, unpacking the unwinding of the carry trade involving the Japanese Yen and how this started before the recent market retracement. Finally, examining the high yield bond market as it has shown positive non-correlation with equities of late.
What does a currency Carry Trade mean?
What is the carry trade unwinding mean?
Why carry trades may show leverage in the system that causes ripples in financial markets
S&P 500 Index back to levels not seen since….June 7th
Unpacking the unemployment rate and how the rate rose even though more people working
Explaining the VVIX Index
VIX and VVIX spike this week with the market volatility
Comparing returns since the July 16th all-time high of equities vs high yield bonds
Mentioned in this Episode
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
www.zegafinancial.com
Derek Moore is back to take some listener questions on the political ramifications for the stock market, covered calls, and other general market and option questions. Also, he’ll cover the continued coverage of the market broadening out in its participation especially from small caps and the non-mag-7 companies. What about on the economic front? All this and more this week.
What political party is better for the stock market?
Does it matter who is in office?
Google earnings announcement $1Billion in quarterly profit
Richmond Fed Manufacturing Index shows weakness
Shipping container rates continue rising
What does the perception of lower rates and strong earnings mean for stocks?
Why do people sell covered calls?
Why are options more expensive around earnings announcements?
Who is on the other side of my option trade and does it matter?
Mentioned in this Episode
Download white paper on concentrated stock management with options https://static.twentyoverten.com/5b313bf81c53ec3270915df3/27gJFrs2H/Concentrated-stock-positions-Full-White-Paper.pdf
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
www.zegafinancial.com
Derek Moore looks beyond mega cap tech by examining while this month the S&P 500 Index is relatively flat, equal weight and extended markets catch a bid. Plus, talk of a tight high yield spread but what does that mean? Later, looking at the upcoming earnings including Tesla and Google. Finally, reviewing typical VIX seasonality patterns.
Earnings including Tesla and Google this week
Performance of the S&P 500 Index against extended markets and equal weight S&P 500 Index
Comparing the S&P 500 against international developed markets and emerging markets
Comparing the VXF etf and RSP etf against the S&P 500 Index
Why protecting with buffers and/or hedges can help assuage short term market worries
What is the high yield spread?
Comparing the current high yield spread against recent history
What does it mean when the high yield spread gets tight
Largest companies in the Nasdaq 100 Index in March of 2000
VIX Seasonality patters
What did the VIX and VVIX do this week?
What have the EEM etf and EFA etf do this week on the international front?
Mentioned in this Episode
Where to find the High Yield Spread https://fred.stlouisfed.org/series/BAMLH0A0HYM2/
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegainvestments.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli are back together to discuss what happens after the Fed makes its first rate cut historically in markets. Plus, what if everyone is wrong about rate cuts? Then, they look at the historical spread between inflation and the Fed Funds rate plus how would investors take the other side of rate cuts? Finally, they discuss the idea of this being the 1990s all over again with AI as a technological revolution like the internet boom?
Earnings season is in full bloom
Fed Funds rate vs the YoY CPI Inflation comparison
Why historically Fed Funds does not have to equal annual inflation
What is the Fed afraid of?
Nasdaq Composite returns after major releases of new technologies
Record call volume on the IWM ETF (Russell 2000)
Total return for markets 12 months post 1st rate cut going back to 1974
Implied interest rate based on fed funds futures
VIX and the market both go up?
Mentioned in this Episode
Podcast 1994-95 All Over Again in Markets? https://podcasts.apple.com/us/podcast/1994-95-all-over-again-in-markets/id1432836154?i=1000590865306
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore is back to discuss the recent talk from the “talking heads on TV” that the economy is weakening. What are they looking at and are they right? Then Derek explains using Tesla as an example of implied volatility going higher while a stock runs higher. Reviewing the latest nonfarm payrolls, unemployment rate, and initial jobless claims. Finally, Derek goes through what happens when markets go up from a fundamental standpoint including Forward PE multiples changing, earnings estimates, share buybacks, and dividend yield. All of this and more on this week’s episode.
Tesla implied volatility surges along with its stock price
Why volatility can go higher even when markets or stocks don’t go down
Is the economy weakening?
Reviewing the economic surprise index and what it measures
Share buyback yield
Share buybacks effect on EPS
Dividend yields as a contribution to total return
Forward PE multiples and effects on market prices
Forward earnings estimate on the S&P 500 Index companies
How companies joining and leaving the S&P 500 Index can affect earnings
Looking at college bachelor’s degree and higher unemployment rate for clues
Atlanta Fed GDP Now
Mentioned in this Episode
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore is back to discuss the WSJ article comparing Nvidia to Cisco and Jim Cramer’s response. Is Nvidia in a bubble?
Wall Street Journal Article on Cisco 2000 vs Nvidia 2024
Forward PE multiples then and now Cisco vs Nvidia
Data showing bull markets often continue the second half of the year
When markets are up 10% first half of the year what happens next?
Don’t give up on the bull market yet based on data?
Implied Volatility spikes in France compared to Germany
What does 100% Moneyness mean in options speak?
Explaining option moneyness at different levels
How does July stack up against other months of the year for S&P 500 returns?
August and July market returns in Election years
Inflation PCE cools while PCE Services less housing still elevated YoY
Container shipping rates rising again to highest level since September 2022
French CAC 40 Market near 10% drawdown from highs
Mentioned in this Episode
WSJ article comparing Cisco in 2000 vs Nvidia in 2024 https://www.wsj.com/finance/investing/nvidia-is-no-cisco-but-it-is-getting-expensive-1938fcc0
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore is back to go over some bullish and bearish economic and market items. Avocado prices are spiking while lumber prices are falling. Divergence between the Trucking Tonnage Index vs the S&P 500 Index. Later we discuss the lack of historical volatility in the market given we haven’t had a greater than 2.05% down day for over 375 days. Then taking listener questions around the probability a market goes up or down 9.8% and what goes into calculating option probabilities. Finally, Derek explains the “Volatility Problem” from a listener question comparing the difference between average returns and CAGR compounded annualized growth rate.
What is the volatility problem?
CAGR Compounded Annualized Growth Rate
Average return vs CAGR return and why it matters
Avocado vs Lumber prices
Trucking Tonnage Index vs the S&P 500 Index
EconPi median of coordinates showing decline quad for economy
Economic surprise index explained
Why hedging makes sense to manage volatility
Mentioned in this Episode
Econ PI site http://econpi.com/index.php
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial are back with a Fed meeting day edition where they break down the new end of year interest rate dot plots and Jay Powell’s press conference. Plus, they riff on Harry Dent’s latest prediction saying Nvidia is going down 98% and why the doom and gloom crowd are harmful to investors. Later discussing Apple’s breakout after their AI announcement at WWDC conference and the reaction to the CPI inflation print. All this and more!
Apple’s AI WWDC announcement reaction by the stock market
Apple vs Nvidia vs Microsoft for the title of largest market cap
Buy the Rumor Sell the News Buy the News on Apple
Post Fed Meeting announcement reaction
Fed newest Dot plots and what they say for the year end target for interest rates
The fed funds futures moves intraday
How to calculate the implied fed funds rate
Inflation print comes in light but year over year numbers still above Fed’s target
How the CPI Supercore is still running over 4.8% year over year
Harry Dent says markets are going to crash but has said the same thing over and over again
Why doom and gloom predictions are harmful for investors
Reviewing some past Harry Dent prognostication
Harry Dent says Nvidia may go down 98% while the Nasdaq will see a -92% crash
Battle for the largest market cap between Apple, Nvidia, and Microsoft gets interesting
Mentioned in this Episode
Harry Dent predicts Nasdaq to crash 92% https://www.livemint.com/market/stock-market-news/boy-this-is-over-economist-harry-dent-predicts-98-crash-in-nvidia-92-drop-in-nasdaq-heres-why-11718162529764.html
CBS News article “Harry Dent and the chamber of poor returns” https://www.cbsnews.com/news/harry-dent-and-the-chamber-of-poor-returns/
GameStop Option Bets | S&P Too Top Heavy? | Nvidia Passes Apple | Upcoming Banking Problems from Mortgages? https://podcasts.apple.com/us/podcast/gamestop-option-bets-s-p-too-top-heavy-nvidia-passes/id1432836154?i=1000658371572
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial look at some what seem like crazy options trades in GameStop. Plus, examining Nvidia passing Apple as the second largest stock in the S&P 500, and can it pass Microsoft for #1? They also talk about whether it’s a problem the top 4 stocks in the S&P 500 make up such a large percentage of the weighting and comparing it to the last time it was this high. Later they take some listener questions including whether the data shows cracks in the regional banks due to mortgage delinquencies, what happened in the unemployment report, and more.
Unemployment reaches 4%
Top 4 companies in the S&P 500 Index highest since the 1960’s
Comparing the contribution to returns S&P 500 Index top 496 vs the top 3 and Nvidia
Residential mortgage delinquencies and effect on regional banks
FDIC quarterly data on the health of banks
Nvidia passes Apple for #2 as its market cap exceeds Apples but will Microsoft be next?
1964 vs 2024 top 4 company weighting in the S&P 500 Index
Now the top 4 companies today are a lot more diverse business
GameStop options trading
Looking at the 128 calls open interest, volume and probabilities next 2 weekly expirations
Volatility in the GameStop option chain
Mentioned in this Episode
Mortgage Bankers Association data on residential mortgage delinquencies https://usreop.com/mba-chart-of-the-week-seriously-delinquent-rates-by-loan-type-conventional-fha-va-may-17-2024/
Delinquency rates on commercial real estate loans from FRED https://fred.stlouisfed.org/series/DRCRELEXFACBS
CNBC piece on potential cracks in the banking system https://www.cnbc.com/2024/03/19/where-cracks-in-the-banking-sector-may-appear-without-more-ma.html
Crazy VIX Bets Due to Election? | Market Reversal | Home Ownership Affordability Today | Shiller PE
https://podcasts.apple.com/us/podcast/crazy-vix-bets-due-to-election-market-reversal-home/id1432836154?i=1000657610266
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial review some interesting VIX option trades around the election and around inauguration day in 2025 compared to the next few months options action. When young people say home ownership dreams are dead is that true? Surprising numbers to compare inflation adjusted costs. Plus, on Friday the market swung from down over 1% to up almost 1% as we continue to be in a buy the dip regime. Later discussing the evolving Fed rate cut expectations and why it shouldn’t be a surprise. Finally, they go bring up container shipping costs rising again and what that means for inflation, the Presidential election market cycle, history of interest rates, and more.
Looking at VIX trades far out of the money around election and inauguration day
Are retail investors making bets on a rise in volatility due to the election?
Why trading VIX options can be frustrating and may be misused by retail traders
Home ownership dreams dead for young people?
Comparing a monthly mortgage payment today on an inflation adjusted basis to historical
Home prices compared on an inflation adjusted basis
History of interest rates over 5000 years
Container shipping costs on the rise
Share buybacks at highest level over the last couple years and what that means for earnings
Friday’s huge market reversal going from down to up in the last hour
Fed rate cut expectations through the end of 2024 down from 7 cuts to 1 cut
4th year of the Presidential cycle and the S&P 500 Index
What Shiller Cape ratio means for returns over the next 10 years
Cape PE ration and Price to Free Cash Flow
Mentioned in this Episode
History of Interest Rates book by Sidney Homer and Richard Sylla https://amzn.to/3V3TNEJ
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial talk about Nvidia’s earnings report and how they are catching up to Apple in total market cap. Will they cash Microsoft? Then they note the percentage of companies mentioning AI on earnings calls. What does that mean for CAPEX spending on semiconductor chips? Later they look at how housing prices after a small drop are now growing YoY despite higher interest rates and higher payment per median home price. The gold rally now one is noticing in 2024. A little Japan 10-year bond talk as rates hit 1%. Finally, Jay and Derek talk about how rates are staying higher for longer and the market might need to get over it while the “threat” of lowering rates might help markets.
Earnings mentions of AI on earnings conference calls surge
Nvidia is catching up to Apple in market cap
What is market cap and how to compute it?
Surprising market cap size for one semiconductor company.
Comparing S&P 500 Index market return paths since 1990
Is 2024 the new 1995 for S&P 500 returns?
Nvidia stock price growth vs income and revenue growth last 10 years
Now investors don’t thing there is a chance for a recession
Investor sentiment or likelihood of recession being high might be contrarian indicator
University of Michigan inflation expectations over next 5 years surges
Historical asset class by year returns
Gold still rallying but does anyone care?
One family home sales median price year over year price change growth
Charting monthly mortgage payment on purchasing a median priced home
Japanese 10 year bonds hit 1%
Why investing for longer means your win probability gets really high
Mentioned in this Episode
Roaring Kitty Tweets and Gamestop rises and falls
https://open.spotify.com/episode/5PtbYzdRunB7UPJRWQaXYK?si=OkMXUjOnQRGaJ2OZY-y8YQ
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial start by looking at GameStop’s (GME) call option open interest and activity in the days prior to Roaring Kitty tweeting . They notice the increase in options activity ahead of the surge in the stock’s price and volume spike and whether the options market led the stock market on GME. Then they comment on another new all-time high by the S&P 500 Index and how according to a BofA chart 90% of the time markets are not in a recession or in stagflation since 1948. Later Derek and Jay bring up the CPI Supercore trending higher while car insurance rates are soaring. What does this mean for the Fed and rates? Finally explanation of when covered calls get called away early.
Roaring Kitty comes out of hibernation to tweet.
Looking at GameStop options activity prior to Roaring Kitty’s tweet
Did the options activity prior to the stock activity mean people knew the tweet was coming?
Are we in for a GameStop meme stock part 2?
Why retail investors should use caution in trading GameStop.
Looking at the implied volatility on GameStop options to understand expected volatility.
CPI Supercore continues to rise YoY and what that means for interest rates and the Fed
Car insurance rates are surging 20%+ and rising
How long it takes the S&P 500 to go up each 100 point increment
According to a Bank of America graph 90% of the time since 1948 no recessions or stagflation
Enough about the Fed and rates?
When do covered calls get called away early and assigned?
Understanding dividends vs time value in deciding when covered calls get assigned
Early assignment for options
What implied volatility says about what the options market expects a stock to move
GameStop 300% implied volatility is massive and how expensive the ATM straddle is
Mentioned in this Episode
PPI comes in hotter than expected click below to read the PPI report release
https://www.bls.gov/news.release/ppi.nr0.htm
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial discuss the idea that the stock market is in a Goldilocks period based on sustained higher margins and earnings growth. Then, they discuss how out of the headlines the Fed has already started easing by reducing their balance sheet runoff each month. Why reducing the Overnight Reverse Repo usage (RRP) isn’t restrictive but rather was a reaction to demand for short term treasuries by money markets. Later they talk about how interest rates are below long run averages despite what everyone tells you on CNBC and why high rates may not be a problem. Finally, they look at corporate earnings and profit margins for the S&P 500 Index and how they’ve growth over the years, gold prices vs oil prices as a predictive model, and yes some shipping container inflationary commentary.
Growth in S&P 500 earnings per share analyst projections
How net profit margins for the S&P 500 Index companies has growth over the years
Why this might be a hated bull market despite some goldilocks market aspects
What could derail this market?
Why profit margins continue to be higher and why they do or don’t have to revert to the mean
The Fed balance sheet explained
How the Fed is going to be reducing the amount of bonds running off the balance sheet.
How the Fed is restrictive and easing at the same time
Explaining what the Overnight Reverse Repo Market (RRP) is
Why the Fed reducing the balance of Overnight Reverse Repos isn’t restrictive policy
The order of how the Fed may ease (hint, it may not start with interest rates)
The 1990s bull run with higher interest rates and lower profit margins
Maersk container shipping operating hints at higher costs due to capacity, fuel, and congestion
What does higher container shipping costs mean for inflation and prices?
Do Gold prices project out what oil prices will do in the next 19 months?
Explaining the cost of hedging and how it is very cheap to put on downside hedges right now
The cost of a 1 year 10% out of the money put option
The cost of a 1 year ATM at-the-money put option
Using low or no cost collars to hedge the downside
Using long put spreads to hedge or buffer the downside
Mentioned in this Episode
Explaining High Dividend ETFs and Stocks and How Reinvesting Dividends Works to Build Share Count and Compound Returns
https://podcasts.apple.com/us/podcast/reinvesting-high-dividends-deep-dive-unemployment-the/id1432836154?i=1000654585450
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore is back with Jay Pestrichelli, CEO of ZEGA Financial this week to discuss the Jay Powell Fed decision and the latest in employment and inflation. Then, they do a deep dive into dividend reinvestment. Specifically, analyzing the idea of acquiring more shares and can dividends reduce or eventually pay down your initial cost? They then do a deep dive into how the time premium works on options.
Lowest year over year wages since 2021
Unemployment ticks up.
High dividend stocks and dividend reinvestment deep dive
Acquiring more shares through dividend reinvestment
Compounding dividends through dividend reinvestment and increasing share count.
What is shareholder yield?
What is buyback yield vs dividend yield?
Fed higher for longer is now consensus.
What is time value of an option
Looking at option premium and time value through the market maker lens
Exploring the SPX 6000 Call option expiring Dec 31st, 2024, premium and time value
How options are priced
How market makers taking the other side of customer orders have to hedge their positions
Components of unemployment report labor force size vs employed and unemployed
Selling option premium to create high dividends
Mentioned in this Episode
Is it 1994 All Over Again? https://podcasts.apple.com/us/podcast/1994-95-all-over-again-in-markets/id1432836154?i=1000590865306
Now Its 1 Fed Rate Cut? | Nvidia Options Volatility Implied Move at Earnings | Sell in May and Go Away in Election Years? | Inflation Higher Than 1970s? https://podcasts.apple.com/us/podcast/now-its-1-fed-rate-cut-nvidia-options-volatility-implied/id1432836154?i=1000653836218
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore discusses the declining probabilities for Fed interest rate cuts in 2024. Plus, how PCE Supercore did not make the case for Fed rate cuts. Later, looking at the analyst’s expectations for earnings growth within the S&P 500 Index. Finally, comments on a paper showing how using the pre-1983 methods to compute CPI Consumer Price Index show we had higher inflation that the 1970s.
Declining Fed Funds rate cut probabilities for 2024.
Explaining how implied interest rates from Fed Funds futures are computed.
The case against rate cuts seems to be buoyed by sticky US CPI Supercore measures.
What is CPI Supercore and PCE Supercore compared to CPI Core and plain old CPI?
Explaining how the US CPI Consumer Price Index used to compute inflation prior to 1983.
How measuring housing inflation changed in 1983.
Why did they change how CPI is measured to owners’ equivalent rent?
Looking at the probabilities for rate cuts across different Fed FOMC meeting dates
What about Sell in May and Go Away in election years?
Explaining how to tell what the options market is implying for a 1-standard deviation move
Implied volatility around Nvidia earnings date scheduled for May 22nd
How to calculate the implied move in a stock based on the options market
Examining the at the money ATM straddle on Nvidia options expiring 2 days after earnings
Mentioned in this Episode
Is it 1994 All Over Again? https://podcasts.apple.com/us/podcast/1994-95-all-over-again-in-markets/id1432836154?i=1000590865306
Podcast: Explaining How and Why Bonds Make or Lose Money https://open.spotify.com/episode/3AUT2DVbHfEQyJglpe70nP?si=wIFug8IfR1-sb_bX03qNHA
Previous Week’s Podcast:
Market Correction | Mortgage Rates Higher | No Thanks 24-Hour Trading | Synthetic Options https://podcasts.apple.com/us/podcast/market-correction-mortgage-rates-higher-no-thanks-24/id1432836154?i=1000653114012
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Mike Puck from ZEGA Financial discuss Friday’s selloff. It’s official, we are in a 5% market correction. Looking back at other corrections greater than 5% from the highs. Mortgage rates move back up while 10-year treasury yields surge. Commodities are higher on the year but still down from all-time highs. Gold makes another all time high. Later they look at the value vs growth performance including the magnificent 7 stocks compared to the rest of the market. Finally, stocks and bonds are more correlated than people realize in higher inflation regimes.
Futures selloff overnight and why we don’t need 24-hour trading in the stock market
Market corrections of over 5%
30-year mortgage rates are spiking again
Looking at the high yield bond market with spreads widening
10-year treasury bonds on the way to 5%?
Gold makes another all-time high
Stock and bond correlations historical look
Will bonds still be a good hedge against stocks?
Value vs Growth check in
Magnificent 7 vs the rest of the S&P 500 Index
Synthetic option positions
Listener question about knowing what positions make up what strategies
Duration of High Yield Bond Index vs time to maturity and Yield to Worst
Container shipping rates
Check in on where commodity prices are
Mentioned in this Episode
Podcast: Explaining How and Why Bonds Make or Lose Money https://open.spotify.com/episode/3AUT2DVbHfEQyJglpe70nP?si=wIFug8IfR1-sb_bX03qNHA
Previous Week’s Podcast:
Market Selloff | No Rate Cuts? | Bitcoin vs Gold | CPI Inflation Sticky | VIX Curve https://podcasts.apple.com/us/podcast/market-selloff-no-rate-cuts-bitcoin-vs-gold-cpi-inflation/id1432836154?i=1000652413865
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, discuss Friday’s selloff. So, was it all the readjustment of Fed rate cut expectations? Is CPI Inflation putting the Fed in a box? Michael Saylor says Bitcoin is better than Gold. The rally in Gold that everyone is sleeping on. CPI Supercore trending higher showing services not goods are the culprit. Later they examine the VIX Futures curve as the front months rise. Finally, they talk about the continued bear market due to higher rates on 10-to-30-year US Treasuries from the March 2020 all-time highs against the stock market and high yield.
Michael Saylor Bitcoin vs Gold
Market selloff reasons
High Yield bonds vs equities
CPI Supercore trending higher lately.
CPI Core vs CPI year over year
VIX futures curve and explaining difficulty in picking how to play expected rise in volatility
US 30-Year Treasuries made all-time high in March of 2020 but down -44% since
What would it take for bond holders to get to break even?
Stealth rally in Gold and comparing buying physical gold to gold ETFs GLD and GLDM
Comparing inflation outlook between Democrats, Republics, and Independents
Earnings season arrives while banks reported but talked NIM net interest margins suffering
Mentioned in this Episode
Podcast: Explaining How and Why Bonds Make or Lose Money https://open.spotify.com/episode/3AUT2DVbHfEQyJglpe70nP?si=wIFug8IfR1-sb_bX03qNHA
Previous Week’s Podcast:
Buying At All-time Highs Better? | S&P 500 Returns After Last Hike | Developed International Beats the S&P | How To Tell Whether Options Are Expensive https://podcasts.apple.com/us/podcast/buying-at-all-time-highs-better-s-p-500-returns-after/id1432836154?i=1000651729073
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, are back to explore surprising data about buying the market at all-time highs vs any other day. Plus, how do markets and bonds perform post the last fed hike? Later, while you were sleeping developed international markets outperform U.S. markets. And listener question “who do I know what a good price for an option is?”
What is a high or low price for an option?
Components that make up and drive option prices
Market performance post last fed rate hike
Bond market performance after last fed rate hike
MSCI EAFE developed markets international outperforms U.S. large cap
Why people aren’t buying the inflation is lower narrative
S&P 500 earnings estimates continue to rise
Forward PE multiple on the S&P 500 dynamic
Unemployment drops as more people are working and in the labor force
How does immigration if at all impact employment data?
How far $100 gets you at the grocery store today vs 2019
Understanding the cumulative effects of inflation vs the year over year percent change
Why high prices aren’t going back down as only the rate of future change adjusts
Mentioned in this Episode
How far does $100 get you at the grocery store post inflation? https://www.wsj.com/business/retail/inflation-food-price-of-groceries-2024-5010700b?mod=hp_lead_pos7
Previous Week’s Podcast:
Most Record Highs Since 2013 | The Fed No Rush to Cut? | VVIX and VIX Super Quiet | Value vs Growth | Cocoa More Valuable than Gold? https://podcasts.apple.com/us/podcast/most-record-highs-since-2013-the-fed-no-rush-to-cut/id1432836154?i=1000651003743
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, discuss Fed governor Waller (not Christopher Walkin) hinting the Fed should be in no rush to cut interest rates. Plus, we haven’t seen this many record stock market highs since Q1 of 2013. So, what does that mean if anything? Examining VVIX and VIX which both are really quiet and low right now. Growth has outperformed value by quite a bit, but do some relative value charts hint value may have its time in the sun? Later, corporate profit margins continue to be strong despite many saying they must revert to the mean. Finally, no Cocoa is not worth more than gold per ounce despite what the internet says.
Fed Governor Waller says no so fast on the need to cut rates
Why would the Fed cut rates if the economy is doing well?
Most record stock market highs since Q1 2013 in Q1 of 2024
Corporate profit margins remain strong
The VVIX has been sitting below the 80 level
VIX index not showing signs of worry
Triple top in the Growth relative to Value chart?
Cocoa futures make another new high
Value of Cocoa futures vs Gold futures
Public service (PSA) difference between price return and dividend adjusted return in ETFs
Mentioned in this Episode
Why cocoa prices spiked and what it means for chocolate lovers from Bloomberg https://www.bloomberg.com/news/articles/2024-03-31/why-cocoa-prices-spiked-and-what-it-means-for-chocolate-lovers
Previous Week’s Podcast:
The Fed Gets Bullish? | Markets Don’t Go Down Just Because They Go Up | Yield Curve Inversion Record | Bitcoin Halving https://podcasts.apple.com/us/podcast/the-fed-gets-bullish-markets-dont-go-down-just/id1432836154?i=1000650266452
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, discuss the Fed getting bullish by reducing unemployment estimates, raising GDP growth estimates, and doing nothing else but the market liked it. All while the yield curve inversion sets a record for longest in history. What is Bitcoin halving and what does it do for supply and demand? Looking at the stock market after going up a lot, why historically it can continue going (or not) up. Looking at 1995-1999 post Fed cut bullish moves. Why media explanations of 2 or 3 interest rate cuts by the Fed based on the median interest rate aren’t entirely true. Tip, how to calculate the median of something. All that and plenty more this week!
What is Bitcoin halving?
How to calculate the median of Fed funds dot plot rate
What is the Fed dot plot
Fed GDP growth rate upped at the March meeting while unemployment rate lowered
Core PCE inflation year end estimate increased by the Fed
Is the Fed just going to let inflation run a little hotter?
1995-1999 super strong S&P 500 market returns
New Yield Curve inversion record
High Yield debt maturity wall pushed out further
High Yield debt can be reduced by paying off, rolling, bankruptcy, or become investment grade
Looking at times when the market was up double digits over 30 days and what happens next
Mentioned in this Episode
What is Bitcoin ‘Halving’ and Does it Push Up the Cryptocurrency’s Price? https://www.bloomberg.com/news/articles/2024-03-06/what-is-bitcoin-halving-and-does-it-push-up-the-cryptocurrency-s-price
Previous Week’s Podcast:
Michael Saylor is Right on Bitcoin? |Worst Crash Since 1929 Coming? | Semiconductors Get Big Flows | 0 DTE Option Stats https://podcasts.apple.com/us/podcast/michael-saylor-is-right-on-bitcoin-worst-crash-since/id1432836154?i=1000649479605
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, talk through some examples of options trading in 0 DTE options on the SPX and Nvidia. Plus, a hedge fund manager says the worst crash since 1929 is coming. Looking at huge inflows into the semiconductor ETFs. Derek actually agrees with Michael Saylor’s points on Bitcoin including whether it’s a currency or property. Media mentions of stock market bubble are rising but so are continued mentions of AI. Finally, PPI producer price index comes in hot especially services while real retail sales still hasn’t gone above its 2022 highs. All that and more this week.
Is Bitcoin a currency or property?
MicroStrategy’s Michael Saylor interview on CNBC
Hedge fund manager says worst market crash since 1929 coming
How the same people make the same market predictions all the time
Semiconductor ETFs get massive flows of money last week
Examining detailed option data on SPX and NVDA 0 DTE options
Media mentions of “stock market bubble” are rising
Media mentions of AI and artificial intelligence jumped prior to the takeoff in AI stocks
PPI producer price index comes in hotter than expected
Services inflation now higher than goods inflation
Comparing US Deposits at commercial banks vs money markets
Money markets assets hit new highs
What do big money market balances mean for the stock market if anything?
Advanced real (after inflation) retail and restaurant sales
YTD 2024 ETF category flows bitcoin vs gold
Mentioned in this Episode
Michael Saylor CNBC interview about Bitcoin and whether it’s a currency or property https://twitter.com/saylor/status/1767178599390458285
Previous Week’s Podcast:
Worst Market Timing Ever? | Options Cost of Carry | Option Put Call Parity | Unemployment Bad News Is Bad News? https://podcasts.apple.com/us/podcast/worst-market-timing-ever-options-cost-of-carry/id1432836154?i=1000648820557
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, discuss how the magnificent 7 stocks aren’t all going up this year. Plus, reviewing what the worst time to buy stocks was and how investors would have done even if they had. Later, they explain why the last 10-15 years before retirement need growth but hedging. How Japan’s central bank might take interest rates from negative to positive, shipping container rates, inflation, Nvidia probabilities and the 15th anniversary of CNBC’s “Mark Haines Bottom” 3/10/2009.
What is the cost of carry for options
What is put call parity
Option market probabilities
What if you bought stocks at the worst time twice?
Drawdowns since March of 2000 and October of 2007
15 years since the Mark Haines bottom on CNBC 2009
Comparing stock market drawdowns 2000-2002, 2007-2009, 2018, 2022
Time in the market not timing the market
Japan interest rate probabilities
What may happen if and when Japan raises interest rates?
Japan’s currency with a rise in interest rates and implications for US Dollar and Treasuries
Magnificent 7 stocks Tesla, Apple, and Google to name a few are down for the year
Nvidia and Eli Lilly keeping the S&P 500 Index up
Shipping container rates ease but still high, will we see that filter through CPI Inflation data?
Explaining the unemployment report
Mentioned in this Episode
15 year anniversary of the Mark Haines Bottom March 10th 2009 https://twitter.com/carlquintanilla/status/1766138788881826035
Previous Week’s Podcast:
Why VIX Is Hard to Trade | SuperCore PCE High Again?| High Yield Bond Spreads | The Fed Is Not Cutting? | Semiconductors Surging (Again) https://podcasts.apple.com/us/podcast/why-vix-is-hard-to-trade-supercore-pce-high-again-high/id1432836154?i=1000647836923
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, explain why it’s so hard to trade the VIX via options or VIX futures given the nature of the products and how VIX works. Supercore PCE, yeah that’s a thing now, came in hot so what does that mean for the Fed and rates? Speaking of the Fed cutting rates, what if they don’t cut this year? Later they explore how High Yield Bonds aren’t showing any fear and comparing the High Yield spread, the long term annualized total return of the High Yield Bond Index, and how CCC Junk Bonds once were yielding a few years ago what short duration Treasury Bills are yielding now. Oh, and let’s not forget to look at the SOX Semiconductor Index which just surged again to new highs.
What is PCE Supercore compared to CPI?
PCE Supercore comes in higher than expected.
What if the Fed doesn’t cut interest rates and why they would or wouldn’t cut this year?
What is the VIX Index
Explaining VIX Futures and VIX Options
Why its so hard to play the VIX using futures or options?
The VIX Futures curve
What the VIX Futures around the election are showing
What is the high yield spread?
Annualized returns for the High Yield Index since 1997
Examining times when high yield spreads spiked
CCC rated bonds yield to worst
What is a Yield to Worst for bonds?
SOX Semiconductor Index and future projected earnings growth
Remember when Cisco was thought to be the picks and shovels of the internet?
Has Cisco ever eclipsed its 2000 dotcom era highs?
Super Micro Computer joins the S&P 500 Index replacing Whirlpool
Comparing Super Micro Computer’s revenues vs Whirlpool’s
Largest companies by market cap in each decade
Mentioned in this Episode:
Super Micro Computer joins the S&P 500 Index https://www.cnbc.com/2024/03/01/super-micro-joining-sp-500-after-20-fold-jump-in-stock-in-two-years.html#:~:text=Super%20Micro%20Computer%20is%20joining,in%20extended%20trading%20on%20Friday.
Previous Week’s Podcast:
Nvidia To the Moon | Implied Volatility and Earnings | Earnings and Markets Have Low Correlations? | Nvidia Cheap? https://podcasts.apple.com/us/podcast/nvidia-to-the-moon-implied-volatility-and/id1432836154?i=1000646788686
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, discuss Nvidia’s beat on earnings, their march towards $2trillion market cap, and how as earnings forecasts rise, even though the stock has made new highs, forward PE ratios go lower. Then, they explore what the options market via implied volatility was forecasting for an Nvidia move post earnings. Later, they review a comparison between the S&P 500 Index annual return vs the EPS growth to see if there is any relationship. Hint, it’s not too correlated even when they compare the current year market performance against the 1 year forward actual earnings. All that and more will be explained including some recommendations.
Nvida’s stock is rising while its forward PE just got cheaper
Nvidia’s recent earnings beat including EPS growth, revenue growth, and gross and net margins
What would it take for Nvida to overtake Microsoft as the largest company in the S&P 500?
Implied move post earnings based on the implied volatility of the options market
Price of the at the money long straddle on Nvidia the afternoon of earnings
Regression analysis of S&P 500 Index annual return vs EPS growth
Correlations between market returns and earnings growth
Comparing correlations with same year market returns vs same year and 1 year forward EPS
Markets are forward looking
Probability of Nvidia reaching $3.06T in market cap in one year per options market
Mentioned in this Episode:
Where returns come from see start of page 23 in Semper Augustus group letter
https://static.fmgsuite.com/media/documents/db64b928-53d6-43a9-a4d0-a9d2f69f76ba.pdf
Previous Week’s Podcast:
Put & Call Implied Volatility Mismatch? | US Dollar vs S&P 500 Correlation | Sticky Inflation | Japan Recession | Explaining Why Stocks Go Up (or down)https://podcasts.apple.com/us/podcast/put-call-implied-volatility-mismatch-us-dollar-vs-s/id1432836154?i=1000645873203
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, follow up on last week’s PE ration (useless?) discussion explaining how stocks go up or down based on earnings, multiples, and other factors. Then they delve into correlations between the US Dollar Index and the S&P 500 Index. Later, the surprising fact that as Japan’s Nikkei Index makes 35-year all-time highs they are in a technical recession. Finally, more evidence shows that inflation may be stickier and some that it may not. As always, they’ll have some recommendations!
Explaining how EPS earnings per share works
How the PE can change due to earnings going up or the multiple going up
How a stocks movement from one year to the next can be attributed to earnings and multiples
How the correlation between the US Dollar Index and the S&P 500 Index has flipped of late
Why a lower dollar helps large multinational companies earnings
Congratulations, Japan is making all-time highs while in a technical recession
What is a technical recession that everyone is now calling 2 quarters of negative GDP growth
Car insurance premiums rose another 20% year over year…inflationary?
How lagging price changes may continue to be sticky for inflation
Looking at how OER Owners Equivalent Rent has been trending lower
How higher rates may have put pricing pressure on rents
How market returns and earnings growth aren’t the same every year
Mentioned in this Episode:
Historical Returns on Stocks, Bonds and Bills: 1928-2023 NYU Aswath Damodaran https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html
Previous Week’s Podcast:
Is the Forward PE Useless?| S&P 500 Election Seasonality | Gen Z vs. Gen X Special https://podcasts.apple.com/us/podcast/is-the-forward-pe-useless-s-p-500-election/id1432836154?i=1000644953963
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, ask whether forward PE ratios are predictive of future market direction? Then they review how the S&P 500 Index has performed during each presidential election going back to 1996. Does it matter which party (Republicans or Democrats) are in office for markets? Is Tesla going to get kicked out of the Magnificent 7? Later Jay and Derek are joined by two Gen Z’ers (Zander and Bobby), to explore what their views are on money, markets, and take some questions.
Explaining what the forward PE is for the S&P 500 Index
What are the current forward EPS estimates for the S&P 500 Index
What if Forward PE ratios don’t tell us too much about future direction for markets?
Cocoa futures go parabolic during latest spike
Where cocoa beans come from
Delinquencies on auto loans rise
Seasonality in markets during presidential election years
Stock market returns when Republicans vs Democrats controlling presidency, senate, and house
Magnificent 6? Is Tesla going to get kicked out of magnificent 7?
Gen Z trading options
Does Gen Z really invest as much as the media suggests?
Where does Gen Z get their financial education online?
Quick explanation on the option greeks
How stocks are discounting the known future of companies
Surprising data on historic stock returns vs real estate
Mentioned in this Episode:
Cocoa prices soar https://www.ft.com/content/c163633a-cd9e-4962-8b7f-3d6c44463405
Historical Returns on Stocks, Bonds and Bills: 1928-2023 NYU Aswath Damodaran https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html
Previous Week’s Podcast:
Too Focused on Fed Rates?| META Earnings Implied Volatility | NAV Erosion Mythhttps://podcasts.apple.com/us/podcast/too-focused-on-fed-rates-meta-earnings-implied-volatility/id1432836154?i=1000644131131
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, discuss the Fed and Powell press conference market reaction. Plus, they look at META and Apple option’s implied volatilities did or didn’t predict the post earnings moves. 1994-95 experience in Fed rates and bond yields compared to today. Later, they set the record straight on what NAV erosion is, why the Shiller PE may not be predictive of markets, low response rates to economic surveys, and correlation between CPI and shipping container rates.
Fed Meeting Powell press conference roiled markets for all of 1 day
Who is right, the bond market or the stock market on rates?
Typical moves in bond yields around fed meetings and outside of fed meetings
The Fed Funds rate and the 10-year treasury bond yield aren’t as related as you think
Looking back at the 1994-95 Fed rate hiking and easing cycle
META blows out earnings and adds the most market cap ever in one day
Looking at META options implied volatility pre-earnings to see if it got it right
Reviewing Apple’s ATM straddle, implied volatility, and post earnings move
Confusion around what the meaning of NAV erosion is
Total return which includes dividends vs price return.
Correlation between CPI year over year change and container shipping rates
JOLTS Job Openings Less Turnover Survey response rates drop
How economic surveys sample small amounts to gauge total economy
Shiller PE CAPE Ratio and predictive power
Mentioned in this Episode:
1994-95 All Over Again in Markets? https://podcasts.apple.com/us/podcast/1994-95-all-over-again-in-markets/id1432836154?i=1000590865306
BLS Bureau of Labor Statistics January 2024 employment report https://www.bls.gov/news.release/pdf/empsit.pdf
Previous Week’s Podcast:
What Option Volatility Means for Markets | Is the Market Too Dovish on Interest Rate Expectations? | Does the Fed Need an Economics Lesson?
https://podcasts.apple.com/us/podcast/what-option-volatility-means-for-markets-is-the/id1432836154?i=1000642385904
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, are it at once again where they analyze Tesla’s implied volatility right before earnings vs what happened. Did the option’s market misprice premiums? Also, in the episode they talk about Bitcoin’s drop as a sell the news buy the rumor example while Derek argues that Bitcoin’s volatility make it unusable as a currency to transact business. Later they dive into some data showing that when markets are up 20% the year before the election, election years historically have never been down and does that mean anything for 2024? Finally, they talk about China’s selloff relative to US markets and how everyone thought emerging markets would be the thing in 2023.
Bitcoin in a bear market drawing down greater than 20% from pre-ETF launch high
Bitcoin at least in the short term seems like people bought the rumor but are selling the news
Can Bitcoin be a currency if it drops 20% within a month?
What is an option’s implied volatility mean vs an option’s historical volatility
Looking at the price of the at the money straddle on Tesla right before earnings
How to figure out what the options market is pricing in for a 1 standard deviation move
Post Tesla earnings did the markets accurately price in how much Tesla moved after earnings?
2023 was up > 20% so what does that mean for election year based on some data?
Election year and the markets
China’s stock market gets a little rocky but no bearing on US markets?
Emerging markets were picked at the beginning of 2023 to close the gap on US markets
Emerging markets still underperforming the S&P 500 Index
Explaining how companies earnings in S&P 500 Index are aggregated together not weighted
Comparing Apple’s earnings in a quarter to Starbucks and why the big 7 matter most right now
Semiconductors weighting in the S&P 500 Index hits a high
Semiconductors as the picks and shovels, bluejeans play for AI?
Mentioned in this Episode:
What Option Volatility Means for Markets | Is the Market Too Dovish on Interest Rate Expectations? | Does the Fed Need an Economics Lesson?
https://podcasts.apple.com/us/podcast/what-option-volatility-means-for-markets-is-the/id1432836154?i=1000642385904
Hedging With Options Examples | Soft Landing? | US Congress Trading Returns | Is Good News or Bad News Good?
https://podcasts.apple.com/us/podcast/hedging-with-options-examples-soft-landing-us-congress/id1432836154?i=1000640844619
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, are back to discuss whether the Fed grasps how prices historically always rise. That prices never drop and inflation dropping doesn’t mean prices go down. Then they discuss the forward earnings estimates showing growth for the S&P 500 Index while comparing price to sales compared to January of 2022. Later, they discuss what the option volatility markets are signaling for the S&P 500 over the near term. All that and more plus is the market pricing in too many rate cuts?
Is the market pricing in too many rate cuts?
What the option volatility markets are signaling for the S&P 500
Inflation dropping doesn’t mean prices go down
Supply side inflation vs demand side inflation
Why throwing money (stimulus) into the economy during a supply side problem was misguided
Reviewing option market volatility and what the volatility indicators are telling us about markets
The volatility of volatility (VVIX) movements of late
Forward earnings estimates point to growth expectations for the S&P 500 Index
Mentioned in this Episode:
Hedging With Options Examples | Soft Landing? | US Congress Trading Returns | Is Good News or Bad News Good?
https://podcasts.apple.com/us/podcast/hedging-with-options-examples-soft-landing-us-congress/id1432836154?i=1000640844619
Bitcoin ETF Sell the News? | Expect Stock Market Corrections | Value vs. Growth | Travel Inflation Cooling?https://podcasts.apple.com/us/podcast/bitcoin-etf-sell-the-news-expect-stock-market/id1432836154?i=1000641595251
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Mike Puck of ZEGA Financial join up to discuss the run up and selloff in bitcoin around the bitcoin spot etf launches. Is it the obvious buy the rumor sell the news situation? How CPI components like lodging away from home and travel pricing are starting to cool. Later, examining the value vs growth debate and whether this is the year for value to finally have its day. Plus, forward PE valuations and how they have fluctuated over the last 2 years.
Bitcoin ETFs finally launch
Bitcoin prices rally ahead of the ETF launch and selloff on launch day
Buy the rumor sell the news?
Why value stocks have had difficulty outpacing growth
Cost of capital value stocks vs growth stocks
CPI travel components are cooling off bringing some pricing power back to consumers
Forward PE ratios
How the forward multiple has expanded after dropping in 2022
Why corrections are normal
Historically the markets suffer corrections but are often up for the year
1987 crash was big but market actually ended the year up
Once again why predictions and guessing market direction can be futile
Mentioned in this Episode:
Hedging With Options Examples | Soft Landing? | US Congress Trading Returns | Is Good News or Bad News Good?
https://podcasts.apple.com/us/podcast/hedging-with-options-examples-soft-landing-us-congress/id1432836154?i=1000640844619
2024 Predictions | Late Year Rally Bullish? | What if Investors Are Expecting Too Many Rate Cuts? https://podcasts.apple.com/us/podcast/2024-predictions-late-year-rally-bullish-what-if-investors/id1432836154?i=1000640245688
0 DTE Options to Blame for Selloff? | 2024 Targets for S&P 500 Index | Fed Dot Plots Always Wrong?https://podcasts.apple.com/us/podcast/0-dte-options-to-blame-for-selloff-2024-targets-for/id1432836154?i=1000639530301
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, are back this week to discuss some hedging examples and how hedging is cheap right now. They even go through a few examples. Then they get into the sharp rise in container shipping costs before discussing the weaker PMI Services data. Later they note Bloomberg’s data showing articles mentioning “soft landing” are the highest since the 2000-2001 recession. A fun segment where they go through data from Unusual Whales showing the 2023 returns from members of congress and which members traded the most including options. Finally, they discuss whether so goes January goes the rest of the year in markets is a good indicator.
The cost of hedging with options is cheap right now.
Examples of hedging using the S&P 500 Index ETF SPY and Nvidia
Zero cost collars to hedge downside risk.
Is good news in markets or bad news in markets good news?
Container shipping costs spike due to the Red Sea and Suez Canal re-routing.
PMI Services data shows employment dipped below 50, which is contraction.
What is the PMI Services Survey?
“Soft Landing” shows up in Bloomberg articles the most since the 2000-2001 recession.
Which members of the US Congress beat the markets last year 2023?
Unusual Whales publishes report showing number of trades and performance of US Congress
Which congressman traded over 4000 times last year?
What does January performance say about the rest of the year’s performance in markets?
NY Fed global supply chain pressure index
Mentioned in this Episode:
Report from Unusual Whales showing 2023 members of congress trading returns https://unusualwhales.com/politics/article/congress-trading-report-2023
December ISM Services PMI report https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/services/december/
NY Federal Reserve Bank Global Supply Chain Pressure Index (GSCPI) https://www.newyorkfed.org/research/policy/gscpi#/interactive
2024 Predictions | Late Year Rally Bullish? | What if Investors Are Expecting Too Many Rate Cuts? https://podcasts.apple.com/us/podcast/2024-predictions-late-year-rally-bullish-what-if-investors/id1432836154?i=1000640245688
0 DTE Options to Blame for Selloff? | 2024 Targets for S&P 500 Index | Fed Dot Plots Always Wrong?https://podcasts.apple.com/us/podcast/0-dte-options-to-blame-for-selloff-2024-targets-for/id1432836154?i=1000639530301
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, go through their 2024 predictions and review how right or wrong they were in 2023. Why predictions are so hard to make and why they are overrated. When markets go up over 10% in the final 2 months of the year historically what does that mean for returns the following year? How earnings growth and market returns are non-correlations. According to NAAIM Active Manager Equity exposure is now greater than 100% compared to the October lows where it was only around 30%. No surprise there as people are more bullish when markets are making highs. 2024 predictions covering interest rates, the fed, markets, earnings, gold, bitcoin, oil and more.
Reviewing the 2023 predictions and how wrong or right they were.
How investors and institutions tend to be more long stocks when markets are at highs
How investor psychology gets in the way of buying when they should be buying
Questioning that everyone sold stocks to go into money market funds.
How bank assets may have rolled into money markets due to low interest rates at banks
Comparing correlations between earnings growth in a year and the market returns
When markets are down greater than 22% in a year, what is the average return the next year?
What if investors are expecting too many Fed rate cuts?
S&P 500 Index price vs EPS during bear markets
When final two months of the year are up greater than 10% what are returns the following year?
NAAIM Active Manager Equity exposure now 103% vs under 30% during October lows
Mentioned in this Episode:
0 DTE Options to Blame for Selloff? | 2024 Targets for S&P 500 Index | Fed Dot Plots Always Wrong?https://podcasts.apple.com/us/podcast/0-dte-options-to-blame-for-selloff-2024-targets-for/id1432836154?i=1000639530301
Everyone Betting on Rate Cuts | Blackrock Buying 44% of Homes? | Record Call Option Volume & VVIX and VIX Out of Synch? https://podcasts.apple.com/us/podcast/everyone-betting-on-rate-cuts-blackrock-buying-44-of/id1432836154?i=1000638850473
No, Wall Street investors haven’t bought 44% of homes this year https://finance.yahoo.com/news/no-wall-street-investors-haven-015642526.html
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, discuss how people are blaming the Wed 1.5% selloff on 0 DTE options while the CBOE says not so fast as dealers may have been buying stocks during the drawdown thus stabilizing markets. Later they talk shipping container rates spiking higher due to issues in the Suez Canal and Red Sea. Is this a fly in the ointment for inflation? Then they talk about how analysts making 2024 S&P 500 Index price and earnings estimates must get the forward 2025 earnings estimate right and what multiple the market will be trading at. What about oil in 2024? Analysts seem to be bearish, but Jay and Derek look at potential for refilling the SPR (strategic petroleum reserve). Finally, they talk VIX and VVIX and note how compressed the daily changes have been and what if anything that means going forward.
0 DTE Options (or ZERO Days to Expiration Options) are blamed for midweek selloff.
Why the CBOE says 0 DTE options are not to blame and instead dealers were buying stocks.
How market makers were a stabilizing force during the selloff rather than adding to selloff
Are they getting wrong the impact of 0 DTE options?
Why calls for Volmageddon 2.0 might be missing what caused Volmageddon 1.0
S&P 500 Index targets for 2024 vary quite a bit
Why is it so hard to nail next years S&P 500 Index targets because you really need 2025 EPS.
How analysts could have the same earnings targets but different multiple expectations
Shipping container rates spiked due to the issues in the Red Sea leading to the Suez Canal
Below the surface inflation pressure and remembering how container rates foretold inflation
SPR Strategic Petroleum Reserve levels and whether refilling them will be inflationary.
Gasoline prices have softened while analysts are pretty bearish on oil for 2024.
Contrarian view might be to look at oil to recover which would move CPI.
The Fed Dot Plots never wind up being correct.
Is Diehard a Christmas movie or not?
Mentioned in this Episode:
Zero-Day Options Shouldn’t Be Blamed for Selloff, Cboe Says https://www.bloomberg.com/news/articles/2023-12-21/zero-day-options-catch-blame-for-selloff-cboe-says-not-so-fast?embedded-checkout=true
Everyone Betting on Rate Cuts | Blackrock Buying 44% of Homes? | Record Call Option Volume & VVIX and VIX Out of Synch? https://podcasts.apple.com/us/podcast/everyone-betting-on-rate-cuts-blackrock-buying-44-of/id1432836154?i=1000638850473
No, Wall Street investors haven’t bought 44% of homes this year https://finance.yahoo.com/news/no-wall-street-investors-haven-015642526.html
S&P 500 Targets | VIX Index Largest 7-Week declines | Simplifying Synthetic Long Stock with Covered Calls | Labor Force Participation https://podcasts.apple.com/us/podcast/s-p-500-targets-vix-index-largest-7-week-declines-simplifying/id1432836154?i=1000638193441
Dave Ramsey Wrong? | Huge VIX Options Bets | S&P 500 Seasonality | When Does Government Debt Become a Problem? https://podcasts.apple.com/us/podcast/dave-ramsey-wrong-huge-vix-options-bets-s-p-500-seasonality/id1432836154?i=1000636559171
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, discuss the new consensus of the Fed doing multiple rate cuts so what could go wrong? Record call option volume while the VVIX makes a move higher while the VIX continues lower. Viral article said 44% of home sales were to big institutions like Blackrock and Innovation homes but it was less than 0.4%. Later they look at whether the Powell Fed and the Voelker Fed are similar in declaring mission accomplished. Finally, they cover how bullish investors have gotten now that we are close to the all-time highs again and any flies in the ointment economically.
Consensus of multiple Fed rate cuts can be wrong, can it?
Why when everyone on the same side sometimes surprises
VIX vs the VVIX index
What the VVIX spiking while the VIX moves lower means
Comparing Chairman Powell’s Fed today to Voelker’s 1982 Fed and going forward for markets
The AAII Bull – Bear survey points to high bullishness with market approaching all-time highs.
44% of home sales being bought by Blackrock? Not so fast!
Atlanta Fed GDP is now ticking up again.
Record Call option volume
Fed rate probability tracker tool
Mentioned in this Episode:
No, Wall Street investors haven’t bought 44% of homes this year https://finance.yahoo.com/news/no-wall-street-investors-haven-015642526.html
S&P 500 Targets | VIX Index Largest 7-Week declines | Simplifying Synthetic Long Stock with Covered Calls | Labor Force Participation https://podcasts.apple.com/us/podcast/s-p-500-targets-vix-index-largest-7-week-declines-simplifying/id1432836154?i=1000638193441
Dave Ramsey Wrong? | Huge VIX Options Bets | S&P 500 Seasonality | When Does Government Debt Become a Problem? https://podcasts.apple.com/us/podcast/dave-ramsey-wrong-huge-vix-options-bets-s-p-500-seasonality/id1432836154?i=1000636559171
0DTE Options Analysis| Inflation Coming Back? | Strong US Dollar Impact https://podcasts.apple.com/us/podcast/0dte-options-analysis-inflation-coming-back-strong/id1432836154?i=1000628157831
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, join up once again to discuss the drop in the VIX Index off the highs. How S&P 500 2024 targets are showing up and why investors may not care. Labor force participation turned down so what does that mean if anything? Finally, Simplifying what synthetic long stock strategies are and synthetic long stock with covered calls. What are the features and benefits? How are they like just owning stock and or owning stock with a covered call? What investors give up by selling covered calls in exchange for additional income.
2024 S&P 500 Year End Price Targets from the investment banks
Why investors should probably ignore market predictions
Largest VIX Index 7-week declines and whether its significant or no
Unemployment remains low but labor force participation move lower
What does Labor Force participation measure?
What are synthetic option positions?
What are synthetic long stock with a covered call position?
What are the benefits of using synthetic options to build market exposure?
Mentioned in this Episode:
VIX Index Goes Nowhere | Cheap Puts to Hedge? |Cheaper to Rent Than Buy? | Markets During Presidential Election Years https://podcasts.apple.com/us/podcast/vix-index-goes-nowhere-cheap-puts-to-hedge-cheaper/id1432836154?i=1000637335338
Dave Ramsey Wrong? | Huge VIX Options Bets | S&P 500 Seasonality | When Does Government Debt Become a Problem? https://podcasts.apple.com/us/podcast/dave-ramsey-wrong-huge-vix-options-bets-s-p-500-seasonality/id1432836154?i=1000636559171
0DTE Options Analysis| Inflation Coming Back? | Strong US Dollar Impact https://podcasts.apple.com/us/podcast/0dte-options-analysis-inflation-coming-back-strong/id1432836154?i=1000628157831
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli join up to discuss an unchanged VIX and VVIX index. Was our trading platform screen broken? Whether the VIX and VVIX Index is a coiled spring as they are both in compression mode of late. Then, they explore new data that shows the cost to buy a home vs rent is really high meaning its very costly to buy vs rent right now. Did the Fed cause this? Jay and Derek also explore how cheap 1 year out puts are on the S&P 500 Index right now. Does no one want protection? Finally, they dip their toes into the all to soon 2024 presidential election looking at data around how markets do during election years. Does it even matter if it’s a Republican or Democrat?
The VIX Index and the VVIX Index both closed unchanged on Wednesday this week
Both VIX and VVIX are showing signs of compression in their standard deviations of late
What smaller ranges over a period mean for the VIX and markets with regard to expected moves
Not since the pre-Great Financial crisis has buying a home been more expensive than renting
How now one ever compares the interest paid in a mortgage payment to rental payments
Did the Federal Reserve cause rent inflation by freezing the housing market creating demand?
The 1-year out at-the-money-puts are a cheap hedge right now, does anyone want hedged?
How everyone wants to be hedged when markets are crashing but not when its cheap
Why buying but hedging makes sense for the long haul.
How do markets do in the 4th year of a presidential cycle election year?
Market returns during presidential elections when democrats vs republicans get elected
Mentioned in this Episode:
Dave Ramsey Wrong? | Huge VIX Options Bets | S&P 500 Seasonality | When Does Government Debt Become a Problem? https://podcasts.apple.com/us/podcast/dave-ramsey-wrong-huge-vix-options-bets-s-p-500-seasonality/id1432836154?i=1000636559171
Total compounded annualized growth rate S&P 500 index by decade https://zegafinancial.com/blog/where-did-the-2010s-rank-for-total-return-on-sandp-500-index
Probability of Recession? | Explaining How US Treasury Bond Auctions Work | S&P 500 Index Member Changes | Option Premium Intrinsic vs. Extrinsic https://podcasts.apple.com/us/podcast/probability-of-recession-explaining-how-us-treasury/id1432836154?i=1000635380296
Stock Market Returns after First Rate Cut https://podcasts.apple.com/us/podcast/stock-market-returns-after-first-rate-cut-yield-curve/id1432836154?i=1000634550774
Option Selling ETFs Boom | Probability of Future Fed Moves | Bad News is Good News on Employment https://podcasts.apple.com/us/podcast/option-selling-etfs-boom-probability-of-future-fed/id1432836154?i=1000633983056
0DTE Options Analysis| Inflation Coming Back? | Strong US Dollar Impact https://podcasts.apple.com/us/podcast/0dte-options-analysis-inflation-coming-back-strong/id1432836154?i=1000628157831
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore is back with Jay Pestrichelli this week where they analyze the recent viral video where Dave Ramsey suggests people can safely withdraw 8% forever in retirement. What doesn’t make sense, what is left out, and why the assumptions may be faulty. Then, they discuss the market seasonality and whether this November pop higher already delivered a year end rally? Later Jay and Derek discuss the huge purchase of VIX calls this week and what it did to the VVIX Index as well as an interesting VIX option trade for December. Finally, they touch on Argentina’s plan to dollarize the economy and when the US and other countries high debt to GDP can expect it to be a problem and what is so frustrating to traders making bearish bets against it.
Dave Ramsey viral video saying 8% withdrawal rate on accounts will work forever
How Dave Ramsey makes fun of people arguing for 3%-5% withdrawal rates
The claim of simply investing in mutual funds making 12% annually doesn’t add up
How ignoring the sequence of return risk doesn’t paint a true picture for retirees
Dave Ramsey seems to imply even retirees should be 100% invested in equities
How the sequence of returns only matters to returns when withdrawing or adding money
Simple average annual return vs CAGR compounded annual growth rate
Contrary to Dave Ramsey’s advice not everyone should paying off their mortgage early
What historical seasonality of the S&P 500 Index says about year end performance
One of the largest November month returns on record for S&P 500 Index since 1928
What does Novembers month to date returns mean for seasonality?
Sovereign government debt at historic highs measured as debt to GDP
Argentina new president Javier Milei’s plan to dollarize
Argentina’s history of debt defaults
Discussing the huge VIX call trade that moved the VVIX Index this week
Why people are buying VIX calls
The VIX Index closed at the lowest level since January of 2020
Interesting VIX call breakeven levels for December calls
Mentioned in this Episode:
Total compounded annualized growth rate S&P 500 index by decade https://zegafinancial.com/blog/where-did-the-2010s-rank-for-total-return-on-sandp-500-index
Probability of Recession? | Explaining How US Treasury Bond Auctions Work | S&P 500 Index Member Changes | Option Premium Intrinsic vs. Extrinsic https://podcasts.apple.com/us/podcast/probability-of-recession-explaining-how-us-treasury/id1432836154?i=1000635380296
Stock Market Returns after First Rate Cut https://podcasts.apple.com/us/podcast/stock-market-returns-after-first-rate-cut-yield-curve/id1432836154?i=1000634550774
Option Selling ETFs Boom | Probability of Future Fed Moves | Bad News is Good News on Employment https://podcasts.apple.com/us/podcast/option-selling-etfs-boom-probability-of-future-fed/id1432836154?i=1000633983056
0DTE Options Analysis| Inflation Coming Back? | Strong US Dollar Impact https://podcasts.apple.com/us/podcast/0dte-options-analysis-inflation-coming-back-strong/id1432836154?i=1000628157831
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore is back with Jay Pestrichelli, CEO of ZEGA Financial, to review the Goldman Sachs probability of recession and Fed rate forecast for 2024. Then they do a deeper dive on key aspects of US Treasury Bond auctions. Hint, it’s a Dutch auction and how to read the results of treasury auctions including the bid to cover ratio. Later they talk through changes in the makeup of the S&P 500 Index companies and what the impact on earnings may be. Plus, how even when stocks go in and out of the index how the “divisor” calculation smooths the S&P 500 price out. Finally, Jay and Derek do a deep dive into the difference of options premium intrinsic value vs. extrinsic value using some examples. Oh, we have some recommendations as well.
What does Goldman Sachs have for probability of recession now?
What does Goldman Sachs estimate for Fed interest rates in 2024?
How do US Treasury bond auctions work?
What is a Dutch auction?
What is the bid to cover ratio mean in a US Treasury auction?
Looking at supply and demand metrics within Treasury Bond auctions.
S&P 500 Index committee that determines what companies come in and out of the index.
What is the S&P 500 Index divisor?
The largest company not in S&P 500 index is Uber?
Index changes underappreciated for earnings growth?
Airbnb, Blackstone, Lululemon all added to the S&P 500 Index in 2023
What is the difference between intrinsic premium and extrinsic premium in options?
How the option greeks like delta, gamma, theta impact extrinsic premium but not intrinsic
Comparing covered calls to ITM short puts on an index
Time decay implied in extrinsic premium
When covered calls are likely to get called away around dividends and extrinsic premium left
Why are ITM cash secured puts misunderstood
Mentioned in this Episode:
Stock Market Returns after First Rate Cut https://podcasts.apple.com/us/podcast/stock-market-returns-after-first-rate-cut-yield-curve/id1432836154?i=1000634550774
Option Selling ETFs Boom | Probability of Future Fed Moves | Bad News is Good News on Employment https://podcasts.apple.com/us/podcast/option-selling-etfs-boom-probability-of-future-fed/id1432836154?i=1000633983056
0DTE Options Analysis| Inflation Coming Back? | Strong US Dollar Impact https://podcasts.apple.com/us/podcast/0dte-options-analysis-inflation-coming-back-strong/id1432836154?i=1000628157831
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore does a deep dive asking the question why is everyone rooting for the Fed to lower rates? If the Fed must lower interest rates, doesn’t that mean there is trouble? Should investors instead be rooting for stable but higher rates where the long end un-inverts as a proxy for higher growth? What happens to market performance between the last Fed hike and first rate cut? What is the historical performance of markets post the first Fed rate cut? Then looking at past yield curve (10-year treasury minus 3-month treasury yield) before recessions. How the Fed normally inverts and then un-inverts the curve by hiking and then lowering interest rates. Finally, what is the NBER (National Bureau of Economic Research Board) looking at to determine recessions?
What is the inverted yield curve?
How have past yield curves inverted and un-inverted around recessions?
How does the stock market perform between the final rate hike and first rate cut?
How does the stock market perform after the first rate cut by the Fed?
Are rate cuts a sign of strength in the economy?
How the Fed typically causes inversions by hiking the Fed funds rate.
Historically the yield curve un-inverted because the Fed is cutting rates.
Will this time be different where long rates move higher to un-invert the curve?
What is the NBER National Bureau of Economic Research looking at for recessions?
How predictive of recessions is the yield curve?
Mentioned in this Episode:
Liz Young Sofi article showing S&P 500 Index market returns from last rate cut to first hike and post first Fed cut https://www.sofi.com/article/investment-strategy/liz-looks-at-recent-rally/
FRED Spread of 10-year treasury bond to 3 month treasury bill difference updated https://fred.stlouisfed.org/series/T10Y3M
NBER business cycle dates (past recession dates) https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions
Option Selling ETFs Boom | Probability of Future Fed Moves | Bad News is Good News on Employment https://podcasts.apple.com/us/podcast/option-selling-etfs-boom-probability-of-future-fed/id1432836154?i=1000633983056
0DTE Options Analysis| Inflation Coming Back? | Strong US Dollar Impact https://podcasts.apple.com/us/podcast/0dte-options-analysis-inflation-coming-back-strong/id1432836154?i=1000628157831
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and ZEGA Financial CEO Jay Pestrichelli ponder whether the Fed is truly done and if the street is too optimistic on rate cuts in 2024. Plus, they discuss new data showing option selling ETFs are having record assets between inflows and new entrants. Bad news is good news still as employment ticks up. They delve deeper into the numbers including labor participation rate, size of workforce, and more in the household survey data. Finally, they talk about options volatility and how it got sucked out of the market this week.
Option selling ETFs set new record high for assets
Is the Fed really done raising rates?
Is the street too optimistic about Fed rate cutting in 2024?
Sahm Recession Rule indicator says recent employment data hints at recession
3-Month moving average of the unemployment rate in the Sahm recession rule indicator
VIX hits lowest level in a while
Earnings and Nvidia options
Bad news is good news regime is still alive and well in markets
US unemployment rate ticks up to 3.9%
Understanding the household survey numbers
What is the labor force participation rate?
Size of the US workforce
Mentioned in this Episode:
BLS US Unemployment Rate report https://www.bls.gov/news.release/empsit.nr0.htm
Correction Territory | No Fear Yet in Markets? | When Does Capitulation Happen in Markets?
https://podcasts.apple.com/us/podcast/correction-territory-no-fear-yet-in-markets-when-does/id1432836154?i=1000632979045
Fed Rate probability tracker https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
0DTE Options Analysis| Inflation Coming Back? | Strong US Dollar Impact https://podcasts.apple.com/us/podcast/0dte-options-analysis-inflation-coming-back-strong/id1432836154?i=1000628157831
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and ZEGA Financial CEO Jay Pestrichelli to discuss how despite the correction territory (markets down 10% from top), the VIX index hasn’t shown any real fear. So, what will it take to see capitulation in the markets? Thus far high yield spreads haven’t reflected too much worry. Then Derek is tired of pundits talking about equal weighted market vs the “Magnificent 7” comparison as this is why you buy the index! Later, they discuss the new Fed survey showing how much net worth one needs to get into the top 10% plus median net worth by age range. All this and more plus some recommendations.
Is there enough fear in the stock market?
Why hasn’t the VIX spike more during a 10% stock market correction?
VVIX vs VIX
What would capitulation in the stock market look like right now?
What is a stock market correction vs a bear market?
Checking in the on High Yield bond spread
Is rebalancing traditional portfolios from stocks to bonds causes equity weakness?
The “Magnificent 7” Tesla Apple Google Meta Microsoft Nvidia Amazon
Equal weighted stock indexes vs the S&P 500 Index
Fed survey on household finances shows how much net worth to get into different percentiles.
What is the median net worth by age group?
How US median net worth has increased.
Fed Survey of Consumer Finances (SCF)
Mentioned in this Episode:
Fed Survey of Consumer Finances (SCF) showing median net worth and income by age https://www.federalreserve.gov/econres/scfindex.htm
Powell vs. Bond Traders | Option Volatility During Earnings | Mortgage Rate Spread to Treasuries https://podcasts.apple.com/us/podcast/powell-vs-bond-traders-option-volatility-during-earnings/id1432836154?i=1000632184399
0DTE Options Analysis| Inflation Coming Back? | Strong US Dollar Impact https://podcasts.apple.com/us/podcast/0dte-options-analysis-inflation-coming-back-strong/id1432836154?i=1000628157831
Implied Volatility Deep Dive | Real Interest Rate Yields | The Big Short | Tesla vs Nvidia
https://podcasts.apple.com/us/podcast/implied-volatility-deep-dive-real-interest-rate-yields/id1432836154?i=1000627400400
The Big Short Movie and Credit Default Swaps Explained
https://open.spotify.com/episode/6FG0xHkxfhSXEtbJbFbDF6
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore is back with ZEGA Financial CEO Jay Pestrichelli to discuss whether Jay Powell or bond traders are in charge of interest rate policy? How option volatility changes around earnings announcements. Why the spread between the 30-year Mortgage Rate and 10-year treasuries is historically wide including MBS (Mortgage-Backed Securities) impact. Plus, how MBS are doing something kind of weird right now. Later they discuss financial conditions, how high yield loans and bonds have greatly outperformed “safer” fixed income areas, and the breadth of the market vs the “magnificent 7” companies.
Is the bond market doing the Fed and Jay Powells work for them?
How higher interest rates tighten financial conditions.
The Fed not buying bonds creating lack of buyers?
Typical spread between the 30-year mortgage rate and the rate on US 10-year treasuries
How the spread is historically high (like 2 standard deviations)
When the 30-year mortgage spread over treasuries widened in the past
Does this mean mortgage rates need to come down or treasury rates have more to rise?
What are MBS Mortgage-Backed Securities
How MBS bond convexity is positive (hint, it’s almost always negative)
Interest rates moving higher means less refinancing (and home sales) extending loan durations.
What is bond convexity and how does it relate to interest rate sensitivity risk
High yield bonds and loans surprising outperformance over investment grade and treasuries
Divergence is higher now than before Silicon Valley Bank
Chicago Fed National Financial Conditions Index
S&P 500 Equal Weight Index vs the magnificent 7
How the S&P 500 Index forecasted next 12-month earnings are higher now
The forward PE ration of the S&P 500 Index back down to about 17.5 PE
Are we behind the trough in earnings?
Mentioned in this Episode:
Deep Dive: Can Bonds Recover? | TLT ETF Breakdown |Inflation and the Fed https://podcasts.apple.com/us/podcast/deep-dive-can-bonds-recover-tlt-etf-breakdown-inflation/id1432836154?i=1000631358491
Bond Market Collapse https://podcasts.apple.com/us/podcast/bond-market-collapse-oil-price-problems-bond-stock/id1432836154?i=1000630742799
Cheap vs Expensive Options | Warren Buffett on Options | Fed Powell Presser
https://podcasts.apple.com/us/podcast/cheap-vs-expensive-options-warren-buffett-on-options/id1432836154?i=1000629058900
0DTE Options Analysis| Inflation Coming Back? | Strong US Dollar Impact https://podcasts.apple.com/us/podcast/0dte-options-analysis-inflation-coming-back-strong/id1432836154?i=1000628157831
Implied Volatility Deep Dive | Real Interest Rate Yields | The Big Short | Tesla vs Nvidia
https://podcasts.apple.com/us/podcast/implied-volatility-deep-dive-real-interest-rate-yields/id1432836154?i=1000627400400
GameStop Short Squeeze by the Reddit Wall Street Bets Traders Explained
https://podcasts.apple.com/us/podcast/broken-pie-chart/id1432836154?i=1000507187446
The Big Short Movie and Credit Default Swaps Explained
https://open.spotify.com/episode/6FG0xHkxfhSXEtbJbFbDF6
Margin Call Movie and Understanding Value at Risk https://open.spotify.com/episode/2XJ58KAoQKw2sdC48KHyPp
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore explains what it would take interest rate wise for bonds and TLT to get back to breakeven on price. A lot of misunderstanding is out there on buying bonds at the bottom and what that means. How bonds have different drivers than stocks. Plus, inflation is ticking back up and what that means for the Fed. Finally, a deep dive into TLT components and the math behind what those buying TLT are hoping for.
What would make bonds go back up?
Examining TLT iShares 20+ etf components
Effective Duration to show how interest rates affect bond etfs and bonds.
Math behind movement in bonds
What would it take for TLT to get back to breakeven with regard to interest rates?
Looking at 30-year treasuries issued in 2020 that are down greater than 50%
Inflation ticked back up with CPI year over year reaching 3.7% YoY from its low of 3%
What does inflation moving back up mean for the Fed and interest rates?
Earnings seasons begins with expectations rising
Are earnings still the most important driver of price?
Multiple expansion vs earnings falling
Mentioned in this Episode:
Bond Market Collapse https://podcasts.apple.com/us/podcast/bond-market-collapse-oil-price-problems-bond-stock/id1432836154?i=1000630742799
Government Shutdowns & Markets | Short ITM Puts Alternative to Covered Calls | Why Hedging Works
https://podcasts.apple.com/us/podcast/government-shutdowns-markets-short-itm-puts-alternative/id1432836154?i=1000629813419
John Hussman 12-year forward nominal return estimates chart https://www.hussmanfunds.com/comment/mc230724/
Cheap vs Expensive Options | Warren Buffett on Options | Fed Powell Presser
https://podcasts.apple.com/us/podcast/cheap-vs-expensive-options-warren-buffett-on-options/id1432836154?i=1000629058900
0DTE Options Analysis| Inflation Coming Back? | Strong US Dollar Impact https://podcasts.apple.com/us/podcast/0dte-options-analysis-inflation-coming-back-strong/id1432836154?i=1000628157831
Warren Buffett and Charlie Munger Berkshire Hathaway meeting discuss using and pricing options https://www.youtube.com/watch?v=SMkpou-YBGw
Implied Volatility Deep Dive | Real Interest Rate Yields | The Big Short | Tesla vs Nvidia
https://podcasts.apple.com/us/podcast/implied-volatility-deep-dive-real-interest-rate-yields/id1432836154?i=1000627400400
GameStop Short Squeeze by the Reddit Wall Street Bets Traders Explained
https://podcasts.apple.com/us/podcast/broken-pie-chart/id1432836154?i=1000507187446
The Big Short Movie and Credit Default Swaps Explained
https://open.spotify.com/episode/6FG0xHkxfhSXEtbJbFbDF6
Margin Call Movie and Understanding Value at Risk https://open.spotify.com/episode/2XJ58KAoQKw2sdC48KHyPp
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, observe the destruction in long term treasury bonds due to the reflation of the yield curve. How does the market do with higher rates? What does a flattening yield curve mean for the economy? Bond and Stock correlations mean bonds not protecting portfolios? The Hussman 12-year forward return gauge. Strategic petroleum reserve (SPR) now only has 17 days of supply left. And by the way, there is still a lot of good news like improving mortality rates around the world. That and more including some recommendations.
How much long-term US Treasury Bonds have dropped from the high
The yield curve is getting flatter meaning long rates are rising
Cam Harvey’s 10/3 yield curve inversion is on the path the un-inverting?
How the yield curve un-inverts before recessions
Examining a 100-year Austrian bond and how it once was up 250% and now down 40%
Stock and bond correlations going closer to 100%
Starting interest rates vs. the stock market since 1926
Starting inflation rates vs. the stock market since 1926
Comparing the yield curve today vs. early September
John Hussman estimated 12-year annual nominal total returns
SPR Strategic Petroleum Reserve and the days left of inventory (it is getting lower)
Infant mortality rates continue falling and are at lowest levels back to 400 BC
Mentioned in this Episode:
Government Shutdowns & Markets | Short ITM Puts Alternative to Covered Calls | Why Hedging Works
https://podcasts.apple.com/us/podcast/government-shutdowns-markets-short-itm-puts-alternative/id1432836154?i=1000629813419
John Hussman 12-year forward nominal return estimates chart https://www.hussmanfunds.com/comment/mc230724/
Cheap vs Expensive Options | Warren Buffett on Options | Fed Powell Presser
https://podcasts.apple.com/us/podcast/cheap-vs-expensive-options-warren-buffett-on-options/id1432836154?i=1000629058900
0DTE Options Analysis| Inflation Coming Back? | Strong US Dollar Impact https://podcasts.apple.com/us/podcast/0dte-options-analysis-inflation-coming-back-strong/id1432836154?i=1000628157831
Warren Buffett and Charlie Munger Berkshire Hathaway meeting discuss using and pricing options https://www.youtube.com/watch?v=SMkpou-YBGw
Implied Volatility Deep Dive | Real Interest Rate Yields | The Big Short | Tesla vs Nvidia
https://podcasts.apple.com/us/podcast/implied-volatility-deep-dive-real-interest-rate-yields/id1432836154?i=1000627400400
GameStop Short Squeeze by the Reddit Wall Street Bets Traders Explained
https://podcasts.apple.com/us/podcast/broken-pie-chart/id1432836154?i=1000507187446
The Big Short Movie and Credit Default Swaps Explained
https://open.spotify.com/episode/6FG0xHkxfhSXEtbJbFbDF6
Margin Call Movie and Understanding Value at Risk https://open.spotify.com/episode/2XJ58KAoQKw2sdC48KHyPp
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, look at how markets have done during past Government Shutdowns. The S&P 500 Index during, and 3 and 6 months later. Then they get in dept on why selling in-the-money puts is the same as selling covered calls on stock. What are cash covered puts? How US Treasuries yielding 5% plus may tip the scales. The risks and payoffs of one versus the other. How cash settled European style options differ from American style options at expiration (and before). Finally, they touch on why hedging works to take pressure off investors while reducing the need to time markets. Of course, some recommendations as well.
How have markets historically performed around government shutdowns
Should investors fear government shutdowns?
How long do government shutdowns typically last?
What was the longest government (or partial) shutdown?
Why hedging all the time helps investors stay invested.
The hedgers opportunity where potential exists to buy more shares lower.
What is an in-the-money (ITM) cash secured put?
What are the mechanics of a cash secured put?
What are cash settled European style option characteristics?
What are American style options with assignment and exercise components?
Risk of American style options vs cash settled options.
How selling ITM Cash Secured Puts is like buying the underlying and selling covered calls.
Why do investors get confused with cash secured puts or in-the-money put selling?
Payoffs and risks of ITM cash covered puts.
Why interest rates on short-term treasuries above 5% are a potential game changer.
Treasuries with ITM short puts vs long stock with covered calls
Mentioned in this Episode:
Cheap vs Expensive Options | Warren Buffett on Options | Fed Powell Presser
https://podcasts.apple.com/us/podcast/cheap-vs-expensive-options-warren-buffett-on-options/id1432836154?i=1000629058900
0DTE Options Analysis| Inflation Coming Back? | Strong US Dollar Impact https://podcasts.apple.com/us/podcast/0dte-options-analysis-inflation-coming-back-strong/id1432836154?i=1000628157831
Warren Buffett and Charlie Munger Berkshire Hathaway meeting discuss using and pricing options https://www.youtube.com/watch?v=SMkpou-YBGw
Implied Volatility Deep Dive | Real Interest Rate Yields | The Big Short | Tesla vs Nvidia
https://podcasts.apple.com/us/podcast/implied-volatility-deep-dive-real-interest-rate-yields/id1432836154?i=1000627400400
GameStop Short Squeeze by the Reddit Wall Street Bets Traders Explained
https://podcasts.apple.com/us/podcast/broken-pie-chart/id1432836154?i=1000507187446
The Big Short Movie and Credit Default Swaps Explained
https://open.spotify.com/episode/6FG0xHkxfhSXEtbJbFbDF6
Margin Call Movie and Understanding Value at Risk https://open.spotify.com/episode/2XJ58KAoQKw2sdC48KHyPp
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, discussed the fallout in the markets during Jerome Powell’s press conference post Fed decision. Then, they talk about high yield spreads and current interest rates across relative fixed income like investment grade, high yield, and treasuries. Finally, they explore how options are priced and which options are considered expensive or cheap vs one another. It might surprise you to take a step back looking at the per day costs. How options are priced using various inputs like implied volatility, interest rates, and time value. How Warren Buffett and Charlie Munger at Berkshire Hathaway have used options. Charlie Munger says Black Scholes is useless to price longer term options. Finally, some recommendations.
The Federal Reserve has no action, but rates move higher.
Rising long end of the yield curve
Does the bond market finally believe the fed?
Jerome Powell post press conference market selloff
When all the high yield is due to be refinanced in the debt maturity wall.
Looking at 0 DTE option with a half hour left compared to 3-day options.
Comparing 0 DTE options all the way out to 5year+ options prices
What is the per day cost of an option?
Comparing longer vs shorter-term options from a cheap vs expensive standpoint
How implied volatility currently is higher in much longer options.
What implied volatility says about 1 standard deviation expectations for price?
Cost of carry and interest rates in the pricing of options
Constructing hypothetical option trades holding treasuries with long term calls
Is Charlie Munger right that Black Scholes mispriced long term options?
ISDA agreement Big Short Brownville Capital talking about mispriced long-term options.
Warren Buffett talks about selling very long term options to get paid to have an option
Mentioned in this Episode:
0DTE Options Analysis| Inflation Coming Back? | Strong US Dollar Impact https://podcasts.apple.com/us/podcast/0dte-options-analysis-inflation-coming-back-strong/id1432836154?i=1000628157831
Warren Buffett and Charlie Munger Berkshire Hathaway meeting discuss using and pricing options https://www.youtube.com/watch?v=SMkpou-YBGw
Implied Volatility Deep Dive | Real Interest Rate Yields | The Big Short | Tesla vs Nvidia
https://podcasts.apple.com/us/podcast/implied-volatility-deep-dive-real-interest-rate-yields/id1432836154?i=1000627400400
GameStop Short Squeeze by the Reddit Wall Street Bets Traders Explained
https://podcasts.apple.com/us/podcast/broken-pie-chart/id1432836154?i=1000507187446
The Big Short Movie and Credit Default Swaps Explained
https://open.spotify.com/episode/6FG0xHkxfhSXEtbJbFbDF6
Margin Call Movie and Understanding Value at Risk https://open.spotify.com/episode/2XJ58KAoQKw2sdC48KHyPp
Recession Predictions Still Wrong? | Synthetic Options | Unemployment Anomalies | Oil Prices Breakout
https://podcasts.apple.com/us/podcast/recession-predictions-still-wrong-synthetic-options/id1432836154?i=1000626691109
0 DTE Options No Problem? | Jay Powell’s Wyoming Speech Points to More Interest Rate Hikes?
https://podcasts.apple.com/us/podcast/0-dte-options-no-problem-jay-powells-wyoming-speech/id1432836154?i=1000625845803
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore and Jay Pestrichelli, CEO of ZEGA Financial, talk through the recent CBOE analysis on impact of 0DTE options. Contrary to popular belief, 0DTE options may not be causing imbalances according to the data. Plus, explaining how cash settled (European) style options differ from American style where you can be assigned (or auto exercised). How short puts can mirror covered calls. Not surprisingly, Jay and Derek get detailed into some of the similarities. Plus, is inflation coming back after the CPI report and the recent push higher in oil prices? How a strong US Dollar impacts companies and how the price of the new Apple iPhone is more expensive around the world. Finally, some recommendations and a Tim Tebow Johnny Manziel comparison.
What CBOE (Chicago Board of Options Exchange) data says about 0DTE options
Evaluating net buyers vs sellers of 0DTE options
How CBOE data on 0DTE options seems to indicate more balance in positioning
What is the difference between cash settled index options and American style options?
How cash settlement differs from getting assigned or auto exercising into underlying shares
Comparing the structure of covered calls with selling ITM in the money cash settled puts.
Comparing risk of owning shares and selling covered calls vs selling cash secured puts
How a strong US dollar impacts multinational corporation’s earnings.
Using the new Apple iPhone as an example of strong dollar impact to prices around the world
Latest CPI (Consumer Price Index) came in hotter than expected.
Is inflation making a comeback?
How rising oil prices can impact inflation given its place in the CPI.
Using the 1994-95 example of higher rates with a rising market
Are people too worried about higher rates?
Existing US mortgages are still primarily at much lower rates.
Tim Tebow vs Johnny Manziel statistical comparison
Mentioned in this Episode:
Implied Volatility Deep Dive | Real Interest Rate Yields | The Big Short | Tesla vs Nvidia
https://podcasts.apple.com/us/podcast/implied-volatility-deep-dive-real-interest-rate-yields/id1432836154?i=1000627400400
GameStop Short Squeeze by the Reddit Wall Street Bets Traders Explained
https://podcasts.apple.com/us/podcast/broken-pie-chart/id1432836154?i=1000507187446
The Big Short Movie and Credit Default Swaps Explained
https://open.spotify.com/episode/6FG0xHkxfhSXEtbJbFbDF6
Margin Call Movie and Understanding Value at Risk https://open.spotify.com/episode/2XJ58KAoQKw2sdC48KHyPp
Recession Predictions Still Wrong? | Synthetic Options | Unemployment Anomalies | Oil Prices Breakout
https://podcasts.apple.com/us/podcast/recession-predictions-still-wrong-synthetic-options/id1432836154?i=1000626691109
0 DTE Options No Problem? | Jay Powell’s Wyoming Speech Points to More Interest Rate Hikes?
https://podcasts.apple.com/us/podcast/0-dte-options-no-problem-jay-powells-wyoming-speech/id1432836154?i=1000625845803
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore is back with ZEGA CEO Jay Pestrichelli where they discuss whether higher real yields are an issue for markets and how this period seems similar to the 1990’s. Then they dive into implied volatility using companies like Tesla TSLA and Nvidia NVDA as examples to explore how options markets express views on expected moves based on options prices. What are the drivers of volatility moving higher or lower. How earnings affect implied volatility and what typically happens after the announcement. They also have a side bar discussion comparing the debt of Tesla to Ford for no reason than that it’s quite different. Finally, some recommendations.
What is implied volatility?
How to calculate implied price moves using implied volatility
Comparing the implied volatilities of NVDA Nvidia vs TSLA Tesla as examples
How implied volatility often rises and falls with earnings.
How option prices bake in expectations
The rule of 16 and implied volatility
Stories about implied volatility rising around major events.
Debt of Tesla vs Ford
What is enterprise value?
What are real yields?
Real yields vs nominal yields
Are higher real yields a problem for markets?
10-year real yield rising
Comparing real yields today vs the 1990’s bull market in equities
Why investors should want positive real yields.
GameStop armchair analysts in the end weren’t right about the company.
Upcoming GameStop movies and whether sensationalizing this hurts investors.
Did the Big Short Movie cause investors to always be trying to bet on the next big thing?
Mentioned in this Episode:
GameStop Short Squeeze by the Reddit Wall Street Bets Traders Explained
https://podcasts.apple.com/us/podcast/broken-pie-chart/id1432836154?i=1000507187446
The Big Short Movie and Credit Default Swaps Explained
https://open.spotify.com/episode/6FG0xHkxfhSXEtbJbFbDF6
Margin Call Movie and Understanding Value at Risk https://open.spotify.com/episode/2XJ58KAoQKw2sdC48KHyPp
Recession Predictions Still Wrong? | Synthetic Options | Unemployment Anomalies | Oil Prices Breakout
https://podcasts.apple.com/us/podcast/recession-predictions-still-wrong-synthetic-options/id1432836154?i=1000626691109
0 DTE Options No Problem? | Jay Powell’s Wyoming Speech Points to More Interest Rate Hikes?
https://podcasts.apple.com/us/podcast/0-dte-options-no-problem-jay-powells-wyoming-speech/id1432836154?i=1000625845803
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore is joined once again by Jay Pestrichelli, CEO of ZEGA Financial where deep dive into the latest employment numbers. Plus, they ponder whether once everyone flips a recession finally comes? Later, they noticed some technical analysis on crude oil prices and a stealth rally. Then Jay and Derek talk through the idea of synthetic option positions including synthetic long stock and its attributes. Q2 earnings wrap up and how analysts over promised worse earnings and what’s ahead.
Unemployment BLS methodology deep dive
The unemployment rate rises in August to 3.8% due to anomalies in the report.
Yellow Trucking shutdown causes spike in transportation unemployment.
Hollywood writers and actors’ strikes cause unemployment rise.
Labor force participation rate has been highest since Feb of 2020
25 to 54 age bracket labor force participation rate rises to highest since May of 2002
What are synthetic option positions?
What is synthetic long stock using options?
Mixed bag of economic data
Everyone predicted wrong on recession.
US Crude Oil inventories are declining.
Q2 S&P 500 earnings wrap up.
Q3 earnings and beyond preview
How earnings predictions have declined over time
Are we passed the trough in earnings?
Why do people still hold money at large banks getting almost zero interest?
What is a cup and handle technical pattern?
Crude oil breaks out from cup with handle pattern.
Mentioned in this Episode:
0 DTE Options No Problem? | Jay Powell’s Wyoming Speech Points to More Interest Rate Hikes?
https://podcasts.apple.com/us/podcast/0-dte-options-no-problem-jay-powells-wyoming-speech/id1432836154?i=1000625845803
EconPi website http://www.econpi.com/
Employment Numbers from the BLS https://www.bls.gov/ces/
Fed Funds CME probability tracker tool https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
www.zegafinancial.com
Derek Moore is joined by Jay Pestrichelli, CEO of ZEGA Financial, to discuss the Bank of America piece saying maybe Goldman Sachs got 0 DTE option effects wrong. Plus, what did Jay Powell’s speech mean if anything? New Fed Funds futures probabilities point to the Fed raising yet again. Then, they go through some odds and ends like how participation in employment surveys is dropping, the high Atlanta Fed GDP now numbers, and more.
The Fed on track for more interest rate hikes?
Jay Powell will do what needs to be done!
Fed Funds futures probabilities
What are 0 DTE Options?
Bank of America says 0 DTE options were not the cause of a late-day market drop.
Explaining how market makers hedge based on delta.
Interest rates and the cost of carry in option prices
Small discussion on what option Gamma is.
Liquidity in the options market
What is the Atlanta Fed GDP Now indicator?
Surprising Q3 GDP Now reading over 5.7%
What is the establishment employment survey?
Dropping participation rate of the unemployment surveys
Mentioned in this Episode:
Bank of America Disputes Goldman Logic on Zero-Day Option Threat to Stocks https://finance.yahoo.com/news/bank-america-disputes-goldman-logic-185606310.html
S&P 500 Forward PE Valuations vs Future Returns | Volatility in Stock & Option Markets https://podcasts.apple.com/us/podcast/s-p-500-forward-pe-valuations-vs-future-returns-volatility/id1432836154?i=1000624302870
Everyone Wrong on Interest Rates and what Fed Funds Probabilities Mean
https://podcasts.apple.com/us/podcast/everyone-wrong-on-interest-rates-what-fed-funds-probabilities/id1432836154?i=1000625408660
Fed Funds CME probability tracker tool https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek Moore discusses how everyone seemed to get the direction of rates across the yield curve wrong. How adding duration in hindsight was the wrong choice. Comparing market prognostications in 1995 to today. What the Fed Funds rate probabilities really measure. Plus, explaining why bonds make or lose money based it their duration (sensitivity to interest rates).
The bond market got rates wrong.
What is happening at the long end of the yield curve?
Why doesn’t the Fed have to lower rates without a recession or weakness.
Explaining what “duration” means with bonds.
How changes in interest rates make bonds go up or down.
Comparison of 10 year and 30-today year treasury yields vs June 1st.
Comparing yield curve today vs. 1995
What does the Fed Funds futures probability tracker measure?
Explaining what the implied interest rate is from looking at futures prices.
How Fed Funds futures are the markets’ view TODAY of where rates might be in the future.
How the Fed Funds futures market got interest rate trajectory wrong
Mentioned in this Episode:
S&P 500 Forward PE Valuations vs Future Returns | Volatility in Stock & Option Markets https://podcasts.apple.com/us/podcast/s-p-500-forward-pe-valuations-vs-future-returns-volatility/id1432836154?i=1000624302870
Liz Young’s article showing current forward PE ratios and subsequent 10-year market annualized returns https://www.sofi.com/article/investment-strategy/liz-looks-at-wrong-calls/
Cheapest (SPX) PUT Protection You've Ever Seen? | S&P 500 Index Rebalancing | Bank of Japan Hawkishnesshttps://podcasts.apple.com/us/podcast/cheapest-spx-put-protection-youve-ever-seen-s-p-500/id1432836154?i=1000623047871
Fed Funds CME probability tracker tool https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
LA Times Jan 1995 article on stock and bond market views https://www.latimes.com/archives/la-xpm-1995-01-01-fi-15454-story.html
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek Moore and Jay Pestrichelli return this week to discuss what current forward PE rations and whether that informs future market returns. Reasons PE ratios may go up or down including earnings increasing or markets going lower. Have there been a jump in forward earnings expectations? Then they check in on the high yield spread against treasuries and relationship to the VIX Index. Later they discuss the moving average of the unemployment rate and whether that is leading or lagging as an indicator. Finally, before some recommendations, Jay and Derek take a win vs. the Fed when looking at the supply chain pressure index vs. the CPI.
What is the Forward PE Ratio definition?
What is the current forward pe on the S&P 500 Index?
Is the forward pe ratio high in relation to the 25-year average?
How markets falling or earnings rising can lower the forward PE ratio
What is the high yield spread against treasuries?
High Yield spread vs the VIX Index
Global Supply Chain Pressure Index vs Consumer Price Index
How inflation was a supply side issue
Moving average of the unemployment rate as a leading indicator of recession?
Do higher ranges of market intraday highs and lows mean anything?
Next year’s earnings estimates
2024 and 2025 S&P 500 earnings estimates
Mentioned in this Episode:
Liz Young’s article showing current forward PE ratios and subsequent 10-year market annualized returns https://www.sofi.com/article/investment-strategy/liz-looks-at-wrong-calls/
US Debt Down Grade Effects | Interest Rates Effect on Option Prices | US Treasury Yield Curve Dis-inverting? | US Debt Massive Expansion https://podcasts.apple.com/us/podcast/us-debt-down-grade-effects-interest-rates-effect-on/id1432836154?i=1000623596920
Cheapest (SPX) PUT Protection You've Ever Seen? | S&P 500 Index Rebalancing | Bank of Japan Hawkishnesshttps://podcasts.apple.com/us/podcast/cheapest-spx-put-protection-youve-ever-seen-s-p-500/id1432836154?i=1000623047871
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek Moore and Jay Pestrichelli are back at it discussing how higher interest rates have impacted the price of call and put options. They use some examples of what happens to options prices due to rates and dividends. Then they discuss the recent rise in long term treasury rates, the downgrade of US Treasury debt, and what if any effect the US Treasury issuing massive amounts of new treasury bonds into the market may have. Exploring the 36-month drawdown in the US Aggregate Bond Index compared to other periods. Finally, they check in on how the 3rd year of a presidential cycle is going and then move on to some recommendations.
What effect do higher rates have on option premiums?
How are dividends factored into the prices of options?
Delving into examples of the value of cost of carry interest rates into call prices
The longer end of the treasury curve includes 10 years to 20 years out.
More supply of US Treasury bonds issued by the treasury causing higher rates due to increased supply.
Best and worst market months historically during the 3rd year of the US Presidential cycle
Size of net interest payments expected over the next year.
US State and Local income tax receipts falling?
How net interest debt payments are now larger than Social Security, Defense, and Medicare/Medicaid
Does the US Debt downgrade matter?
How sovereign debt is a relative game as many countries have growing debt to GDP.
The US Aggregate Bond Index is still in 36 months and counting drawdown due to rising rates.
Will the US treasury curve un-invert?
Debating whether a curve reflating involves lower short rates or long rates rising?
Bill Gross bearish on 10-year bonds believing curve may dis-invert by 10 year rising
Mentioned in this Episode:
Cheapest (SPX) PUT Protection You've Ever Seen? | S&P 500 Index Rebalancing | Bank of Japan Hawkishnesshttps://podcasts.apple.com/us/podcast/cheapest-spx-put-protection-youve-ever-seen-s-p-500/id1432836154?i=1000623047871
Does Inflation Matter? | Make More by Losing Less? | Volatility and Cost of Hedging | Someone Buys a lot of VIX Calls
https://podcasts.apple.com/us/podcast/does-inflation-matter-make-more-by-losing-less-volatility/id1432836154?i=1000621261669
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek Moore responds to a Bloomberg chart highlighting how cheap protective puts are right now according to Bank of America research. At least since 2008, and why it might be good to be hedged when it’s cheap rather than waiting for a market crash to happen first. Then he explains some requirements for a stock to get included in the S&P 500 Index, when it regularly rebalances, and how relaxing the rules on multi share class stocks might pave the way for stocks like AirBnB to potentially be added to the S&P 500 Index at some point. Finally, while you were sleeping the Bank of Japan is going to loosen the cap on the JGP bonds to 1% and what that may mean if anything.
The Bloomberg graph showing how cheap protective puts are on the S&P 500 Index right now.
BofA points out 5% out of the money options are cheap and payoffs larger than they’ve been.
Why being hedged all the time makes sense.
How protection gets expensive when everyone “needs” it so why not be hedged when its cheap?
S&P 500 Index rebalancing periods and what it means.
NDX Nasdaq 100 special rebalancing to relieve too few stocks being too highly weighted.
Requirement and restrictions on a company to be included in the S&P 500 Index
S&P 500 Index relaxes rules on allowing companies with multi share classes into the index.
Potential for Air BnB and Blackstone getting added to the S&P 500 Index
Aspects of index membership changing no one ever talks about including aggregate earnings.
Bank of Japan hawkish turn
What is yield curve control by the Bank of Japan?
Mentioned in this Episode:
Why Crash Predictions Don’t Help | What Does the Market Fear? | Confusing Market Data | 11th Best Start to the Year https://podcasts.apple.com/us/podcast/why-crash-predictions-dont-help-what-does-the-market/id1432836154?i=1000622056946
Does Inflation Matter? | Make More by Losing Less? | Volatility and Cost of Hedging | Someone Buys a lot of VIX Calls
https://podcasts.apple.com/us/podcast/does-inflation-matter-make-more-by-losing-less-volatility/id1432836154?i=1000621261669
Short Sellers Give Up? | The Case for Interest Rates to Stay High for Longer https://podcasts.apple.com/us/podcast/short-sellers-give-up-the-case-for-interest-rates-to/id1432836154?i=1000620571083
Nasdaq 100 Index Strong First Half Equals Strong Second Half? | Overbought or not? | Trying to Guess the Forward PE Multiple Is Hard!https://podcasts.apple.com/us/podcast/nasdaq-100-index-strong-first-half-equals-strong-second/id1432836154?i=1000619186796
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Jay Pestrichelli checks in with Derek Moore to discuss people that always predict horrible market crashes are coming and why it’s so unhelpful for investors. Then they talk through what the market fears (besides the normal stuff) at this point including profit margins and looming strikes. Why is economic data so confusing and if its broken. Finally, they go through the S&P 500 having the 11th best 1st half and compare this market cycle to the 2000 bear market.
Fear and market crash prediction do investors no good in the long run.
What does the best 1st half market years tell us about the rest of the year’s returns?
S&P 500 Index has the 11th best first half of a year.
Beyond inflation, what is left for the market to fear?
How profit margins may be the next thing to watch
The relationship between sales, margins, and earnings
The economic data is all over the place.
Leading economic indicators would seem to indicate recession, but other things are just fine.
PPI minus CPI plotted against GAAP earnings over past years.
What does PPI coming down greater than CPI tell us if anything?
Surprising that the Dow Jones DIA ETF has a higher total return than SPY since inception.
The number of workers on strike by year could hit some recent highs in 2023.
What would large numbers of workers striking mean for the economy?
Comparing 2000 bear market vs 2022 bear market
Mentioned in this Episode:
Does Inflation Matter? | Make More by Losing Less? | Volatility and Cost of Hedging | Someone Buys a lot of VIX Calls
https://podcasts.apple.com/us/podcast/does-inflation-matter-make-more-by-losing-less-volatility/id1432836154?i=1000621261669
Short Sellers Give Up? | The Case for Interest Rates to Stay High for Longer https://podcasts.apple.com/us/podcast/short-sellers-give-up-the-case-for-interest-rates-to/id1432836154?i=1000620571083
Nasdaq 100 Index Strong First Half Equals Strong Second Half? | Overbought or not? | Trying to Guess the Forward PE Multiple Is Hard!https://podcasts.apple.com/us/podcast/nasdaq-100-index-strong-first-half-equals-strong-second/id1432836154?i=1000619186796
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek Moore is joined once again by ZEGA Financial CEO Jay Pestrichelli to debate whether inflation still matters to the market. Plus, even though stocks like META are up huge off the bottom, they still are down from their prior highs. Why this shows the power of losing less through proper hedging and how it can potentially increase returns during volatile times. Speaking of volatility, they discuss the state of Vol in the markets including the VIX and why volatility isn’t lower considering the market run. Finally, they illustrate the cost of hedging downside risk in individual stocks like Nvidia, Tesla, and more. Finally, before some recommendations, they showcase the report of a huge buy of VIX October calls.
The CPI Consumer Price Index inflation report and ramifications
Does inflation even matter to markets?
META/Facebook is still down -20% from its 2021 high despite being up 250% off the bottom.
How much you must make to overcome large losses.
Cost of hedging annualized for individual stocks like Tesla and Nvida as examples.
How to look at the cost of hedging
So why isn’t the VIX Index lower considering markets are at 1-year highs.
Comparing short term VIX vs normal VIX levels
Evaluating a big purchase of October VIX calls on the VIX future.
VIX futures vs spot VIX (the one you see on CNBC)
Mentioned in this Episode:
Short Sellers Give Up? | The Case for Interest Rates to Stay High for Longer https://podcasts.apple.com/us/podcast/short-sellers-give-up-the-case-for-interest-rates-to/id1432836154?i=1000620571083
Nasdaq 100 Index Strong First Half Equals Strong Second Half? | Overbought or not? | Trying to Guess the Forward PE Multiple Is Hard!https://podcasts.apple.com/us/podcast/nasdaq-100-index-strong-first-half-equals-strong-second/id1432836154?i=1000619186796
Fear and Greed Index | Volatility Surface | Put Call Ratio | Wall Street Gets Bullish | Homebuilders Surprise
https://podcasts.apple.com/us/podcast/fear-and-greed-index-volatility-surface-put-call/id1432836154?i=1000618362312
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek Moore points out that no, the Fed doesn’t need to lower rates without some problem or a recession. Looking at the nineties when markets went up despite Fed Funds rate above 5%. Then looking at the net short positions of traders via the commitment of traders report. It shows recently at markets moved higher, short sellers covered causing a short squeeze? Finally, before a recommendation, some talk about the upcoming earnings season and a reminder in 2022 earnings did not go below those of 2021 and the market still sold off due to multiple contraction.
What is a short squeeze?
What is the commitment of traders report?
Bloomberg article pointing to bears (short positions) being closed the most since 2020.
How short sellers closing positions add fuel to market rallies.
Are large net short positions in the S&P 500 futures a good contrarian bullish signal?
How earnings still grew in 2022 a little bit but markets still sold off due to multiple contraction.
What is multiple contraction?
Earnings season is coming up and expectations are for a down quarter.
Comparing the Fed Funds rate in the nineties to today
How markets went up even with rates above 5% in the 1995 to 2000 bull run
What would make the Fed lower rates?
Bloomberg article hints that with less short positions outstanding the short squeeze effect drops?
Mentioned in this Episode:
Bloomberg article on bears covering their short positions https://www.bloomberg.com/news/articles/2023-07-07/force-firing-up-the-stock-market-cools-off-with-shorts-conceding#xj4y7vzkg
Nasdaq 100 Index Strong First Half Equals Strong Second Half? | Overbought or not? | Trying to Guess the Forward PE Multiple Is Hard!https://podcasts.apple.com/us/podcast/nasdaq-100-index-strong-first-half-equals-strong-second/id1432836154?i=1000619186796
Fear and Greed Index | Volatility Surface | Put Call Ratio | Wall Street Gets Bullish | Homebuilders Surprise
https://podcasts.apple.com/us/podcast/fear-and-greed-index-volatility-surface-put-call/id1432836154?i=1000618362312
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek Moore and ZEGA Financial CEO Jay Pestrichelli comment on Bloomberg’s article showing the Nasdaq 100 Index just had its best 1st half since the early nineties. Is the market overbought or rightly valued and trending? Do investors who missed the rally say it’s overbought because they need it to go back down? Looking at how markets do when they are up big in the first half of the year. Plus, Jay and Derek go back over some predictions from December to see how right or wrong they were. Finally, some quick thoughts on student loans from an economic standpoint. Some good recommendations.
Bloomberg’s article showing the Nasdaq 100 Index just had its best 1st half since the early nineties.
Is the market overbought or rightly valued and trending?
When markets have big first half historically how do they end the second half of the year?
Do investors say markets are overbought because they missed out?
Reviewing our predictions from December to now
Student loan decision
Looking at the cost of college from an economic standpoint
Student loan payments start again in October and potential impact on GDP and inflation.
You could nail next year’s earnings but not the market multiple.
What is the forward PE ratio?
What were 2023 predictions on the S&P 500, Inflation, GDP, Gold, Bitcoin, Fed Funds and more
Mentioned in this Episode:
Fear and Greed Index | Volatility Surface | Put Call Ratio | Wall Street Gets Bullish | Homebuilders Surprise
https://podcasts.apple.com/us/podcast/fear-and-greed-index-volatility-surface-put-call/id1432836154?i=1000618362312
Bear Market Rally or New Bull? |The Fed Talks Tough but Does Nothing | PE Like its 1995
https://podcasts.apple.com/us/podcast/bear-market-rally-or-new-bull-the-fed-talks-tough-but/id1432836154?i=1000617455261
Cheaper to Rent than Buy? | Beneish-M Score Near Market Highs? | Top 10 Market Cap Companies by Decade | VIX Level Makes Multiyear Low https://podcasts.apple.com/us/podcast/cheaper-to-rent-than-buy-beneish-m-score-near-market/id1432836154?i=1000615625441
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek Moore and ZEGA Financial CEO Jay Pestrichelli talk about CNN’s Fear and Greed Index and whether it’s a good indicator for markets. Then they explore differences in Put Call Ratios and how they may not measure what people think. Plus, they look at the volatility surface across different option maturities noting how low near-term options implied volatilities have gotten indicating there is no fear. Once again, they comment on how the VIX is NOT broken! Later they discuss investment banks raising their year end S&P 500 targets now that markets are higher and how no one expected homebuilders to be up 43% from the October 2022 lows but they are. Finally, Jay and Derek comment on data comparing market performance in the first ½ hour, middle of the day, final hour, and buy and hold. Of course, they have a recommendation.
CNN’s Fear and Greed Index
What goes into the Put Call Ratio
How Option Open Interest changes depending on the transaction.
Option open interest can be selling options to open or buying options to open.
Wall Street investment banks raise their year-end S&P 500 targets.
Bespoke chart showing S&P 500 returns held during different periods.
Performance of S&P 500 in first ½ hour, middle of the day, final hour, and buy and hold.
Surprise Strong performance by US Homebuilders up 43% since October 2022 lows
Existing One Family Home Sales Median Price YoY change goes negative.
The VIX isn’t broken and how the CBOE has different VIX indexes for various time periods
Mentioned in this Episode:
Bear Market Rally or New Bull? |The Fed Talks Tough but Does Nothing | PE Like its 1995
https://podcasts.apple.com/us/podcast/bear-market-rally-or-new-bull-the-fed-talks-tough-but/id1432836154?i=1000617455261
Cheaper to Rent than Buy? | Beneish-M Score Near Market Highs? | Top 10 Market Cap Companies by Decade | VIX Level Makes Multiyear Low https://podcasts.apple.com/us/podcast/cheaper-to-rent-than-buy-beneish-m-score-near-market/id1432836154?i=1000615625441
AI Driving Market Returns? | Size of Top 2 S&P 500 Stocks Now 15%? | Relative Performance of Tech vs S&P 500 Index at Extreme Levels https://podcasts.apple.com/us/podcast/ai-driving-market-returns-size-of-top-2-s-p-500/id1432836154?i=1000613885329
AI Is the New Crypto & Blockchain Post Nvidia Earnings | Reach for Long Duration Bonds | More Fed Rate Increases Coming? | 7% Treasury Bills? https://podcasts.apple.com/us/podcast/ai-is-the-new-crypto-blockchain-post-nvidia-earnings/id1432836154?i=1000614778019
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Jay Pestrichelli is back with Derek Moore to discuss Jay Powell’s tough talking but no action Fed. Plus, is this a repeat of the 1994-1995 forward PE expansion bull market? Also, they go back to the 200-2002 bear market where the Nasdaq 100 had 7 different 20% bear market rallies and the S&P 500 had its own share. Is this different? Finally, Jay and Derek look at instances where the S&P 500 made new highs with only 5% of the companies also making 52-week highs and the subsequent future historical returns. Off course some recommendations and they read a listener note.
Why is 20% of the low a new bull market suddenly?
New bull market or another bear market rally?
The 1994-95 blueprint of markets rallying with forward PE expansion with rate hikes.
Jay Powell and the Fed claim they are doing 2 more rate hikes?
Tough talk by the Fed but they sit on their hands at the meeting.
Why the Fed had nothing to do with taming inflation.
PE multiple expansion responsible for the market rally.
Fed may keep rates higher for longer.
Does the Fed and inflation even matter anymore?
Reviewing the 2000-2002 many failed greater than 20% bear market rallies
Quantity theory of money PQ = MV
The velocity of money and why quantitative easing doesn’t always cause inflation
Inflation dropping (caused by supply chain problems and government stimulus) not the Fed
Mentioned in this Episode:
BLS info showing auto dealership markups go way up https://www.bls.gov/opub/mlr/2023/article/automotive-dealerships-markups.htm
Cheaper to Rent than Buy? | Beneish-M Score Near Market Highs? | Top 10 Market Cap Companies by Decade | VIX Level Makes Multiyear Low https://podcasts.apple.com/us/podcast/cheaper-to-rent-than-buy-beneish-m-score-near-market/id1432836154?i=1000615625441
AI Driving Market Returns? | Size of Top 2 S&P 500 Stocks Now 15%? | Relative Performance of Tech vs S&P 500 Index at Extreme Levels https://podcasts.apple.com/us/podcast/ai-driving-market-returns-size-of-top-2-s-p-500/id1432836154?i=1000613885329
AI Is the New Crypto & Blockchain Post Nvidia Earnings | Reach for Long Duration Bonds | More Fed Rate Increases Coming? | 7% Treasury Bills? https://podcasts.apple.com/us/podcast/ai-is-the-new-crypto-blockchain-post-nvidia-earnings/id1432836154?i=1000614778019
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek Moore and Mike Puck from ZEGA Financial discuss how unlike what all the “experts” thought, international stocks have done quite well, and Europe’s economy held up. They look back at how long US large cap has outperformed international developed country markets. Then they look at some sector flows and note the parabolic nature of the chart into the tech sector. Plus, they talk about US Equity Factors through very early June comparing growth, value, high beta, and low volatility performance. Finally, in a follow up to a previous episode’s debate about car prices, Derek reads some reader emails and reviews the BLS data showing markups at dealerships are way up!
Auto dealership markups go up big compared to the increase in cars themselves.
US Equity Factors through early June
High Beta vs Low Volatility names
How international developed markets have lagged US large cap for years.
Are there green shoots for developed international markets?
What areas are included in developed international?
Sector fund flows show tech gets a ton of new money flowing into it.
What sectors have fallen out of favor looking at sector fund flows?
Projections on some emerging economies share of middle class rising.
Reading some reader email comments on car prices
Mentioned in this Episode:
BLS info showing auto dealership markups go way up https://www.bls.gov/opub/mlr/2023/article/automotive-dealerships-markups.htm
Cheaper to Rent than Buy? | Beneish-M Score Near Market Highs? | Top 10 Market Cap Companies by Decade | VIX Level Makes Multiyear Low https://podcasts.apple.com/us/podcast/cheaper-to-rent-than-buy-beneish-m-score-near-market/id1432836154?i=1000615625441
WSJ article M-Score Messod D. Beneish Accounting-Fraud Indicator Signals Coming Economic Trouble https://www.wsj.com/articles/accounting-fraud-indicator-signals-coming-economic-trouble-506568a0?mod=article_inline
AI Driving Market Returns? | Size of Top 2 S&P 500 Stocks Now 15%? | Relative Performance of Tech vs S&P 500 Index at Extreme Levels https://podcasts.apple.com/us/podcast/ai-driving-market-returns-size-of-top-2-s-p-500/id1432836154?i=1000613885329
AI Is the New Crypto & Blockchain Post Nvidia Earnings | Reach for Long Duration Bonds | More Fed Rate Increases Coming? | 7% Treasury Bills? https://podcasts.apple.com/us/podcast/ai-is-the-new-crypto-blockchain-post-nvidia-earnings/id1432836154?i=1000614778019
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek Moore and ZEGA Financial CEO Jay Pestrichelli explore data showing its cheaper to rent vs. buying a home in all but 3 markets. Then they bring up the WSJ article saying companies are “juicing” earnings evidenced by the Beneish-M score and historically whether a high M-score predated market tops. Later they look at how the top 10 market cap weighted companies have changed over the decades and why this supports buying indexes (but being hedged!). Finally, the VIX did something it hasn’t done since….All this and more in this week’s episode.
Where is the homeownership premium the highest?
Cheaper to rent vs own based on data from Redfin and Freddie Mac
Comparing interest portion of mortgages to paying rent
What is the Beneish M-score?
Article by WSJ shows M-score is elevated at market peaks.
A WSJ article says companies are using financial accounting to juice earnings.
Top 10 largest by market cap companies in the S&P 500 index by decade
What about top 10 by market cap companies in the world?
The VIX now has a low not seen for several years.
What is going on in the world of volatility?
Equity market leadership shifts over time
Are Apple, Microsoft and the rest of the FAAMG stocks an exception?
Mentioned in this Episode:
WSJ article Business Is Slowing. So Companies Are Juicing Profits https://www.wsj.com/articles/profit-numbers-get-spruced-up-as-business-slows-8eec5017
WSJ article M-Score Messod D. Beneish Accounting-Fraud Indicator Signals Coming Economic Trouble https://www.wsj.com/articles/accounting-fraud-indicator-signals-coming-economic-trouble-506568a0?mod=article_inline
AI Driving Market Returns? | Size of Top 2 S&P 500 Stocks Now 15%? | Relative Performance of Tech vs S&P 500 Index at Extreme Levels https://podcasts.apple.com/us/podcast/ai-driving-market-returns-size-of-top-2-s-p-500/id1432836154?i=1000613885329
AI Is the New Crypto & Blockchain Post Nvidia Earnings | Reach for Long Duration Bonds | More Fed Rate Increases Coming? | 7% Treasury Bills? https://podcasts.apple.com/us/podcast/ai-is-the-new-crypto-blockchain-post-nvidia-earnings/id1432836154?i=1000614778019
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek Moore and ZEGA Financial CEO Jay Pestrichelli have a lively discussion on whether AI is supplanting Crypto and Blockchain as the new thing. Then they point out fund flows going to long duration treasury (and 3x triple leveraged Treasury ETF) and why? Later we discussed the new increase in probabilities for more Fed interest rate hikes. Finally, Nvidia broke out after beating earnings and revenue expectations and a massive rise in expectations. Of course, they make some recommendations.
AI is the new Crypto and Blockchain?
Nvidia revenue guidance gets raised by a lot after beating estimates on earnings.
Are there other instances where companies have added as much market cap in one day?
Greater than 7% Treasury Bills
Explaining why debt ceiling fears caused 6% and 7% very short-term treasuries.
Nvidia’s market cap gain in one day alone would equal the 35th largest S&P 500 Index company.
Long Duration treasury ETFS including TLT and TMF see large inflows from investors.
What are the risks of very long-dated treasury bonds?
3x Leveraged ETFs
First 100 days market up >+7% so what happens to the rest of the year?
Fed funds probability for interest rate rises or cuts.
Probability now for at least one additional fed interest rate hike by markets
Mentioned in this Episode:
AI Driving Market Returns? | Size of Top 2 S&P 500 Stocks Now 15%? | Relative Performance of Tech vs S&P 500 Index at Extreme Levels https://podcasts.apple.com/us/podcast/ai-driving-market-returns-size-of-top-2-s-p-500/id1432836154?i=1000613885329
US Default Chances Overblown? | Option and Bond Markets Not Showing Fear
https://podcasts.apple.com/us/podcast/us-default-chances-overblown-option-bond-markets-not/id1432836154?i=1000612967755
Dividend Deep Dive | ChatGPT AI Fed Research | Do Markets Go Up After Fed Pauses?https://podcasts.apple.com/us/podcast/dividend-deep-dive-chatgpt-ai-fed-research-do-markets/id1432836154?i=1000612068985
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek Moore and ZEGA Financial CEO Jay Pestrichelli do it again. That’s right they talk about AI but this time around how it may be driving Mega Cap Tech performance relative to the rest of the market. Plus, the weight of the top 2 S&P 500 companies is the highest since 1978 and the top 10 companies weighting is now 30%. They debate whether this is nothing or something. Finally, they discuss the LEI Leading Economic Indicator declining for 13 straight months without a “declared” recession yet.
LEI Leading Economic Indicators
Relative performance year to date between mega cap tech down the line to micro caps
FAANMG forward PE ratios
FAANMG = Facebook, Amazon, Apple, Netflix, Google, Microsoft.
Carter Worth CNBC talks about relative tech performance at extreme levels.
Top 2 companies at the highest weighting since 1978
Today its Apple | Microsoft but in 1978 its was AT&T and IBM
Top ten companies in S&P 500 average weighting vs today
ChatGPT time to reach 100 million users vs TikTok, Instagram, Google Translate, and Netflix
Investors seem to be flowing into mega cap tech as an AI play.
ChatGPT reached 100 million users in just 2 months.
The Levis blue jeans (picks and shovels) approach to new tech?
Mentioned in this Episode:
Global X article explaining ChatGPT and regenerative AI https://www.globalxetfs.com/generative-ai-explained/
US Default Chances Overblown? | Option and Bond Markets Not Showing Fear
https://podcasts.apple.com/us/podcast/us-default-chances-overblown-option-bond-markets-not/id1432836154?i=1000612967755
Dividend Deep Dive | ChatGPT AI Fed Research | Do Markets Go Up After Fed Pauses?https://podcasts.apple.com/us/podcast/dividend-deep-dive-chatgpt-ai-fed-research-do-markets/id1432836154?i=1000612068985
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek Moore and ZEGA Financial CEO Jay Pestrichelli discuss whether the option markets via Volatility Indexes are underrating potential market turmoil. Plus, they debate whether fears of the US defaulting on Treasury Bonds is Overrated? Using ChatGPT AI to research the 1979 US Treasury default. Then they talk through what they are seeing in the options market including variances between implied volatility between different places on the volatility surface. Finally, before some recommendations, they discuss calls for banning of short selling on regional banks and why its not a great idea.
Explaining implied volatility
What the current volatility levels across the volatility surfaces is saying about market worries
What the Bond volatility index is saying about markets
Is it too quiet in markets or rightly quiet and the options markets know best?
Are debt ceiling default fears overblown?
Wouldn’t the government prioritize interest on debt over other random expenses?
The treasury is still collecting tax revenue each week, so don’t they have money to pay debt?
ChatGPT AI research on the 1979 technical treasury bond default
Why did Treasury Bonds default in 1979?
CDS (Credit Default Swap) rates on US Treasuries
New talk on banning short selling on regional banks.
What function does short selling provide to markets?
Why banning short selling would cause option premiums to rise.
Mentioned in this Episode:
The Big Short Movie and Credit Default Swaps Explained
https://open.spotify.com/episode/6FG0xHkxfhSXEtbJbFbDF6
Article detailing prior U.S. Defaults https://www.theglobalist.com/a-brief-history-of-u-s-defaults/
Margin Call Movie and Understanding Value at Risk https://open.spotify.com/episode/2XJ58KAoQKw2sdC48KHyPp
Dividend Deep Dive | ChatGPT AI Fed Research | Do Markets Go Up After Fed Pauses?https://podcasts.apple.com/us/podcast/dividend-deep-dive-chatgpt-ai-fed-research-do-markets/id1432836154?i=1000612068985
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Jay Pestrichelli is back on with Derek Moore where they do a deep dive into dividends. There are a lot of misconceptions around things like total return vs price return, ex-dates, payable dates, record date and more. Plus, they look at an example ETF before noting that there seems to be a movement of young investors focusing on dividend paying stocks to generate income. Finally, Jay and Derek talk about the Fed interest rate decision and even task ChatGPT AI to pull some research on what happens with markets once the Fed pauses. Oh, and Derek reconsiders whether ChatGPT is in fact a valuable service.
ChatGPT AI Fed interest rate research
Imagining ChatGPT AI with full access to investment return databases like S&P Global
Are there instances where markets go down post a Fed pause?
When did markets rise post Fed pause?
Why would the Fed cut rates unless the economy is bad (or more bank failures)?
Deep dive on dividends
Total returns (including dividends) vs. price return.
Explaining ex-dates, record date, payable dates for dividends
Discussion of young investors gravitating towards a dividend portfolio strategy
Dividend reinvestment income vs. reinvestment into more shares to compound
Years to double examples of reinvesting dividends
Converting annual dividend income to an hourly rate (Dividends Receive Annually / 2080)
Mentioned in this Episode:
Weird Bond Yield Stuff Happening | New 1 Day VIX Index? https://podcasts.apple.com/us/podcast/weird-bond-yield-stuff-happening-new-1-day-vix-index/id1432836154?i=1000610209621
Debt Ceiling Risk | Recession Signals | 10/3 Yield Curve Inversion Podcast https://podcasts.apple.com/us/podcast/debt-ceiling-risk-recession-signals-10-3-yield-curve/id1432836154?i=1000609174431
Can the Fed Fail? https://podcasts.apple.com/us/podcast/can-the-fed-fail-q1-winners-surprise-the-crowd/id1432836154?i=1000608060319
What are Reverse Repos and Repos? Fed usage of overnight reverse repos https://open.spotify.com/episode/09VOIffldtn3WxNm7rzyNx
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek Moore poses some investment questions to ChatGPT, is it helpful? Instances where ChatGPT is wrong. Then, looking at the bulk of Q1 2023 earnings releases and what we’ve learned. Were analysts too bearish? Finally, Derek delves into the below the surface aspects of 1 month T-Bills yields so much less than 2- and 3-month T-Bills. Even less than the Fed Funds rate. Derek’s theory is with the increase in cash flowing to money markets, and levels of Overnight Reverse Repos not increasing, the Occam’s Razor answer is too little availability of near cash T-bills.
ChatGPT as an investment advisor?
Asking ChatGPT for some investment questions
Is ChatGPT correct on stuff?
1-month US Treasury Bills yield much less than 3-month US Treasury Bills
How historic is the difference between 1-month yields and 3-month yields?
What does it mean if anything when 1-month T bills yield less than Fed Funds?
Overnight Reverse Repo market used by the Fed as alternatives to near money T-bills.
Compare the Reverse Repo interest rate to 1-month treasuries.
Were analysts too bearish on Q1 2023 earnings?
How analysts change their estimates over time
Money Market funds have the highest level of assets all the way back to 2007.
20–30-year-olds should focus on increasing balances
Why 20–30-year-olds spend too much time on optimizing returns
Mentioned in this Episode:
Weird Bond Yield Stuff Happening | New 1 Day VIX Index? https://podcasts.apple.com/us/podcast/weird-bond-yield-stuff-happening-new-1-day-vix-index/id1432836154?i=1000610209621
Debt Ceiling Risk | Recession Signals | 10/3 Yield Curve Inversion Podcast https://podcasts.apple.com/us/podcast/debt-ceiling-risk-recession-signals-10-3-yield-curve/id1432836154?i=1000609174431
Can the Fed Fail? https://podcasts.apple.com/us/podcast/can-the-fed-fail-q1-winners-surprise-the-crowd/id1432836154?i=1000608060319
What are Reverse Repos and Repos? Fed usage of overnight reverse repos https://open.spotify.com/episode/09VOIffldtn3WxNm7rzyNx
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek Moore and ZEGA CEO Jay Pestrichelli are back again to discuss the CBOE launching a new 1 Day VIX Index and what it means in relation to the viability of the traditional VIX Index. Plus, they note that 1 month treasury bill yields are far below the 3 month which is odd when looking historically at the relationship. Hint, it has something to do with money market funds and the Fed Overnight Reverse Repos. Then they discuss the decline in the money supply but when put into context, is it really a big deal? Finally, they dish out some recommendations.
1-month US Treasury Bills yield much less than 3-month US Treasury Bills
How historic is the difference between 1-month yields and 3-month yields?
What does it mean if anything when 1-month T bills yield less than Fed Funds?
CBOE launches a new 1 Day VIX Index
Is the traditional VIX Index broken?
Differences between various VIX index terms and what they tell us.
What is the VVIX Index?
What does the VVIX Index tell us about option prices on the VIX?
Current shape of the VIX Futures expiration curve
Relationship between spot VIX (what you see on TV) and the VIX Futures
Flows into money market funds continue but from where?
Overnight Reverse Repos from the Fed as a competitor to 1-month treasury bills
Mentioned in this Episode:
Debt Ceiling Risk | Recession Signals | 10/3 Yield Curve Inversion Podcast https://podcasts.apple.com/us/podcast/debt-ceiling-risk-recession-signals-10-3-yield-curve/id1432836154?i=1000609174431
Can the Fed Fail? https://podcasts.apple.com/us/podcast/can-the-fed-fail-q1-winners-surprise-the-crowd/id1432836154?i=1000608060319
What are Reverse Repos and Repos? Fed usage of overnight reverse repos https://open.spotify.com/episode/09VOIffldtn3WxNm7rzyNx
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek Moore and ZEGA CEO Jay Pestrichelli are back again to discuss Cam Harvey’s 10/3 Yield Curve Inversion and its track record. What it has meant and can mean going forward. Looking at the Real Retail Sales importance for predicting recessions. What various Fed members and Jamie Dimon say about where interest rates are going. Plus, what is going on with wages and how real wage growth may or may not give the Fed cover to raise more. Then, they discuss banks going to the discount window and the new Bank Term Funding Program (BTFP) to borrow money. Finally, what do credit card interest rates and increased usage tell us about the health of the consumer, and why is no one talking about the upcoming debt ceiling deadline?
What is the 10-year 3-month yield curve inversion?
Cam Harvey and the inception of the 10/3 yield curve as a predictor
How often has the 10/3 yield curve inversion predicted recessions?
Does the steepness of the yield curve say anything about the depth of recessions?
Debating whether the 10/3 inversion in 2019 predicted the 2020 recession?
Average time from yield curve inversion to the declaration of recessions
Cam Harvey interview saying this time might be different.
How real retail sales peaked back in March of 2021
Nominal retail sales disappointed while year over year hit lowest level in a while.
What is the Bank Term Funding Program (BTFP)?
Banks accessing the Fed’s discount window plus the BTFP
Consumer credit usage makes a new high while credit card interest rates reach new high
Jamie Dimon comments on higher rates for longer and implications
Real wage growth has been negative for the last 2 years
What is the debt ceiling and what does it mean for the US Treasury
US Treasury keeps a “checking” account at the Fed
Mentioned in this Episode:
Atlantic article from 2011 explaining potential option to get around debt ceiling by US Treasury getting overdraft protection from the Fed https://www.theatlantic.com/business/archive/2011/07/the-us-government-cannot-ever-run-out-of-money/242622/
Can the Fed Fail? Q1 Winners Surprise the Crowd podcast https://podcasts.apple.com/us/podcast/can-the-fed-fail-q1-winners-surprise-the-crowd/id1432836154?i=1000608060319
One Thing No One Ever Talks About within the S&P 500 Index | FANG Stocks 1 Rest of Market 0 https://podcasts.apple.com/us/podcast/one-thing-no-one-ever-talks-about-within-the-s-p-500/id1432836154?i=1000607742682
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek Moore and ZEGA’s Mike Puck are paired once again to talk about markets and the economy. They discussed how Q1 asset class winners and losers weren’t what many thought coming into the quarter. They also talk about correlations, or how different asset classes and sectors have been more correlated over the last 12 months and what that means for portfolios. The lack of high yield debt coming due and how that keeps company’s interest costs down given they refinanced already. Finally, they check in with the Fed and how much of an IOU they owe the US Treasury. The Fed can’t fail, can it?
How correlations go to 1 when things get bad
If correlations go to 1, what does that mean for diversification?
Comparing 12-month correlations between stocks, bonds, commodities, and other factors
What do the current 12-month trailing PE ratios tell us if anything?
When do most high yield bonds and loans mature?
How companies locked in lower rates and what that means for interest coverage ratios
Using Netflix as an example by looking at their weighted average yield on their debt
What is the Federal Reserve Deferred Assets to the US Treasury?
Why is the fed running an IOU to the US Treasury?
When did the fed go from paying out excess interest to the treasury to owing a deferred asset?
Can the Federal Reserve fail?
How bad are the Fed’s unrealized losses on their own balance sheet at the end of 2022?
The Fed isn’t like commercial banks.
Mentioned in this Episode:
Fed Tightening and Easing all at once? https://podcasts.apple.com/us/podcast/fed-tightening-and-easing-all-at-once-how-wrong-were/id1432836154?i=1000605934758
What are Zombie Companies https://open.spotify.com/episode/3j2jm6hbS981GZGhIQn5X3
Is Warren Buffett right on stock buybacks? https://podcasts.apple.com/us/podcast/is-warren-buffett-right-on-stock-buybacks-bank-failures/id1432836154?i=1000604780531
Podcast Explaining Overnight Reverse Repos ON RRP by the FED https://open.spotify.com/episode/09VOIffldtn3WxNm7rzyNx
How Senior Loans work with Dan McMullen https://podcasts.apple.com/us/podcast/dan-mcmullen-talks-senior-loans-leveraged-loans-clos/id1432836154?i=1000527737992
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek Moore and ZEGA CEO Jay Pestrichelli are back together to debate the dollar, markets, earnings, and more. Plus, they discuss one aspect of S&P 500 Index estimates that no one ever talks about. Then, MSFT, META, AAPL, GOOGL, and AMZN have driven all the YTD gains in the S&P 500 Index compared to the rest of the market. Finally, they discuss whether the market is still keying off the US Dollar level, S&P 500 profit margins, and more.
US Dollar still wagging the tail of the stock market?
Correlations of US Dollar to Equities (S&P 500 Index)
S&P 500 Index profit margins come off record highs.
What would declining profit margins mean for earnings?
Historical growth of S&P 500 Index revenues
What no one ever talks about within the S&P 500 Index
S&P 500 Index constituent changes – out with the old in with the new
What does the S&P 500 Index divisor mean relative to S&P 500 Index total market cap?
2022 negative EPS on S&P 500 Index driven by multiple and margin contraction.
EPS growth through margins, revenue, and share count.
Silicon Valley Bank and Signature bank get boot from S&P 500 Index
Quarterly rebalancing of S&P 500 Index
5 Fang stocks drive YTD performance of the S&P 500 Index
What annualized return needed to make a new high in the S&P 500 Index
Mentioned in this Episode:
Fed Tightening and Easing all at once? https://podcasts.apple.com/us/podcast/fed-tightening-and-easing-all-at-once-how-wrong-were/id1432836154?i=1000605934758
Sequence of recessions and what comes first https://podcasts.apple.com/us/podcast/sequence-of-recessions-slowdowns-dividends-make/id1432836154?i=1000603802075
Is Warren Buffett right on stock buybacks? https://podcasts.apple.com/us/podcast/is-warren-buffett-right-on-stock-buybacks-bank-failures/id1432836154?i=1000604780531
Podcast Explaining Overnight Reverse Repos ON RRP by the FED https://open.spotify.com/episode/09VOIffldtn3WxNm7rzyNx
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
ZEGA CEO Jay Pestrichelli rejoins Derek Moore to talk Jay Powell and the Fed seemingly tightening and loosening all at once. They raised rates, but then increased the size of their balance sheet through the SVB (and other) bank bailouts. Then, observing the deep discounts, some REIT etfs are currently trading to NAV and what that infers. Also, Hindenburg research (a short seller) put out negative research on Block (Square). The role of short-selling firms and noting the high stock-based compensation impact on non-GAAP earnings in Block. Finally, Jay and Derek discuss the changes to sector classifications and the impact on financials, how bad a year 2022 was for both stocks and bonds together, and how earnings estimates look going forward and how far off analysts were last year. Of course, they’ll have some recommendations.
2023 Q1 earnings estimates on the S&P 500 Index companies
How the analysts brought down earnings estimates
How off analysts were from their early estimates to actual earnings
Hindenburg negative Block (Square) piece before they sold short
SBC or Stock Based Compensation impact on GAAP earnings vs adjusted earnings
Real Estate REITs seem to be trading below their NAV, are they ahead of the game?
Goldman Sachs points out tightening financial conditions are a quasi-25-50 bps raise
How the bank crisis may make lending standards tighter
Will financials have a headwind on earnings due to tightening credit conditions?
Fed balance sheet balloons up after bailouts of banks
GICS sector re-classification by moving companies like Visa and Mastercard to financials
They discuss whether sector re-classifications in many companies were the right fit
Berkshire Hathaway holds Apple and other non-financials but are the highest weighted in XLF
What the earnings outlook shows for first quarter through the end of 2023
How far off analysts were when looking at their projections for Q4 22 a year out
How much analysts estimates for sectors and the S&P 500 earnings change over time
QT Quantitative Tightening and QE Quantitative Easing all at the same time?
Treasury Secretary Janet Yellen confusing answers to congress on bank bailouts
Did the Fed need to raise 25 bps to keep its credibility?
Mentioned in this Episode:
Sequence of recessions and what comes first https://podcasts.apple.com/us/podcast/sequence-of-recessions-slowdowns-dividends-make/id1432836154?i=1000603802075
US Debt Bomb and Growing Interest Rates effects on US Federal Deficit and Budget https://podcasts.apple.com/us/podcast/us-debt-bomb-interest-rates-brewing-auto-loan-problem/id1432836154?i=1000602839094
Bloomberg Odd Lots Podcast deep dive into state of commercial real estate and loans https://podcasts.apple.com/us/podcast/where-stress-is-showing-in-the-%2420-trillion/id1056200096?i=1000604934309
Podcast Explaining Overnight Reverse Repos ON RRP by the FED https://open.spotify.com/episode/09VOIffldtn3WxNm7rzyNx
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek Moore is back with Mick Puck to discuss the Warren Buffett quote excoriating opponents to share buybacks. Why buybacks and dividends are more closely related than you think. Using Walmart to explain how the change in shares outstanding affect EPS. Where to see share repurchases and dividends on a company’s cash flow statement. Plus, our quick overview of the Silicon Valley Bank (SVB) debacle and what the FDIC’s list of troubled banks at the end of 2022 told as (if anything) about the 3 banks that failed the last 2 weeks.
SVB Silicon Valley bank example of duration risk in bonds (mortgage-backed securities)
How MBS mortgage-backed bonds see duration sensitivity to interest rates rise as rates rise
Where to find the FDIC quarterly report on banks including their watch list and amounts
Warren Buffett statement on how share buybacks are misunderstood.
Do companies always buy back shares when their stock is undervalued?
Where to find on cash flow statement share repurchases and issuance
Where to find on cash flow statement dividends paid out
Explaining the difference between a buyback yield and dividend yield
How much did Apple repurchase through buybacks last year vs dividends
Walmart as an example showing how reduction in outstanding shares effects earnings per share
Comparing capital gains on shares to dividends for normal investors and their preferences
How buybacks are more flexible for dividends
Do buybacks show confidence in one’s own shares for companies?
Positives and negatives for buybacks including stock based compensation and dilution
Finally, some recommendations on a movie and a TV show
Mentioned in this Episode:
FDIC watch list of troubled banks and quarterly bank profile graphs https://www.fdic.gov/analysis/quarterly-banking-profile/graph-book/2022dec/
Sequence of recessions and what comes first https://podcasts.apple.com/us/podcast/sequence-of-recessions-slowdowns-dividends-make/id1432836154?i=1000603802075
US Debt Bomb and Growing Interest Rates effects on US Federal Deficit and Budget https://podcasts.apple.com/us/podcast/us-debt-bomb-interest-rates-brewing-auto-loan-problem/id1432836154?i=1000602839094
Underperformance of International Stocks https://podcasts.apple.com/us/podcast/underperformance-of-international-stocks-valuations/id1432836154?i=1000601650028
Wharton Magazine article Beware of High Dividends https://magazine.wharton.upenn.edu/digital/beware-high-dividend-yield-stocks/
Reuters article showing Discount Window picked up towards the end of 2022 https://www.reuters.com/markets/us/fed-discount-window-borrowing-is-edging-up-is-it-problem-2022-12-09/
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Jay Pestrichelli, CEO of ZEGA Financial, joins Derek Moore again to discuss markets going higher even when earnings decline post bear markets. Plus, they discuss Michael Kantro’s HOPE graph showing the order of slowing in the economy through the lens of Housing, New Orders, Profits, and Employment. Then they move on to the drivers of returns talking through PE multiples, margins, revenues, buybacks, and dividends. Speaking of dividends, are they going to be the next big thing if investors believe markets may trade flat for a while? Finally, Jay and Derek give some recommendations that may or may not be good.
Percentage of total stock returns dividends historically make up
Examining prior 1 year forward stock returns after bear market low is in vs. earnings declines
HOPE or Housing, Orders, Profits, Employment, and typical cycles from slowdown to expansion
How dividends plus premium (covered call) selling may augment returns in flat markets
Where market returns come from
How changing margins, PE multiples, share buybacks, and revenues determine returns
Examining where returns came from in other decades and where we stand now
Will dividends be the next hot investment area funds flow to?
Number of new highs in markets by year
Number of greater than >1% down days in the S&P 500 Index
How much the Fed Funds futures implied interest rate has changed by a wide amount
Being hedged vs a dividend strategy
Mentioned in this Episode:
US Debt Bomb and Growing Interest Rates effects on US Federal Deficit and Budget https://podcasts.apple.com/us/podcast/us-debt-bomb-interest-rates-brewing-auto-loan-problem/id1432836154?i=1000602839094
Underperformance of International Stocks https://podcasts.apple.com/us/podcast/underperformance-of-international-stocks-valuations/id1432836154?i=1000601650028
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Jay Pestrichelli, CEO of ZEGA Financial, joins Derek Moore again to discuss whether this current bear market is tracing the 2000/2001 bear market. Plus, they highlight how tight yield spreads are looking at what the 3-month treasury bill/ 2-year treasury note are yielding compared to high yield and investment grade bonds. Then Jay and Derek go through the looming US debt bomb in regard to where interest payments might go and whether there will be political pressure for the Fed to keep rates low. Finally, after going through the avocado vs bitcoin relationship, they give a few recommendations.
The US Federal Debt is growing but what if rates stay higher and net interest owed goes up?
What does the yield spread tell us about relationships of corporate bonds to treasuries?
Is the current bear market tracking the 2000-2001 bear market?
Does the price of Bitcoin and Avocados really track one another?
Tom Lee points to breakouts in Nasdaq stocks
Tom Lee Ex-FAANG forward PE ratios for the S&P 500 Index
US Federal Debt held by the public
Nominal GDP Growth vs US 10 Year Treasury Yield
Looking at John Hussman regression chart on 10-year trailing growth vs nominal GDP
US government spending next 10 years at WWII levels
Current net interest payments by US government
Average car price in the US hit new highs in 2022 while interest rates rising
Negative equity on used cars getting rolled into new car loans
Most home owners locked in really low interest rates
Corporations interest costs as percent of cash flows low because they locked in low bond rates
Comparing 3-Month Treasury Yields spread to high yield and investment grade bonds
Car loans are getting too long considering cars are a depreciating asset
Mentioned in this Episode:
Underperformance of International stocks for a long time and valuations still too high? https://podcasts.apple.com/us/podcast/underperformance-of-international-stocks-valuations/id1432836154?i=1000601650028
No Volmageddon 2.0 | No Landing for the Economy? https://podcasts.apple.com/us/podcast/no-volmageddon-2-0-no-landing-for-the-economy/id1432836154?i=1000600413796
2019 WSJ article on car owners rolling negative equity on long term car loans into their next car https://www.wsj.com/articles/the-seven-year-auto-loan-americas-middle-class-cant-afford-their-cars-11569941215
Nominal (not inflation adjusted) US GDP https://fred.stlouisfed.org/series/GDP
Federal government current expenditures net interest payments on debt https://fred.stlouisfed.org/series/A091RC1Q027SBEA
Words and Numbers Podcast where they talk about tax receipts (what government takes in) have gone up 50%+ since 2020 https://open.spotify.com/episode/2zjC18iPqIm0LUeDPF2nAP?si=o2wX9sn8SB25BMSMrk2xzw
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek Moore is back with Mike Puck, Director of Business Development at ZEGA Financial to talk underperformance of international stocks and how “everyone” is saying this is the year that trend gets reversed. Mike shares what people were talking about at the Miami ETF Conference around flows into international funds to start the year. Plus, they talk about what investors give up if they rotate out of S&P 500 US type investments and how you might already have international exposure in large US companies. Finally, they discuss the consensus for the US Dollar to drop in 2023 along with some other odds and ends within markets and the economy.
Why we don’t try and pick markets and instead just Buy and Hedge!
Comparing the performance of international stocks and value stocks
Relative underperformance for over a decade in international stocks
Is 2023 the year international finally outperforms again?
Spain’s IBEX Index price (not including dividends) is the same as it was in 1997-98
Makeup of stocks within the S&P 500 Index vs some international indexes
Looking at the top 100 companies worldwide by market cap
John Hussman Price/Sales ratio chart
Price to sales still higher than average – although margins remain higher than average
Market may be assuming net profit margins will stay elevated
Google searches for Soft Landing are up
Comparing the Nominal GDP growth to the 10-Year Treasury yield
Early 90s Emerging Markets dominance
International stock indexes have less technology and more value type stocks
Mentioned in this Episode:
No Volmageddon 2.0 | No Landing for the Economy? https://podcasts.apple.com/us/podcast/no-volmageddon-2-0-no-landing-for-the-economy/id1432836154?i=1000600413796
John Hussman article on current valuations https://www.hussmanfunds.com/comment/mc230221/
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek Moore is back with ZEGA Financial CEO Jay Pestrichelli to discuss recent discussion on 0 DTE (zero days to expiration) options and potential for a new Volmageddon event due to them. Then, they again get into The Fed and the idea of hard landing, soft landing, or no landing (that’s a new one). Plus, they discuss some odds and ends within markets and the economy including some chart crimes, shipping container rates, next 12 month returns ONCE a bear market bottom is in, and why US Investment Grade Bonds are yielding less than the 3-month treasury bond at higher percentages than before.
Volmageddon 2.0 (or Volpocalypse 2.0)
What are 0 DTE Zero Days to Expiration Options
Why we now see much more trading in 0 DTE Options
Why 0 DTE options aren’t that big of a deal
What is a No Landing Economy scenario?
Why the Fed might revert back to the 90s on interest rates
If the economy is growing why do rates need to fall?
The idea of the Fed keeping dry powder just in case
Non-voting Fed members are making a lot of noise about rates
IF the bear market low is in (and that’s still an if) forward 12 month returns positive
Shipping container rates including the Rotterdam to New York down 80% off highs
Examples of 2011 expiration of SPY options available versus now (hint a lot more now)
Comparing treasury yield curves over select periods
Bankruptcies and 90-day credit card delinquencies are up (do these lack perspective?)
Mentioned in this Episode:
Jay and Derek’s prior episode ‘Now Everyone is Bullish? | Shocking Impact of Missing Just the 2 Best Days Each Year’ https://podcasts.apple.com/us/podcast/now-everyone-is-bullish-shocking-impact-of-missing/id1432836154?i=1000599235040
Bloomberg: JP Morgan’s Kolanovic Warns of Volmageddon 2.0’ risk in Options https://www.bloomberg.com/news/articles/2023-02-15/jpmorgan-strategist-kolanovic-warns-of-volmageddon-2-0-risk-in-options-market
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek Moore is back with ZEGA Financial CEO Jay Pestrichelli to discuss how AFTER the market ran up in January people are bullish according to the new AAII Individual Investor survey. Plus, updated numbers on the difference in hypothetical returns if you missed ONLY the 2 best day each year over a 10 or 20-year period. Then, we continue to get economic data that is telling different stories so what to believe? Then they give some recommendations.
AAII Sentiment Poll Bulls minus Bears turns positive after 44 consecutive weeks bearish.
NAAIM Exposure Index (Active Manager Equity Exposure) most bullish since Jan 2022
Shocking difference in returns when taking out 2 best market days over 10 and 20 years
Worst 20 year rolling return was still positive
Atlanta Wage Growth tracker shows wage growth still strong
Difference between job switchers and job stayers still wide (make more switching)
Leisure and Hospitality wages still surging to new highs
Since WWII markets have taken off 7 months post inflation peaks on average
Inventories in durable goods and lumber (and other construction materials) move higher
Fed governors talk tough and market implied fed funds rate surges higher
People are spending down the post-Covid excess savings
Mentioned in this Episode:
Personal Savings https://fred.stlouisfed.org/series/PSAVE
Wage growth tracker https://www.atlantafed.org/chcs/wage-growth-tracker
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek Moore is back to talk about the one thing no one seems to think is a possibility with interest rates. Plus, why the tightening of the triple BBB corporate bond spreads above 3-month Treasury Bills and Fed Funds is something to watch for markets. Then, Derek explains the 4 stock market scenarios people are watching.
Disconnect between market expectations and the Fed
Spread between corporate bonds and treasuries narrows
BBB Corporate bond spread to Fed Funds smallest since 2007
What do interest rate spreads mean?
How are interest rate spreads calculated?
What happens when spreads widen or narrow in bonds and stocks?
What are Overnight Reverse Repos
Fed Funds ranges vs exact rate
What is the effective fed funds rate
Where to find the fed funds rate
CME Fed Interest Rate probability tool
The federal reserve dot plots
Mentioned in this Episode:
What are Overnight Reverse Repos ON RRP that Fed is using nowhttps://open.spotify.com/episode/09VOIffldtn3WxNm7rzyNx
Effective Fed Funds Rate https://www.newyorkfed.org/markets/reference-rates/effr
See Probabilities of future Fed Funds hikes or lowering https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
The triple BBB bond spread https://fred.stlouisfed.org/series/BAMLC0A4CBBB
Wall Street Journal banks predict recession and Fed Pivot in 2023 https://www.wsj.com/articles/big-banks-predict-recession-fed-pivot-in-2023-11672618563
Prof Aswath Damodaran market scenarios post https://aswathdamodaran.blogspot.com/2023/01/data-update-2-for-2023-rocky-year-for.html
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek Moore and Mike Puck discuss the upcoming Fed meeting and whether rates will stick around at higher levels for a while despite general estimates for lower rates in the back half of 2023 and early 2024. Mixed signals in the labor market as tech announces layoffs while other companies point to hiring. Why it’s tough to pick individual stocks using Tesla as an example.
Does the Fed still want bad things to happen in the economy?
Watch the Fed press conference
Tech stocks see gains after layoff announcements
Why picking individual stocks is so hard
Tesla record earnings and revenues but 2022 was a bad year for its stock price
Bull market in Orange Juice?
LEI Leading Economic Indicators flashing recession signal
Strong Q4 GDP but interesting durable goods transportation contribution
Fed Funds futures don’t believe the Fed will keep interest rates high
Would it be so bad if we got to 4.8% Fed Funds and stayed there?
Why markets don’t like rate uncertainty
Q4 earnings look to be below the prior year
Accuracy of the Atlanta Fed GDP Nowcast Model
NFIB Small Business survey not so rosy?
Jeremy Siegel the eternal optimist
So is good news “good news” again?
Mentioned in this Episode:
Earnings declines don’t always mean stock market declines https://podcasts.apple.com/us/podcast/max-bearish-earnings-declines-dont-mean-falling-stocks/id1432836154?i=1000596061448
1994-95 all over again for stock market? https://podcasts.apple.com/us/podcast/1994-95-all-over-again-in-markets/id1432836154?i=1000590865306
ZEGA Financial https://zegafinancial.com/
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Jay Pestrichelli, CEO of ZEGA Financial and Derek Moore are back to talk Netflix earnings, why earnings declines don’t necessarily mean falling stock prices, wide bid ask spread in housing, and volatility dropping in the currency and fixed income markets. Plus, the AAII investor survey points to record lows in bullish sentiment. Why margins are being overlooked in earnings estimates. Finally, is Japan an unknown, unknown and Derek (without any knowledge) predicts Amazon buys AMC and Apple buys Netflix.
Does the market still care about Netflix earnings?
Netflix low YoY quarterly revenue growth
Wild prediction on Apple buying Netflix
Why doesn’t Amazon buy AMC?
Existing home sales continue to make new lows year over year
Earnings declines don’t equal lower stock prices all the time
Comparing years where earnings are lower but stocks are higher
Why markets look forward to future earnings expectations
Volatility dropping in FX and fixed income markets
Spread between equity volatility and Fixed Income volatility still wide
Used car prices finally printing lower lows
AAII survey points to low bullish sentiment and high bearish sentiment
Margins in earnings should be the story
Why Japan may be a thing to watch as an unknown unknown
Mentioned in this Episode:
2023 market predictions that will probably be wrong again https://podcasts.apple.com/us/podcast/2023-predictions-markets-and-the-economy/id1432836154?i=1000591390337
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Jay Pestrichelli’s book Buy and Hedge https://www.amazon.com/Buy-Hedge-Iron-Rules-Investing/dp/1087941849/ref=nav_signin?_encoding=UTF8&qid=&sr=&asin=1087941849&revisionId=&format=4&depth=1
Contact Derek derek.moore@zegafinancial.com
Derek and Mike Puck, ZEGA Director of Business Development, discuss whether Value will have a period of outperforming Growth. How Value and Growth have experienced long regimes where one outperforms another. Where we are in the current cycle. Plus, how dividends historically have accounted for 40% of total returns in the S&P 500 Index.
What makes a stock a “value stock”?
Growth vs Value historically
How growth has outperformed value for extended period of time
Are we about to switch where value outperforms growth?
How value investors have been fooled in the past
How older companies reap the benefits of technology.
Different types of assets and do they get missed with Growth stocks?
Dividends have accounted for 40% of S&P 500 index total returns historically.
Dividends over last few decades less than buybacks as percentage of net income
Idea of strategy that has dividends Plus option premium from covered calls.
Goals of covered call strategies
Concept of dogs of the Dow
How dividend yields move higher as price moves lower (so long as they keep paying dividends)
Mentioned in this Episode:
Chart showing Growth vs Value relative performance historically https://www.hartfordfunds.com/dam/en/docs/pub/whitepapers/CCWP105.pdf
Dividends as percentage of total returns historically S&P 500 Index https://www.hartfordfunds.com/insights/market-perspectives/equity/the-power-of-dividends.html
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Jay Pestrichelli, CEO of ZEGA Financial and Derek are back to talk about how there is conflicting bullish and bearish data in the economy. Jobs data vs manufacturing tells a different story. Plus, digging into the labor force participation rate conundrum. This week Campbell Harvey who came up with the 3 month over 10 year treasury yield curve inversion indicator said despite being right every time on recessions, this time may be different.
Cambell Harvey yield curve inversion signals false this time?
3 Month Treasury inverted against the 10 Year Treasury Bond
Labor force participation rate explained.
Is low unemployment rate because a few million people are not looking for work?
PMI data shows things are slowing while employment is strong.
Wage growth revised lower a bullish sign for markets?
Has Spain’s stock market really gone nowhere for past 13 years?
It’s about to get real for earnings seasons once again.
Banks are first up for earnings which may give hints around the economy
Don’t overlook Taiwan Semiconductor earnings as an econ barometer for economy.
And recommendations for a few movies, shows, and books.
Mentioned in this Episode:
Yield curve inversion false signal this time according to Cambell Harvey? https://finance.yahoo.com/finance/news/pioneering-yield-curve-economist-sees-151304568.html
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Jay Pestrichelli’s book Buy and Hedge https://www.amazon.com/Buy-Hedge-Iron-Rules-Investing/dp/1087941849/ref=nav_signin?_encoding=UTF8&qid=&sr=&asin=1087941849&revisionId=&format=4&depth=1
Contact Derek derek.moore@zegafinancial.com
Derek is back with the first show of 2023. On this week’s episode, looking at successive negative market years frequency and returns by decade. Hint, we’re still positive decade to date by more than you think. Plus, examining frequency of T bills outperforming the S&P 500 Index.
Review S&P 500 Index market returns by decade
How frequent do markets have succussive down years?
How can T-bills outperform the S&P 500 Index?
Decade to date is still positive by more than people think.
How markets have been good (outside of 2022)
Looking at markets over longer horizons
Mentioned in this Episode:
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
John Hussman article on markets showing when T-bills outperform equity markets https://www.hussmanfunds.com/comment/mc190906/
Contact Derek derek.moore@zegafinancial.com
Jay Pestrichelli, CEO of ZEGA Financial, is on a special 200th episode of the Broken Pie Chart Podcast to go over their predictions for 2023. Will we have a recession? What will the earnings be? What will be the highs, lows, and year end 2023 10 year yield, S&P 500 Index, gold, bitcoin, oil, fed funds rate, and more. Off course these should not be traded on, but instead hear some of our thought process in arriving at these numbers. Plus, as always, some recommendations.
2022 Saw 91% of days with VIX higher than 20%
Skew in options market not showing much fear?
2023 prediction rundown.
What will the high low and year end S&P 500 2023 number be?
Where will the US dollar finish?
How high will the Fed Funds rate and 10 Year Treasury yields go?
What earnings EPS on the S&P 500 might wind up in 2023
Plus, recommendations
Is Die Hard a Christmas movie?
Is Lethal Weapon a Christmas movie?
Mentioned in this Episode:
Capitulation: What does it look like for market bottoms podcast https://podcasts.apple.com/us/podcast/capitulation-markets-tend-to-lead-the-economy/id1432836154?i=1000585228050
Derek’s new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Jay Pestrichelli’s book Buy and Hedge https://www.amazon.com/Buy-Hedge-Iron-Rules-Investing/dp/1087941849/ref=nav_signin?_encoding=UTF8&qid=&sr=&asin=1087941849&revisionId=&format=4&depth=1
Contact Derek derek.moore@zegafinancial.com
What’s the saying, history doesn’t repeat itself but often rhymes? In 1994 the Fed was raising rates all the way through the Feb 1995 meeting. How does that period compare to now? And does that mean we are in for a repeat of markets? Derek Moore explores that period and makes some comparisons.
1994 Fed interest rate hikes
1994-95 interest rate cycle and market returns
The 1995 Fed pivot
When did markets turn higher? Hint it’s before the last rate hike.
Curious reasons Fed began raising rates in 1994.
Are the Fed projections ever right (hint, usually not their SEP or statement of econ projections
Mentioned in this Episode:
History of Fed rate hikes https://www.thebalancemoney.com/fed-funds-rate-history-highs-lows-3306135#:~:text=The%20highest%20fed%20funds%20rate,in%20response%20to%20rising%20inflation.
The 94-95 rate cycle including some look back at newspaper headlines and stories https://www.businessinsider.com/1994-federal-reserve-tightening-story-2013-1#protests-grow-louder-in-the-press-following-the-fomcs-may-18-decision-below-are-headlines-from-two-syndicated-ap-columns-the-next-day-18
Effective Fed Funds rate today https://www.newyorkfed.org/markets/reference-rates/effr
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Every time you tune into CNBC you hear predictions about when the recession will hit. Then, when the Fed will pivot. But are people focused on the wrong things? Jay Pestrichelli is back with Derek Moore to discuss markets, earnings, and why the contrarian take is everyone can’t be right. Plus, the more the yield curve inverts, the harder it will be for a recession to arrive in 2023.
2023 Earnings EPS scenarios review
Forward P/E ratios and where multiples will be
Why the market goes up or down form here (or sideways)
Employment differences in the Household Survey vs Establishment Survey
NFP labor market survey low response rate
Atlanta Fed Wage tracker moving in wrong direction (moving higher)
Monthly Inventories and sales ratios showing higher inventory builds
PPI comparing core less food and energy with total PPI
PPI higher but lower YoY number
History of Fed Pivots and where we are now in the cycle
Index of companies with international sales inverse with US Dollar strength
Why the dollar needs to go lower
Shanghai to Los Angeles container shipping rates almost back to pre-Covid average
Mentioned in this Episode:
Podcast FTX Crypto Debacle | Yield Curve Inversion | Enough with Recession Talk https://podcasts.apple.com/us/podcast/ftx-crypto-debacle-yield-curve-inversion-enough-with/id1432836154?i=1000586865880
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3iSUbXp
Contact Derek derek.moore@zegafinancial.com
Last week the payroll and unemployment numbers came out. They surprised to the upside but does the Fed really want people to lose their jobs? How are the unemployment numbers calculated? And an under the radar demographic trend on working age population. Plus, the 2023-year end S&P 500 Index targets are coming out and they are bearish!
What are investment banks 2023-year end S&P 500 Index price targets?
How do the 2023 targets compare to last year’s year end 2022 targets?
How wrong were they and will they be wrong again?
Are S&P 500 market predictions too bearish and is that good from a contrarian standpoint?
What do the unemployment and payroll numbers mean?
What’s going on with demographics that working age population is trending lower?
Labor force participation rate
Unemployment rate
Working age population
Mentioned in this Episode:
Atlanta Fed Wage Growth Tracker https://www.atlantafed.org/chcs/wage-growth-tracker
Nonfarm payrolls https://fred.stlouisfed.org/series/PAYEMS
Household employment survey employment level https://fred.stlouisfed.org/series/CE16OV
Labor force participation rate https://fred.stlouisfed.org/series/CIVPART
Working age population https://fred.stlouisfed.org/series/LFWA64TTUSM647S#0
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Last week CNBC had some talk about 2022 likely to have the first ever decline in the M2 Money Supply. Is that really a big deal given 2020 record 25% growth followed by 2021 12% growth? Then, why velocity of money may not mean anything for inflation after all.
What is the M2 money supply?
What is the M1 money supply?
Comparing M2 vs M1 money supply
Discussing massive increase in money supply in 2020-2021
First ever decline in money supply in 2022?
Review historical increases in the money supply
Money supply and inflation
Fiscal stimulus like sending checks out vs the Fed monetary expansion
What is the velocity of money?
How is velocity of money calculated?
Is velocity and inflation correlated?
Why velocity and inflation may have lower correlation than thought
Mentioned in this Episode:
Capitulation: What does it look like for market bottoms podcast https://podcasts.apple.com/us/podcast/capitulation-markets-tend-to-lead-the-economy/id1432836154?i=1000585228050
Academic paper showing low correlation between velocity and inflation: The Behavior of Money Velocity in High and Low Inflation Countries
Hugo Rodríguez Mendizábal https://www.jstor.org/stable/3839075
Crypto Crash | US Dollar is the thing to watch podcast https://podcasts.apple.com/us/podcast/crypto-crash-us-dollar-is-the-thing-to-watch/id1432836154?i=1000586009794
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Jay Pestrichelli, CEO of ZEGA Financial, is back with Derek this week where they talk FTX bankruptcy and whether it means the end for crypto? Then they discuss the 3-month treasury bond yield inverting with the 10-year treasury bond. Yes, every time that has happened there have been recessions, so what about this time? Earnings continue to be the thing to watch. A quick game of who is right after the Atlanta Fed GDP Nowcast is showing 4.3% growth compared to a measly 0.5% current estimate for Q4 GDP. Finally, some recommendations.
FTX Bankruptcy
Whether crypto has any use case
One bad actor doesn’t make the whole space
Who’s right, the Atlanta Fed GDP Nowcast or the street consensus on Q4 GDP?
3-Month US Treasury inversion with the 10-Year Treasury Yield
Does a recession always happen after this inversion?
Examining typical un-inversion prior to recessions
Discussing whether we had inversion prior to 2020 recession
Q3 earnings are mostly done so what does that mean for stocks?
Nominal vs real (after inflation) retail sales numbers
Mentioned in this Episode:
Capitulation: What does it look like for market bottoms podcast https://podcasts.apple.com/us/podcast/capitulation-markets-tend-to-lead-the-economy/id1432836154?i=1000585228050
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Jay Pestrichelli’s book Buy and Hedge https://www.amazon.com/Buy-Hedge-Iron-Rules-Investing/dp/1087941849/ref=nav_signin?_encoding=UTF8&qid=&sr=&asin=1087941849&revisionId=&format=4&depth=1
Contact Derek derek.moore@zegafinancial.com
Derek gives his thoughts on the FTX crypto collapse and bankruptcy. Why crypto are NOT currencies. Then, why everyone should be paying attention to the US Dollar. Why the US Dollar is so important for multi-national companies and their revenues. How those revenues are impacted when the dollar is strong (or weak). Then finally a check in on the Fed Funds probabilities for future rate hikes.
Why crypto currencies have failed to be currencies
How some crypto returns seem too good to be true
There is risk when returns are greater than the risk-free rate
Explaining how revenues for US companies are affected by value of US Dollar
Why the dollar may be the thing to watch right now
Anti-correlations between the US Dollar and stocks
US Dollar has biggest one day fall in years
How interest rates affect currency exchange rates
Deep dive into examples of revenues and earnings with strong and weak US Dollar
Microsoft stated they had a 5% negative revenue impact in Q1 from currencies
Speculation that FTX used customer funds inappropriately
Mentioned in this Episode:
Coin Desk article explaining FTX collapse https://www.coindesk.com/policy/2022/11/10/ftx-violated-its-own-terms-of-service-and-misused-user-funds-lawyers-say/
Fed Funds Rate probabilities from CME https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
Microsoft revenues impacted in Q1 2023 earnings report https://www.fool.com/investing/2022/10/30/microsoft-beats-back-king-dollar-and-rising-intere/
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek is joined again by ZEGA CEO Jay Pestrichelli to discuss what market capitulation looks like and are we there yet? Plus, how markets tend to turn up prior to the economy bottoming historically. Before some recommendations they discuss why the VIX isn’t higher and what the VIX curve is telling us now and in the past.
What is market capitulation?
Historical examples of markets bottoming months ahead of the economy
Are markets smarter than the economy?
The VIX futures curve
Why VIX isn’t higher
What the VIX is really telling us about volatility expectations
Can markets bottom out with just apathy instead of panic?
Post Midterm Election bounce?
Are we sure we are going to have a recession?
Everyone says a recession is coming but can everyone be right?
Mentioned in this Episode:
Higher interest rates provide opportunity for Buy and Hedge https://podcasts.apple.com/us/podcast/higher-rates-create-opportunity-for-hedging/id1432836154?i=1000581025635
Do markets always go higher after midterms? https://podcasts.apple.com/us/podcast/do-markets-always-go-up-after-midterm-elections/id1432836154?i=1000579103232
Why hedging is the answer for portfolios https://podcasts.apple.com/us/podcast/why-hedging-is-the-answer-for-portfolios-can-hedgers/id1432836154?i=1000578323267
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek is joined by Spencer Wright of Halbert Wealth to discuss historical impact on markets Plus, they discuss the house, senate, and the prevailing polls and other indicators to sift through the noise. Finally, they give their picks in the 5 senate races that matter.
Market performance post midterm elections since 1962
Why markets might like split government
What the polls and adjusted polls are saying
What the past tells us about likelihood of change of power in the house during midterms
What do polls miss?
Markets in midterm years leading up to election day
Why long term it doesn’t matter which party is in power President, Senate, and house
How sitting president approval ratings play into races
What the betting markets are saying about the senate race and late momentum
When will we know the outcomes (hint: it may not be on election night)
Where can you find info on latest polls
Where can you find deadlines for mail ballots and when they will be counted
Disparity between Democrats and Republican candidate money raised and spending
Bias adjusted poll averages and what they are
Mentioned in this Episode:
RCP (real clear politics) latest polling data https://www.realclearpolitics.com/epolls/latest_polls/
Interactive US Senate 2022 midterm map https://www.270towin.com/2022-senate-election/
CNBC piece detailing candidate spending for Senate races https://www.cnbc.com/amp/guide/midterms-2022-top-senate-races-oz-walker-vance-kelly/
State legislature info on states mail ballot processing, counting, and deadlines https://www.ncsl.org/research/elections-and-campaigns/vopp-table-16-when-absentee-mail-ballot-processing-and-counting-can-begin.aspx
Absentee ballot deadlines https://www.vote.org/absentee-ballot-deadlines/
Five Thirty Eight election probability models https://projects.fivethirtyeight.com/2022-election-forecast/
What betting markets say about election probabilities https://electionbettingodds.com/
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
The Fed is paying out more in interest than it is taking in, resulting in an IOU to the US Treasury. Is this a big deal? Did the Fed believe this was possible? Understand why you may see in the news the Federal Reserve is running a deficit. Plus, is the Treasury about to do bond buybacks to increase liquidity in markets?
What is a Federal Reserve deferred asset liability
How much of a deficit is the Fed running?
Why is the Fed paying out more in liabilities than its receiving in interest?
Why are Janet Yellen and the Treasury thinking about doing bond buybacks?
What does it mean when bond markets are illiquid?
What is the average interest rate on outstanding US Treasuries?
Can the Federal Reserve go bankrupt?
What role to Fed Overnight Reverse Repos have in this?
How does the fed pay interest out to banks through excess reserves?
Reviewing 2013 Fed paper on potential for deferred assets (liability) to arise
Mentioned in this Episode:
Financial Times article on treasury bond liquidity https://www.ft.com/content/bc7271f9-a0aa-4643-bed3-40d2d5ec80d1
Brookings article on Fed running a deficit and owing the Treasury https://www.brookings.edu/blog/up-front/2022/06/01/what-if-the-federal-reserve-books-losses-because-of-its-quantitative-easing/amp/
Average interest rates on US Treasury bonds, bills, notes https://fiscaldata.treasury.gov/datasets/average-interest-rates-treasury-securities/average-interest-rates-on-u-s-treasury-securities
NY Fed list of current SOMA Fed holdings https://www.newyorkfed.org/markets/soma-holdings
Fed Overnight Reverse Repo outstanding https://fred.stlouisfed.org/series/RRPONTSYD
What are Overnight Reverse Repos https://podcasts.apple.com/us/podcast/what-are-reverse-repos-and-repos-fed-enters-overnight/id1432836154?i=1000523659106
Fed earnings remittances due to the U.S. Treasury https://fred.stlouisfed.org/series/RESPPLLOPNWW#0
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
The Federal Reserve shows no sign of slowing down rate hikes in the near term. But are they doing anything? ZEGA CEO Jay Pestrichelli is back on the show with Derek Moore to debate. Plus, why we care about England’s BOE moves. Finally, some recommendations.
What is the deal with the UK’s pensions and government bonds?
Is the Fed doing it all wrong?
Container shipping rates back to normal?
The waiting is over at the Port of LA
Inflation run rates and what we need to happen
What would it take for a Fed pivot based on some historical numbers
Real vs Nominal numbers in economics
Lag in OER (Owners Equivalent Rents) and Rent of Primary Residence in CPI
Mentioned in this Episode:
What are Overnight Reverse Repos https://podcasts.apple.com/us/podcast/what-are-reverse-repos-and-repos-fed-enters-overnight/id1432836154?i=1000523659106
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Jay Pestrichelli’s book Buy and Hedge https://www.amazon.com/Buy-Hedge-Iron-Rules-Investing/dp/1087941849/ref=nav_signin?_encoding=UTF8&qid=&sr=&asin=1087941849&revisionId=&format=4&depth=1
Contact Derek derek.moore@zegafinancial.com
As Q3 earnings season is about to kick off we’ll look at what the drivers of returns are for the S&P 500 Index and individual stocks. Annualized returns are a mix of sales growth, margin growth, dividends, share count, and PE multiple growth. See how to think about these levers in relation to price.
What are the return attributions of the S&P 500 Index returns?
PE multiple growth vs multiple contraction
How share buybacks or issuance increase or decrease earnings
Dividend yield as a percentage of total return
Net Margin expansion or contraction
Sales growth has been lower than you might think over the last 10 years
EPS or earnings per share
2022 Q3 earnings estimates on EPS and sales
Nature of rotation of sectors contributing to total earnings of the S&P 500
Value After Hours podcast and YouTube channel
Mentioned in this Episode:
Augustus investor letter (click on first one) page 24 breaking down 2011-2021 earnings attributions https://www.semperaugustus.com/clientletter
Refinitiv Q3 earnings preview breakdown https://lipperalpha.refinitiv.com/2022/10/sp-500-22q3-earnings-preview-a-turning-point/
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
The rise of interest rates has been all over the news, but is there a silver lining? Yes, due to higher rates in short-term US treasuries hedged equity strategies now can further manage risk by substituting out short duration high yield to short term treasuries. ZEGA Financial CEO Jay Pestrichelli and Derek Moore are back to explain how a flagship strategy Buy and Hedge is leveraging the new environment.
What are Buy and Hedge strategies?
Comparing the risk profile of short-term US Treasuries vs short-duration high yield bonds.
Comparing risk profile of treasuries to corporate bonds
Explaining the yield to maturity on bonds
Where a return comes from in a bond
Coupon payments(interest) vs appreciation to par
Interest rate risk in bonds
Duration as a measurement of how market values change for every 1% change in rates
How Buy and Hedge has limited risk in buying long call options and US treasuries
Mentioned in this Episode:
Why hedging is the answer for investors https://podcasts.apple.com/us/podcast/why-hedging-is-the-answer-for-portfolios-can-hedgers/id1432836154?i=1000578323267
Margin Call Movie and Value at Risk Explained https://open.spotify.com/episode/2XJ58KAoQKw2sdC48KHyPp
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Jay Pestrichelli’s book Buy and Hedge https://www.amazon.com/Buy-Hedge-Iron-Rules-Investing/dp/1087941849/ref=nav_signin?_encoding=UTF8&qid=&sr=&asin=1087941849&revisionId=&format=4&depth=1
Contact Derek derek.moore@zegafinancial.com
Does anyone who makes predictions in the financial news media know anything? Lots of headlines are making predictions so why not add some perspective from past bear markets (and bull markets) where many things’ people say never came true. Why investors make bad decisions due to news. How investors opt to stay in cash even as markets firm up. We’ll go through some past predictions to see how the mood sways at different points in cycles.
What the financial media is saying
New estimates and predictions are taking a bearish tone
Reading prior headlines from several periods show predictions aren’t worth that much
Why investors tend to shy away from markets even when things are cheaper
How analyst estimates can be wrong while the market focuses on the forward PE ratio
Mentioned in this Episode:
Why hedging is the answer for investors https://podcasts.apple.com/us/podcast/why-hedging-is-the-answer-for-portfolios-can-hedgers/id1432836154?i=1000578323267
Is the strong us dollar a problem? https://podcasts.apple.com/us/podcast/is-the-strong-us-dollar-a-problem/id1432836154?i=1000571388439
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Inflation surprised to the upside last week. Although it was close to the Cleveland Fed’s nowcast estimate. So, what would it take for inflation to get back to the 2% level and when? We’ll go through the numbers today to illustrate what rate of monthy inflation would be needed to get there buy the spring. Its just math, so here we see the Feds base rates come into plan.
How is inflation month over month calculated?
How is inflation year over year calculated?
How do month to month and year over year numbers matter for future inflation?
What is the difference between CPI and Core CPI?
Why Core CPI might keep going higher for a while due to lagging affect
What is OER or Owners Equivalent Rent?
Mentioned in this Episode:
Inflation Nowcast Cleveland Fed https://www.clevelandfed.org/our-research/indicators-and-data/inflation-nowcasting.aspx
Do markets go up after midterm elections? https://podcasts.apple.com/us/podcast/do-markets-always-go-up-after-midterm-elections/id1432836154?i=1000579103232
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Do markets always go up after the midterm elections? What about market performance during the presidential cycle? Interesting data points to historical numbers being bullish for markets next year. What could go wrong? Plus, why it may not matter what political party is in power.
Market performance before and after midterm elections
When are midterm elections held?
Significant swings in power during midterm election years
Market performance and presidential cycles
Which year of president’s term is the best for markets historically?
Why markets historically are flat to down pre-midterm elections
Why markets historically rally post-midterm elections
Market performance depending on which party holds power
Does it matter which political party is in power for markets?
Mentioned in this Episode:
Market historical performance during different years of Presidency https://www.trade2win.com/articles/2128-presidents-politics-u-s-stock-market
Market performance pre and post midterm elections https://www.usbank.com/investing/financial-perspectives/market-news/stock-market-performance-after-midterm-elections.html
Market performance in midterm election years vs all other years https://www.capitalgroup.com/advisor/ca/en/insights/content/articles/us-midterm-elections-and-market-moves.html
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Why Hedging Is the Answer for Portfolios | Can Hedgers Buy Markets Lower?
Show Summary:
Rather than try to time markets or worry about whether there is a selloff around the corner, look to stay invested but be hedged. But what is hedged equity? What are the benefits for investors who may be barraged by various predictions and news? How do hedged equity strategies work? All this and more plus some new recommendations.
Eliminate the need to time markets
Reduce fear- but stay invested
Who is hedged equity for?
How to look for more growth especially near or in retirement
3 main phases for investors accumulation, base maximization, and distribution
What is the hedgers opportunity?
What is the cost of hedging?
How the short duration fixed income (or other income producing pieces) reduces cost
How do each of the components move within a portfolio
Comparing hedged equity to the 60/40 portfolio
Will treasuries be used in lieu of corporate bonds as a funding source?
What are the main risks for bonds?
How bonds move closer to par value at maturity baring defaults
What is the current default rate for high yield bonds?
Mentioned in this Episode:
Debating what a recession is https://podcasts.apple.com/us/podcast/debating-what-a-recession-is-someone-is-wrong/id1432836154?i=1000571629306
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3Je7xqa
Contact Derek derek.moore@zegafinancial.com
Was Bed Bath and Beyond a Gamma Squeeze? How the options market can sometimes drive buying and selling. Plus, Jerome Powell does a short press conference talking tough about taming inflation.
Ryan Cohen option positions in Bed Bath and Beyond
What is a Gamma Squeeze?
How market makers hedge their book to remain flat
When gamma squeezes don’t move the markets
Jerome Powell talks tough in his press conference trying to send right message
Did markets not understand the fed before?
Some recommendations including the Game of Thrones House of Dragons Premiere
D.B. Cooper documentary on Netflix
Mentioned in this Episode:
Debating what a recession is https://podcasts.apple.com/us/podcast/debating-what-a-recession-is-someone-is-wrong/id1432836154?i=1000571629306
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3Je7xqa
Contact Derek derek.moore@zegafinancial.com
Jay Pestrichelli once again joins Derek Moore whether stocks never make new lows after retracing half a bear market drawdown. Plus, how many in the industry have never see a rising rate environment. Then, deconstructing earnings, profit margins, and revenues to go under the hood and how the US dollar strength plays into all of this.
Have stocks ever went on to new lows after retracing half a bear market drawdown?
Looking at the 2000-2002 bear market
Reviewing the 2008-2009 great recession
Chart crimes
Most investment professionals haven’t seen a rising rate environment
Relationship between profit margins and earnings
Relationship between revenues and earnings
Playing devils advocate on net profit margins
How the US Dollar strength is affecting earnings
Some TV show recommendations
Mentioned in this Episode:
Debating what a recession is https://podcasts.apple.com/us/podcast/debating-what-a-recession-is-someone-is-wrong/id1432836154?i=1000571629306
Does a strong dollar pose problems for US companies? https://podcasts.apple.com/us/podcast/is-the-strong-us-dollar-a-problem/id1432836154?i=1000571388439
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3Je7xqa
Contact Derek derek.moore@zegafinancial.com
Derek Moore is back to talk about the difference between diversifiable risk and systematic market risk. Diversification might fail the very time you want it most. The argument for diversification + hedging. Why bonds didn’t act as a diversifier this year.
Diversifiable risk
Systematic market risk
2007-2009 Period where diversification failed
Why diversification is better than concentrated stock positions
Comparing some individual companies vs indexes in 2008
Why bonds failed to diversify during 2022’s bear market
How interest rates are the main driver of bond market value changes
Why new investors should diversify
Comparing single stock volatility to well diversified indices
Mentioned in this Episode:
Download full whitepaper on hedging single stock concentrated risk https://static.twentyoverten.com/5b313bf81c53ec3270915df3/27gJFrs2H/Concentrated-stock-positions-Full-White-Paper.pdf
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Derek Moore is back to discuss the war on share buybacks after a rumored 1% excise tax announcement. What are share buybacks? Why do companies do them? Plus, when you’ll officially here whether we are in a recession.
Recessions are called long after they start
NBER Nation Bureau of Economic Research committee dating business cycles
What NBER criteria uses to call recessions
Are share buybacks good or bad?
1% excise tax on share buybacks
Dilution vs anti-dilution of share issuance and share buybacks
How share buybacks affect EPS Earnings per Share
Walmart share buybacks and net income effects to EPS
Amazon has more shares today than in 2006
Employee stock-based compensation and share buybacks
How little corporate taxes represent of total revenues of US government
Dividend yield vs share buyback yield
Total augmented stock yield (buybacks + dividends)
Mentioned in this Episode:
Debating what a recession is and isn’t podcast https://podcasts.apple.com/us/podcast/debating-what-a-recession-is-someone-is-wrong/id1432836154?i=1000571629306
NBER business cycles – when a recession or end of recession was called https://www.nber.org/research/business-cycle-dating/business-cycle-dating-committee-announcements
Apple’s buyback yield https://finbox.com/NASDAQGS:AAPL/explorer/buyback_yield
Economic PI site http://econpi.com/index.php
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Jay Pestrichelli once again joins Derek Moore to discuss the disconnect between the market’s expectation of future interest rate raises and the Fed’s stated intentions. Did the market hear the right things from Jay Powell? How earnings through Q2 have held up and are still growing despite pessimistic calls otherwise. Plus, the debate about what a recession is and is not.
Someone is wrong on interest fed rate raises
Debate about what is a recession
Why 2 quarters is not a recession
How the NBER is the arbiter of official recessions
Q2 earnings rise along with revenues despite pessimistic forecasts
What happens if inflation is over 8% when release in August?
Disconnect between market and inflation
Inflation 2x2 and EPS analysis
4 outcomes on EPS and inflation and what it means for markets
Post midterm election bounce in the S&P 500 Index?
What sectors are growing, and which are declining per Q2 earnings
Stagflation discussion
Can we really have a recession with low unemployment?
Mentioned in this Episode:
Does a strong dollar pose problems for US companies? https://podcasts.apple.com/us/podcast/is-the-strong-us-dollar-a-problem/id1432836154?i=1000571388439
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3Je7xqa
Contact Derek derek.moore@zegafinancial.com
The US Dollar has been surging (getting stronger) as the Fed is raising rates more than some other countries or regions central bank. So why is a strong dollar problematic? How does a strong or weak US Dollar hurt or help US companies? Derek Moore is back to give some easy to understand examples plus how USD denominated debt from other countries will come under pressure with a stronger dollar.
Why a strong US Dollar can hurt companies
Why a weak US Dollar can help companies
US Dollar at parity with the Euro
How sales in foreign countries are affected by changes in the US Dollar
Does FactSet data on Q2 earnings disprove the strong dollar bad for earnings narrative?
US companies report earnings in US dollars no matter where their sales are from
What is the dollar index?
What is the trade weighted dollar index?
Exchange rates explained between two countries’ currencies
Examples of how changes in currency exchange rates impact sales and costs
Mentioned in this Episode:
Current makeup of Trade Weighted US Dollar Index The Fed - Foreign Exchange Rates - H.10 - Currency Weights (federalreserve.gov)
FactSet earnings and revenues comparison companies with less than 50% of revenue from outside US and companies with greater than 50% of revenues from outside the US https://t.co/ZS4eCCc1v6
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
Michael Lewis wrote the book “The Big Short” that later was turned into a movie starring Christian Bale, Steve Carrell, and Ryan Gosling, Brad Pitt, and Jeremy Strong. The movie focused on 3 different investors who bet against mortgage bonds before the Great Recession and housing market collapse using credit default swaps. Want to get a primer on swaps and how they work before you watch or re-watch the movie?
What are Credit Default Swaps (CDS)?
What do bond ratings mean?
What are the annual premiums on credit default swaps?
How to convert basis points to an interest rate percentage?
What is counter party risk?
What does Michael Burry use to short housing in the Big Short Movie?
How did people bet against the housing market?
What does the spread on credit default swaps mean?
Using Credit Default Swaps to hedge or speculate
Mentioned in this Episode:
Current Credit Default Swaps Spreads on Sovereign Country Bonds https://www.cnbc.com/sovereign-credit-default-swaps/
Michael Lewis Book the Big Short https://amzn.to/2SNhUr1
The Big Short Movie https://amzn.to/31ROJrc
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek derek.moore@zegafinancial.com
This week Derek Moore notes the historic start to the year in bonds given the rise in interest rates and how low they were at the beginning of this cycle. Then Derek discusses target date funds. Popular in 401k plans, many investors don’t fully understand what they are and the different types of risks inherent in them.
Historic first half drawdown in the US Aggregate Bond Index
What are target date funds?
What is the glide path for target date funds?
What the intent of target date funds is
Why investors might believe they have less risk than they do
The 2008-09 experience for investors in target date funds
Post Great Financial Crisis hearings on target date funds
How target date funds with same date experienced so variation in returns
Examining some near-term retirement date funds
Chapter 2 from the book Broken Pie Chart and target date funds
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
ZEGA Financial www.zegafinancial.com
Public hearings 2009 on retirement target date funds https://www.sec.gov/spotlight/targetdatefunds/targetdatefunds061809.pdf
This week Derek Moore is joined again by ZEGA Financial CEO Jay Pestrichelli to talk about the recent blowups in Crypto and review some contrarian picks that worked and didn’t work. Plus, what is the recent backup in rates in the bond market telling us about the probability of a recession and negative GDP for Q2?
Yields backing off predicting a recession?
Flattening & Inverted (once again) yield curve
Crypto winter and blowups
What is the bond market telling us?
Contrarian corner - what has aged well and what has not?
Will the earnings story hold up? (Margins, EPS, inflation, inventory)
Top Gun movie gets a recommendation
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s book “Broken Pie Chart” https://amzn.to/3OGm1RG
ZEGA Financial www.zegafinancial.com
Jay Pestrichelli Book “Buy and Hedge” https://amzn.to/3y4wwak
MicroStrategy Bitcoin play https://podcasts.apple.com/us/podcast/is-bitcoin-play-by-microstrategy-ceo-michael-saylor-crazy/id1432836154?i=1000567039227
Podcast 4 R’s recession, rates, reduction of https://podcasts.apple.com/us/podcast/most-telegraphed-recession-ever-the-4-rs-recession/id1432836154?i=1000563145394
Death of 60/40 Portfolio https://podcasts.apple.com/us/podcast/death-of-60-40-portfolio-markets-during-midterm/id1432836154?i=1000555384965
Earnings Multiple expansion vs earnings expansion (or reduction) https://podcasts.apple.com/us/podcast/desconstructing-stock-price-earnings-multiple-expansion/id1432836154?i=1000545436987
This week Derek Moore tries to answer the question of why things like TIPS Bonds (Treasury Inflation Protected Securities) down YTD are even though inflation is up. Plus, golds response to inflation. Finally, can we have a recession with low unemployment plus why Bitcoin thus far has not been an inflation hedge despite claims otherwise.
Why TIPS bonds (Treasury Inflation Protected Securities) were down YTD even though inflation was up
Duration risk and interest rate risk for bonds
TIPS bonds had negative yield to maturities earlier in the year
What about gold as an inflation hedge this year?
Bitcoin has proven not to be a good inflation hedge in its first test
Bitcoin has traded more like a risk-on asset
What questions to BLS surveys use to determine if you are employed or unemployed
What is the labor force participation rate?
Can we have a recession with low unemployment?
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
ZEGA Financial www.zegafinancial.com
BLS Unemployment – How They come up with unemployment number https://www.bls.gov/cps/cps_htgm.pdf
Marcel Benjamin explains in detail how TIPS bonds work https://podcasts.apple.com/us/podcast/tips-inflation-protected-bonds-explained-interest-rate/id1432836154?i=1000535445537
Marcel Benjamin’s deep dive on High Yield Bonds plus what are Zombie companies https://brokenpiechart.libsyn.com/marcel-benjamin-high-yield-bonds-explained-what-are-zombie-companies
This week Derek Moore discusses the news around MicroStrategy’s leveraged Bitcoin strategy and the impending margin call should Bitcoin close below 21,000. Why would a company put their cash in a volatile asset like crypto? Derek explains the situation and news coverage considering Bitcoin’s recent drop in price.
How much Bitcoin does MicroStrategy hold?
How much has MicroStrategy lost on Bitcoin?
What is digital asset impairment charge due to Bitcoin drop?
Leveraged Bitcoin strategy by Michael Saylor CEO of MicroStrategy
Terms of Bitcoin loan
When will a margin call occur on MicroStrategy’s collateralized Bitcoin loan?
MicroStrategy issued debt including senior notes, convertible notes, and common stock to fund Bitcoin purchases.
Why not just buy other stocks (sarcasm) if a company is going to buy a volatile asset like crypto?
What about Tesla’s Bitcoin holdings?
Did Michael Saylor say to mortgage your house to buy Bitcoin?
What is MicroStrategy’s average cost on their Bitcoin holdings?
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
ZEGA Financial www.zegafinancial.com
Forbes talks accounting treatment of Bitcoin for companies https://www.forbes.com/sites/shehanchandrasekera/2022/06/01/bitcoins-accounting-treatment-is-artificially-degrading-microstrategys-bottom-line/?sh=c4abb4433e11
MicroStrategy Q4 2021 report https://www.microstrategy.com/content/dam/website-assets/collateral/financial-documents/press-release-archive/microstrategy-announces-fourth-quarter-2021-financial-results_02-01-2022.pdf
MicroStrategy Q1 2022 report https://www.microstrategy.com/content/dam/website-assets/collateral/financial-documents/events-presentations/Q1-2022_microstrategy-earnings-presentation.pdf
MicroStrategy Bitcoin margin call on loan https://fortune.com/2022/05/04/michael-saylor-microstrategy-margin-call-bitcoin/amp/
This week Derek Moore discusses why Tesla’s 3-1 stock split and Amazons 20-1 stock split don’t really matter except potentially making them eligible to join the Dow Jones Index. Plus, some have made comparisons of the selloff in tech to the 2000 Dotcom crash. As Derek explains, they are different and not similar given the numbers then and now. Finally, Derek gives some surprising data points about who the number one weighted stock was in March of 2000 in the Nasdaq 100 Index. You’ll never guess it!
Who was the highest weighted company in March 2000 in the Nasdaq 100 Index (QQQ)?
Comparing companies in the Dotcom crash era to today’s highest weighed tech companies
Why this is not a Dotcom 2.0 situation
Comparing the forward earnings multiple then and now
Is Tesla going into the Dow Jones Index?
Will Amazon join the Dow Jones Index?
What companies remain in the top 10 QQQ today vs. 2000?
Sirius Satellite cumulative 10-year earnings 1990-2000
Why stock splits don’t matter explained
Why stock splits do matter given companies were probably already moving higher
How the S&P 500 Index and Nasdaq 100 Index weight companies compared to the Dow Jones Index
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
ZEGA Financial www.zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Tesla announces 3-1 stock split https://finance.yahoo.com/news/tesla-stock-split-june-2022-212130185.html
What does Amazon’s 20-1 stock split mean for investors https://www.morningstar.com/articles/1097120/what-does-amazons-stock-split-mean-for-investors
Derek Moore gives an in-depth explanation of each of the components that make up GDP. No, 2 consecutive negative quarters of GDP do not mean a recession! How to use GDP nowcasts to spot trends in GDP and spot recession risks. How the NBER declares recessions and what they look at.
How is GDP calculated?
What are components of GDP?
What are the most important components driving GDP?
Business investment vs consumer spending
Government spending is not the most important aspect
Explaining Change in Private Payrolls
Consumer Spending PCE
Residential Investment
Non-Residential Fixed Investment
Change in Private Inventories
Government spending
What is the NBER National Bureau of Economic Research
How NBER declares recessions
Why NBER declares recessions and recoveries after the fact
Historical list of recessions
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
ZEGA Financial www.zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Atlanta Fed GDP Nowcast https://www.atlantafed.org/cqer/research/gdpnow?panel=3
BEA contributions to percent change in real gross domestic product https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=2&isuri=1&1921=survey#reqid=19&step=2&isuri=1&1921=survey
Podcast most telegraphed recession ever? https://podcasts.apple.com/us/podcast/most-telegraphed-recession-ever-the-4-rs-recession/id1432836154?i=1000563145394
Real GDP precent change historical https://fred.stlouisfed.org/series/A191RL1Q225SBEA
NBER historical recessions https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions
How NBER declares a recession based on 4 or 2 categories https://www.nber.org/research/business-cycle-dating
Derek Moore is back to discuss historical bear markets. How long do they last and how long does it take to get back to previous highs? What lessons can we take from prior bear markets? Are people too pessimistic about the economy? Plus, why the high yield market may be in better shape given the maturity schedule.
How long do bear markets last?
How long after a bear market do stocks recover their losses?
Are high yield bond underlying companies financially, ok?
Did high yield bond companies already refinance into lower rates?
When will high yield companies need to refinance when bonds mature?
Reviewing some surveys that point to extremely pessimistic investing public
Does the length of market declines tell us how long to recover?
Explaining what happens when companies’ debt matures
What is a call provision on a bond?
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
ZEGA Financial www.zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Historical bear market drawdowns and time to recovery since 1950 https://awealthofcommonsense.com/2022/05/how-long-do-bear-markets-last/
ZEGA CEO Jay Pestrichelli joins Derek Moore to discuss the current economic and market environment. Topics include the 4 Rs Recession, Rates, Reduction of Multiples (PE Ratios), and the conflict in Russia.
Why the Fed raising rates may not help inflation
Impact of Walmart and Target earnings results on net profit margin expectations
End of 2021 market was pricing in higher margins and growth
Earnings so far have held up well
Earnings expectations have increased not decreased
Why interest rates matter for many putting values on companies and markets
Is Russia factored into markets?
Everyone is talking recession so is it so obvious people may be wrong?
The market continues the 2021 trend in 2022 by reducing the forward PE ratio
A detour to explain how a reverse discounted cash flow on Tesla shows in the end its buyers and sellers
Retail sales as something to watch in the aftermath of Walmart and Target
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
ZEGA Financial www.zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Jay Pestrichelli’s Book Buy and Hedge https://amzn.to/3wHn1gz
How interest rates affect market valuations https://podcasts.apple.com/us/podcast/why-interest-rates-effect-stock-market-valuations/id1432836154?i=1000561458590
CME Fed Interest Rate Probability Tool https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
Derek Moore explains why commentators on CNBC and Bloomberg have been talking about valuations coming down due to interest rates increasing. Why do interest rates matter to stock valuations? How would you explain it to someone? Plus, how all these inputs are estimates and can change over time.
How to understand the present value of future cash flows
DCF or discounted cash flow model
Earnings estimates on the market for 2022, 2023, and 2024
Intrinsic valuation of the S&P 500 Index based on different index rates
What is the equity risk premium?
What is the discount rate?
How does the 10-year treasury bond interest rate factor in?
What is the terminal rate of growth for markets?
Mentioned in this Episode:
Jurrien Timmer of Fidelity 2-Year Treasury Yield Implied PE vs Forward PE S&P 500 Index https://twitter.com/TimmerFidelity/status/1525190396413894657
Professor Aswath Damodaran S&P 500 valuation estimate worksheet https://aswathdamodaran.blogspot.com/2022/05/in-search-of-steady-state-inflation.html
Contact Derek Moore derek.moore@zegafinancial.com
ZEGA Financial www.zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Spencer Wright of Halbert Wealth is back on with Derek to discuss what races in the Senate to watch. Predictions for the House to flip Republican or say Democratic. And a way to early look at the 13 Keys to the White House and the state of things as they are now. Plus, what do markets historically do pre and post the midterm elections.
How many 2022 Senate races are considered up for grabs?
Reviewing the big edge republicans have in the generic ballot polls.
What does win of one or both houses do for the party in power?
Why the midterms matter for the stock market.
Reviewing the 13 Keys to the White House as they stand now.
Discussion of the state of the economy in the short and long term.
What historically has happened around midterms in the past for markets?
Where can people follow key races?
What is the generic congressional polling telling us?
How does the economy play into House and Senate races?
What will be the impact of inflation on elections?
Mentioned in this Episode:
Updated Senate Consensus predictions map https://www.270towin.com/2022-senate-election/consensus-2022-senate-forecast
Updated House Consensus predictions map https://www.270towin.com/2022-house-election/
13 Keys to the White House predictive model https://pollyvote.com/en/components/models/mixed/keys-to-the-white-house/
Contact Derek Moore derek.moore@zegafinancial.com
ZEGA Financial www.zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
ZEGA Financial CEO Jay Pestrichelli is back to discuss what asset classes have the best real, after inflation returns historically. Plus, is bad news good news around economic releases as it pertains to chances the Fed can’t raise rates as much? What would a bad Q1 GDP print mean for markets? Then they discuss the volatility regime and touch on talk about recessions by Deutsche Bank.
Does bad news mean good news if the Fed can’t raise rates as much?
Talking real after inflation returns historically and how commodities have lagged
Deutsche Bank calling for a recession
Why raising rates can’t solve supply chain issues but can tamp down demand.
Bonds having a bad year
With the Q1 GDP announcement what would surprise the markets?
Midterm elections and the markets
Earnings still growing along with revenues
Market multiple re-rating continues
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
ZEGA Financial www.zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Buy and Hedge by Jay Pestrichelli https://amzn.to/3KA40Se
White Paper On Hedging Low Basis Concentrated Stock positions (right hand side to download) https://zegafinancial.com/products/concentrated-stock
Derek Moore explains that drops like Netflix this week are not that rare in single stocks. There are tons of examples, especially around earnings releases. Why do people have concentrated portfolios? Diversification vs. single stocks. Problems with selling low-cost basis stocks. How to hedge large, concentrated positions.
What caused Netflix to drop 35% after earnings?
The risk inherent in holding large, concentrated positions in stocks
Reasons investors hold concentrated stock positions
Low-cost basis concentration reasons versus the YOLO (You Only Live Once) crowd
Examining why investment advisors haven’t been able to offer value for concentrated low basis shares
The numbers don’t lie when it comes to standard deviation and risk compared to markets
Examples of past single day drops after earnings
Surprisingly, many stocks are down 40% or 50% from all-time highs
Single stock risk versus market risk
When diversification on its own failed
Why diversification plus hedging works
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
White Paper On Hedging Low Basis Concentrated Stock positions (right hand side to download) https://zegafinancial.com/products/concentrated-stock
Derek Moore takes listener requests by taking a deep dive into the how and why when it comes to market values of bonds changing. How to understand what duration is and why it matters to measure risk in bonds to changes in interest rates. What about mortgage-backed bonds? Bonds can be confusing, but Derek breaks down the terms so next time you hear someone talking on CNBC you know what they are referring to.
What is a bonds duration in relationship to interest rates?
How to calculate a bonds duration.
What is negative convexity with mortgage bonds?
Why are lower coupon bonds more at risk for changes to interest rates?
Why are shorter maturity bonds less susceptible to interest rate risk?
How do cash flows from coupon payments effect bond market values?
What is the after-inflation calculation for return?
What are real returns (after inflation)
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Tips Treasury Inflation Protection securities | Interest Rate Risk and Duration https://brokenpiechart.libsyn.com/tips-inflation-protected-bonds-explained-interest-rate-risk-duration-and-more-with-marcel-benjamin
Senior Loans and Leveraged Loans explained https://brokenpiechart.libsyn.com/dan-mcmullen-talks-senior-loans-leveraged-loans-clos-and-more
High Yield Bonds Explained plus what zombie companies are https://brokenpiechart.libsyn.com/marcel-benjamin-high-yield-bonds-explained-what-are-zombie-companies
Derek Moore gives a contrarian take on the Fed raising rates. What if raising rates causes a major component of the CPI to increase rather than decrease? If the Fed raises rates, mortgage rates rise, demand increases for rents, and owner’s equivalent rents rise? In this episode, Derek explains what is measured in the CPI and explains how OER or Owners Equivalent rent and rents are calculated by the BLS each month.
What percentage of the CPI is housing?
How is OER or Owners Equivalent Rent calculated by the BLS?
How mortgage rates impact the supply and demand of housing
Study showing housing rents increase during monetary contractionary shocks
Financing costs for home builders
How the construction of housing costs was changed by BLS in 1983
Discussing relationship between mortgage rates and housing prices
The type of inflation we are experiencing
Supply side vs demand side inflation
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Study referenced showing housing component rises doing contractionary monetary shocks https://onlinelibrary.wiley.com/doi/full/10.1002/jae.2679
How BLS creates housing data https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.pdf
Derek Moore is joined once again by ZEGA Financial CEO Jay Pestrichelli to talk yield curve inversion. What is the yield curve inversion and why do investors care? Plus, reviewing historical precedent on prior yield curve inversions prior to recessions. What is the average time to recession from yield curve inversion? When has it not worked? Later, they discuss inflation’s effect US Large Cap earnings. What are the consequences from higher inflation? What about deflation?
What is the yield curve inversion?
Why 10-year US Treasury minus 2-year US Treasury yields are watched by market prognosticators
What about the 5 year and 10-year treasury inversion?
Reviewing historical yield curve inversions and recessions
Idea that inversion alone doesn’t cause a recession without a catalyst
What does higher inflation mean for corporate earnings?
What does higher inflation mean for net profit margins?
Touching on deflation effect on companies
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Jay Pestrichelli Book Buy and Hedge https://amzn.to/3i2UZoL
Derek Moore is joined once again by ZEGA Financial CEO Jay Pestrichelli to discuss whether now is finally the death of the 60/40 portfolio? A Bloomberg article points out when 10-year treasury yields move up or through long term channel resistance things happen. Plus, travel back in time to 1982 where we read some expert comments in NY Times article around predictions on interest rates. Finally, how markets have historically done in midterm election years.
Bond yields spike while the curve flattens or inverts
What happens historically when the 10-year treasury yield moves to long term channel resistance?
Equities during midterm election years
Reviewing year to date total returns in US Aggregate Bond Index (AGG) vs the S&P 500 Index (SPY)
How bonds may not provide the same protection this time.
How housing prices still rose even during a 10-year period of high inflation and rising interest rates.
Going to the archives of a 1982 NY Times article when the 30-year treasury yield was pushing 16%
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Jay Pestrichelli Book Buy and Hedge https://amzn.to/3i2UZoL
Derek Moore is back to talk about inflation and how there are some misconceptions about what happens if inflation subsides. At the same time, many things we use are enjoying decades long deflation making them cheaper to use. Hint: long distance calling. Plus, why low interest rates do and don’t cause inflation. Will raising rates reduce oil prices? Supply and demand is still king.
What are some misconceptions around inflation?
Inflation coming down is a reduction in the upward rate of change
How to inflation adjust prices across periods
CPI Consumer Price Index
Low interest rates and inflation
Discount rate for future earnings in stocks
Housing and asset price inflation
Oil prices and supply and demand
Oil rig counts and inventories
Will raising rates cause a recession?
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
CPI Consumer Price Index historical https://fred.stlouisfed.org/series/CPIAUCSL
Derek Moore is joined once again by ZEGA Financial CEO Jay Pestrichelli to discuss why volatility remains high. How the VIX Index stays elevated even after the initial reasons subside. What is driving the market pricing of the S&P 500 Index and how it compares to prior 10-year periods. Plus, comparing this high oil price period to prior ones on an inflation adjusted basis.
What are driving returns right now (earnings or multiples)
Is the market getting cheap on a forward PE multiple base?
Comparing 10-year periods (referencing Sempres Augustus letter)
Looking at price inputs like revenues, share count, margins, multiples, and dividend yield
Is the embedded volatility premium (VIX Index) here to stay?
Discussing oil prices on an inflation adjusted basis
When do high oil prices matter?
When does inflation matter to the economy and margins for companies?
Will CPI released in April for the month of March reveal a +10% YoY?
Plus, Derek admits a bad beat on the contrarian corner
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Jay Pestrichelli Book Buy and Hedge https://amzn.to/3i2UZoL
Sempres Augustus letter (see page 24 for where returns come from) PDF https://static.fmgsuite.com/media/documents/8b3d617a-4dc3-4dec-a621-23b1f6333833.pdf
Derek Moore explains in easy-to-understand terms what risk parity strategies are. Plus, he explains Harry Browne’s Permanent Portfolio and Ray Dalio’s All Weather Portfolio. How standard deviation is used and how some versions use leverage including futures to create risk parity weighted exposure.
What are risk parity strategies?
What are All Weather Portfolios?
What is the Permanent Portfolio?
Equalizing risk via standard historical deviation
Using futures to create leveraged notional value
What are the risks in a rising rate environment?
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Derek Moore relays how markets have done historically around geopolitical events. Plus, how being hedged allows investors to stay in the market. Interesting stats on markets 1-year later after drawdowns. It may surprise you. What the latest Russia/Ukraine situation means for inflation and interest rates.
How markets perform around geopolitical events
Does the Russia conflict increase inflation risks?
Will the Fed raise interest rates less in 2022 now?
Energy prices and inflation
Commodities rallied in the short term
After corrections how do markets do a year later?
What percentage of corrections turn into bear markets?
Market corrections vs bear markets
Historical market returns after worst days, 3-months a year later
Probability of Fed ¼ point vs ½ point rate hikes
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Cleveland Fed Inflation Nowcast https://www.clevelandfed.org/our-research/indicators-and-data/inflation-nowcasting.aspx
Atlanta Fed GDP Now https://www.atlantafed.org/cqer/research/gdpnow
JP Morgan Guide to the markets https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/guide-to-the-markets/
Fed Rate Probability Tool https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
CNN Business analysis on inflation with higher oil prices due to Russia Ukraine conflicthttps://www.cnn.com/2022/02/15/economy/russia-ukraine-inflation/index.html)
Mohamed El-Erian from Allianz discusses impact of Russian Ukraine conflict on 2022 Fed interest rate moves https://www.youtube.com/watch?v=Yh-RKSbS_hI&t=22s
Schwab market correction article showing corrections and bear markets since 1974 https://www.schwab.com/resource-center/insights/content/market-correction-what-does-it-mean
Table with market shock events and stock market performance historical https://www.investopedia.com/solving-the-war-puzzle-4780889
Derek Moore explores how stock and bonds have done after the Fed starts raising rates. Is there any difference between when they raise greater than 1% compared to less than 1%? Why people should be surprised in March when February CPI numbers are released. More debate about what caused inflation. Plus, stocks continue to rerate with multiples contracting while earnings are up year to date. Examining stocks and bonds after the Fed starts raising rates
Inflation causes
February CPI released in March indicated to be high still by Cleveland Fed Nowcast
Supply side vs demand side inflation
How fiscal policy contributed to inflation
How have high yield bonds done after the Fed starts raising rates
Small caps vs large caps after the Fed starts raising rates
Cleveland Fed Inflation Nowcast
Atlanta Fed GDP Now
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Surprising stock market returns by President, Senate, and House party make up podcast. https://podcasts.apple.com/us/podcast/surprising-historical-returns-by-presidents-senate/id1432836154?i=1000489545724
Cleveland Fed Inflation Nowcast https://www.clevelandfed.org/our-research/indicators-and-data/inflation-nowcasting.aspx
Atlanta Fed GDP Now https://www.atlantafed.org/cqer/research/gdpnow
JP Morgan Guide to the markets https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/guide-to-the-markets/
Fed Rate Probability Tool https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
Jay Pestrichelli, CEO ZEGA Financial, is back with Derek to say congratulations to our government debt reaching $30 Trillion! What are the ramifications of high debt levels? What the interest on that debt could be if rates rise? Does this put pressure on the Fed NOT to raise rates so much? Plus, interest in hedging at the highest levels since April of 2020. Is that a sign of contrarian optimism for the stock market? And contrarian corner is back where we each give some contrarian picks that go against the grain. US Debt – debt held by the public vs. overall debt
How much of the budget do net interest payments make up?
Average interest rate US pays on Treasury bonds
Effect of rise of 1% in rates to interest payments on debt
Political pressure to keep rates down?
Treasury bonds do not have call provisions
Investors are buying put options
Hedging appetite highest since April of 2020
Contrarian Trades Emerging Market Value – Betting Against Too Many Rate Hikes
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Jay Pestrichelli Book Buy and Hedge https://amzn.to/3uRbuMa
Average maturity of US Treasury debt https://data.nasdaq.com/data/USTREASURY/AVMAT-average-maturity-of-total-outstanding-treasury-marketable-securities
Average interest rate on US Treasuries https://www.treasurydirect.gov/govt/rates/avg/2022/2022_01.htm
Marcel Benjamin explains how TIPS bonds work https://podcasts.apple.com/us/podcast/tips-inflation-protected-bonds-explained-interest-rate/id1432836154?i=1000535445537
JP Morgan Guide to the markets https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/guide-to-the-markets/
Fed Rate Probability Tool https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
Derek Moore discusses how the recent selloff is due to a multiple contraction rather than an earnings one. How 2021 and now so far in Q1 22 stocks are rerating by shrinking the multiple. Plus, what the shape of the yield curve is telling us in light of expected Fed action on interest rates. Driver of stock prices multiple declines vs earnings expansion
PE Ratios coming down on a forward basis
Earnings estimates on the S&P 500 Index for 2022 only shrink nominally
What is the yield curve
Yield curve steepness vs inversion
What the yield curve is telling us about views on continued economic expansion
Inversions before recessions
Inflation breakeven rates
Probability of Fed hikes updated
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Marcel Benjamin explains how TIPS bonds work https://podcasts.apple.com/us/podcast/tips-inflation-protected-bonds-explained-interest-rate/id1432836154?i=1000535445537
JP Morgan Guide to the markets https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/guide-to-the-markets/
Fed Rate Probability Tool https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
Derek Moore discusses how markets have experienced selloffs but many times wind up positive at the end of the year. Plus, answering questions around small caps and the Russell 2000 Index ETF IWM PE Ratio. How the index differs from others in not including negative earnings in the computation. Then, watching latest inventory data reported this week. Intrayear stock market selloffs vs end of year total returns
PE Ratios computation in Russell 2000 Index ETF vs S&P 500 Index PE calculations
Most indexes just aggregate all companies earnings
Index divisor to convert index market cap to index levels
New inventory levels show GDP was buoyied by restocking during Q4
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
JP Morgan Guide to the markets https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/guide-to-the-markets/
Fed Rate Probability Tool https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
Derek Moore discusses the recent market selloff while giving some perspective around this and others. Why is everyone waiting on pins and needles for the Jan 26th Jerome Powell Fed press conference. Plus, how markets retracing means valuations are coming back down, so long as earnings remain strong. Netflix meets on top line, and beats on bottom line but the streat was not a fan of guidance on subscribers.
Probability of FED future rate hikes
Netflix meats, beats, and dissapoints
Anticipation grows for FED meeting
Market re-rates valuation metrics and PE ratios lower after selloff
Once again remember market predictions are often wrong
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
JP Morgan Guide to the markets https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/guide-to-the-markets/
Fed Rate Probability Tool https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
Derek Moore is joined once again by ZEGA CEO Jay Pestrichelli to give a few contrarian takes on markets. What are the inverse of obvious trades when inflation is perceived to be continuing? How commodities have run but gold has disappointed. Plus, why the Fed raising rates might increase costs. Yup, that’s contrarian but we’ll explain on the podcast.
Good news bad news market reactions
Contrarian trade ideas
Are FED interest rate expectations too much?
Inflation continues as calls for the FED to do something increase
Will raising interest rates actually do anything for inflation?
What if raising rates will cause more inflation?
Well intentioned government programs have unintended consequences
The Cobra Problem
Bad Superbowl Predictions
The return of Ozark show on Netflix
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Jay Pestrichelli Book Buy and Hedge https://amzn.to/3nuzHUg
www.zegafinancial.com
Podcast Words and Numbers Supply Chain Insider Describes the issues https://podcasts.apple.com/us/podcast/episode-256-an-insiders-view-of-the-supply-chain/id1237781005?i=1000547016908
Podcast explaining overnight reverse repurchase agreements https://podcasts.apple.com/au/podcast/what-are-reverse-repos-and-repos-fed-enters-overnight/id1432836154?i=1000523659106
Fed Rate Probability Tool https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
Derek Moore explains what was in those Fed minutes released last week that stirred up selling in the markets. What does balance sheet normalization mean? When are forecasters expecting the first interest rate hike? Is the Fed worried about the yield curve?
Why did the Fed Minutes release rile markets
Increasing the probability of the normalization of rate policy
Removing accommodation by reducing the size of the balance sheet.
What is balance sheet runoff?
Fed comments on the shape of the yield curve
Using Overnight Reverse Repo Market to help smooth policy normalization
When are Fed meeting minutes released?
When are the next Fed Meetings scheduled?
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Podcast explaining overnight reverse repurchase agreements https://podcasts.apple.com/au/podcast/what-are-reverse-repos-and-repos-fed-enters-overnight/id1432836154?i=1000523659106
Fed Rate Probability Tool https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
Derek Moore reviews asset classes like stocks, bonds, bitcoin, and gold. What investors thought would be a no brainer with higher inflation didn’t work. Plus, Derek goes back ten years and reads some bearish doom and gloom predictions for crashes that never came true. How wrong where they and why you maybe shouldn’t listen to them. Instead just invest but be hedged.
2021 Inflation hedges like gold lost money in 2021.
Why the obvisous short bonds and buy gold showed less than steller returns despite higher inflation.
How to do specific google searches by year to see how prognostications were wrong.
Those saying this was the worst market conditions in 2012 were way wrong.
What you should do instead.
How to tune out the noise, be invested, but be hedged encase markets selloff.
Without naming names, Derek reads some quotes on impending crashes from some of the same people making the same predictions now.
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Jay and Derek’s lighthearted 2022 market predictions podcast https://podcasts.apple.com/us/podcast/2022-market-predictions/id1432836154?i=1000546252301
How have stocks done during periods of high inflation? https://podcasts.apple.com/us/podcast/stocks-during-high-inflation/id1432836154?i=1000542624663
Inflation deep dive
https://podcasts.apple.com/us/podcast/inflation-deep-dive/id1432836154?i=1000541759655
Marcel Benjamin explains TIPS Treasury Inflation Protected Bonds https://podcasts.apple.com/us/podcast/tips-inflation-protected-bonds-explained-interest-rate/id1432836154?i=1000535445537
Jay Pestrichelli joins Derek Moore to review some 2022 market predictions. You shouldn’t trade of these! Make sure to listen in a year to see what they got right, and what they got wrong.
2022 S&P 500 Index Year End Predictions
2022 Inflation
2022 Earnings on the S&P 500 Index
Will the S&P 500 see multiple expansion, earnings growth, or both?
Plus, Bitcoin, Oil, and Gold.
Will there be a recession in 2022?
What will GDP growth be in 2022?
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Jay Pestrichelli’s Book Buy and Hedge https://amzn.to/3HexeER
Podcast Explaining multiple expansion vs earnings expansion in stock price multiples https://podcasts.apple.com/us/podcast/desconstructing-stock-price-earnings-multiple-expansion/id1432836154?i=1000545436987
Podcast stocks during high inflationary periods https://podcasts.apple.com/us/podcast/stocks-during-high-inflation/id1432836154?i=1000542624663
Derek Moore responds to market pundits making 2022 predictions where they examine whether stock prices will see moves diven by changes in earnings vs PE multiples expanding. Also covered will be effect share buybacks have on earnings per share EPS. Then he compares Amazon and Apple forward multiples and share counts.
PE Ratio
EPS Earnings per share
Calculate Market Cap
Multiple expansion versus earnings expansion
Forward PE vs PE Ratio
S&P 500 2021 price driven by earnings expansion while multiples contracted
Amazon AMZN comparing 2020 earnings to 2005 price along with share counts
Apple has seen a 37% reduction in shares outstanding due to buybacks over 10 years
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Derek Moore reviews the range of potential moves the Federal Reserve may take given rising inflation. Will the Fed reduce their monthly purchases? What does the Fed Fund probability tracker show the market is expecting interest rates to be? What about the trillions of dollars the Fed is doing in the Overnight Reverse Repo Market?
Monthly Fed purchases of MBS and Treasuries
$1.5 Trillion in Overnight Reverse Repos
Fed Rate Hike Probabilities
Chairman Jerome Powell gets more hawkish?
Inflation effect on interest rates?
Effective Fed Funds Rate
Will raising inflation actually reduce inflation?
Inflation nowcast indicates higher inflation in December
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Previous Podcast: What are Reverse Repos? https://podcasts.apple.com/au/podcast/what-are-reverse-repos-and-repos-fed-enters-overnight/id1432836154?i=1000523659106
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Federal Reserve Balance Sheet h.4.1 https://www.federalreserve.gov/releases/h41/current/
Effective Funds Rate NY Fed https://www.newyorkfed.org/markets/reference-rates/effr
Fed Rate Probability CME site https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html#
Inflation Nowcast Cleveland Fed https://www.clevelandfed.org/our-research/indicators-and-data/inflation-nowcasting.aspx
Fed Overnight Reverse Repurchase Activity https://fred.stlouisfed.org/series/DTB3#0
3-Month Treasury Bill Rates https://fred.stlouisfed.org/series/TB3MS
Jay Pestrichelli is back to co-host with Derek where they simplify risk measures like Alpha and Sharpe. Then they discuss the market drop that started during the short post Thanksgiving day session. Later an inflation check in, corporate profit margins at multi-decade highs, the yield curve flattening, and oil prices.
Markets pullback from highs
Market valuations
Alpha explained
Sharpe Ratio explained
Comparing portfolio managers through risk adjusted returns
Comparison benchmarks
Market moves during short staffed holiday trading sessions
SPR Strategic Petroleum Reserve release impact
Oil inventories and demand
The yield curve continues to flatten what does it suggest?
Profit margins his multi-decade highs even during inflation
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
JP Morgan Guide to the Markets https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/guide-to-the-markets/
Jay Pestrichelli’s Book Buy and Hedge https://amzn.to/3EqSTc6
Derek reviews some key market themes including things to watch on corporate earnings, profit margins and more. Then he discusses the current situation around oil rig counts and inventories versus demand. Later Derek talks about how government responses such as lockdowns can impact the economy.
S&P 500 Earnings
Profit Margins at Decade Highs
Multiple expansion
Earnings expansion
Difference between multiple expansion and earnings growth
JP Morgan Guide to the Markets data
What is the market risk of Covid?
Earnings growth
Market valuations
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
JP Morgan Guide to the Markets https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/guide-to-the-markets/
Derek is back to review data put out by OSAM showing periods of severe inflation, high inflation, and how stocks have done historically. How have bonds done during periods of high inflation? How common is severe or high inflation?
Severe Inflation
High Inflatipon
Moderate Inflation or Fed Target Inflation
Low Inflation
Deflation
How to calculate real returns after inflation
Stocks and bonds performance during inflationary periods
How common is high or severe inflation
Looking at stock returns during the late 1970s and early 1980s
Value of being hedged vs traditional 60/40 portfolios during high inflation
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
OSAM Historical Real Returns Stocks and Bonds During Various Inflation Regimes https://www.osam.com/Commentary/inflation-and-the-us-bonds-and-stock-markets
Derek is back to discuss the recent media reports of highest inflation in 30 years. What is true and what isn’t? Plus he takes a deeper dive into inflation components, inflation sentiment effecting consumer beheavior, and sticky vs flexible inflation.
Inflation at 30 year highs
Today’s inflation vs late seventies and early eighties inflation
Flexible inflation (CPI) vs Sticky inflation (CPI)
What makes up the CPI index
Year to date 5.8% inflation in 2021
How many years have we seen deflation
Michigan Consumer Sentiment release
1 year inflation expectations vs 5 year
5 year treasury breakeven inflation rates surging
Consumer behavior around deflationary and inflationary periods
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Michigan Consumer Sentiment Inflation Expectations http://www.sca.isr.umich.edu/tables.html
CPI All Items annual Federal Reserve Bank of St. Louis https://fred.stlouisfed.org/series/CPIAUCSL#0
Flexible CPI vs Sticky CPI https://www.atlantafed.org/research/inflationproject/stickyprice
BLS full PDF release CPI https://www.bls.gov/cpi/
Jay Pestrichelli, CEO of ZEGA Financial, is back with Derek to discuss Nassim Talib’s comments that Bitcoin is another Tulip Bubble. Plus, the Fed announced a taper so now what? How companies putting Bitcoin on their balance sheet effects volatility.
Nassim Talib's comments about bitcoin being another tulip bubble
What was the Tulip Bubble?
Cyrpto bleeding into S&P earnings and volatility
Fed Tapering,
Wage Growth vs Inflation
Doom and gloomers are wrong so just be hedged.
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Jay Pestrichelli’s Book Buy and Hedge https://amzn.to/3CUX134
Podcast What Happens if You Miss the Two Best Days of the Market Each Year? https://podcasts.apple.com/us/podcast/buy-and-hedge-protect-yourself-from-yourself-miss-two/id1432836154?i=1000525355779
Derek is back to explain why homes may not be as unaffordable compared to 30 years ago. What the media may leave out when talking about home prices and inflation. Plus, quick update on container shipping prices and the week ahead for several central banks.
What the media gets wrong about home prices
After inflation, home prices haven’t risen quite as much
Low rates mean more house
Challenge with extending the terms on auto loans
Importance of annualizing data
Down payments not as bad?
Comapring home appreciation to income gains
Container shipping costs are moving lower
Central banks interest rate decisiosn coming
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Are homes more affordable after accounting for inflation? https://realestatedecoded.com/real-monthly-mortgage-payment-home-price-index/
Real median income US https://fred.stlouisfed.org/series/MEHOINUSA672N
Real median home prices historical https://fred.stlouisfed.org/series/MSPUS
Derek is back to explain why inflation normalizing does not exactly mean lower prices. Jack Dorsey says hyperinflation is coming. What is hyperinflation and is he right? And who’s right the blue chip analysts or Atlanta FED’s GDP nowcast?
Jack Dorsey says hyperinflation coming.
Inflation compounds on itself.
Illustrating how damaging 1970s inflation was
Compare prices with a normalized inflation rate vs 1970s and early 1980s actual
What is hyperinflation
GDP Nowcast by the Atlanta Fed comes in lower than blue chip consensus
What is the GDP Nowcast
100 Trillion Dollar Zimbabwae Bill
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
GDP Nowcast Atlanta FED https://www.atlantafed.org/cqer/research/gdpnow?panel=4
Inflation Nowcast Cleveland FED https://www.clevelandfed.org/our-research/indicators-and-data/inflation-nowcasting.aspx
Jay and Derek are back to together on the podcast to go back and forth on current event.
Jamie Dimon thoughts on crypto
COLO Adjustment
Jay guest starring on Fox Mornings And Marie (well atleast on a panel discussion)
Doing financial TV as a guest
CPI latest numbers
Container Shipping prices finally tick lower for the first time.
Tech earnings releases
How Tech companies perform before and after earnings releases
Mentioned in this Episode:
Contact Derek Moore derek.moore@zegafinancial.com
ZEGA www.zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Jay Pestrichelli’s Book Buy and Hedge https://www.amazon.com/Buy-Hedge-Rules-Investing-Minyanville/dp/0132825244?&linkCode=ll1&tag=tradesurfer-20&linkId=46ffc6b807e0c7f3d2e66a32790241e2&language=en_US&ref_=as_li_ss_tl
Derek Moore is back to discuss whether the Fed has any cover to not pull back on their monthly asset purchases. Plus, what is the employment situation? What about inflation and supply side supply chains? Are we nearing Stagflation? This and more on the program.
Fed Taper
Fed Asset Purchases
Inflation
Container Shipping
Supply Side Issues
GDP Now failing
Stagflation
US Treasuries Close Above 1.6%
Unemployment
Labor Participation Rate
Mentioned in this Episode:
Contact Derek derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Atlanta Fed GDP Nowcast https://www.atlantafed.org/cqer/research/gdpnow?panel=4
Cleveland Fed Inflation Nowcast https://www.clevelandfed.org/our-research/indicators-and-data/inflation-nowcasting.aspx
Derek Moore is back to discuss political risk to markets and interest rates. What exactly is the budget reconciliation process? What is the debt ceiling and is there really a risk of default? What about the filibuster?
Debt Ceiling
Budget Reconciliation Process
Continuing Resolution
Inflation
Supply Chain Issues
Container Shipping Issues
Infrastructure Bill
$3.2 Trillion Budget Bill
Political Risk to Markets
Inflation Risk
Interest Rates reaction to debt ceiling
US Bond Downgrades
US Debt Default
Treasury Secretary Yellen Default Risk
Senate Filibuster
Mentioned in this Episode:
Contact Derek derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Budget Reconciliation rules https://budget.house.gov/publications/fact-sheet/budget-reconciliation-basics
History of US Debt Ceiling https://en.wikipedia.org/wiki/History_of_United_States_debt_ceiling
Jay Pestrichelli, CEO of ZEGA Financial is back to discuss key market themes including comparing September to other months. Guess Which month is the worst? Evergrande in China and what is going on with their bonds. The Fed Taper and interest rates. Economy and GDP growth slowing? Housing starts along trendline. Plus, myths about portfolio hedging.
Evergrande in China
China’s Three Red Lines Debt Policy
Evergrande bond prices and ratings are pricing in defaults
Evergrande is not new. How long has price been telling investors there is an issue?
The Fed likely to Taper and effects on markets and interest rates
Stagflation?
September is the worst month historically.
Sell in May and go away a misnomer?
Hedging myths
Everything you think you know about hedging is wrong
Mentioned in this Episode:
Contact Derek derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
What is China’s 3 Red lines Policy https://www.ubs.com/global/en/asset-management/insights/china/2021/china-three-red-lines.html
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3o6QGgm
Everything You Think You Know About Hedging is Wrong article https://zegafinancial.com/blog/everything-you-think-you-know-about-hedging-is-wrong
Understanding Bonds Interest Rate Risk and TIPS Bonds Treasury Inflation Protected Securitieshttps://podcasts.apple.com/us/podcast/tips-inflation-protected-bonds-explained-interest-rate/id1432836154?i=1000535445537
Talking Inflation, All-Time Market Highs, Interest Rates, Covid, Housing, & More https://podcasts.apple.com/us/podcast/talking-inflation-all-time-market-highs-interest-rates/id1432836154?i=1000533456019
Google web searches for the term Stagflation are spiking. More pundits are mentioning the S word. So what is Stagflation and what should be looking at to tell whether this is a real risk to the economy?
What is stagflation
How to measure slowing growth
How to find CPI inflation data
Where to follow unemployment and wage growth
Why the Fed would be put in a box during stagflation
Stagflation causes including supply side issues
Fiscal stimulus the wrong thing if its supply side
Mentioned in this Episode:
Contact Derek derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
TIPS Inflation Indexed Treasury Bonds https://open.spotify.com/episode/0wKePdiHHZ89B2hVajRb6C?si=_4JZCIQGS5iIwJDIKzMwyQ&dl_branch=1
Supply Side vs Demand Side Inflation https://open.spotify.com/episode/5iwBwhxdczXuFPPVuZ4tup
Marcel Benjamin is back on the show for another appearance to dig into the details around TIPS Bonds (Treasury Inflation Protected Securities). How they work and why they are misunderstood by many. Plus, we discuss interest rate risk comparing high and low interest rate environments. Yup, even a little bond convexity primer! This was a great conversation that gives anyone a much greater depth of knowledge on an asset class that is a little more complicated.
- T Bonds and Bills: lower interest rates, increased duration and sensitivity to changes in interest rates
- Examples of potential changes in market value (risk) when interest rates go up or down
- Its about looking at the series of cash flows
- What are TIPS (Treasury Inflation Protected Securities) Bonds?
- How are TIPS Bonds designed to be adjusted for inflation based on the CPI?
- Size of the TIPS Bond market
- Primary risks include interest rate changes and deflation.
- Breakeven rates a view into market view on inflation
- 5-Year/ 5-Year Forward Rates
- Auctions going off at negative yield to maturity
- Comparing 2020 to 2008 break evens
- Bond Convexity primer
- Mortgage bonds unique convexity due to pre-pays by homeowners
- Duration over the years on the US AGG (Aggregate Bond) Index
Mentioned in this Episode:
Marcel Benjamin’s prior podcast appearance covering High Yield Bonds https://brokenpiechart.libsyn.com/marcel-benjamin-high-yield-bonds-explained-what-are-zombie-companies
Information on State Street Global Advisors SPDR fixed income products https://www.ssga.com/us/en/intermediary/etfs/capabilities/simplify-investing-with-fixed-income-etfs/sdpr-fixed-income-etfs
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Derek goes beyond the headlines to look under the hood of the labor market, jobs, and unemployment. Plus, he reviews the container shipping issues and port delays, semiconductors now delayed over 20 weeks. Finally, he discusses whether the government stimulus for a drop in demand might have miscalculated the recession. Instead, what if it’s a supply side issue where falling supply and rising prices is the regime? Both demand shock and supply shock are covered so you can talk to your friends about it.
Transitory or Non-Transitory case for inflation
Container shipping issues with inflation
The Fed interest rate tapers and rate decisions
Supply Side Shock
Demand Side Shock
Wage growth
Labor force participation rates
Government transfer payments (social programs) growth
Mentioned in this Episode:
Contact Derek derek.moore@zegafinancial.com
Follow Derek’s blog articles on the ZEGA site https://zegafinancial.com/blog
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Inflation-Markets at All-time Highs, Interest Rates, Covid and the Markets, Afghanistan
https://podcasts.apple.com/us/podcast/talking-inflation-all-time-market-highs-interest-rates/id1432836154?i=1000533456019
Sticky CPI vs Flexible CPI
https://podcasts.apple.com/us/podcast/how-is-inflation-measured-sticky-cpi-vs-flexible-cpi/id1432836154?i=1000521909707
What are Repos and Reverse Repos https://podcasts.apple.com/au/podcast/what-are-reverse-repos-and-repos-fed-enters-overnight/id1432836154?i=1000523659106
Jay Pestrichelli, CEO of ZEGA Financial, is back to talk a walk around the markets to discuss both sides of inflation debate, interesting numbers around all-time highs, hedging, the FED, Housing Prices. Jay turns the tables and hosts asking Derek about the case for and against inflation being transitory.
Transitory or Non-Transitory case for inflation
Container shipping issues with inflation
The Fed interest rate tapers and rate decisions
Market at All-time highs
Just best Hedge
Housing Prices big deal nor no-deal?
Demand for Treasuries
Reverse Repos and the Fed
Covid risks in the economy
Afghanistan risk to markets
Mentioned in this Episode:
Contact Derek derek.moore@zegafinancial.com
Follow Derek’s blog articles on the ZEGA site https://zegafinancial.com/blog
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Gamestop short squeeze and wall street bets podcast https://podcasts.apple.com/us/podcast/gamestop-short-squeeze-by-reddit-wall-street-bets-traders/id1432836154?i=1000507187446
What are Repos and Reverse Repos https://podcasts.apple.com/au/podcast/what-are-reverse-repos-and-repos-fed-enters-overnight/id1432836154?i=1000523659106
How much Bitcoin or Ethereum to hold https://podcasts.apple.com/au/podcast/how-much-ethereum-and-bitcoin-should-i-have-in-my-portfolio/id1432836154?i=1000520947855
Traderscoach.com founder Bennett McDowell joins Derek Moore. They hit the record button and what ensues is a free-flowing discussion around what common themes they see from successful investors and trades. Plus, what common mistakes they see repeated by those struggling to find their trading voice. Later they discuss trading live in front of an audience in a trading challenge. Favorite trading movies. And writing and publishing investment books.
Bennett McDowell and Derek Moore reminisce about their days on air doing the Market Huddles
Discussion around common mistakes traders and investors make repeatedly
What traits successful traders make
What percentage of traders make money?
Doing presentations at the Traders Expos in Las Vegas and New York
Participating in a live trading challenge
Favorite trading movies
What percentage of asset to put into trading versus your larger investing assets?
Writing investment books
Derek’s favorite book by Bennett McDowell
Impact of technology on investing
Tracking your trading
How you can be wrong a lot and still win at trading
Risk of ruin tables
Process of writing financial books
Mentioned in this Episode:
Contact Derek derek.moore@zegafinancial.com
Bennett McDowell www.traderscoach.com
Click Here for Bennett’s free PDF article on money management, trade size, and risk of ruinhttps://ea125.isrefer.com/go/mmshare/jeanmcd/
Bennett McDowell’s Books on Amazon https://www.amazon.com/Bennett-McDowell/e/B001JS8NWY%3Fref=dbs_a_mng_rwt_scns_share
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Day Trading for A Living Podast Around Brazil Study Showing 97% Don’t Make Money https://www.iheart.com/podcast/269-broken-pie-chart-29878781/episode/day-trading-for-a-living-68947906/
Gamestop short squeeze and wall street bets podcast https://podcasts.apple.com/us/podcast/gamestop-short-squeeze-by-reddit-wall-street-bets-traders/id1432836154?i=1000507187446
You hear it all the time: start early contributing money to investment accounts. But just how big of a difference does it make? What about doing a monthly budget? Are detailed budgets more of a hassle than they are worth?
How much money at various ages needed to contribute to build wealth?
Why some budgets may not be beneficial
The big items like cars, rent, and mortgages make an impact not your Netflix account
What if you invested the difference?
How to review your statements to find things you don’t want or need anymore
Look around your house to find things to fund your account
Mentioned in this Episode:
Contact Derek derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Netflix is not making you broke
https://open.spotify.com/episode/06EbLDvG2oUxRlYILF0ngH
How to find money around your house to fund your investment accounts
https://open.spotify.com/episode/4pqFDUwNV8wmVPyJUbMa1e
You often hear people quote historical stock and bond returns. But are they useful to investors? What lessons can you take from them to help with your portfolio construction? What challenges do historical investment returns have concerning dividend reinvestment and commissions? What about bond historical averages given our low-interest-rate environment?
S&P 500 Index Total Returns 1928- 2020
History of index funds and dividend reinvestment
Treasury Bonds historical returns 1928-2020
Probabilities based on historical stock returns
S&P 500 Index Total Return by decade
Sources for historical return data
Mentioned in this Episode:
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Robert Shiller historical market data http://www.econ.yale.edu/~shiller/data.htm
Aswath Damadoran website, blog, and data https://pages.stern.nyu.edu/~adamodar/
Robert Shiller book Irrational Exuberance https://www.amazon.com/Irrational-Exuberance-Revised-Expanded-Third/dp/0691173125?_encoding=UTF8&qid=1628453580&sr=8-1&linkCode=ll1&tag=tradesurfer-20&linkId=eea68424f97b1bf760a2d5bc1df2120a&language=en_US&ref_=as_li_ss_tl
Jeremy Seigel book Stocks for the Long Run https://www.amazon.com/Stocks-Long-Run-Definitive-Investment-dp-0071800514/dp/0071800514?_encoding=UTF8&me=&qid=&linkCode=ll1&tag=tradesurfer-20&linkId=e34a4e3f2b776fcd7a89fa9e1297e9cc&language=en_US&ref_=as_li_ss_tl
Watch CNBC or Fox Business for a short while and you are likely to see predictions on interest rates. But how would you see for yourself what the various futures markets are implying for future interest rates? Learn how you can look at the Fed Funds, Eurodollar, SOFR (Secured Overnight Funding Rate), and soon BSBY Rate futures to see into the future what market participants are currently thinking. Plus, many of you have variable-rate mortgages or home equity loans that are tied to the Libor Rate, or now SOFR or BSBY. See how to quickly recognize what the implied interest rates are on these key metrics.
How to calculate implied future fed funds rate
CME Fed Funds Probability Tracker
SOFR Secured Overnight Funding Rate
Eurodollar Futures and implied 3-month Libor rate
BSBY Rate based on CDs, Commercial Paper, Bank Deposits USD, Short term bank bond trades
Fed Funds Futures
SOFR Rate Futures
Eurodollar Futures
Mentioned in this Episode:
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Eurodollar futures chain https://www.cmegroup.com/markets/interest-rates/stirs/eurodollar.quotes.html
SOFR Futures rates CME https://www.cmegroup.com/markets/interest-rates/stirs/three-month-sofr.html
CME FedWatch Probability Tool and Fund Funds Futures by Fed Meeting Date https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
This week we discuss how advances in technology and dropping costs have made it better for investors. Has it ever been this good? Maybe investors worrying about payment for order flow are worried about the wrong things? Looking back when there was no dividend reinvestment and high commissions, it would have cost you an arm and a leg to replicate the index. Then we discuss updates to the S&P 500 earnings estimates and forward PE valuations. How things have changed from March of 2020.
How bid/ask spreads have narrowed greatly over the years.
Decimalization vs. fractions in trading
Higher commissions changed to zero commissions
Payment for order flow
Dividend Reinvestment
Before index funds no way to replicate the S&P 500 Index
How earnings estimates have risen since March of 2020
Earnings estimate ranges for the S&P 500 Index
Forward PE Ratios
Historical Averages PE Ratio S&P 500 Index
Calculating the forward PE
Mentioned in this Episode:
JP Morgan Guide to the Markets https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Last week the latest CPI inflation data came out from the BLS. If you watched the news, they played it up. While we don’t know what inflation will be with any certainty, stop watching the news and start watching the data for yourself. In this week's episode, Derek runs through factors to keep an eye on and where you can track the data for yourself.
What's going in with rental car prices? What about energy prices? What happens if you remove the re-opening items from core CPI?
CPI Consumer Price Index up 5.4% year over year in June 2021
Why are rental car prices surging?
Commenting on Scott Minerd’s piece on Guggenheim’s site around inflation
Sticky CPI vs Flexible CPI
Real Disposable income check-in
Housing prices vs mortgage payments as a percent of real disposable income
Interesting items in CPI including rent, owners equivalent rent, shelter, used cars, rental cars, and more
How you can track CPI trends
Where to find the data on FRED Federal Reserve Bank of St. Louis site
Mentioned in this Episode:
Real Disposable Income data https://fred.stlouisfed.org/series/DSPIC96
Sticky CPI vs Flexible CPI data https://www.atlantafed.org/research/inflationproject/stickyprice
Mortgage Debt Service as Percent of Disposable Income https://fred.stlouisfed.org/series/MDSP
Household Debt Service as Percent of Disposable Income https://fred.stlouisfed.org/series/TDSP
Article explaining the rise in rental car prices https://www.businessinsider.com/rental-car-shortages-us-travel-demand-chip-shortage-2021-4
Scott Minerd Guggenheim piece saying not to panic on inflation https://www.guggenheiminvestments.com/perspectives/macroeconomic-research/still-no-reason-to-panic-about-inflation?utm_source=twitter&utm_medium=social&utm_term=scott+minerd&utm_content=macroeconomic+research&utm_campaign=macro+alert
BLS Inflation Data Release https://www.bls.gov/cpi/
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&
Container shipping rates are at all-time highs. So How bad is the situation? How bad is the backup at various container shipping ports? What effect is this having on inflation in the short term? Evergiven container ship released from Suez Canal
Busiest Container Shipping Ports
Problems at Yantian port
Ships anchored of container shipping ports causing backups
The surge in Container shipping prices
Panana Spread all-time high container shipping rates
Empty sailings containing shipping
Dwelling time container shipping
The difference in rates Shanghai to LA vs La to Shanghai
Container shipping rates impact on inflation
New container shipbuilding orders up in 2021 to around 17% to 20% of the fleet
Evergiven stuck in Suez Canal
Evergiven container ship finally release from Suez Canal
Effect on global trade due to container ships stuck in Suez Canal
Mentioned in this Episode:
Book The Box by Marc Levinson https://amzn.to/3hwcj61
Book Outside the Box by Marc Levinson https://amzn.to/3e7AgyN
Podcast Is Inflation Really Out of Control? https://podcasts.apple.com/us/podcast/is-inflation-really-out-of-control/id1432836154?i=1000526178078
Supplychaindive charts showing Covid container ship problems https://www.supplychaindive.com/news/yantian-china-port-covid-charts-data-congestion-ships-supply-chain/602014/
Balance of Trade Chart https://fred.stlouisfed.org/series/BOPGSTB
Yantian port back to normal? https://theloadstar.com/yantian-back-to-normal-tomorrow-but-box-backlog-will-take-weeks-to-clear/ from THELOADSTAR site
Infographic showing impact to global trade from stuck Evergiven container ship in Suez Canal from Freightwaves site https://www.freightwaves.com/news/daily-infographic-ever-given-finally-released-from-custody-in-egypt
Yantian port to re-engage with pre-financial crisis expansion of 3 million TUEs at port https://theloadstar.com/port-of-yantian-dusts-off-pre-financial-crisis-plan-to-add-3m-teu-capacity/
Dan McMullen Senior Managing Director and Senior Portfolio Manager in Blackstone’s Credit Liquid Credit Strategies Unit, SPDR Blackstone Senior Loan ETF (Symbol: SRLN) joins the podcast to explain what senior loans are. How senior loans compare to leveraged loans and CLOs or collateralized loan obligations. Plus, Dan explains what the risks are, how they compare to high yield bonds, and what happens in the event of bankruptcy. Later Dan gets into how loans trade and are priced plus whether they are based on SOFR, LIBOR, or something else. What types of covenants or restrictions do investors put on companies accessing these markets? What type of companies use senior loans and why this instrument versus equity or bonds. Dan McMullen also is a member of Blackstone Credit’s LCS Management, LCS US Syndicated Credit, Global Structured, and Asset Allocation investment committees.
What are senior loans?
Senior Loans versus Leveraged Loans
What are CLOs (Collateralized Loan Obligation)
What types of collateral do companies put up against loans?
Where do senior loans site on the balance sheet?
Where do ongoing interest payments sit on the income statement?
What happens if companies go bankrupt?
What is a typical recovery percentage on loans in default?
Is the industry transitioning away from Libor and to SOFR?
Effect of interest rates on existing and future issuance of senior loans
Where do senior loans sit in the capital structure
Why companies use senior loan markets
Senior loans during the worst of Covid
Prices of loans versus prices of high yield bonds
Recovery rates on loans versus high yield bonds
How loans in bankruptcy can be sold
Amortization in senior loans
Restrictions or covenants put on senior loan issuers
Mentioned in this Episode:
More on Dan McMullen and senior loans ETF https://www.ssga.com/us/en/institutional/etfs/funds/spdr-blackstone-senior-loan-etf-srln
Marcel Benjamin deconstructs High Yield Bonds and What are Zombie Companies https://podcasts.apple.com/be/podcast/marcel-benjamin-high-yield-bonds-explained-what-are/id1432836154?i=1000517760353
Derek Moore book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=tmm_hrd_swatch_0?_encoding=UTF8&qid=&sr=
Often, we get questions on why one company’s options are priced so differently than another. So how options prices differ based on implied volatility? What makes up intrinsic value vs extrinsic value in options premium? Compare a high volatility company to a lower volatility company in the options market. How to calculate expected single standard deviation expected move based on IV Implied Volatility
Implied Volatility
Volatility
Intrinsic Value
Extrinsic Value
Time value in premium
LEAP Options
How Days to Expiration Inform Option Prices
Gamestop Options vs 3M Options
Mentioned in this Episode:
Podcast High Probability Options Strategies https://open.spotify.com/episode/5r05EHn8TBaJFCwGT7J8WN
Derek Moore book Broken Pie Chart https://amzn.to/2RUP4sy
The Federal Reserve this week held their June meeting and released their new dot plot. Chairman Powell also did his customary press conference. The Fed says inflation is transitory and likely temporary. Others disagree. They even said they are talking about talking about tapering. So is inflation out of control or transitory as the Fed claims. Plus, what did they do or did not do on policy changes?
Sticky CPI vs Flexible CPI
The Fed’s new dot plot
Fed track record on projections
ON RRP Market (Overnight Reverse Repo Market)
Monthly Asset Purchases the Fed
Talking about Talking about Tapering
IOER Interest on Excess Reserves
Used Cars inflation
Mentioned in this Episode:
Podcast Fed Tapering options https://podcasts.apple.com/us/podcast/fed-tapering/id1432836154?i=1000524411838
Podcast What are Reverse Repos? https://podcasts.apple.com/us/podcast/what-are-reverse-repos-repos-fed-enters-overnight-reverse/id1432836154?i=1000523659106
Sticky CPI Inflation vs Flexible CPI Inflation Podcast https://podcasts.apple.com/us/podcast/how-is-inflation-measured-sticky-cpi-vs-flexible-cpi/id1432836154?i=1000521909707
Derek Moore book Broken Pie Chart https://amzn.to/2RUP4sy
ZEGA CEO Jay Pestrichelli and Derek are back together to discuss some surprising data that shows missing just the two best stock market days of the year can dramatically change returns. How Buy and Hedge Hedged Equity Strategy can be a hedge on missing out on markets when your fearful or bearish. Plus, life hacks from a 10-year-old and a famous Peter Lynch quote
Peter Lynch quote
What is Buy and Hedge Strategy?
What is Buy and Hedge Retirement Strategy?
Hedged Equity to avoid FOMO in the stock market.
Hack for fresh French fries at McDonalds
Hedge on Cash mentioned by Value Afterhours podcast
Value investors and market valuation
Father’s Day gifts books from Jay Pestrichelli and Derek Moore
Hedged equity for fearful investors
Hedged equity for investors believing markets is at tops.
Mentioned in this Episode:
Podcast discussing Hedged Equity vs 60/40 Stock/Bond Portfolio https://open.spotify.com/episode/63WSsB3ZDWM0w0ttMv60TE
Fear of Investing When Markets Are High? Podcast showing that markets are within a few percent of all-time highs 36% of the time.
https://open.spotify.com/episode/2Fv0sV2mZT2Sy8Chjo79Oo
Derek Moore book Broken Pie Chart https://amzn.to/2RUP4sy
Jay Pestrichelli book Buy and Hedge https://amzn.to/3wlfFhh
The Fed announced it plans to sell the ETFs and bonds it purchased. They are already doing reverse repo operations. Some have asked when they will reduce their monthly asset purchases. So, what is the Fed doing, and what are some potential things they might do?
Fed Taper?
Fed Reverse Repo Overnight Market
Fed Funds Rate
Interest Rates
Asset Purchase Program
Operation Switch
MBS Mortgage-Backed Securities
IOER Interest on Excess Reserves
Probability of Fed rate hike?
What is the SOFR rate?
What is the effective fed funds rate?
Mentioned in this Episode:
Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk
Fed Balance Sheet h.4.1 report https://www.federalreserve.gov/releases/h41/current/
Fed SMCCF corporate bonds and ETF buying program https://www.federalreserve.gov/monetarypolicy/smccf.htm
Fed Overnight Reverse Repo Operations https://fred.stlouisfed.org/series/RRPONTSYD
NY Fed Effective Fed Funds Rate https://www.newyorkfed.org/markets/reference-rates/effr
SOFR Rate Secured Overnight Funding Rate https://fred.stlouisfed.org/series/SOFR
The Federal Reserve this week set a record participating in the Overnight Reverse Repo Market. Previously in 2019 they had to enter the Overnight Repo Market as annualized rates soared. So, what are Reverse Repos? What are Repos? Why is the Fed trying to control interest rates by doing market operations in the Reverse Repo Market?
What is the Reverse Repos?
What are Repos?
What is the Overnight Repo Market and Overnight Reverse Repo Market ON RRP
What is the annualized repo rate?
How to calculate what the repo rates are?
How do collateralized repo transactions work?
Fed Funds rate
Federal Reserve IOER Interest on Excess Reserves
Mentioned in this Episode:
New York Fed Overnight Reverse Repos https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/repo-reverse-repo-agreements
Financial Times FT article on reverse repo Fed intervention https://www.ft.com/content/cdec7f2e-6129-412c-b118-8906a2a0f92f
Derek Moore book Broken Pie Chart https://amzn.to/2RUP4sy
Market Bubbles are tough to spot the absolute turning point. But most bubbles have the same stages and patterns. So what are some potential tells that we are in a bubble using historical examples? Comparing Dotcom Bubble to the Tulip Bubble. Are Bitcoin or Ethereum in an asset bubble?
What is an asset bubble?
Stages of an asset bubble
The housing bubble
Dotcom bubble
Tulip Bubble
South Seas Bubble
Kathy Lee Gifford and the rough rice futures market bubble
Irrational exuberance
Mentioned in this Episode:
Podcast Big Short Movie and Credit Default Swaps https://open.spotify.com/episode/6FG0xHkxfhSXEtbJbFbDF6?si=hr0qDh8US_6rmU3CRSxG3A
How much Bitcoin or Ethereum should I have in my portfolio podcast https://open.spotify.com/episode/5ZDfSVCAZx6WW6944oqZZh?si=ew34IusHRYON025A6P6c2g&nd=1
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
Broken Pie Chart | Episode 116
With Derek Moore
How is Inflation Measured? Sticky CPI vs Flexible CPI
Show Summary:
All you hear these days on CNBC is inflation. How high will inflation go? What is causing inflation? But how is the CPI constructed to measure inflation? What are the weightings of CPI components? And, what is the PCE Inflation Index which is preferred by the Fed?
- • What is the CPI Consumer Price Index?
- • What is the PCE Personal Consumption Expenditures?
- • What is Trimmed Mean PCE Inflation?
- • Owners’ equivalent rent
- • How often do components of the CPI index change?
- • Difference between CPI and PCE
- • Sticky CPI vs Flexible CPI
- • Headline Inflation vs Core Inflation
- • Where to find inflation data
- • Difference between YOY Year over Year and MOM Month over Month data
Mentioned in this Episode:
Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk
PCE Trimmed Mean Inflation https://www.dallasfed.org/research/pce.aspx
CPI BLS Bureau of Labor Statistics latest inflation data https://www.bls.gov/cpi/
Sticky CPI and Flexible CPI Atlanta Fed https://www.atlantafed.org/research/inflationproject/stickyprice
Recently more and more investors are asking about Ethereum and Bitcoin. How much crypto currency should I have as a percentage of a portfolio? Is Bitcoin and Ethereum a good hedge against rising inflation? Derek and Jay Pestrichelli, CEO of ZEGA Financial, discuss what they are, the differences between them, and what is going on with Dogecoin?
What is Ethereum Crypto Currency?
What is Bitcoin?
What is the difference between Ethereum and Bitcoin?
What is Dogecoin?
Is Bitcoin an actual currency?
Blockchain as a utility
What percentage of a portfolio should you have in Bitcoin or Ethereum?
The skeptical and the optimistic view of crypto currencies
Is Dogecoin real?
Are either Bitcoin or Ethereum good hedges against inflation?
Questions as to how Bitcoin would be taxed if using it to buy a Tesla.
Mentioned in this Episode:
Article How Much Bitcoin Should You Have in Your Portfolio https://zegafinancial.com/blog/how-much-bitcoin-should-be-in-your-portfolio
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3hcYkm3
Derek Moore’s book Broken Pie Chart https://amzn.to/2SB2Y34
SPACs or Special Purpose Acquisition Companies 2021 growth has outpaced even 2020’s record year. So, what are SPAC companies? Are SPAC companies good or bad? What are some famous SPAC companies?
SPAC Special Purpose Acquisition Companies
SPAC timeline from creation to IPO of new company
What Happens if the SPAC cannot find an acquisition target?
SPAC companies have record 2021 with over $100billion raised.
SEC looking at SPAC companies according to WSJ
What am I buying with a SPAC?
Why do they call SPAC companies “black check companies”?
Virgin Galactic and DraftKings famous SPACs
SPAC companies on CNBC
How SPAC Mergers work
Mentioned in this Episode:
Athletes and Celebrities join SPAC boom https://news.crunchbase.com/news/athletes-and-celebrities-join-the-spac-boom-sec-takes-notice/
Beware the SPAC https://seekingalpha.com/article/4397498-beware-spac-how-work-and-why-are-bad
How SPAC mergers work https://www.pwc.com/us/en/services/audit-assurance/accounting-advisory/spac-merger.html
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Many investors saw a rise in rates causing negative returns on bonds in Q1 of 2021. Many were surprised. How is risk heightened due to low interest rates? Duration vs Maturity in understanding bond rate risk. Plus, how have US Treasuries performed by decade.
10 Year US Treasury Returns by Decade
Duration vs Maturity to Determine Interest Rate Risk
Coupon Payments Time to Capture Principle
Call Provisions in US Treasuries?
Comparing different 30 Year Treasuries Current Market Value
Decade by Decade Comparison of Total Return on 10 Year US Treasuries
More risk with low yields
How much more negative can bond yields go?
Mentioned in this Episode:
Marcel Benjamin on High Yield Bonds https://directory.libsyn.com/episode/index/show/brokenpiechart/id/18776195
Trouble with Treasuries: Bonds have one of worst starts to year since… https://zegafinancial.com/blog/us-treasuries-third-worst-start-to-year-since-1830-market-reaches-new-highs-while-many-big-names-in-correction-territory
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Marcel Benjamin, Fixed Income Strategist with State Street Global Advisors SPDR ETF Fixed Income Group, joins to present a deep dive into the High Yield Fixed Income space. What makes a bond part of high yield? What are the risks with High Yield Bonds? How do the ratings differ across the spectrum? Plus, what makes a company a “Zombie Company”?
- • US What does it mean to be considered high yield?
- • Differences in companies who go from BBB to Junk.
- • CCC vs BB
- • Size of high yield market
- • Size of high yield market by rating
- • Risk of defaults historically
- • Defaults 2008 vs 2020/21 so far
- • Spreads widening vs narrowing.
- • Short duration high yield vs longer duration
- • Implied risk of default by yield spread.
- • Historical recovery rates
-
• Brief explanation of default process for bonds
-
• Zombie Companies
-
• What are they (i.e., 3 years Operating Earnings < net interest payments?)
-
• Interest coverage ratios
-
• % of companies now vs historical considered zombies
- • How companies may recycle and roll debt upon maturity
Mentioned in this Episode:
Information on State Street Global Advisors SPDR fixed income products https://www.ssga.com/us/en/intermediary/etfs/capabilities/simplify-investing-with-fixed-income-etfs/sdpr-fixed-income-etfs
CCC High Yield Spread from Federal Reserve Bank of St. Louis (FRED) https://fred.stlouisfed.org/series/BAMLH0A3HYC
High Yield Spread from Federal Reserve Bank of St. Louis (FRED) https://fred.stlouisfed.org/series/BAMLH0A0HYM2
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Spencer Wright from Halbert Wealth is back on the program to engage in a discussion around what makes up the Federal Budget. How much does all this cost and where do revenues come from? Plus, some thoughts around why MMT or Modern Monetary Theory may never work despite some economists’ best intentions.
US Federal Budget Items
What does the US government spend money on?
What is the net interest payments on the national debt?
Where does the revenue come from?
Comparing US government tax revenue collected across high and low tax rates.
Overview of MMT or Modern Monetary Theory
Reflect on our attempt to predict the US 2020 Presidential Election
Maybe the Keys to the Whitehouse were correct after all?
How wide is the US federal budget deficit?
Mentioned in this Episode:
JP Morgan Guide to the Markets (check out slides around page 27 for what we were looking at) https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/
US Treasury Direct Average Interest Rates on US Treasuries Issued March 2021 report https://www.treasurydirect.gov/govt/rates/avg/2021/2021_03.htm
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
Recently I looked up Google Trends to see how terms like inflation and stock market bubble were doing? They have been popular which means people are searching for them. Is this contrarian? How to play armchair stock market valuation game by looking at expected earnings. US Treasuries had the worst quarter performance since 1980 and third worst since 1830. GDP growth according to Goldman Sachs will be 8%. Is that inflationary?
Goldman Sachs says 2021 GDP growth will be 8%
Does this point to higher inflation or just a regaining of the previous trend?
US Treasuries issued in 1812 to fund the War of 1812.
US Treasuries performance worst since 1980 and third worst going back to 1830.
Share buybacks plus Dividends equal total return of capital to shareholders.
Estimating the intrinsic value of the stock market using earnings expectations
Google Trends highlight popularity of investment search terms like inflation and market bubble.
Real GDP accounts for inflation
Mentioned in this Episode:
Hussman article on the option value of cash due to market expectations https://www.hussmanfunds.com/comment/mc201201/
Professor Aswath Damodaran S&P 500 valuation model using earnings estimates https://twitter.com/AswathDamodaran/status/1345461746622898176
Podcast episode where we talk about hedged equity and valuation timing https://directory.libsyn.com/episode/index/show/brokenpiechart/id/18495611
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
Recently John Hussman put out a piece that the expected value of a 60/30/10 stock and bond portfolio over the next 12 years would be -5%. Future projections can be wrong or right, but what he explained that the option value of cash or a hedged equity approach may be more suited. So how does hedged equity play into this? How Deal or No Deal game show explains the expected value calculation. And why bonds with low rates and risk of rising rates might present challenges in the typical 60/40 portfolio.
How to Calculate expected value
Deal or No Deal Example on expected value
Exploring Hussman’s option value of cash
Expected returns based on valuation.
60/40 stock and bond portfolio vs hedged equity approach
Container shipping revolutionized trade like the internet?
Stuck container ship causing global trade snafu.
Real returns on bonds after inflation
Mentioned in this Episode:
Hussman article on the option value of cash due to market expectations https://www.hussmanfunds.com/comment/mc201201/
The Box book on Container Shipping by Marc Levinson https://amzn.to/3dcx8jO
Buy and Hedge Book https://amzn.to/31kXXfV
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
Watch CNBC for more than 5 minutes and you are bound to hear discussion around is inflation coming? Are rising interest rates going to sink the stock market? But what has the stock market done historically during periods of rising rates? You might be surprised to find out. Take a look back at S&P 500 Returns in rising rate environments, rising inflation, rising unemployment, and more.
Once again, worries about the stock market led us to a Hedged Equity Strategy
How have stock markets performed during rising rate environments?
How have markets done during rising inflation?
Is this time different with the recent rise in rates?
Looking at historical market returns over cycles.
Surprising that during late seventies GDP grew and President Carter had average annualized growth in stocks.
Markets climbing the wall of worry.
Risk heightened in bonds due to record low interest rates.
Comparing bonds in 1970’s with high coupon rates to today
Mentioned in this Episode:
Risk for bonds with lower and rising interest rate environments https://directory.libsyn.com/episode/index/show/brokenpiechart/id/18089738
Numbers show stock markets have done ok during rising rate environments historically https://zegafinancial.com/blog/historically-markets-have-done-pretty-good-in-periods-of-rising-rates
Stagflation explained and data on CPI inflation, unemployment, and GDP growth 1965-1985 https://zegafinancial.com/blog/historically-markets-have-done-pretty-good-in-periods-of-rising-rates
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
Recently financial news media mentioned that bearish short bets against the US Dollar were the highest since 2011. But what is the dollar index and is it the best measure? What is the Trade Weighted US Dollar Index? What is the good and bad of a strong vs week US Dollar?
US Dollar Index
Trade Weighted US Dollar Index
Pros and Cons Strong Dollar
Pros and Cons Week Dollar
Short US Dollar position reaches highest level in a decade.
US Dollar and commodities
How to figure out how many US dollars needed to exchange.
Exchanging foreign currency into US dollars.
US Dollar and Interest Rates
Global US Companies benefit from weaker dollar
Mentioned in this Episode:
Current Weights in US Trade Weighted Dollar Index https://www.federalreserve.gov/releases/h10/weights/default.htm
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
Interest rates made a historic move higher last week as the treasury bond market sold off. But is this spike in interest rates previewing a higher move in inflation in the short term? What are breakeven inflation rates saying? Is the FED owning 30% of the TIPS bond market skewing inflation expectations?
What is duration risk in bond portfolios?
How does lower rates extend duration risk in bonds?
Investor expectation of annual returns equal to the current yield to maturity?
2018 when both stocks and bonds via the US Aggregate Total Return Index were negative.
Fed has purchased 30% of the TIPS Treasury Inflation Protected Bond Market
2nd highest precent change in 5-year treasury yields back to 1962.
CPI Consumer Price Index
Weighting of the CPI index components
COVID-19 impact on consumer prices and inflation
5-year breakeven rate inverted with the 10-year breakeven rate
YTD bond funds down even on a total return basis
Mentioned in this Episode:
How do TIPS Treasury Inflation Protected Securities Work? https://brokenpiechart.libsyn.com/fed-buying-which-etfs-and-bonds-how-do-tips-treasury-inflation-protected-bonds-work
CPI Consumer Price Index release for January 2021 https://www.bls.gov/news.release/cpi.nr0.htm
Understanding TIPS bonds https://www.pimco.com/en-us/resources/education/understanding-treasury-inflation-protected-securities/
Explaining negative yielding bonds https://podcasts.apple.com/us/podcast/wacky-negative-yielding-bonds-need-for-alternative/id1432836154?i=1000442461907
Real returns vs nominal returns above inflation https://podcasts.apple.com/us/podcast/importance-real-returns-above-inflation-how-to-calculate/id1432836154?i=1000440384756
Myths of the 60/40 stock/bond portfolio https://podcasts.apple.com/us/podcast/discussing-myths-around-the-classic-60-40-portfolio-part-i/id1432836154?i=1000434346248
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
Bonds prices are a function of current interest rates compared to their present value of cash flows and return of capital (baring defaults) at maturity. So, with interest rates so low around the world, is this a period of higher risk in bonds (fixed income)? How much more sensitivity to interest rate changes do we currently see in the sector? How do callable bonds mute the positive effects of reductions in market rate of interest? How does the US Aggregate Bond Index compare to the Global Ex-US Aggregate Bond Index from a yield and duration risk comparison? Derek Moore discusses these and other aspects of evaluating risk in bonds due to changes in interest rates.
What is duration risk in bond portfolios?
Comparing duration and yields between US Aggregate Bond Index and Global World EX-US Aggregate Bond Index?
Negative yield to maturity bonds in Europe and Japan
How does lower rates extend duration risk in bonds?
How do callable bonds potentially mute upside market move in bonds when rates fall?
Bonds market value a combination of present value of cash flows (interest payments) and return of capital at maturity
What are call provisions on corporate bonds?
Investor expectation of annual returns equal to the current yield to maturity?
2018 when both stocks and bonds via the US Aggregate Total Return Index were negative
Mentioned in this Episode:
Short Selling Terms Explained through Tesla https://podcasts.apple.com/us/podcast/short-selling-explained-tesla-short-interest-short/id1432836154?i=1000463711042
Explaining negative yielding bonds https://podcasts.apple.com/us/podcast/wacky-negative-yielding-bonds-need-for-alternative/id1432836154?i=1000442461907
Real returns vs nominal returns above inflation https://podcasts.apple.com/us/podcast/importance-real-returns-above-inflation-how-to-calculate/id1432836154?i=1000440384756
Myths of the 60/40 stock/bond portfolio https://podcasts.apple.com/us/podcast/discussing-myths-around-the-classic-60-40-portfolio-part-i/id1432836154?i=1000434346248
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
This week Jay Pestrichelli and Derek Moore are back to discuss whether Bitcoin or Gold are good hedges. What the appeal of cryptocurrencies are? How just being long the market while have a hedged floor in the portfolio allows investors to be in the historically best inflation adjusted return asset.
Appeal of Bitcoin
How Inflation is hurting the dollar’s purchasing power
Gold as an inflation hedge
Golds real return might be less than people think.
Aren’t bitcoin transactions all recorded via blockchain anyway?
Stocks for the long run
Stocks real return, after inflation, higher than gold or bonds
Portfolio hedging for retirees and near retirees.
Advice on size of potential cryptocurrencies
Mentioned in this Episode:
Gamestop Short Squeeze Wall Street Bets Explained https://directory.libsyn.com/episode/index/show/brokenpiechart/id/17756252
Derek’s book Broken Pie Chart on Amazon https://amzn.to/2ZbRrXT
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jLHxG8
Contact Derek www.razorwealth.com
This week we follow up on or episode last week covering what the Gamestop short squeeze was all about. Are hedge funds naked shorting stocks? How margin accounts cause risk to brokerage firms like Robinhood. Why didn’t Gamestop do a secondary offering selling shares when the price was high? Why short sellers don’t ruin companies outright.
Naked Short Selling
Failure to Deliver Shares Reports FTD
Short Interest Reports
Secondary equity stock offerings
AMC convertible debt into shares
How margin accounts work and raise firm risk
How short sellers (or short squeezes) do and don’t affect the underlying companies
Synthetic short positions using options.
Mentioned in this Episode:
Gamestop Short Squeeze Wall Street Bets Explained https://directory.libsyn.com/episode/index/show/brokenpiechart/id/17756252
SEC Failure to Deliver Report https://www.sec.gov/data/foiadocsfailsdatahtm
Why Gamestop couldn’t do secondary offering at the high stock prices https://www.fool.com/investing/2021/02/05/why-gamestop-couldnt-take-this-golden-opportunity/
Explaining Delta and Gamma Options Squeeze Robinhood vs Softbank Whale https://brokenpiechart.libsyn.com/robinhood-option-traders-vs-the-softbank-whale
Contact Derek www.razorwealth.com
The Wall Street Bets community executed a short squeeze through Reddit on stocks like GameStop and AMC Theatres this week. But what is a short squeeze? How did they and others buying stocks and options cause the stock to go up at least in the short term? Is short selling bad? Why potentially some brokers had to halt trading in certain names? A look back to the late nineties when internet chat rooms were pushing stocks. Examples of the little investor turning thousands into millions, and vice versa. How short sellers can root out fraud in companies with examples. Jay Pestrichelli and Derek Moore get into this and more in this very timely and fascinating episode.
What is a short squeeze?
What is the GameStop short squeeze?
How did Reddit group Wall Street Bets execute a short squeeze?
How some people have made a lot of money
How other people may lose a lot of money?
What is short interest ratio?
What is short interest as percent of float?
What is a delta or gamma squeeze in options on stocks?
Large in the money option open interest in GameStop at expiration
How short selling adds liquidity.
What are short days to cover metric?
Short sellers uncovering fraud in Amazon Prime documentary the China Hustle.
Short sellers with Enron, Nikola, Wirecard
Trading halts and liquidity requirements on brokerages
Congressional hearings coming on Robin Hood and Wall Street Bets GameStop activity
Examples of pump and dump in 2000 by Michael Lewis in New York Times
Short selling was found useful even in 1918.
How short selling in itself does not bankrupt companies.
How short selling that drives price lower can impact ability for secondary equity offering.
Mentioned in this Episode:
Explaining Delta and Gamma Options Squeeze Robinhood vs Softbank Whale https://brokenpiechart.libsyn.com/robinhood-option-traders-vs-the-softbank-whale
Derek Moore’s Book Broken Pie Chart https://amzn.to/2YoxRaF
Documentary “The China Hustle” on Amazon Prime Video https://amzn.to/39uBJgm
Michael Lewis article on 16-year-old penny stock trader 2001 https://www.nytimes.com/2001/02/25/magazine/jonathan-lebed-s-extracurricular-activities.html
ZEGA Financial www.zegafinancial.com
Jay Pestrichelli’s Buy and Hedge Book on Amazon https://amzn.to/2YoJDSg
Lately things like the Universal Basic Income (UBI) and Social Security are debated on TV. Commentators throw around numbers and whether a program can be paid for. Plenty of debate on each side but why not understand for yourself where all these numbers are coming from. In this episode Derek Moore covers what makes up the Federal Budget, Tax Revenue, Interest Payments on Debt, and how much something like a UBI would cost so you can decide. Plus, the effect rising rates and increases in debt with have on annual net interest payments as a percentage of the Federal Budget.
What is the Universal Basic Income or UBI?
How much would a Universal Basic Income cost?
How much is the current US debit held by the public?
What is the annual amount of interest paid annually on the US debt?
What are the mandatory, discretionary, and net interest payments of the US Federal Budget?
How much does Social Security, and Medicaid, Medicare cost?
Difference between total US debt and debt held by the public
What interest rate does the US pay on its national debt?
What percentage of the federal budget does net interest payments on debt make up?
What and when were the largest annual budget deficit in the US?
Effective historical tax rates versus marginal tax rates
How much free cash flow do the largest corporations generate annually?
For each additional Trillion in debt, how much more interest needs to be paid?
For each 1% increase in interest rates, how much do interest payments rise?
Mentioned in this Episode:
Average interest rates on US Treasury Securities https://www.treasurydirect.gov/govt/rates/pd/avg/avg.htm
Annual interest on US debt outstanding
https://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm
Gross debt versus debt held by the public explanation
https://www.crfb.org/papers/qa-gross-debt-versus-debt-held-public
Federal surplus or budget deficit historical chart
https://fred.stlouisfed.org/series/FYFSD
Breaking down the 2020 US Federal Budget
https://www.thebalance.com/u-s-federal-budget-breakdown-3305789
2010 US Census breakdown of adults 18 and over, 62 and over, and total population
https://www.census.gov/prod/cen2010/briefs/c2010br-03.pdf
Historical tax revenue as percentage of GDP by year
https://fred.stlouisfed.org/series/FYFRGDA188S
Historical effective tax rate on top 1%
https://taxfoundation.org/taxes-rich-1950-not-high/
Historical top federal income tax bracket rates
https://bradfordtaxinstitute.com/Free_Resources/Federal-Income-Tax-Rates.aspx
With this month’s increase in US Treasury interest rates the talk about inflation came up quite a bit in the financial news. But what causes inflation? What are the different types of inflation? How is inflation measured?
Different causes of inflation
Cost Push Inflation
Demand Pull Inflation
Hyperinflation
Structural Inflation
CPI Index
Hedonic Adjustments to CPI
Substitutions in CPI measurement
Velocity of Money
Productivity Measurements in Economy
Mentioned in this Episode:
What is Velocity of Money and Impact on Inflation? https://brokenpiechart.libsyn.com/does-falling-money-velocity-point-to-lower-inflation
Inflation breakeven 10 year on St. Louis Fed site https://fred.stlouisfed.org/series/T10YIE
Inflation rate US https://fred.stlouisfed.org/series/FPCPITOTLZGUSA
Razor Wealth Management www.razorwealth.com
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547
Recently there have been many discussions on the valuation of the S&P 500 based on forward earnings multiples. But what role do bond yields have in that evaluation? Does the implied P/E ratio of the Baa bond yield or US 10 Year Treasury yield imply that stocks have more room to run? In any case, why not just buy but hedge as a strategy?
S&P 500 Index earnings yield
Inverse of P/E ratio is the E/P earnings yield.
Baa bond yield to calculate the implied P/E ratio
Baa bond yields vs US 10 Year Treasury yields to compare to stock earnings yield
How to calculate the earnings yield on stocks
How to calculate the implied PE ratio from bond yields
Forward PE ratio calculation
Earnings estimates vs reality.
How earnings estimates and earnings can change
Bond yields vs Earnings Yields
Mentioned in this Episode:
Book Buy and Hedge https://amzn.to/3bq8FYM
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547
Razor Wealth Management www.razorwealth.com
Baa Corporate Bond Yields https://fred.stlouisfed.org/series/BAA
JP Morgan Guide to the Markets https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/guide-to-the-markets/
Podcast on Hedged Equity Strategies https://podcasts.apple.com/us/podcast/why-investors-need-a-protective-hedged-equity-strategy/id1432836154?i=1000418366567
Derek Moore and Jay Pestrichelli team up once again to discuss how probabilities are used to understand where to sell short options to generate premium. Discussed in this episode are who is on the other side of the short volatility trade, how changes in implied volatility impact expected multiple standard deviations of expected movement, and how value at risk VAR impacts option premiums. Plus, they discuss how professional management adds value especially when option spreads widen and volatility increases.
Using probabilities to generate short high probability option positions
Expected underlying index moves based on varied levels of implied volatility
How large investment banks take the opposite side of the trade looking to reduce Value at Risk (VAR)
Difference between being patient for opportunities versus and always in the market strategy
What happens to option spreads when markets sell off?
Value at Risk VAR impact on institutional hedging as dynamic volatility hedging increases
Why sell options on large diverse indexes as opposed to individual stocks
Netflix example of implied volatility right before earnings and expected moves
Single stock risk using Netflix and Disney examples of over 10% moves down after announcements
Mentioned in this Episode:
Jay Pestrichelli and Derek Moore talk myths of the 60/40 portfolio
https://razorwealth.com/discussing-myths-around-the-classic-60-40-portfolio-part-i/
How are options priced and what is short volatility?
https://razorwealth.com/how-are-options-priced-and-what-is-short-volatility-podcast/
What implied volatility on options tells us about stock earnings expectations?
https://razorwealth.com/what-the-options-market-tells-us-about-expected-stock-moves-around-earnings/
Razor Wealth Management www.razorwealth.com
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547
Lately some high-profile companies have gone public using the IPO process. But how does it work and what are the differences between a traditional IPO listing and a Direct Listing IPO? Is Bill Gurley right when he says companies are leaving too much money on the table?
AirBnB IPO price pop
IPO Process – Investment banks and selling syndicate
Direct Listing IPO
Greenshoe IPO provision
Bill Gurley advocates for direct listings
IPO price vs trading price
Spotify and Slack as direct listing IPOS
How do IPOs raise money for early investors and companies?
Don’t use market orders on IPOs first day of trading
Mentioned in this Episode:
Derek Moore’s book Broken Pie Chart https://amzn.to/3iKpRcx
Podcast on S-1 IPO filings and Unicorn IPOs https://brokenpiechart.libsyn.com/the-unicorn-ipos-are-coming-what-their-s-1-filings-divulge
Contact Derek www.razorwealth.com
Some investors wonder whether it would be better to have bad returns early or bad returns late? Surprisingly unless someone is withdrawing funds or bringing in money it does not matter. But when does it matter? It can be quite a significant different during the withdrawal stage. Learn about how the sequence of returns comes into play depending on what phase you are in.
Is it better to have bad investment returns early or late?
Three main phases of an investor’s lifecycle
Contribution Phase, Base Maximization Phase, Withdrawal Phase
Dollar cost averaging
Retirement and inflation
Withdrawal rates in retirement
Mentioned in this Episode:
Derek Moore’s book Broken Pie Chart https://amzn.to/3iKpRcx
Downside Hedging in Portfolios https://directory.libsyn.com/episode/index/show/brokenpiechart/id/7043961
Contact Derek www.razorwealth.com
Viktor Nebehaj guests on the episode to discuss how app-based brokerage Freetrade is looking to help millennials break down barriers and costs to make investing a habit. How technology has reduced friction in helping them get started. Why they and others like Robinhood have been able to acquire investors even though the legacy brokers offer the same or more. How do companies like his make money when commissions are zero?
Freetrade bringing ease of investing to Europe and the world
How companies like Freetrade reach non investors traditional brokerage firms don’t
How you reduce the friction and make it easier to get started.
How Freetrade derives revenue as a different model from traditional brokerages
Different ways of marketing for to find non-traditional investors
Opportunity for investors using an always with you investment app
How technology is reducing barriers and costs in general
Price deflation for consumers and trade offs for now free services like google gmail
Fractional share revolution for investors who want to own stocks
Owning individual stocks vs index ETFs to build knowledge
Mentioned in this Episode:
Freetrade https://www.freetrade.io/
Derek Moore’s book Broken Pie Chart https://amzn.to/3iKpRcx
Contact Derek www.razorwealth.com
The Wall of Worry pertains to investors always worrying as markets climb higher. So what are some of the bull and bear cases on the markets, valuations, inflation, interest rates, stocks and bonds? Jay Pestrichelli is back on the program to discuss all these and hedging strategies as alternatives.
What is the Wall of Worry for investors?
Are Bonds even worth it given such low interest rates?
Potentially better portfolio hedges than bonds
The bull and bear case for inflation
Why higher money supply has not exactly meant higher inflation
Money velocity
CAPE Ratio, Shiller PE
Are valuations high or does prior 20-year growth rate say returns can be good over next 10 years?
Being long stocks with no bonds but being hedged?
Is gold an effective hedge?
What does the President and Senate control say about future stock market returns?
Mentioned in this Episode:
Derek Moore’s book Broken Pie Chart https://amzn.to/3iKpRcx
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3lvSz2d
Video and articles mentioned on podcast at ZEGA Financial Site https://zegafinancial.com/blog
Podcast reviewing historical market performance by President and Parties https://directory.libsyn.com/episode/index/show/brokenpiechart/id/15806990
Contact Derek www.razorwealth.com
Clean your garage this weekend to find something to sell on EBAY to fund your investment account. Where to go to open an investment account. How to buy fractional shares of companies. Should I buy a fund or individual stocks when starting out? Schwab vs Robinhood?
Schwab and Fidelity stock slices for fractional share purchases
How to buy your first stock
Dollar cost averaging periodic investment each month
Minimums for investments
How to find money to put towards investments (clean out your garage)
Individual stocks vs mutual funds or ETFs
Reducing friction in the brokerage space for new investors
Doesn’t Schwab do everything Robinhood does?
Mentioned in this Episode:
Derek Moore’s book Broken Pie Chart https://amzn.to/3iKpRcx
Podcast reviewing historical market performance by President and Parties https://directory.libsyn.com/episode/index/show/brokenpiechart/id/15806990
Contact Derek www.razorwealth.com
Spencer Wright of Halbert Wealth Management joins the podcast to talk through the various Senate and Presidential races. What are the polls saying? What about the hidden Trump vote? Likely scenarios for the electoral college.
Review of key senate races and predictions
The electoral college landscape in key states
Why Michigan, Pennsylvania, and Arizona may decide the 2020 election
Reliability of polls
The Trafalgar Polls vs. everyone else
Someone is wrong in the polling world
Mentioned in this Episode:
Derek Moore’s book Broken Pie Chart https://amzn.to/3iKpRcx
Podcast reviewing historical market performance by President and Parties https://directory.libsyn.com/episode/index/show/brokenpiechart/id/15806990
Volatility around elections and the 2000 Bush v Gore market environment https://directory.libsyn.com/episode/index/show/brokenpiechart/id/16298195
Contact Derek www.razorwealth.com
Given the varies stimulus plans in 2020 the national debt has risen to new records. Yet, this political season we’ve heard little to nothing about it. How to understand the national debt, debt to GDP, debt held by the public. Plus, what does the CBO (Congressional Budget Office) say the debt to rise to? Will the interest payments exceed the cost of social security and all of defense before long?
- • How to see what the US national debt held by the public is
- • Compare debt held by the public and total debt
- • How much debt does the Federal Reserve have on its balance sheet?
- • How much debt does the social security trust fund own?
- • What is the average interest rate on US treasuries on our national debt?
- • CBO Congressional Budget Office projections of growth of the US national debt
- • What is debt to GDP?
- • Revenues and Expenditures of the United States Government budget
- • US debt to revenues collected
Mentioned in this Episode:
Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk
Interest on national debt annualized https://fred.stlouisfed.org/series/A091RC1Q027SBEA
CBO Congressional Budget Office long term budget outlook https://www.cbo.gov/publication/56516#:~:text=0%205%20Projected-,Debt.,percent%20of%20GDP%20by%202050.
Debt held by public as percentage of GDP https://fred.stlouisfed.org/series/FYGFGDQ188S
Federal Reserve US Treasuries on balance sheet size https://fred.stlouisfed.org/series/TREAST
US Government revenues receipts https://fred.stlouisfed.org/series/FGRECPT
Whether owning a home or owning stocks creates strong opinions on both sides. But what would be a way to evaluate the differences? Historically how have returns of homes vs the S&P 500 Index compared? What homeowners miss about gains in the price of their home.
Historical annualized returns housing vs the stock market
Is your house an asset or a liability?
How to think about your total true cost of owning a home
Your home as a hedge on inflation
Rent vs Own
Historical median home prices United States
Mentioned in this Episode:
Derek Moore’s book Broken Pie Chart https://amzn.to/3iKpRcx
Historical Median Home Prices US https://fred.stlouisfed.org/series/MSPUS
Pay of mortgage or invest? https://brokenpiechart.libsyn.com/should-i-payoff-my-mortgage-early-or-invest
Contact Derek www.razorwealth.com
Rates jumped 30% in the US Treasury 5-year maturities this past week! Off course they only went from .25% to .33%, but why are some analysts on CNBC saying the next 10 years bonds may not return the same amount? What are the risks in bonds should interest rates rise? Do bonds offer a negative real return after inflation?
End of the Bull Market in Bonds?
Bonds sensitivity to interest rate changes
1970s and 1980s inflation effect on bonds total returns
The 60/40 portfolio in the future with low interest rates
Correlations between US Treasury Bonds and US Stocks
Historical interest rates 1694-2016 from Bank of England
How negative could interest rates go?
Coupon % on bonds as predictor of future annualized returns
Mentioned in this Episode:
Derek Moore’s book Broken Pie Chart https://amzn.to/3iKpRcx
JP Morgan Guide to the Markets: https://am.jpmorgan.com/us/en/asset-management/gim/protected/adv/insights/guide-to-the-markets
CFA institute article on bond coupon rates as predictor for future returns https://blogs.cfainstitute.org/investor/2020/06/25/redefining-fixed-income/
Contact Derek www.razorwealth.com
Your starting to hear about the options market pricing in huge volatility for November. This week, there was talk about the December contract getting bid up in case of a contested election. What does that mean? And how did volatility react during the Bush vs. Gore Florida recount and supreme court decision in the 2000 Presidential Election?
VIX Futures
VIX before and after Bush v Gore 2000 election
November VIX futures vs October and December
How much more volatility is the November futures pricing in?
2000 contested election and volatility
How to look up monthly VIX futures contracts
Mentioned in this Episode:
Derek Moore’s book Broken Pie Chart https://amzn.to/3iKpRcx
Podcast reviewing historical stock market returns by presidents and parties https://brokenpiechart.libsyn.com/surprising-historical-returns-by-presidents-senate-and-house-by-party-reviewing-the-13-keys-to-the-white-house-for-2020-predictions-for-the-2020-election-president-and-senate
Contact Derek www.razorwealth.com
As October is here naturally the stories start to appear around volatility and historical market returns. Many people assume October is the worst month for the stock market. Is October the most volatile? What is the average stock market returns by month? In this episode we will review and answer those questions. Plus, is it more important for the market to expect volatility in the “implied volatility” vs historical volatility?
Stock market returns in October
Stock market volatility in October
Historical stock market returns by month
Stock market volatility by month
Implied Volatility vs. Historical Volatility
Importance of just being hedged
Mentioned in this Episode:
Derek Moore’s book Broken Pie Chart https://amzn.to/3iKpRcx
MarketWatch article stock market volatility by month https://www.marketwatch.com/story/heres-how-stocks-typically-perform-in-october-and-why-you-might-want-to-buckle-up-2020-09-25
Why investors need a hedging strategy to protect portfolio downside https://brokenpiechart.libsyn.com/why-investors-need-a-protective-hedged-equity-strategy
Podcast reviewing historical stock market returns by presidents and parties https://brokenpiechart.libsyn.com/surprising-historical-returns-by-presidents-senate-and-house-by-party-reviewing-the-13-keys-to-the-white-house-for-2020-predictions-for-the-2020-election-president-and-senate
Podcast Episode Robin Hood Option Traders and option pricing and market maker delta hedging https://brokenpiechart.libsyn.com/robinhood-option-traders-vs-the-softbank-whale
Contact Derek www.razorwealth.com
Jay Pestrichelli co-hosts this episode with Derek where they discuss the continued talk around Robinhood Traders buying deep out of the money options to force market makers to buy stock. Plus, they discuss the reported $4 Billion spent buy Softbank to purchase option positions in some tech names. How do market makers hedge and the challenges with short term deep out of the money call option buying? Plus, why they both hate and love the idea of covered calls.
Robinhood Option Traders buying cheap deep out of the money call options
Does call buying really force market makers to buy up a lot of shares?
Examining option delta and time decay on short term Tesla call options
How the market sometimes makes you pay a tuition as you acquire trading knowledge
One of the best trading books Market Wizards by Jack Schwager
Examining the reported Softbank option spread positions
Why covered calls sometimes are detrimental to a portfolio
How often the overall market is up more than 15% in a year historically
What does option delta mean?
How does an options delta factor into how a market maker hedges?
Mentioned in this Episode:
Derek Moore’s book Broken Pie Chart https://amzn.to/3iKpRcx
Jay Pestrichelli’s book Buy and Hedge https://amzn.to/2ZQcYGg
Derek Moore and Jay Pestrichelli White Paper on Concentrated Stock Hedging download here https://zegafinancial.com/products/concentrated-stock
Market Wizards by Jack Schwager https://amzn.to/2FUwGcI
Stock Market Wizards by Jack Schwager https://amzn.to/3cbnhK5
(New Book) Unknown Market Wizards by Jack Schwager https://amzn.to/3kuMuSB
Contact Derek www.razorwealth.com
Lately you have probably heard analysts going on CNBC saying given where interest rates are valuations are or are not overstretched. But how do interest rates, and low interest rates, affect stock valuations? How to they affect the cost of capital and the ROIC or return on invested capital? How do you discount down future earnings based on a discount rate?
Why interest rates matter to investors
The present value of future earnings
Interest rates and the WACC or weighted average cost of capital
How low rates may make it easier to achieve ROIC greater than WACC
Historical risk free rates in US Treasury Bonds and Bills
Mentioned in this Episode:
US Treasury Bonds Historical Yield Curve Site https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/TextView.aspx?data=yield
Warren Buffett Indicator explained podcast and article https://razorwealth.com/the-buffett-indicator-explained/
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
Many people know they should understand what their current net worth is. Many also know they should get a handle on their cash flow versus income. Yet it often seems too complicated. Lets uncomplicate personal finance a bit and see how to come up with your current assets and liabilities quickly and easily. Also, how to compile and work through your expenditures versus income.
The larger expenses matter more than your little Netflix monthly expense
Liquid vs Illiquid assets and liabilities
Is a house an asset or liability?
Your car may not be an asset
How to eBay stuff lying around to contribute or start an investment account
Building your personal balance sheet
What your monthly savings could be worth in 5 years
Why budgets do not have to be complicated
Now is a good time to see what memberships you no longer need
Mentioned in this Episode:
Derek Moore’s book Broken Pie Chart https://amzn.to/31CDzYP
Contact Derek www.razorwealth.com
The US Presidential election season is in full swing. But does it matter for the Stock Market which party gets elected? Spencer Wright from Halbert Wealth joins Derek to review some surprising historical statistics around market returns and GDP growth. Including some surprising data on some Presidents you might have been better or worse. Plus, they go through Professor Alan Lichtman’s 13 Keys model to try and predict this year’s election.
Historical stock market returns by Presidents and Party in Power President, Senate, and House
Historical GDP growth rate by Presidents
How often does the President, House, and Senate combinations of Republican or Democrat happen
Reviewing the Electoral College Map prospects for 2020
What is the “13 Keys to the White House” saying about the 2020 election
Predictions for 2020 election
Does the President’s party matter for stock market returns?
Surprises within the historical data on returns and GDP growth
Link to 97 years of historical returns by president
Mentioned in this Episode:
Historical Stock Market and GDP Growth by President, Senate, and House Party https://razorwealth.com/do-presidents-and-the-congress-really-impact-stock-market-returns/
270 to Win Electoral Map https://www.270towin.com/
Book 13 Keys to the White House by Alan Lichtman https://amzn.to/2G77GPH
13 Keys to the White House 2020 Version https://amzn.to/3b6ST37
Derek Moore’s book Broken Pie Chart https://amzn.to/31CDzYP
Contact Derek www.razorwealth.com
If you listen to CNBC or Bloomberg you probably hear analysts talking about how the Forward PE Ratio is higher than historical averages on the stock market. But how are they figuring these numbers? How does the drop in earnings in the S&P 500 in 2020 due to Covid19 compare with earnings drops in 2008 and 2009? How long did it take them to recover?
What is a Forward PE Ratio?
How is the Forward PE Ratio calculated?
What is the Earnings Yield?
How is Earnings Yield calculated?
Drop in earnings 2008 vs 2020 and years to recover
Are Forward PE Ratios a good predicter of future returns?
Cape Ratio or Shiller PE
Mentioned in this Episode:
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
For years many have pointed to the end of the 60/40 Portfolio’s reign as a mass recommended asset allocation. But even in 2020, it still worked as bonds rallied and interest rates dropped to record low levels in the US. But with rates this low, do the risks now outweigh any potential benefits? How much more could bonds rally due to changes in interest rates given where they are? How negative could rates go?
What is 60/40 Stock Bond portfolio?
Is it realistic to think bonds will have same run as 1981-2020 going forward?
How negative can US Treasury yields go?
Nominal Returns vs Real Returns after inflation
Amount of negative yielding debt around the world
More interest rate risk while yields and cash flows are lower
Alternatives to the 60/40 Portfolio
Bill Gross said rates would have to go to negative -17% to equal last 40 year run in bonds
Mentioned in this Episode:
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Podcast Myths around the 60/40 Portfolio https://brokenpiechart.libsyn.com/discussing-myths-around-the-classic-6040-portfolio-part-i
Contact Derek www.razorwealth.com
In the recent Covid financial crisis the Federal Reserve “printed” a bunch of money that increased the money supply. This should lead to massive inflation, right? Well, maybe not if we look at the relationship between the velocity of money (how often the same dollar is used) and the inflation rate. See how to figure out the velocity of money. What is the money supply and where to find it?
What is the Velocity of Money?
What is the money supply?
Difference between MZM, M1, and M2 money supply
Relationship between money velocity and inflation
Comparing increase in money supply now in 2020 to the 2008-09 period
Money supply has increased over 20% since Feb in the US
Money as a medium of exchange
What happens when the velocity of money goes below 1 (like in Q2 2020)?
Japan experience with deflation and low money velocity
Where can you find the money supply, GDP, and money velocity charts?
Mentioned in this Episode:
See the graph money velocity vs. inflation here https://razorwealth.com/money-velocity-relationship-to-inflation/
Current Nominal GDP US https://fred.stlouisfed.org/series/GDP
Current Velocity of Money Supply MZM https://fred.stlouisfed.org/series/MZMV
Current Money Supply MZM in US https://fred.stlouisfed.org/series/MZM
Free Chapter from my book Broken Pie Chart https://www.book2look.com/book/YcqUhbCrtN
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
Apple released earnings last week but also announced their board authorized a 4-1 stock split. Do stocks splits matter anymore? And would a 4-1 Apple stock split completely shake up the weighting of the Dow Jones Industrial Index?
Effect of Stock Splits
Authorized stock split vs. implemented
How a stock split affects a company’s market cap
What changes around earnings history and price history post stock split?
How are companies in the Dow Jones Index weighted?
Price weighted indexes vs. market cap weighted indexes
How Apple’s proposed stock split will upend the weighting in the Dow Jones Index
Mentioned in this Episode:
Dow Jones Index companies current index weightings http://indexarb.com/indexComponentWtsDJ.html
Free Chapter from my book Broken Pie Chart https://www.book2look.com/book/YcqUhbCrtN
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
Last week we talked about Tesla’s potential to qualify for the S&P 500 Index. Post earnings, some new option traders were surprised by the stock and options prices post positive earnings release. Plus, a paper recently updated called “Day trading for a living?” compile data on day traders trading futures contracts. The results were not too promising but what did the paper leave out?
Tesla options implied volatility in premiums post earnings release
Robinhood traders on Reddit message boards – do they know what they are doing?
“Day Trading for a Living?” a paper recently updated sheds light on futures traders
What is the trading risk of ruin table?
Position sizing and percent of capital put at risk for traders
Mini Ibovespa futures contracts in Brazil
High volatility of returns cited in day trading paper
97% of traders lose money day trading according to paper
What is the risk of ruin?
Comparing risk of ruin across different payoff ratios
Mentioned in this Episode:
“Day Trading for a Living? “ paper https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3423101
How are options priced podcast https://brokenpiechart.libsyn.com/how-are-options-priced-and-what-is-short-volatility
Book: A Trader's Money Management System: How to Ensure Profit and Avoid the Risk of Ruin by Bennett McDowell , Forward by Steve Nison https://amzn.to/32WqJ8W
Free Chapter from my book Broken Pie Chart https://www.book2look.com/book/YcqUhbCrtN
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
Tesla has had a meteoric rise lately. At their recent high their market cap would have put them in the top 10 weighted companies of the S&P 500 Index. But will Tesla have the required consecutive quarters of positive earnings? What are the criteria for a company to be included in the S&P 500 Index? When does S&P do their index rebalancing? Which companies have been added and deleted from the index?
Tesla current market cap
What would Tesla’s weighting be if they made the S&P 500 Index
Why do investors want their stocks included in indexes?
Tesla next earnings announcement
Consensus analyst earnings expectations Tesla
Which companies were added and deleted from the S&P 500 Index?
Can S&P committee stray from the guidelines to add or delete companies?
How soon could Tesla be added to the S&P 500 Index
S&P 500 Index scheduled rebalancing calendar
Tesla and Zoom in the Nasdaq 100 Index
Last stocks to be added and deleted from the S&P Index
Mentioned in this Episode:
Fortune article Will Tesla Be Added to S&P 500? https://fortune.com/2020/07/14/tesla-s-and-p-500-index-stock-added/
Historical changes to S&P 500 Index companies additions and deletions https://en.wikipedia.org/wiki/List_of_S%26P_500_companies#Selected_changes_to_the_list_of_S&P_500_components
2020 Trading Calendar showing index rebalance dates and options expiration – trading holidays https://www.nasdaq.net/PublicPages/assets/MyMID/Trade_Calendar_2020.pdf
Nasdaq 100 Index companies by weighting https://www.slickcharts.com/nasdaq100
Criteria for inclusion in the S&P 500 Index https://www.thebalance.com/what-is-the-sandp-500-3305888#:~:text=As%20of%20February%202020%2C%20the,S%26P%20500%20was%20%2424.4%20trillion.&text=To%20qualify%20for%20the%20index,at%20least%20%241%20per%20share.
Free Chapter from my book Broken Pie Chart https://www.book2look.com/book/YcqUhbCrtN
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
Why doesn’t the stock market and economy both go up or down with one another at the same time? How is the market a forward-looking discounting mechanism? How do recessions and earnings expectations play into underlying price of the S&P 500 Index?
Atlanta Fed GDP Now
Comparing historical recessions by examining real GDP declines
Great Depression vs. Financial Crisis vs 2020 Covid19 Recession
Looking at consensus S&P 500 Index earnings forecasts 2020, 2021, and 2022
How the market does not go up or down equal to change in GDP
Are there times that companies write down or take charges to earnings during recessions
Uncertainty of S&P 500 Index earnings estimates
Intrinsic value of future earnings
How interest rates effect valuations
Mentioned in this Episode:
Atlanta Fed GDP Nowcast https://www.frbatlanta.org/cqer/research/gdpnow?panel=3
JP Morgan on the Markets Guide PDF https://am.jpmorgan.com/us/en/asset-management/gim/protected/adv/insights/guide-to-the-markets
Percent Change Gross Domestic Product Quarterly https://fred.stlouisfed.org/series/CPGDPAI
Free Chapter from my book Broken Pie Chart https://www.book2look.com/book/YcqUhbCrtN
Resource for S&P 500 Index consensus earnings estimates https://www.yardeni.com/pub/yriearningsforecast.pdf
Book Jeremy Seigel Stocks for the Long Run https://amzn.to/3el67tO
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
The Federal Reserve through their SMCCF or Secondary Market Corporate Credit Facility have been buying bond etfs and individual bonds. What have they been buying and how much? Where to find the list of ETFs and Bonds purchased by the Fed. Plus, TIPS or Treasury Inflation Protected Securities (Bonds). How do they work? How do they hedge against inflation? And How are TIPS bonds adjusted along with inflation.
Where to find list of ETFs and bonds the Federal Reserve is buying?
What is the Federal Reserve SMCCF or Secondary Market Corporate Credit Facility?
The Fed has purchased about $6.8 Billion worth of corporate bond etfs through June 18th
The Federal Reserve also has been buying junk bond etfs
How much and what individual bonds of corporations has the Fed purchased thus far?
How much has the Fed said it will purchase of corporate bonds?
What are TIPS bonds (Treasury Inflation Protected Securities)?
What year did the US Treasury first offer TIPS bonds?
When inflation via the CPI increases, how are TIPS bonds adjusted higher?
How does deflation cause an adjustment lower in TIPS bonds?
Do the coupon payments on TIPS bonds increase along with the principal amounts?
What is breakeven inflation rate?
What does the breakeven inflation rate tell us about cash flows of TIPS vs US Treasuries?
Where to download excel file with Federal Reserve ETF and Bond holdings?
How do TIPS bonds help investors potentially protect purchasing power and leverage inflation?
Mentioned in this Episode:
Download Federal Reserve holdings and trades of ETFs and Bonds (SMCCF Transaction-specific disclosures June 28th, 2020) https://www.federalreserve.gov/monetarypolicy/smccf.htm
10 Year Breakeven Inflation Rate https://fred.stlouisfed.org/series/T10YIE
Derek article showing current Fed holdings of ETFs and bonds https://zegafinancial.com/blog/really-dont-fight-the-fed-federal-reserve-updated-holdings-of-bonds-and-etfs-6182020
Jeremy Siegel talks inflation with Barry Ritholtz https://podcasts.apple.com/us/podcast/jeremy-siegel-on-the-stock-market-under-covid-19-podcast/id730188152?i=1000478723627
Free Chapter from my book Broken Pie Chart https://www.book2look.com/book/YcqUhbCrtN
Book Jeremy Seigel Stocks for the Long Run https://amzn.to/3el67tO
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
Semi co-host Jay Pestrichelli joins the program to discuss all things VIX Index, what it measures, how stocks and markets each have their own volatility, and how implied volatility in the options market can determine probability of future moves.
What does the VIX Index represent?
What is implied volatility in the options markets?
What is the difference between implied volatility and historical or realized volatility in markets?
How implied volatility helps calculate current market-based probabilities
Jeremy Siegel now calling for some inflation
Options pricing around stock earnings
Reminiscing about CNBC after hours earnings options action appearances
Options speculation vs hedging
Mentioned in this Episode:
Jay Pestrichelli’ s book “Buy and Hedge” https://amzn.to/2UEk12c
Realized vs Implied Volatility March 2020 https://zegafinancial.com/blog/strategy-update-4-2-20
Why investors need a hedged equity strategy podcast https://podcasts.apple.com/us/podcast/why-investors-need-a-protective-hedged-equity-strategy/id1432836154?i=1000418366567
Jeremy Siegel talks inflation with Barry Ritholtz https://podcasts.apple.com/us/podcast/jeremy-siegel-on-the-stock-market-under-covid-19-podcast/id730188152?i=1000478723627
Free Chapter from my book Broken Pie Chart https://www.book2look.com/book/YcqUhbCrtN
Book Jeremy Seigel Stocks for the Long Run https://amzn.to/3el67tO
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
Often younger or newer investors just starting the process of saving and investing ask what the best strategy to build wealth quickly? The power of compounding and starting early are key, but periodically investing each month and making it automatic can build wealth surprisingly well. In this episode we talk about key areas in what younger investors should be doing including 401k, systematic investing, and how dollar cost averaging lets you buy more lower over time. Plus, surprising statistics reviewing 120 years’ worth of decades and each of their compounded annual growth rates in the S&P 500 Index.
What was the compounded total return for the S&P 500 Index by decade back to 1900?
What is dollar cost averaging?
How does compounding accelerate your wealth building?
What is dividend reinvestment?
Between Schwab, Vanguard, TD Ameritrade, and Fidelity investors have plenty of tools and resources to start investing
Accumulation and Distribution phases of investing plus the extra base maximization phase 10 years prior to retirement
Why you should not try and get rich quick using options or futures and thus leverage
What is an automatic investment plan moving money each month from bank accounts to brokerage accounts?
Explaining Charles Schwab’s new stock slices to buy fractional shares of S&P 500 stocks
Mentioned in this Episode:
Free Chapter from my book Broken Pie Chart https://www.book2look.com/book/YcqUhbCrtN
Charles Schwab fractional shares https://www.schwab.com/fractional-shares-stock-slices
Charles Schwab investing basics 101 FAQs https://www.schwab.com/how-to-invest/investing-basics#panel--text-29676
Book Jeremy Seigel Stocks for the Long Run https://amzn.to/3el67tO
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Stock compounded total returns by decade https://zegafinancial.com/blog/where-did-the-2010s-rank-for-total-return-on-sandp-500-index
Contact Derek www.razorwealth.com
Quasi co-host Jay Pestrichelli, CEO of ZEGA Financial, is back on to discuss whether the lower interest rates for longer crowd is on to something. Plus, while interest rates may cause home price inflation, the data points to other reasons car prices have continually risen. What is the real inflation rate? The Federal Reserve doing “whatever it takes” to keep rates down and buying bond funds. Plus, risk to bonds in a low rate period and what alternative strategies that use synthetic options to replicate a bond yield.
Jay Pestrichelli re-releases Amazon bestseller “Buy and Hedge Book”
Lots of talk around the lower interest rates for longer idea
Does the CPI represent real inflation?
Chapwood alternative inflation index
Comparing Japan and Europe’s negative rate experiment with the current US landscape
Have risks in bonds ever been higher if interest rates rise?
Low interest rates leading to housing inflation or just readjusting for lower rates?
Lower rates do not impact car prices moving higher quite as much as extending loan durations
Option spreads to create a synthetic bond replacement strategy
How a stocks dividend is embedded in a put option
Low bond yields tough for early retirees
Mentioned in this Episode:
Jay Pestrichelli’ s book “Buy and Hedge” https://amzn.to/2UEk12c
Chapwood alternative inflation index https://chapwoodindex.com/
Are bonds riskier with low rates podcast https://podcasts.apple.com/us/podcast/are-bonds-riskier-with-low-interest-rates/id1432836154?i=1000465096378
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
Graniteshares CEO William Rhind joins Derek Moore on the podcast to discuss how technology disruption is causing some companies to adapt and thrive while others falter. Can you focus on eliminating companies who are likely not positioned for the future while keeping those that are? How the Covid-19 crisis may have sped up many technology innovations while zombie companies face pressures. Value vs Growth debate. Was Dominos a tech company all along? Plus, European Football relegation and promotion and much more.
Growing vs faltering companies
What traits do growing companies possess that those likely to be disrupted lack?
Dominos vs Google – Both 2004 IPOs yet surprising which would have highest cumulative growth rate
Dominos – a pizza shop or stealthy tech company?
Value vs Growth debate
Did companies like Apple an Amazon live up to their value?
Netflix vs Blockbuster Video – obvious now but in the moment?
Will inflation and interest rates be lower for longer?
Zombie Companies – how Covid-19 sped up some of their declines
Walmart growth over the year’s vs Amazon
XOUT ETF strategy overview
Risks of rising interest rates to US Treasuries
Negative Yielding TIPS auctioned off
60/40 portfolio with bonds vs gold
Mentioned in this Episode:
Graniteshares https://www.graniteshares.com/
Forbes piece on William Rhind https://www.forbes.com/sites/baldwin/2018/08/30/this-guy-is-taking-on-blackrock-and-state-street-with-cut-rate-gold-and-commodity-etfs/#25ce004b750d
Contact Derek www.razorwealth.com
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
How does the social security administration estimate what your monthly benefits? How do they adjust prior earnings for inflation? You can look up your earnings history and monthly benefit estimate at the social security site, but how do they come up with their numbers? How do they determine the cost of living adjustments? How much difference is there in taking social security at age 62 vs full retirement age? What are some considerations in that decision?
How social security uses your highest 35 inflation adjusted earnings years to figure benefit
How does social security adjust your prior earnings for inflation?
What is the breakeven point in taking benefits at 62 (early) vs 67 or 70?
What are the bend points to determine how much your monthly benefit will be at full retirement age?
The CPI-W index used to determine COLA or cost of living adjustments
How to find out what your earnings history and benefit estimated monthly number is
Mentioned in this Episode:
Bend points in social security used to calculate monthly estimated check https://www.ssa.gov/OACT/COLA/piaformula.html
CPI for Urban Wage Earners and Clerical Workers https://www.ssa.gov/OACT/STATS/cpiw.html
What is the amount up to you pay social security taxes on? https://www.ssa.gov/OACT/COLA/cbb.html
National Wage Index for Social Security (to inflation adjust your past earnings) https://www.ssa.gov/OACT/COLA/AWI.html
Create My Social Security account and see what your earnings history and benefit estimation is https://www.ssa.gov/myaccount/
Contact Derek www.razorwealth.com
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Jay Pestrichelli, ZEGA Financials’ CEO joins Derek Moore to walk through how this bear market compares to the 2008 Financial Crisis, 1997-1998 Asian Contagion, and 2000-2001 Dotcom crash. Are all these bear markets the same? Jay explains his rule of 3 showing the catalyst in each and how they are different. Plus, Derek describes how this last sharp decline resembles the trading action in August of 1998. What lessons can we take out of bear markets with regards to how sectors and regions tend to revert to the mean?
Discuss Charles Schwab commercial adding perspective to long run history in markets
Speed of this bear market compared to previous ones
Personal recollections of the last couple bear markets
Surprising data from the 1997-1998 bear market in emerging markets vs US equities
Trading halts and curbs
The case again for using hedges in building portfolios
Discussion of various catalysts behind previous bear markets
Not all bear markets have a recession as well
Reversion to the mean in historical sector returns
Mentioned in this Episode:
Jay Pestrichelli previous podcast appearances https://zegafinancial.com/in-the-news/podcast
Callan Periodic table of investment returns by sectors https://www.callan.com/wp-content/uploads/2020/01/Classic-Periodic-Table.pdf
Older Time frames Callan Periodic Table of returns including emerging markets https://www.callan.com/wp-content/uploads/2017/02/Callan-PErTbl_Collection_2017-1.pdf
Contact Derek www.razorwealth.com
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Watching the financial news, we have been seeing some people make predictions of a deflationary period. At the same time others point to growing debt levels and Federal Reserve money printing as precursors to inflation. But what if deflation could be both good at the same time? Falling prices can happen by technological innovations or falling demand. One is better than the other. But for indebted countries, individuals, and companies’ deflation can increase the real value of debt. That is potentially bad!
What is deflation?
What is inflation?
Formula to inflation adjust prices using CPI Index
Examples of how deflation raises the real value of debt
How inflation can deflate the value of debt
Massive inflation in textbooks but deflation in the price of TVs.
Demand falling off can hurt margins and equal bad deflation
Adjusting the price of a 10-minute-long distance call from 1982 to 2020 dollars.
Deflation doesn’t mean consumers will always put off purchases to later day
Mentioned in this Episode:
Chart showing various inflation or deflation in consumer goods 1997-2017 https://s.marketwatch.com/public/resources/images/MW-GD574_CPICha_NS_20180212131601.png
CPI Index https://fred.stlouisfed.org/series/CPIAUCSL
What are Zombie Companies https://podcasts.apple.com/us/podcast/what-are-zombie-companies/id1432836154?i=1000473428395
Payoff mortgage early or invest periodically https://podcasts.apple.com/us/podcast/should-i-payoff-my-mortgage-early-or-invest/id1432836154?i=1000467130109
Inflation erodes purchasing power of US Dollar https://podcasts.apple.com/us/podcast/how-purchasing-power-dollar-is-eroding-plus-why-inflation/id1432836154?i=1000433222599
Contact Derek www.razorwealth.com
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
2011 saw the release of Margin Call, a movie staring Kevin Spacey, Jeremy Irons, Demi Moore, Stanley Tucci and more. A very strong acting performance from the whole cast. But what was the problem they pointed to with their (Var) or Value at Risk Formula? What did the junior analysts figure out that the firm did not? Margin call was focused around 24 hours at an investment bank on the verge of a problem with their mortgage backed assets. Learn about another good finance movie plus an explanation of the (Var) Value at Risk theory and its good and bad.
What is VAR?
What is Value at Risk formula?
What type of data does VAR utilize?
Speculation on what investment bank Margin Call Movie is based on
Volatility based risk estimates
95% and 99% confidence levels and VAR
Simplified explanation of probability and confidence levels
Discussion on historical data and normal distribution to predict future returns
Implied Volatility to show expected single and multiple standard deviation moves
Implied volatility around earnings releases for momentum stocks like Netflix or Tesla
Mentioned in this Episode:
Credit Default Swaps explained through the Big Short Movie https://podcasts.apple.com/us/podcast/the-big-short-movie-credit-default-swaps-explained/id1432836154?i=1000465683509
Contact Derek www.razorwealth.com
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
In the 1990’s the term “Zombie Company” originated out of Japan during their lost decade. Today though we are hearing more and more about Zombie Companies in the U.S. Zombies are companies that only make barely enough net income to cover their annual interest costs on debt. Or, they may not even make enough to cover their annual debt and must borrow more money. What are Zombie Companies? Why are Zombie Companies bad? And how can you determine if a company is a Zombie Company or not?
What are Zombie Companies?
What percentage of companies in U.S. are considered Zombies?
Calculation used to identify Zombie Companies
What is the Interest Coverage Ratio?
Example of EBIT and Interest payments indicating Zombie Company Status
Assets minus Liabilities on balance sheet indicate net income number of quarters to pay off debt
Why Zombie companies are bad
How Zombie companies cannot grow or reinvest capital
How the Fed and low interest rates fueled Zombie Company creation
Economic and interest rate risks to Zombie companies
Mentioned in this Episode:
Podcast: Earnings Multiples, Valuations, Revenue, Net Profit Margins, Stock Buybacks and other Explanations http://brokenpiechart.libsyn.com/earnings-multiples-valuations-revenue-net-profit-margins-stock-buybacks-and-other-explanations
Podcast: How low interest rates benefit corporations http://brokenpiechart.libsyn.com/how-low-interest-rates-can-benefit-corporations
Paper titled Rise of Zombie companies: causes and consequences https://www.bis.org/publ/qtrpdf/r_qt1809g.pdf
Contact Derek www.razorwealth.com
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
On April 20th, the price of a WTI (West Texas Intermediate) futures contract representing 1000 barrels of oil went to negative -$37 a barrel. How is it possible that you could theoretically be paid to buy oil? How do oil futures work and how storage of oil works with regard to the futures market? The quick answer is, no you cannot buy a single barrel of oil and store it in your garage. Plus, using a silly Ikea couch example to explain why people would pay you to take their oil.
How did the price of oil go negative?
What is the difference between WTI and Brent Crude Oil?
Storing oil in Cushing Oklahoma
Size of 1 oil futures contract (1000 barrels)
Problems with trying to store an oil barrel
Difference between taking physical delivery of oil and speculation
USO exchange traded product methodology
Contango vs. Backwardation in futures market
Rolling front month contracts forward to next month
When does USO roll their front month contracts
Mentioned in this Episode:
Bloomberg funny article “That Time I Tried to Buy an Actual Barrel of Crude Oil” https://www.bloomberg.com/news/articles/2015-11-03/that-time-i-tried-to-buy-some-crude-oil
WTI Oil Futures Prices by Month https://www.marketwatch.com/investing/future/crude%20oil%20-%20electronic
Contact Derek www.razorwealth.com
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Given the recent Coronavirus selloff in the markets, I thought it might be interesting to view investor actions through the prism of the 2008 crisis in this replay of an earlier podcast episode. Recently I found several different research pieces showing how at the very lows of the Great Recession in 2009 the percentage of funds in money market funds was at its highest. In 2009 the fund flows to bonds were greater than the previous 5 years combined. So why with equities so cheap did people stay in cash or bonds? Wouldn’t they want stocks when they were cheaper? This highlights how investors who panic an make rash decisions can do so at the very worst times.
Why do investors panic?
How does fear guide investor decisions?
Percentage of funds in money markets spiked at time of March of 2009 lows
Why investors didn’t rebalance out of bonds and into stocks during the great recession
2009 fund flows were a record year for bonds
How using Buffered or Hedged Equity Strategies can help reduce fear and irrational choices
Benefits of staying invested while hedged
Why now is a good time to be hedged
Mentioned in this Episode:
Contact Derek www.razorwealth.com
Morningstar Bond Fund Flows 2009 Chart https://morningstardirect.morningstar.com/clientcomm/2009.pdf
Dalbar Quantitative Analysis on Investor Behavior Report https://www.qidllc.com/wp-content/uploads/2016/02/2016-Dalbar-QAIB-Report.pdf
Podcast talking about markets within 3% of all-time highs 36% of time https://podcasts.apple.com/us/podcast/fear-investing-surprising-data-points-to-markets-near/id1432836154?i=1000443860686
Why diversification fails https://podcasts.apple.com/us/podcast/ep012-does-diversification-alone-reduce-systematic/id1432836154?i=1000423615813
Buffered Equity Strategies https://podcasts.apple.com/us/podcast/adding-downside-buffers-to-investment-portfolios-using/id1432836154?i=1000419699076
Why investors need a hedged equity strategy https://podcasts.apple.com/us/podcast/why-investors-need-a-protective-hedged-equity-strategy/id1432836154?i=1000418366567
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Recently you’ve probably heard a lot of financial news media referring to the widening of spreads. Specifically, the High Yield Spread has widened above 1000 basis points. But what does it mean when the high yield spread increases? Get an overview on spreads widening or tightening. Plus, see how differently rated parts of the bond fixed income market see their spreads widen or narrow compared to US Treasury Bonds.
What is the High Yield Bond Spread?
What does it mean when bond spreads widen?
Comparing High Yield Bond yields to yields on US Treasury Bonds
Bond spreads as indicator on stock market
Explaining difference in credit rating on bonds
What rating is considered junk bond status
What did high yield spreads do in 2008 crisis?
What is the Option Adjusted Spread or OAS spread?
Callable bond features
Comparing yield spreads in investment grade bonds, CCC bonds, BBB bonds
Default rates as risk factors
Probability of bond defaults
Mentioned in this Episode:
Current High Yield Option Adjusted Bond Spread https://fred.stlouisfed.org/series/BAMLH0A0HYM2
Podcast explaining bonds for investors and corporations http://brokenpiechart.libsyn.com/explaining-bonds-for-investors-and-corporations
Current CCC High Yield Bond Spread https://fred.stlouisfed.org/series/BAMLH0A3HYC
Current BBB Bond Yield Spread https://fred.stlouisfed.org/series/BAMLC0A4CBBB
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
It’s official, we reached a bear market in stocks. But when and how long will a pending recession last? How do you know an official recession has been declared?
What is a recession?
Two consecutive quarters of negative GDP growth
NBER vs GDP 2 quarters decline
Calculate GDP C + I + G + (X – M)
Annualizing GDP quarterly growth rate
Cyclical, Structural, or Event Driven Bear Markets
Supply Shocks vs Demand Shocks
Recoveries: U Shaped vs. V Shaped vs. L Shaped
Mentioned in this Episode:
Percent change real GDP growth rates https://fred.stlouisfed.org/series/CPGDPAI
Historical recessions from the NBER https://www.nber.org/cycles.html
HBR Harvard Business Review economic shocks of coronavirus https://hbr.org/2020/03/understanding-the-economic-shock-of-coronavirus
Forbes on bear markets https://www.forbes.com/sites/greatspeculations/2020/03/17/keep-calm-bear-markets-are-temporary/#388b279230ba
Podcast deconstructing GDP and Inflation https://www.stitcher.com/podcast/broken-pie-chart/e/56922114
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
An official bear market has occurred and now down over 20% from recent highs. The speed of the 2020 decline only took 22 days to happen. How does that compare with previous bear markets? How long does it take to recover on average? And when do they officially call recessions? Get a sense of the numbers behind previous downturns.
What is a Bear Market?
Average Time from Peak to Trough in Bear Markets?
Average Time from Trough to Peak recovery?
What is the HY Yield spread and why it matters
Does every bear market accompany a recession?
How does the speed of 2020 decline compare to other periods?
What are fundamental analysts trying to figure out on 2020 earnings?
What multiples at different earnings estimates theoretically might mean?
Intra year market lows versus final full year performance
Length of previous recessions
GDP historical growth rates
Mentioned in this Episode:
Percent change real GDP growth rates https://fred.stlouisfed.org/series/CPGDPAI
Historical recessions from the NBER https://www.nber.org/cycles.html
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
People have been getting into arguments at grocery stores hoarding toilet paper, hand sanitizer, and bacterial soap among other things. News outlets have reported on Amazon and eBay pulling listings trying to “gouge” prices. But would price gouging create a market where items like this actual get rationed due to adjustments in demand? In this episode Derek goes over elasticity of prices and arguments for and against charging higher prices that would adjust supply and demand back to equilibrium.
What is price gouging?
What is elasticity of price?
Arguments that laws prohibiting price gouging are bad
Why have price gouging laws created opportunities for third party sellers to inflate prices?
What is retail arbitrage?
Examples of raising prices to ensure supply comes into an area
Supply vs Demand in marks
Would rising prices cause people to only buy what they need? (self-rationing)
Ideas for you to study the issue and make up your own mind
How airlines adjust prices to spur demand
Airlines execute “price discrimination” charging business travelers more
Incentives to increase supply
Mentioned in this Episode:
Someone stuck with 20000 bottles of hand sanitizer after Amazon removed listings https://www.nytimes.com/2020/03/14/technology/coronavirus-purell-wipes-amazon-sellers.html#commentsContainer
Forbes article that laws against price gauging are bad economics https://www.forbes.com/sites/jeffreydorfman/2016/09/23/price-gouging-laws-are-good-politics-but-bad-economics/#425d325a64d3
Stossel video on price gouging https://www.youtube.com/watch?v=IqMFBdWkfo0&feature=youtu.be
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
The Federal Reserve just announced an emergency 50 basis point cut in the fed funds rate. What does cutting interest rates mean? What are the differences in the fed funds rate, discount rate, and IOER or interest on excess reserves? How does a fed rate adjustment effect my mortgage rate? Plus, how do they figure what the probabilities are that the Fed will move rates at future meetings?
What is the Fed Funds Rate?
What is the Discount Rate?
What is the IOER or interest on excess reserves?
What is the prime rate?
How does the Federal Reserve Fed funds rate affect mortgage rates on 30-year and 15-year terms?
How Treasury Bond Yields are linked to interest rates on mortgages
How interest rates affect the present value of future cash flows and earnings
Other ways the Fed can impact money supply such as altering bank reserve requirements
How to calculate the probability of a Fed interest rate change based on Fed Funds Futures
When does the fed meet and schedule?
Fed funds current target rate range
Mentioned in this Episode:
Federal Reserve Meeting Dates https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm
Federal Reserve Bank New York daily effective funds rate EFFR https://apps.newyorkfed.org/markets/autorates/fed%20funds
CME Fed Funds Rate Probability Tracking Tool https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
Fed Funds Futures monthly prices https://www.cmegroup.com/trading/interest-rates/stir/30-day-federal-fund.html
Should I Pay off my mortgage early? https://podcasts.apple.com/us/podcast/should-i-payoff-my-mortgage-early-or-invest/id1432836154?i=1000467130109
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
Strong opinions exist on each side of this debate. Some believe plowing money to pay off the mortgage early is better. Others would rather step up their periodic investments and keep a low rate mortgage? In this episode Derek walks through how interest rates affect mortgage monthly payments. Key things to consider when evaluating which is better pay off early or invest. Also, what percentage of your monthly payment goes to principle and to interest depends on where you are in the loan and current rates.
What should you consider when evaluating whether to try and payoff your mortgage early?
How does inflation make your payment lower over time?
The present value of your mortgage payments equals your loan amount
How paying off your mortgage rather than investing the funds might overweight real estate
Considerations should you need to pull money out for emergencies
Will you do better over time investing periodically or paying down mortgage early?
How to calculate when you will pay more in principle than interest
Key assumptions that you will increase 401k contributions or investments monthly
Understanding how interest rates change the calculus on the decision to payoff mortgage or invest
Does the FIRE movement and Dave Ramsey get this question wrong?
Return on paying off mortgage early vs. potential investing returns
Liquid vs. illiquid investments
Mentioned in this Episode:
4% withdrawal rate and retirement considerations https://podcasts.apple.com/us/podcast/is-the-fire-movement-doable-and-the-4-withdrawal-rate/id1432836154?i=1000461766880
Inflation and purchasing power of the dollar https://podcasts.apple.com/us/podcast/how-purchasing-power-dollar-is-eroding-plus-why-inflation/id1432836154?i=1000433222599
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
Michael Lewis wrote the book “The Big Short” that later was turned into a movie starring Christian Bale, Steve Carrell, and Ryan Gosling, Brad Pitt, and Jeremy Strong. The movie focused on 3 different investors who bet against mortgage bonds before the Great Recession and housing market collapse using credit default swaps. Want to get a primer on swaps and how they work before you watch or re-watch the movie?
What are Credit Default Swaps (CDS)?
What do bond ratings mean?
What are the annual premiums on credit default swaps?
How to convert basis points to an interest rate percentage?
What is counter party risk?
What does Michael Burry use to short housing in the Big Short Movie?
How did people bet against the housing market?
What does the spread on credit default swaps mean?
Using Credit Default Swaps to hedge or speculate
Mentioned in this Episode:
Current Credit Default Swaps Spreads on Sovereign Country Bonds https://www.cnbc.com/sovereign-credit-default-swaps/
Michael Lewis Book the Big Short https://amzn.to/2SNhUr1
The Big Short Movie https://amzn.to/31ROJrc
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
Bonds prices are a function of current interest rates compared to their present value of cash flows and return of capital (baring defaults) at maturity. So, with interest rates so low around the world, is this a period of higher risk in bonds (fixed income)? How much more sensitivity to interest rate changes do we currently see in the sector? How do callable bonds mute the positive effects of reductions in market rate of interest? How does the US Aggregate Bond Index compare to the Global Ex-US Aggregate Bond Index from a yield and duration risk comparison? Derek Moore discusses these and other aspects of evaluating risk in bonds due to changes in interest rates.
What is duration risk in bond portfolios?
Comparing duration and yields between US Aggregate Bond Index and Global World EX-US Aggregate Bond Index?
Negative yield to maturity bonds in Europe and Japan
How does lower rates extend duration risk in bonds?
How do callable bonds potentially mute upside market move in bonds when rates fall?
Bonds market value a combination of present value of cash flows (interest payments) and return of capital at maturity
What are call provisions on corporate bonds?
Investor expectation of annual returns equal to the current yield to maturity?
2018 when both stocks and bonds via the US Aggregate Total Return Index were negative
Mentioned in this Episode:
Short Selling Terms Explained through Tesla https://podcasts.apple.com/us/podcast/short-selling-explained-tesla-short-interest-short/id1432836154?i=1000463711042
Explaining negative yielding bonds https://podcasts.apple.com/us/podcast/wacky-negative-yielding-bonds-need-for-alternative/id1432836154?i=1000442461907
Real returns vs nominal returns above inflation https://podcasts.apple.com/us/podcast/importance-real-returns-above-inflation-how-to-calculate/id1432836154?i=1000440384756
Myths of the 60/40 stock/bond portfolio https://podcasts.apple.com/us/podcast/discussing-myths-around-the-classic-60-40-portfolio-part-i/id1432836154?i=1000434346248
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
Tesla stock it seems is always in the news. Between it’s CEO Elon Musk and the latest price action, it has been commented on ad nauseum. Lately, the terms short squeeze and short interest ratio have been mentioned as CNBC commentators talk about those who have been betting against the stock and taking some losses of late. So what is short selling and what do the terms short interest ratio, days to cover, and short squeeze really mean?
What is short selling?
Borrowing shares to sell short
What is the short interest ratio?
What does Days to Cover ratio mean for share held short?
What is a short squeeze?
Tesla short interest ratio and days to cover
Risks of short selling
How do short sellers make or lose money?
Where to find short interest ratio?
Where to find days to cover ratio?
Mentioned in this Episode:
Tesla TSLA stock info at marketwatch https://www.marketwatch.com/investing/stock/tsla
Tesla TSLA days to cover short interest Nasdaq site https://www.nasdaq.com/market-activity/stocks/tsla/short-interest
Free Chapter Broken Pie Chart: https://www.book2look.com/book/YcqUhbCrtN
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
With the new decade came prediction after prediction trying to call what the next decade’s compounded growth rate will be. Many have said investors need to prepare for lower returns based on the numbers. But what if other prognosticators have a different view that is more bullish? We can’t predict future market returns, but we can talk through what they are looking at valuation and return wise to help you see both sides of it.
Why are CNBC and FOX Business guests saying to expect lower future market returns?
What is the CAPE Ratio?
What does the previous annualized 20-year return say about the next 10 years?
What role do interest rates have in stock valuation?
Just be long the market but be hedged or buffered
What is the equity risk premium?
What is the CAPM Capital Asset Pricing Model
Where are we currently valuation wise according to the Forward PE Ratio?
Mentioned in this Episode:
Of Dollars and Sense “Investors Fallacy” comparing past 20 year returns with subsequent 10 year returns https://ofdollarsanddata.com/the-investors-fallacy/
JP Morgan Guide to the Markets https://am.jpmorgan.com/us/en/asset-management/gim/protected/adv/insights/guide-to-the-markets
Free Chapter Broken Pie Chart: https://www.book2look.com/book/YcqUhbCrtN
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
Recently I’ve been asked by several people about the FIRE movement. Financial Independence and Retire Early. This strategy relies on increasing percentage of salary in savings, reducing expenses, and assuming a compounded rate of return. Then when they have 25 times their desired retirement salary, they achieve the FI. So, does the math add up? Does the 4% rule still work? And what might they and aspiring retirees be missing? Sequence of returns may play a larger part plus the 10 years prior need to achieve the right compounded growth rates.
What is the FIRE movement?
Using 25 times desired retirement income to determine assets needed
What is the 4% withdrawal rate mean?
Is 4% still doable given lower intertest rates
Different stages including accumulation, base maximization, and distribution
How does inflation affect the 4% withdrawal strategy?
Sequence of returns comparison
Is it better to lose early or late once in retirement?
Mistakes aspiring FIRE movement might overlook
How to calculate future values with compounded growth rate and deposits
Are medical costs underestimated by FIRE followers?
Mentioned in this Episode:
Free Chapter Broken Pie Chart: https://www.book2look.com/book/YcqUhbCrtN
CNBC How social security benefit amounts are calculated https://www.cnbc.com/video/2020/01/02/how-social-security-benefits-are-calculated-on-a-40000-salary.html
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
Watching financial media, you hear terms like PE and Forward PE multiples, revenue, margins expanding or contracting, and share buybacks. So, what does it mean for a stocks price when multiples increase or decrease? What is the attribution for earnings increasing or decreasing? How do you calculate net profit margin? Earnings releases can be more complicated than they need to be. In this episode, Derek Moore explains scenarios in detail so you can gain a better understanding of all these terms and what it means for stock valuations and earnings growth.
How to calculate the market cap of a stock
How to calculate the earnings per share (EPS)
How to calculate the PE Price to Earnings Ratio
Using net income and revenue to figure out the net profit margin
Difference between multiple expansion and earnings growth for stock prices
What are key determinants of a stock’s earnings (Revenue, Margins, Share Buybacks or Issuance)
How share buybacks effect earnings per share
Difference between market cap and net income versus per share earnings
How earnings per share can growth with changes in share count, revenue, and net profit margins
What is a PE ratio?
What is net profit margin?
What is a stock’s market cap?
Mentioned in this Episode:
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Contact Derek www.razorwealth.com
J.P. Morgan’s Guide to the markets https://am.jpmorgan.com/us/en/asset-management/gim/protected/adv/insights/guide-to-the-markets
Recently a JP Morgan analyst highlighted how wrong stock market predictions would have caused investors to lag the markets by up to 60%. What were some of the since disproven predictions? Why do people read and follow some of this stuff? Although analysts also have predictions that prove true, if you have a hedged portfolio strategy why should you even care what people are saying? Discussed in the episode are some calls by Elaine Garzarelli , Nouriel Roubini, Jeff Gundlach, Peter Schiff, Carl Icahn, Paul Krugman, Marc Faber and more.
Summarizing recent JP Morgan analyst report on Armageddonist Comments costing investor money
Why does the financial news media continuously offer up various expert predictions on market direction?
Prediction that Blockbuster would take market share from Netflix
Credit Default Swaps are low risk for AIG
1987 crash predicted by Elaine Garzarelli
In fairness, predictions were a point in time by their authors
Doomsday stock market predictions probably get mouse clicks
Historical lookback at actual annual return for S&P 500 despite 1987 crash
Reviewing various historical long-term cycles in the Dow Jones index
1982 to 1999 magical run for stocks
Instead of following every prediction just be long the market but be hedged
Hedgers opportunity to buy at market bottoms
Mentioned in this Episode:
Contact Derek www.razorwealth.com
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Elaine Garzarelli calls 1987 crash https://www.garzarelli.com/downloads/WSJ-Crash.pdf
Marketwatch article showing doomsday predictions that were wrong and would have cost investors https://www.marketwatch.com/story/heres-the-price-to-be-paid-for-listening-to-armageddonist-predictions-2019-11-13
JP Morgan Guide to the Markets https://am.jpmorgan.com/us/en/asset-management/gim/protected/adv/insights/guide-to-the-markets
Hilariously wrong predictions from Netflix to Credit Default Sways https://www.dividend.com/how-to-invest/10-hilariously-wrong-bullbear-calls/
Jay Pestrichelli and Derek Moore are back to walk through several examples of how we hedge concentrated stock risk. Various techniques like direct hedging, covered calls, volatility selling overlay, and more are talked through. See how it would play out with stocks like Conagra, Apple, and Proctor and Gamble where they explain targets and outcomes when hedging was needed and when it wasn’t. What are the tradeoffs between upside capture and hedging? Plus, get a sense how it may be more complicated than simply owning a stock and buying protection. Get insights into the process of managing positions and benefits for the end clients.
Presenting three distinct case studies hedging concentrated single stock risk
Hedging programs versus buy and hold Apple as single stock
How much upside do you give up when implementing a hedging strategy?
Toolbox for generating premium and offsetting losses
How much downside protection do we put on?
Each stock is different in hedging approach
Process and initial discussion with clients around hedging their positions
What does a low-cost basis mean relative to taxes?
Designing structured exits over time for single stock holdings
Why people hold large single stock positions
Review of differences in volatility between the market and a single stock
How volatile has Apple’s stock been historically?
Mentioned in this Episode:
Contact Derek www.razorwealth.com
Why covered calls are not a good hedge https://podcasts.apple.com/us/podcast/why-covered-calls-are-not-a-true-hedge/id1432836154?i=1000455815806
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Article showing how investors made poor decisions at market bottoms https://zegafinancial.com/blog/can-buffered-and-hedged-equity-strategy-save-investors-from-making-behavior-mistakes
Jay Pestrichelli previous podcast appearances https://zegafinancial.com/in-the-news/podcast
Schwab’s guide to investing and taxes https://www.schwab.com/public/schwab/investing/retirement_and_planning/taxes/current-rates-rules
ZEGA Financials’ Jay Pestrichelli joins to discuss how risky single stocks are and how we have developed a system to hedge that risk. Some people want to hold concentrated stock positions due to tax consequences and are reticent to sell. See how using a hedging strategy can help manage risk, schedule diversification, and use hedging profits to buy more shares otherwise known as the hedger’s opportunity. See the show notes below for links discussed in episode and other Jay and Derek episodes.
What is concentrated single stock risk?
How much more risk is holding just one stock compared to a diversified portfolio?
How do people wind up with large concentrated stock positions?
How can direct hedges mitigate downside risk?
Why covered calls are not a hedge
What is the hedgers opportunity?
Irrational decisions at market bottoms and tops
Markets are near all-time highs more often than you think
Despite impressive historical returns Apple stock has experienced huge drawdowns
How hedging single stock risk can solve problems for advisors and investors
Mentioned in this Episode:
Contact Derek www.razorwealth.com
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Article showing how investors made poor decisions at market bottoms https://zegafinancial.com/blog/can-buffered-and-hedged-equity-strategy-save-investors-from-making-behavior-mistakes
Jay Pestrichelli previous podcast appearances https://zegafinancial.com/in-the-news/podcast
You might have read that covered calls are a good way to hedge. They do have utility for investors, but they are not an optimal hedge. Understand how they only minimally reduce the downside while reducing the upside. Plus, see how low interest rates have undermined call premiums.
What are covered calls?
How much do covered calls hedge the downside?
How do covered calls cap upside moves?
Examples of covered calls and the premium received vs. downside hedge
What are options collar strategies?
What is the option Greek RHO?
How option premiums are affected by interest rates
Why record low interest rates make covered calls less appealing
Mentioned in this Episode:
Contact Derek www.razorwealth.com
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Recently I found several different research pieces showing how at the very lows of the Great Recession in 2009 the percentage of funds in money market funds was at its highest. In 2009 the fund flows to bonds were greater than the previous 5 years combined. So why with equities so cheap did people stay in cash or bonds? Wouldn’t they want stocks when they were cheaper? This highlights how investors who panic an make rash decisions can do so at the very worst times.
Why do investors panic?
How does fear guide investor decisions?
Percentage of funds in money markets spiked at time of March of 2009 lows
Why investors didn’t rebalance out of bonds and into stocks during the great recession
2009 fund flows were a record year for bonds
How using Buffered or Hedged Equity Strategies can help reduce fear and irrational choices
Benefits of staying invested while hedged
Why now is a good time to be hedged
Mentioned in this Episode:
Contact Derek www.razorwealth.com
Morningstar Bond Fund Flows 2009 Chart https://morningstardirect.morningstar.com/clientcomm/2009.pdf
Dalbar Quantitative Analysis on Investor Behavior Report https://www.qidllc.com/wp-content/uploads/2016/02/2016-Dalbar-QAIB-Report.pdf
Podcast talking about markets within 3% of all-time highs 36% of time https://podcasts.apple.com/us/podcast/fear-investing-surprising-data-points-to-markets-near/id1432836154?i=1000443860686
Why diversification fails https://podcasts.apple.com/us/podcast/ep012-does-diversification-alone-reduce-systematic/id1432836154?i=1000423615813
Buffered Equity Strategies https://podcasts.apple.com/us/podcast/adding-downside-buffers-to-investment-portfolios-using/id1432836154?i=1000419699076
Why investors need a hedged equity strategy https://podcasts.apple.com/us/podcast/why-investors-need-a-protective-hedged-equity-strategy/id1432836154?i=1000418366567
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
You here quite a bit of talk about the top 1% of wealth in the media. But what if it was easier than you think to land yourself into the top 10% of wealth in the United States and across the world? Derek Moore takes you through the numbers explaining what asset levels it takes to get into various percentiles of net worth and runs the numbers on what type of assumed growth rates and contributions it might take over various time periods.
How much net worth does it take to get into the top percentiles in the United States?
How would your net worth rate compared to adults around the globe in USD?
The power of committing to contributing money monthly over many years
Median vs. Mean net worth numbers
Using PMT Function in excel to estimate return and contributions needed to get to a level of wealth
Discussing Credit Suisse’ Global Wealth Report pyramid
How many millionaires are in the U.S. and various countries around the world?
Mentioned in this Episode:
Download Credit Suisse Global Wealth Report 2018 https://www.credit-suisse.com/about-us/en/reports-research/global-wealth-report.html
Book: Broken Pie Chart https://amzn.to/31oy1hE
Razor Wealth Management www.razorwealth.com
Post corporate tax cuts of 2018, share buybacks have been talked about both in positive and negative lights. Some think companies should use their free cash flow differently. But how do share buybacks benefit shareholders by boosting earnings per share?
Key Takeaways:
- What are share buybacks?
- How share buybacks increase earnings per share or EPS
- Similarities between dividends and share buybacks
- How to calculate a share buyback yield versus dividend yield
- Uses of free cash flow to equity shareholders
- Share buybacks don’t get taxed at the shareholder level like dividends
- Share buybacks provide more flexibility compared to dividends for corporations
Mentioned in this Episode:
Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk
Contact Derek Moore www.razorwealth.com
No one likes paying capital gains tax (although better than losses). Yet what if you were paying on gains only due to inflation where your purchasing power didn’t grow? Recently some U.S. Senators wrote a letter to the Treasury Secretary Steve Mnuchin urging him to consider indexing capital gains for inflation. What would that mean for individual investors?
What would it mean to index capital gains for inflation?
Examples showing differences in capital gains tax due when cost basis is indexed for inflation
Would it result in opening opportunities to diversify if the tax bill was reduced?
How gains due to inflation don’t equate to increased buying power
Senator Ted Cruz Coke Stock example showing capital gains due even though loss after inflation adjustment
How this could help long time homeowners
Can the Treasury just instituted indexing for inflation or does Congress have to pass a law?
Mentioned in this Episode:
Current capital gains rate tables https://www.schwab.com/public/schwab/investing/retirement_and_planning/taxes/current-rates-rules/dividends-capital-gains-tax-brackets
Barron’s article around indexing for capital gainshttps://www.barrons.com/articles/indexing-capital-gains-to-inflation-makes-no-economic-sense-51564833600
Book: Broken Pie Chart https://amzn.to/31oy1hE
Razor Wealth Management www.razorwealth.com
Debit and deficits continue to be in the news. This includes funding levels for public state pensions. But what does it mean to be underfunded or overfunded? What discount rate or investment return assumptions are they using and are they realistic? Derek Moore discusses and simplifies what makes up this discussion and ways that they could get on track.
What makes a pension underfunded?
Are investment return expectations realistic?
Which states are the worst regarding funding levels?
Differences between defined benefit plans and defined contribution plans
Options for pensions include cutting benefits, raising contributions, or increasing investment returns
Differences between public pension discount rates and private corporation’s investment assumptions
Pension plans in a low interest rate environment
Is there any hope for states to get their funding percentages higher?
Mentioned in this Episode:
State pensions funding gap https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2019/06/the-state-pension-funding-gap-2017#targetText=States%20reported%20a%20total%20liability,funding%20gap%20of%20%241.28%20trillion.
How well funded is your states pension? https://taxfoundation.org/state-pension-plan-funding-2019/
Podcast explaining negative yielding bonds https://razorwealth.com/wacky-negative-yielding-bonds-and-need-for-alternative-income/
Book: Broken Pie Chart https://amzn.to/31oy1hE
Razor Wealth Management www.razorwealth.com
It seems like lately there has been more an more talk about interest rates moving closer to zero in the U.S. So which bonds will move the most when rates move lower (or higher)? Derek talks through various types of bonds and how they are different plus see how to tell how much a change in rates can hurt or help investors holding bonds. We even touch on bond convexity!
How do interest rates change the value of a bond?
What is modified duration and how it can project a rise or fall in value?
Introduction to bond convexity
Unique aspects to U.S. Treasuries, Corporate Bonds, Municipal Bonds, and Mortgage Bonds
Callable Bond Features, Puttable Bond Features, and Convertible Bonds
How rates moving lower negatively affect mortgage bonds
Is the bond trade based on lower rates getting crowded?
How low interest rates can help companies
Mentioned in this Episode:
Podcast explaining negative yielding bonds https://razorwealth.com/wacky-negative-yielding-bonds-and-need-for-alternative-income/
Book: Broken Pie Chart https://amzn.to/31oy1hE
Razor Wealth Management www.razorwealth.com
Companies can issue debt via bonds to raise capital. But how can you tell whether they have too much debt issued? What are some key ratios to look at to evaluate for yourself? Derek Moore explains how interest rates effect the cost of capital (WACC) and how to see when a stocks debt is maturing and what interest rates they must pay. And what are Zombie Companies?
Interest Coverage Ratios
Debt Ratio (Total Debt/Total Assets)
Debit to Equity (Total Debt/Stockholders Equity)
WACC Weighted Average Cost of Capital
What happens when bonds come due for companies?
What are Zombie Companies?
Where to find list of a company’s outstanding debt?
How low interest rates can help companies
Mentioned in this Episode:
Netflix list of it’s outstanding bonds (page 51) on annual report https://www.sec.gov/Archives/edgar/data/1065280/000106528018000069/q4nflx201710k.htm
Book: Broken Pie Chart https://amzn.to/31oy1hE
Razor Wealth Management www.razorwealth.com
Commentators on CNBC are always opining about whether a market is overvalued or undervalued. But how would you look for yourself to make your own opinion? In this episode Derek Moore reviews the S&P 500 Index earnings per share, forward earnings estimates, PE Ratio, Forward PE ratio, and more. Plus, a review of what composes earnings per share growth including margins, share count, and revenue. Learn how to form you own opinions.
S&P 500 Index Earnings Per Share
S&P 500 PE Ratio and Forward PE Ratio
Where are we historically on S&P 500 Forward Price to Estimated Earnings?
Shiller PE Ratio or CAPE Ratio
Earnings Per Share Growth Components: Revenues, Margins, and Share Counts
Share Buybacks effect on Earnings Per Share
Interest Rate Effects on Discounting Future Earnings
Subsequent 5-year annualized returns from various forward PE ratios
Mentioned in this Episode:
Podcast on being an armchair economist https://razorwealth.com/is-a-recession-coming/
JP Morgan Guide to the Markets Report https://am.jpmorgan.com/blob-gim/protected/1383426387662/83456/MI-GTM_3Q19_August.pdf
Book: Broken Pie Chart https://amzn.to/31oy1hE
Razor Wealth Management www.razorwealth.com
Lately commentators have been trying to predict the next recession. But what would you look at to try and tell for yourself what the numbers are? In this episode Derek Moore reviews the 5 areas that the NBER per their site uses to develop their criteria to call recessions.
What is a recession?
NBER historical list of recessions
Real GDP Growth Rate
Real Median Income Growth in the U.S.
Unemployment Rate
Retail Sales Monthly Growth Rate
Industrial Production Index
Real versus Nominal Growth Rates
Mentioned in this Episode:
Federal Reserve Bank of Atlanta GDP Now Forecast https://www.frbatlanta.org/cqer/research/gdpnow.aspx
United States Real GDP Growth Rate https://tradingeconomics.com/united-states/gdp-growth
United States Inflation Rate https://tradingeconomics.com/united-states/inflation-cpi
Federal Reserve Bank of St. Louis FRED Retail Sales Monthly growth rate https://fred.stlouisfed.org/series/RETAILMPCSMSA
US Annual Median Real Wage Levels https://fred.stlouisfed.org/series/MEHOINUSA672N
US Real Median Personal Income Levels https://fred.stlouisfed.org/series/MEPAINUSA672N
US Civilian Unemployment Rate https://fred.stlouisfed.org/series/UNRATE
US Industrial Production Index https://fred.stlouisfed.org/series/INDPRO
Atlanta Fed Real Wage Growth Tracker (more updates) https://www.frbatlanta.org/chcs/wage-growth-tracker.aspx
Atlanta Fed Real Wage Growth by Job Switcher and Job Stayer https://www.frbatlanta.org/chcs/wage-growth-tracker.aspx
Book: Broken Pie Chart https://amzn.to/31oy1hE
Razor Wealth Management www.razorwealth.com
How risky is just holding a single stock in a portfolio? Often either through company stock grants or holding company shares for very long periods where it has appreciated investors may wind up holding either a single stock or just a few. This creates single stock risk and has both systematic stock risk and idiosyncratic stock risk. Derek Moore reviews how the volatility via the standard deviation may increase as well as some interesting historical data on Apple stock regarding its annual drawdowns and volatility.
What is concentrated stock risk?
What is systematic stock market risk?
What is idiosyncratic stock risk?
Comparing volatility of single stocks to a market portfolio
How many stocks does it take to achieve diversification?
How does correlation indicate whether diversification will work?
Why diversification fails when markets sell off badly
Apple’s annual compounded growth rate performance 1981 through 2008
Apple annual significant drawdowns
Apple stock standard deviation from 1981 through 2018
Mentioned in this Episode:
Book: Broken Pie Chart https://amzn.to/31oy1hE
Razor Wealth Management www.razorwealth.com
Study showing single stock volatility compared to market portfolio http://ppca-inc.com/Articles/DiversByNumbers.pdf
Derek Moore explains the theory of time decay in options otherwise known as options theta. How does the erosion of time decay benefit option sellers? Plus, how much do position decay from day to day. How much of a factor is theta time decay relative to other things like volatility and underlying price movement? And how does options time decay work over weekends and long holiday weekends with regard to theta?
Benefits of options time decay to option sellers
What is options theta?
How much do option positions lose value each day due to time decay?
Options weekend time decay (Theta)
Should option sellers put on positions prior to weekends and holiday weekends?
How much does a short spread position realize option theta each day?
Options software utilizing 365-day calendar versus 252-day calendar
Why some options software overestimates time decay going into the weekend
Mentioned in this Episode:
Podcast on selling option spreads and volatility https://razorwealth.com/high-probability-options-strategies-explained-podcast/
Razor Wealth Management www.razorwealth.com
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547
Derek Moore and Jay Pestrichelli team up once again to discus how probabilities are used to understand where to sell short options to generate premium. Discussed in this episode are who is on the other side of the short volatility trade, how changes in implied volatility impact expected multiple standard deviations of expected movement, and how value at risk VAR impacts option premiums. Plus, they discuss how professional management adds value especially when option spreads widen and volatility increases.
Using probabilities to generate short high probability option positions
Expected underlying index moves based on varied levels of implied volatility
How large investment banks take the opposite side of the trade looking to reduce Value at Risk (VAR)
Difference between being patient for opportunities versus and always in the market strategy
What happens to option spreads when markets sell off?
Value at Risk VAR impact on institutional hedging as dynamic volatility hedging increases
Why sell options on large diverse indexes as opposed to individual stocks
Netflix example of implied volatility right before earnings and expected moves
Single stock risk using Netflix and Disney examples of over 10% moves down after announcements
Mentioned in this Episode:
Jay Pestrichelli and Derek Moore talk myths of the 60/40 portfolio
https://razorwealth.com/discussing-myths-around-the-classic-60-40-portfolio-part-i/
How are options priced and what is short volatility?
https://razorwealth.com/how-are-options-priced-and-what-is-short-volatility-podcast/
What implied volatility on options tells us about stock earnings expectations?
https://razorwealth.com/what-the-options-market-tells-us-about-expected-stock-moves-around-earnings/
Razor Wealth Management www.razorwealth.com
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547
Jay Pestrichelli once again joins host Derek Moore to discuss all things hedging and options. This week they talk through some surprising data Jay compiled that shows markets are within 3% its all-time highs 36% of the time. Many people like to try and time the market thinking markets are too high. Another data set shows often markets never get a pullback during bull runs. Plus, Jay and Derek test out new hedging analogies on the fly to see if they work.
How often are stock markets within 3% of their all-time high?
Comparing portfolio hedging to buying car insurance?
Comparing the Brooklyn Nets getting 75% of Kevin Durant’s pre-injury game versus their downside risk
How often is the market 10% lower one year later study
Discussing fear investors have at getting into markets at perceived highs
How the hedgers opportunity may let investors buy more lower
The Random Walk Theory in stock markets
How Random Walk needs and upward bias to fit its narrative
How sometimes waiting to buy into markets causes investors to miss out
Is it better to lose early or lose late in retirement?
The effect withdrawals for income have on portfolios
Mentioned in this Episode:
Jay Pestrichelli and Derek Moore talk myths of the 60/40 portfolio
https://razorwealth.com/discussing-myths-around-the-classic-60-40-portfolio-part-i/
Razor Wealth Management www.razorwealth.com
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547
See what factors determine how an option is priced. Whether on a stock index or underlying stock, time, implied volatility, interest rates, dividends, and distance in or out of the money all play a role. Known as the Black-Scholes model, Derek breaks down the inputs and which ones are more significant not only to option premium levels but also changes in price.
Explaining the option greeks Delta, Gamma, Theta, Vega, Rho
What is implied volatility and why is it so important in options pricing?
How do option premiums decay towards expiration day?
What determines whether an option is in or out of the money?
How to convert a stock’s implied volatility percentage to expected multiple standard deviation ranges?
What does is mean to sell option volatility premium for income?
Mentioned in this Episode:
What the options market tells us about stock moves around earnings releases
https://razorwealth.com/what-the-options-market-tells-us-about-expected-stock-moves-around-earnings/
Razor Wealth Management www.razorwealth.com
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547
There are now over $12.5 Trillion dollars outstanding of negative yielding bonds. That’s right, theoretically you are paying some country to lend them money. In reality you don’t write a check twice a year. The idea of a negative yielding bond may not make much sense. Derek Moore will explain how negative yielding bonds work and how much more sensitive (and therefore risk) they are to changes in interest rates. Plus explain how the time value of money is thrown off by these low or negative rates.
How can a bond’s yield be negative?
Why would someone buy a bond that has a negative interest rate?
How a bonds price being above par might make the yield to maturity negative
Does someone really have to write a check to a government if they buy a negative yielding bond?
What is the modified duration of a negative yielding bond?
Why the time value of money is thrown out off by using a negative or zero discount rate
What the after inflation yield or return would be accounting for inflation
How alternative income strategies utilizing option premium selling might be an alternative strategy
Challenges low or negative bond yields present to investors
Is Greece’s 7-year bond yield really lower than the US 7 Year Treasury Bond yield?
Mentioned in this Episode:
Contact Derek www.razorwealth.com
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547
Want a Bond refresher? Derek Moore talks about how bonds work, what effects prices and rates, and how to look at corporations and their debt.
How do bond ratings work and what do they mean?
What is the interest coverage ratio?
What is the corporate debt ratio?
Differences between government and corporate debt
How interest rates effect bond prices
What is the yield to maturity?
What is the yield to call and why do corporations call bonds early?
What is a bonds coupon rate really mean?
What is modified duration and how does maturity and coupon rates effect it?
Mentioned in this Episode:
Podcast on US Budget, Debt, and Is it possible to pay for Universal Basic Income?
https://razorwealth.com/get-the-facts-to-win-your-debate-around-us-deficits-budgets-and-spending-including-universal-basic-income-ubi/
Podcast where I go into how bonds modified duration affects market values
https://razorwealth.com/discussing-myths-around-the-classic-60-40-portfolio-part-i/
Contact Derek www.razorwealth.com
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547
Broken Pie Chart | Episode 31
With Derek Moore
Is The Federal Reserve Really That Bad At Long Range Economic Forecasts?
Show Summary:
In this episode Derek Moore discusses how the Federal Reserve economic survey projections have been off, especially for long run economic forecasts. He also clarifies the difference between the Fed Funds Rate, Discount Rate, and IOER or Interest on Excess Reserves. Plus, Derek explains where to find the probabilities for the Fed Funds rate by looking at the CME Fed Funds Futures.
Should the Federal Reserve even be doing long range forecasting?
How St. Louis Fed President James Bullard once left his long-range interest rate dot blank?
What is the Federal Funds Rate?
What is the Federal Reserve’s Discount Rate?
What is the Interest Rate on Excess Reserves (IOER)?
What is the Federal Reserve’s Dot Plot?
How to find Fed Funds probabilities of interest rate changes
Where to find historical Federal Reserve Dot Plots
Mentioned in this Episode:
St. Louis Fed President James Bullard says Fed can’t do long range projections https://theotrade.com/dramatic-shift-feds-bullard-says-fomc-stop-making-long-run-projections/
Fed Funds Futures Probabilities of Rate Cuts or Rate Rises https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
Federal Reserve Monetary Policy Calendar and Historical Dot Plots https://www.federalreserve.gov/monetarypolicy.htm
Contact Derek Moore www.razorwealth.com
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
In this episode Derek Moore helps to clarify the difference between a real return (adjusted for inflation) and a nominal return. This is especially important when looking to increase your purchasing power. Plus, Derek simplifies the difference between taking a simple average and a geometric average. The difference may surprise many people.
What is a real return versus a nominal return?
What is the formula to calculate an inflation adjusted real return?
Difference between a simple average annual investment return and a geometric average annual return
How has gold performed as a hedge historically?
Gold’s real historical returns including inflation adjusted real geometric returns
Gold has gone 30 years plus without providing a positive compounded return
Alternatives to using gold include buying broad index-based ETFs and hedging
The benefits of using options to hedge downside risk.
Mentioned in this Episode:
Myths of 60/40 Portfolio Podcast https://razorwealth.com/discussing-myths-around-the-classic-60-40-portfolio-part-i/
Part 2 Myths of the 60/40 Portfolio https://razorwealth.com/part-two-discussing-myths-around-the-classic-60-40-portfolio/
How Purchasing Power of the Dollar is Eroding Due to Inflation https://razorwealth.com/how-purchasing-power-of-the-dollar-is-eroding-plus-why-inflation-hurts-investors/
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Jay Pestrichelli is back to join Derek Moore in a discussion around options. Particularly myths around options investing. Why we don’t do individual stock analysis and picking. How someone with low-cost basis in a concentrated stock position can hedge. And are coconut’s more dangerous than sharks?
- • Why use Broad Index Exchange Traded Funds for diversification
- • Why we don’t do complex individual stock analysis
- • Why doing stock valuation is complex due to making guestimates on the future
- • What is a concentrated stock position?
- • What is low cost basis stock position?
- • Myths around options including that they are only for short term traders and most people only lose money
- • How to hedge new IPO’s like Uber and Lyft
- • Synthetic dividend capture option strategies
- • How to hedge individual stock positions
- • Are coconuts more dangerous than sharks?
- • Jay Pestrichelli’s Yahoo Finance TV appearance
Mentioned in this Episode:
Jay Pestrichelli talks options with Yahoo Finance https://zegafinancial.com/blog/jay-speaks-with-yahoo-finance-about-what-volatility-means-for-investors
Do Coconuts kill more people than Sharks? https://www.snopes.com/fact-check/coconuts-kill-more-sharks/
Jay Pestrichelli’s book Buy and Hedge https://www.amazon.com/Buy-Hedge-Rules-Investing-Minyanville/dp/0132825244
Derek Moore’s book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr
Often investors notice that after an earnings announcement a stock has the potential to move depending on the news. But what type of volatility or movement was expected before the announcement? Using implied volatility, we can look at how option premiums are pricing in potential expected moves. Derek Moore explains how the numbers work and how you can see what a one standard deviation expected move is once you know where to find implied volatilities of the underlying stock or index.
- • What is the VIX Index
- • How does the VIX measure volatility via options premiums on the S&P 500 Index.
- • What is implied volatility or IV?
- • What does the implied volatility translate to regarding expected stock movement?
- • Formula using implied volatility to calculate expected single standard deviation ranges
- • Why does implied volatility rise sometimes prior to an earnings announcement?
- • What is the straddle option strategy?
- • Why long straddle options positions are a more complicated trade than you think.
- • How to calculate expected one standard deviation ranges for any number of days
- • What is the VIX futures curve?
- • Inverted VIX curve
Mentioned in this Episode:
VIX Futures Curve
www.vixcentral.com
CBOE VIX Explanation
http://www.cboe.com/vix
Podcast on Inverted Yield Curve
https://podcasts.apple.com/us/podcast/yield-curve-inverted-plus-explaining-different-ways/id1432836154?i=1000433804263
What is the Yield Curve Inversion and Why People Care Podcast?
https://podcasts.apple.com/us/podcast/what-is-the-yield-curve-inversion-and-why-people-care/id1432836154?i=1000418244386
Lately things like the Universal Basic Income (UBI) and Social Security are debated on TV. Commentators throw around numbers and whether a program can be paid for. Plenty of debate on each side but why not understand for yourself where all these numbers are coming from. In this episode Derek Moore covers what makes up the Federal Budget, Tax Revenue, Interest Payments on Debt, and how much something like a UBI would cost so you can decide. Plus, the effect rising rates and increases in debt with have on annual net interest payments as a percentage of the Federal Budget.
- • What is the Universal Basic Income or UBI?
- • How much would a Universal Basic Income cost?
- • How much is the current US debit held by the public?
- • What is the annual amount of interest paid annually on the US debt?
- • What are the mandatory, discretionary, and net interest payments of the US Federal Budget?
- • How much does Social Security, and Medicaid, Medicare cost?
- • Difference between total US debt and debt held by the public
- • What interest rate does the US pay on its national debt?
- • What percentage of the federal budget does net interest payments on debt make up?
- • What and when were the largest annual budget deficit in the US?
- • Effective historical tax rates versus marginal tax rates
- • How much free cash flow do the largest corporations generate annually?
- • For each additional Trillion in debt, how much more interest needs to be paid?
- • For each 1% increase in interest rates, how much do interest payments rise?
Mentioned in this Episode:
Average interest rates on US Treasury Securities https://www.treasurydirect.gov/govt/rates/pd/avg/avg.htm
Annual interest on US debt outstanding
https://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm
Gross debt versus debt held by the public explanation
https://www.crfb.org/papers/qa-gross-debt-versus-debt-held-public
Federal surplus or budget deficit historical chart
https://fred.stlouisfed.org/series/FYFSD
Breaking down the 2020 US Federal Budget
https://www.thebalance.com/u-s-federal-budget-breakdown-3305789
2010 US Census breakdown of adults 18 and over, 62 and over, and total population
https://www.census.gov/prod/cen2010/briefs/c2010br-03.pdf
Historical tax revenue as percentage of GDP by year
https://fred.stlouisfed.org/series/FYFRGDA188S
Historical effective tax rate on top 1%
https://taxfoundation.org/taxes-rich-1950-not-high/
Historical top federal income tax bracket rates
https://bradfordtaxinstitute.com/Free_Resources/Federal-Income-Tax-Rates.aspx
Derek Moore and Jay Pestrichelli are back with part 2 of their discussion around the myths prevalent in the 60/40 portfolio. This week they highlight how bonds with low yields may have even more potential interest rate risk than investors think. Plus, they elaborate on why some diversification strategies fail touching on increased risk of the All-Weather Portfolios and Risk Parity Strategies. Finally, they expand on the “Hedgers Opportunity” where a good hedged equity strategy may allow investors to miss much of a selloff and have a chance at buying more shares when prices are depressed.
- • How is sensitivity to interest rates determined for bonds?
- • How is Modified Duration or Macaulay Duration altered by time to a bonds maturity and coupon percentage rates?
- • What would happen to bonds prices should interest rates rise?
- • How interest rates rising would affect the real return for bond investors
- • What is the All-Weather Portfolio concept?
- • What are the assets in an All-Weather Portfolio?
- • Why the All-Weather Portfolio concept may have more risk than before?
- • Why using historical back testing for All Weather Portfolio Strategies may not pick up future expected returns and risks
- • What is the Risk Parity Strategy?
- • How a Risk Parity Strategy leveraging up the fixed income or bond component may have more risk than people think
- • How changing correlations between equities and bonds could break the Risk Parity Strategy
- • What is the Hedgers Opportunity and how a good hedged equity strategy can allow potential investments and lower prices?
- • How alternative strategies like Hedged Equity have more defined outcomes including downside floors than normal diversification.
- • Discussion of real versus nominal returns
Mentioned in this Episode:
Part I Podcast Myths of the 60/40 Portfolio with Jay Pestrichelli and Derek Moore http://brokenpiechart.libsyn.com/discussing-myths-around-the-classic-6040-portfolio-part-i
Contact Derek Moore www.razorwealth.com
The Hedgers Opportunity by Jay Pestrichelli https://www.investmentnews.com/article/20190401/BLOG09/190409991/the-hedgers-opportunity
Historical Gold Prices https://fred.stlouisfed.org/series/GOLDAMGBD228NLBM#0
How do Treasury Inflation Protected Securities TIPS work? https://www.thebalance.com/how-do-tips-work-417128
You’ve probably heard about the so called “Unicorn” IPOs or Initial Public Offerings on CNBC. With Lyft already public and Uber, Pinterest, Air B&B, and more on the way, everyone will finally get a glimpse of the financials for all these names. Do they make money? How much or if they lose money, how big is the loss? For those looking forward to finally getting a look inside these companies it can be like Christmas morning. We’ll review what information is disclosed and then compare Amazon and Pets.com S-1 information from back in the late nineties.
- • What is an S-1 filing by a company slated to do an IPO
- • What type of information can be gleamed from a firms S-1
- • Reviewing Risk Factors, Use of Proceeds, Revenue, Earnings, and Balance Sheet date.
- • Using Lyft’s S-1 to review various financial metrics
- • Remember the sock puppet Pets.com from the Dot.com era? A look back at their interesting risk factors from S-1
- • What were some risk factors from Amazon’s initial public offering S-1 document?
- • When will Uber’s financials via their own S-1 be available?
Mentioned in this Episode:
Uber’s S-1 Financials https://www.sec.gov/Archives/edgar/data/1543151/000119312519103850/d647752ds1.htm
Lyft S-1 Document https://www.sec.gov/Archives/edgar/data/1759509/000119312519059849/d633517ds1.htm#toc633517_7
Pets.com S-1 IPO document https://www.nasdaq.com/markets/ipos/filing.ashx?filingid=1440847
Amazon S-1 IPO document https://www.nasdaq.com/markets/ipos/filing.ashx?filingid=1249014
For years you’ve been told that to get better risk adjusted returns you should diversify with some percentage in stocks and some in bonds. Yet when you look at the inflation adjusted annualized returns, is the idea of a 60/40 portfolio to manage downside risk more of a myth? In this interesting conversation Derek Moore and Jay Pestrichelli discuss why bonds may not offer much of a real return given where rates are. Plus, they delve into whether a 60/40 portfolio offers better risk adjusted returns using classic measures like a Sharpe Ratio. Also, is gold still a modern hedge in portfolios? Stay tuned for Part II coming soon.
- • Exploring historical real returns on a classic 60/40 stock and bond portfolio.
- • How real returns after inflation are determined and whether historical bond returns offer much growth
- • Has gold been an effective hedge of downside moves and inflation given its periods of negative real returns?
- • Historical risk adjusted returns measured by Sharpe Ratios
- • If a portfolio of stocks and bonds is so good, why does it have theoretically subpar Sharpe Ratios?
- • What are TIPS (Treasury Inflation Protected Securities) and how do they hedge inflation?
- • Real versus Nominal returns for stocks and bonds
- • Why investors need to not only keep up with inflation but exceed it to grow purchasing power
- • How using options to define downside risk may be a more optimal hedge
- • Introduction to the concept of Buying and Hedging a market with a defined downside floor.
Mentioned in this Episode:
Contact Derek Moore www.razorwealth.com
The Hedgers Opportunity by Jay Pestrichelli https://www.investmentnews.com/article/20190401/BLOG09/190409991/the-hedgers-opportunity
Historical Gold Prices https://fred.stlouisfed.org/series/GOLDAMGBD228NLBM#0
How do Treasury Inflation Protected Securities TIPS work? https://www.thebalance.com/how-do-tips-work-417128
The yield curve has inverted. Well it did at certain points last December already. Now that the 3-month Treasury Bill yield went above 10-year yields, historically what does that mean? Has the yield curve inversion predicted every recession and if so how long in advance? Plus, calculated annualized returns doesn’t need to be that complicated right? Learn the differences in annualizing using simple averages versus geometric compounded averages. Finally, how do you calculate a real inflation adjusted return?
- • Yield Curve Inversion: 3-month Treasuries yields higher than 10-year yields?
- • How long historically has yield curve inverted prior to recessions?
- • Difference between Fed Funds rate, Discount Rate, and IOER or Interest on Excess Reserves
- • What are real returns versus nominal returns
- • Why is it potentially bad for short term bond rates to be above long-term rates?
- • Why do people think yield curve inversions are bad?
- • How to calculate simple average of annual investment returns
- • How to calculate real inflation adjusted investment returns?
- • Geometric annualized returns calculation and use
Mentioned in this Episode:
Federal Reserve Bank of Cleveland Yield Curve article https://www.clevelandfed.org/our-research/indicators-and-data/yield-curve-and-gdp-growth.aspx
Podcast Explaining What Yield Curve Inversion Means https://www.iheart.com/podcast/269-broken-pie-chart-29878781/episode/what-is-the-yield-curve-inversion-29880275/
You’ll often hear things like “The US Dollar is losing purchasing power”. But what exactly does it mean when the dollar loses value? In this episode Derek Moore will explain how to calculate dollar purchasing power over time and how to adjust for inflation the costs of good and services. Plus, why inflation is so hurtful to investors.
- • How does inflation affect retirement investors?
- • How do you inflation adjust something?
- • Why a dollar in 1800 is only worth a little less than 7 cents today
- • What are real returns versus nominal returns
- • What was hyperinflation in Zimbabwe and Weimar Germany?
- • Average annual inflation over several time periods.
- • What is the CPI or Consumer Price Index basket of goods indicator?
- • Formula to inflation adjust current year dollars to a previous year
- • How to explain the loss of purchasing power in the dollar
- • Inflation adjusted costs of goods and services 1976 to 2016
- • Inflation adjusted cost of New York Yankees box seats in 1976
Mentioned in this Episode:
Federal Reserve Bank of Minneapolis estimated inflation from 1800 to 2018 https://www.minneapolisfed.org/community/financial-and-economic-education/cpi-calculator-information/consumer-price-index-1800
CNBC article comparing various costs from 1976 to today with purchasing power https://www.cnbc.com/2018/04/17/how-much-more-expensive-life-is-today-than-it-was-in-1960.html
Federal Reserve Bank of Minneapolis inflation calculator (bottom right of page) https://www.minneapolisfed.org/
Have you ever watched CNBC or Bloomberg and wondered what commentators are talking about with earnings and valuations on individual stocks? Derek Moore explains common financial metrics and ratios to help listeners become informed and how to interpret things like PE Ratios, Earnings, EBITDA, and more. Plus, hear what back testing is and pros and cons of it.
Key Takeaways:
- • What is the difference between top line and bottom line in an earnings report?
- • How to calculate what a company’s market cap is?
- • What makes up the PE Ratio and how to calculate it?
- • Where to look to see how much debt a company has and its net interest rate on debt?
- • Dividend Discount Model versus Free Cash Flow Valuation
- • What is free cash flow of a stock?
- • Dividend payout ratios versus retention or plowback ratios on reinvested growth
- • What is EBITDA and what is amortization and depreciation?
- • What is backtesting investment strategies?
- • Pros and cons of backtesting
Mentioned in this Episode:
See stock earnings financials and ratios www.marketwatch.com
Podcast comparing hedging portfolios to efficient frontier portfolios https://www.stitcher.com/podcast/broken-pie-chart/e/58410386
In this episode Derek Moore explains the one benefit most investors overlook as a very important benefit of using a hedged equity strategy. The benefit of reinvesting avoided losses or hedging profits to pick up more shares while markets are lower.
Key Takeaways:
- • If you lose this much, how much is needed to get back to breakeven level?
- • Benefits of using a hedged equity strategy
- • How hedged equity can take out some guesswork on timing the market.
- • Explaining how monetizing hedging profits or avoided losses can buy more shares at market lows.
- • Expected returns depending on annual market return.
- • How avoided losses or hedging profits can bee reinvested at lower levels
- • What are the historical occurrences of market returns between certain ranges?
- • How reinvesting hedging profits potentially allows for more upside capture in market rebounds.
Mentioned in this Episode:
Jeremy Seigel “Stocks for the Long Run” book https://amzn.to/2GVctSC
Robert Shiller “Irrational Exuberance” https://amzn.to/2BNQGJf
Broken Pie Chart Book by Derek Moore https://amzn.to/2COXRAS
Podcast on hedging for protection https://razorwealth.com/why-investors-need-a-protective-hedged-equity-strategy/
In this episode Derek Moore discusses situations where investors might own a concentrated position in one stock or more with low cost basis. These present difficulties as selling would incur tax consequences however owning non-diversified positions pose significant single stock downside risk.
Key Takeaways:
- • What is a concentrated stock position?
- • What are the risks of single stock holdings versus diversified portfolios?
- • Tax consequences of trying to diversify low cost basis positions.
- • Explaining options to hedge the downside and build protection on individual positions.
- • Ways to hedge portfolios using beta weighting to design downside protection.
- • How avoided losses or hedging profits can bee reinvested at lower levels
- • How hedging profits can enable investors to diversify into other strategies.
Mentioned in this Episode:
Broken Pie Chart Book by Derek Moore https://amzn.to/2COXRAS
Podcast on How Diversification Can Fail When You Need It Most https://razorwealth.com/does-diversification-alone-reduce-systematic-stock-market-risk/
Podcast on hedging for protection https://razorwealth.com/why-investors-need-a-protective-hedged-equity-strategy/
In this episode Derek Moore discusses what Modern Portfolio Theory (MPT) and Efficient Frontier Investing means and how traditional investment risk rely heavily on standard deviation and variance to determine where a portfolio fits into a risk metric. Plus, Derek comments on how positive upside returns can actually increase traditionally used investment ratios like Sharpe.
Key Takeaways:
- • What is Modern Portfolio Theory
- • What is an Efficient Frontier Portfolio?
- • How is investment portfolio standard deviation calculated?
- • Easy ways to understand standard deviation using simple three-day temperature example
- • Explain what a risk adjusted return means in relationship to portfolio returns and volatility
- • Problems with traditional portfolio design especially given low bond yields
- • Why being long markets while being hedged may be more optimal for investors near retirement?
- • How Sharpe Ratio may get worse after strong upside market move.
- • Alternatives such as post-modern portfolio theory only considering downside deviation.
Mentioned in this Episode:
Broken Pie Chart Book by Derek Moore https://amzn.to/2COXRAS
Target Date Funds https://razorwealth.com/podcast-target-date-investment-funds-good-bad-or-just-misunderstood/
Modern Portfolio Theory (MPT) + Efficient Frontier https://www.investopedia.com/terms/e/efficientfrontier.asp
In this episode Derek Moore discusses the various ways the Federal Reserve through its FOMC committee utilizes interest rates, buying or selling bonds, and the banks reserve ratios to increase or decrease the money supply. Plus, when pundits on CNBC, Blooomberg, or Fox Business talk about probabilities of future rate decisions, how do they come up with those and where to find them.
Key Takeaways:
- • What are Fed Funds Futures?
- • How are Fed Funds Futures utilized to determine probabilities of future months interest rate decisions?
- • What is the difference between the Fed Funds Rate, Discount Rate, and IOER or Interest on Excess Reserves?
- • What is the Federal Reserve’s Dot Plot and where to find this so-called Dot Plot?
- • Where to find current probabilities of the Fed raising or lowering interest rates by month
- • Why are interest rates important to the economy and stock prices?
- • Who makes up the FOMC or Federal Open Market Committee
- • How often are FOMC meetings held?
- • What is Interest on Excess Reserves (IOER)
Mentioned in this Episode:
CME Fed Funds Watcher Probability Tool https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOMC Dot Plot Graph https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
Tracking Changes to Federal Reserve Fed Funds Probabilities https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
Effective Fed Funds Rate % Chart From Federal Reserve Bank of St. Louis or FRED https://fred.stlouisfed.org/series/DFF#0
FOMC Meeting Calendar https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm
In this episode Derek Moore is joined by Jay Pestrichelli, Founder of ZEGA Financial and author of Buy and Hedge: The 5 Iron Rules For Investing Over the Long Term, to discuss how if a bear market materializes clients using a hedged equity strategy have already planed for it and have defined downside floors in portfolios. While not predicting themselves what markets will do, Jay and Derek discuss the features and benefits of limiting downside, participating in the majority of the upside, while having the ability to reinvest at much lower levels should the market selloff materialize.
Key Takeaways:
- • How investors using a hedged equity strategy are prepared for a bear market should it materialize
- • What is a hedged equity downside limiting strategy?
- • What is the difference between an investment strategy that has a downside buffer versus a downside floor?
- • How the risk profile is swapping equity risk and volatility for fixed income (bond) risk
- • Why people with hedged equity strategies might want the market to continue down
- • How a good hedged equity strategy avoids losses and has ability to reinvest those avoided losses in more shares
- • How hedged equity strategies give investors piece of mind and sometimes called the “sleep at night portfolio”
- • The difference between holding short duration bonds to maturity versus longer maturity dated vehicles
- • Hedging not only the equity portion but hedging the hedges when it comes to high yield
- • Comments around recessions and how sometimes the crowd is wrong when everyone says there is going to be a recession
- • How using hedged equity strategies like “Buy and Hedge” can reduce fear about investing at the wrong time in markets.
- • How the fixed income portion of the portfolio has been performing in 2018
Mentioned in this Episode:
Article by Jay Pestrichelli “This selloff is what you prepared for” http://zegafinancial.com/2018/12/18/this-sell-off-is-what-you-prepared-for/
Article by Derek Moore “Buy and Hedge Fixed Income Update” http://zegafinancial.com/2018/12/14/buy-and-hedge-retirement-fixed-income-update/
Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk
Welcome to the Broken Pie Chart Podcast Episode 15. In this episode Derek Moore discusses the often-misunderstood target date funds prevalent in many workers 401k accounts and whether they are a good or bad idea especially given their drawdowns during the 2008 financial crisis.
Key Takeaways:
- • What are target date funds?
- • How did target date funds do during the 2008 market?
- • What was performance so different between some target date funds during financial crisis?
- • What is the purpose of target date funds in retirement accounts?
- • How target date funds are really just age-based asset allocations adjusted as a person ages.
- • What are the drawbacks of target dated funds?
- • Why are target date funds so misunderstood?
- • How do target date funds compare with college saving accounts and 529 plans?
- • How target date funds do not take into account outside assets when making allocations
- • Understand why target date funds may not allow for more personalized advice
- • Did Congress really hold hearings about target date funds post the Great Recession?
- • What is the target date glide path and asset allocation adjustment schedule?
- • Target Date funds do not have embedded downside protection
- • What are alternatives to target date funds?
- • What was the target date surprise?
Mentioned in this Episode:
Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk
Report From Committee on Aging Congressional on Target Date Funds
https://www.govinfo.gov/content/pkg/CPRT-111SPRT53067/html/CPRT-111SPRT53067.htm
In this episode Derek Moore discusses the concept of Risk-Adjusted Returns, Standard Deviation of Returns, Sortino Ratio, Risk Free Interest Rates. Plus, how to compare two investment returns against one another on a risk adjusted basis and why many investors might be using the wrong investor benchmarks against their portfolios.
Key Takeaways:
- • What are risk adjusted investment returns?
- • What is the standard deviation of investment returns?
- • What is the Risk-Free Interest or Discount Rate?
- • Why do people use Treasury Bills or Treasury Bonds as the Risk-Free Rate?
- • What is the Sharpe Ratio?
- • How is the Sharpe Ratio calculated?
- • How is the Sharpe Ratio different than the Sortino Ratio?
- • How larger than expected upside investment returns can actually raise the standard deviation of portfolios
- • The pitfalls of using past historical returns to try and evaluate expected returns
- • Why do many investors always use the S&P 500 Index as the benchmark?
- • What would be a more appropriate way to choose investment benchmark indexes for comparison?
Mentioned in this Episode:
Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk
Sortino Ratio https://www.investopedia.com/terms/s/sortinoratio.asp
Sharpe Ratio https://www.investopedia.com/terms/s/sharperatio.asp
Welcome to the Broken Pie Chart Podcast Episode 13. In this episode Derek Moore is joined by ZEGA Financial Founder Jay Pestrichelli to discuss volatility as an asset class, implied volatility, the VIX Index and more.
Key Takeaways:
- • What is the VIX Index?
- • Volatility Indexes for the Nasdaq 100 VXN and the Russell 2000 Index RVX
- • How is the VIX Volatility Index constructed?
- • What is implied volatility vs historical volatility?
- • How implied volatility looks to predict perceived potential trading ranges for underlying assets
- • Options premium pricing around earnings and other events
- • Probability based credit spread selling strategies
- • How probability calculations illustrate options market perception of 1 standard deviation and 2 standard deviation moves
- • Benefits of adding alternative income strategies such as short volatility to potentially provide income compared to bonds
- • How selling deep out of the money credit spreads can potentially generate returns in up, down, or flat markets
- • Differences in ZEGA’s High Probability Options Strategy compared with the ETFs and funds shorting volatility using VIX Futures and options
- • Thoughts around the “Volpocalypse” or “Volnado” when funds shorting volatility ran into trouble
- • How risk management in selling volatility is key and picking spots to tactically enter markets increases probabilities
Mentioned in this Episode:
Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk
Buy and Hedge Book by Jay Pestrichelli and Wayne Ferbert https://amzn.to/2TaBmO5
Welcome to the Broken Pie Chart Podcast Episode 12. In this episode Derek Moore discusses why diversification alone may not reduce systematic material stock market risk using the backdrop of the 2008 Financial Crisis. Plus, potential solutions using real hedging in portfolios.
Key Takeaways:
- • What are the two main types of stock market investment risk?
- • What is single stock or concentrated stock risk?
- • What is systematic market risk?
- • What is diversifiable stock risk?
- • Why spreading investments between sectors or regions may not reduce risk in a material correction
- • Comparing investment returns during the 2007 to 2009 peak to trough in areas of the market
- • What typical advice from “experts” you tend to hear during market selloffs
- • How dividend paying stocks only provide so much protection against market selloffs
- • Strategies that have embedded hedges, floors, or buffers to reduce stock market risk
- • How bonds low interest rates may make them less appealing as a stock market hedge
- • Alternative investment strategies to manage systematic risk in markets
Mentioned in this Episode:
Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk
Mark Cuban says “Diversification is for idiots” https://www.youtube.com/watch?v=u5Pp1HEKSPM
Episode Talking About Buy and Hedge Strategies https://player.fm/series/broken-pie-chart/why-investors-need-a-protective-hedged-equity-strategy
Welcome to the Broken Pie Chart Podcast Episode 11. In this episode Derek Moore discusses how changes in interest rates affect not only obvious things like car loans and home loans but also potential stock market and stock valuations. How does a higher discount or interest rate change the present value of earnings?
Key Takeaways:
- • How Do Higher Interest Rates Potentially Affect Stock Valuations?
- • What is the Discount Rate?
- • How Do Interest Rates Affect the Value of Future Earnings or Cash Flows from Companies?
- • How Do Interest Rates Affect the Present Value of Payments?
- • Why Net Present Value Changes Depending on Higher Discount or Interest Rates
- • Comparing the Value of Future Earnings Across Various Interest Rates
- • Difference in Home and Car Loan Payments Depending on Interest Rates
- • Fundamental Analysis and Interest Rates
- • What is Free Cash Flow?
- • How the Fed Keeping Rates Low Encouraged Investments That Otherwise Wouldn’t Qualify
- • Interest Rates Rising Effect on Bonds
Mentioned in this Episode:
Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk
Buffett Indicator https://razorwealth.com/the-buffett-indicator-explained/
Welcome to the Broken Pie Chart Podcast Episode 10. In this episode Derek Moore discusses some economic indicators that matter to investors. Many people hear the terms GDP, Inflation, Unemployment, and the Fed Funds Rate but aren’t exactly sure what they really mean. We look to deconstruct these popular indicators and show how they are important to investors.
Key Takeaways:
- • What is Inflation and the Consumer Price Index or CPI?
- • What is GDP (Gross Domestic Product)?
- • What is the difference between real and nominal returns and indexes?
- • How is unemployment in the US constructed?
- • Who gets included and excluded from unemployment numbers?
- • Does people working two jobs impact the unemployment figures?
- • Hedonic adjustments to CPI
- • How CPI uses substitutes to put in and take out items from the basket
- • How the economic indicators can help determine future Fed Funds changes
- • Nominal versus Real GDP
- • Employment indicators like Quit Rate and Labor Force Participation
- • Measuring Wage Growth in the economy
- • How Social Security cost of living adjustment or COLA is calculated?
- • When is GDP number released?
Mentioned in this Episode:
Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk
Real GDP Growth Rate https://fred.stlouisfed.org/series/A191RL1Q225SBEA
Unemployment Rate https://tradingeconomics.com/united-states/unemployment-rate
US Atlanta Fed Wage Growth Tracker https://www.frbatlanta.org/chcs/wage-growth-tracker.aspx?panel=1
Atlanta Fed GDP Now Forecast https://www.frbatlanta.org/cqer/research/gdpnow.aspx
CPI All Urban Consumers https://fred.stlouisfed.org/series/CPIAUCSL
Inflation Rate https://tradingeconomics.com/united-states/inflation-cpi
Shadow Stats Alternative Inflation Charts http://www.shadowstats.com/alternate_data/inflation-charts
Welcome to the Broken Pie Chart Podcast Episode 9. In this episode Derek Moore discusses the relationship between bonds and interest rates. Plus, what everyone gets wrong when pointing to bond returns during the late seventies when interest rates were rising and how returns weren’t that bad. While we can’t predict where interest rates will go, we certainly can learn a lot about what drives bond market values regarding interest rates and how a spike in rates now would be different from the nineteen seventies version
Key Takeaways:
- • What is the inverse relationship between interest rates and bonds
- • Explaining bond par value, coupon interest payments, payment frequency
- • How much bond market values are impacted by changes up or down in interest rates
- • Understanding how Macaulay Duration and Modified Duration can show how sensitive bonds are to changes in rates
- • Examining article from New York Times February 1982 when 30 Year Treasury Bonds yielded nearly 15%
- • What the media is missing when saying bonds returns during 1970 to 1982 period weren’t that bad?
- • How higher coupon interest payments and lower modified duration buffered against larger losses in the seventies
- • Nominal returns versus real returns when accounting for inflation
- • How in the long run total returns from bonds are driven mostly by the coupon interest payments?
- • Discussing present value of future interest payments regarding bond principle repayment risk.
- • US Aggregate Bond Index AGG movement thus far in 2018
Mentioned in this Episode:
Global Bond Yields http://www.wsj.com/mdc/public/page/2_3022-govtbonds.html
1982 New York Times Article Archive All Time High In Bond Yields https://www.nytimes.com/1982/02/05/business/record-set-on-30-year-us-bonds.html
Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk
US Aggregate Bond Index Returns vs S&P 500 Index Returns 1980-2017 https://www.thebalance.com/stocks-and-bonds-calendar-year-performance-1980-2013-417028
Current US Treasury Bond Yields as well as Modified Duration http://www.wsj.com/mdc/public/page/2_3022-bondmkt.html
Welcome to the Broken Pie Chart Podcast Episode 8. In this episode Derek Moore reviews the so-called Buffett Indicator as well as the Shiller PE Ratio. With markets once again at all-time highs we are seeing some various articles and commentary on how to tell what market valuations might be considered too high or low.
Key Takeaways:
- • What is the Warren Buffett Indicator?
- • How is the Buffett Indicator calculated?
- • Where to find the Nominal GDP and market cap to use to calculate the Buffet Indicator
- • How do interest rates affect stock market valuations?
- • Present value versus future value of future earnings estimates
- • What is the Shiller PE Ratio?
- • How is the Shiller PE Ratio Calculated?
- • Rolling average of S&P 500 Index earnings vs current PE Ratio
- • Possible solutions to protecting downside market moves
- • How valuation indicators may or may not predict future market moves
Mentioned in this Episode:
Razor Wealth article explaining Buffett Indicator https://razorwealth.com/the-buffett-indicator-explained/
Fortune Article http://archive.fortune.com/magazines/fortune/fortune_archive/1999/11/22/269071/index.htm
Nominal GDP
https://fred.stlouisfed.org/series/GDP
Wilshire 5000 Full Cap Price Index
https://fred.stlouisfed.org/series/WILL5000PRFC
Nonfinancial corporate business; debt securities; liability, Level (NCBDBIQ027S)
https://fred.stlouisfed.org/series/NCBDBIQ027S
Shiller PE Ratio
http://www.multpl.com/shiller-pe/
Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk
Welcome to the Broken Pie Chart Podcast Episode 7. In this episode Derek Moore is joined by Alpha DNA Founder Wayne Ferbert to discuss how they are using big data, machine learning, digital internet analytics, and proprietary algorithms to detect changes in consumer demand which can lead to pinpointing earnings surprises in a universe of 3000 companies across various market caps. These changes in trends seen by analyzing the digital internet footprint looks to determine whether companies’ quarterly earnings announcements will surprise the street and by how much. Wayne also discusses turning these high-level analytics into investment strategies including a long/short version and a best picks strategy.
Key Takeaways:
- • The early ways institutions tried to generate alpha including overhead parking lot photos at Walmart and satellite photos of oil tankers
- • How analyzing internet data can identify changes in trends and potential earnings surprises
- • The complexity of turning raw “big data” into something usable
- • How the Internet Advantage Strategy (IAS) Long/Short looks to own the best companies and short the worst ones to minimize systematic market risk
- • The goal of delivering alpha through Alpha DNA’s Best Picks Strategy
- • How analyzing the hidden demand trends can help to find edges in earnings forecasting
- • Discussing the Harvard Business Review article around measuring digital strength of a company versus its market cap
- • Opportunities for companies to increase their digital footprint
- • How President Trump’s comments about going to a twice a year earnings release versus quarterly might affect company forecasts.
- • What effect if any the recent Facebook data controversy might have in the ability to continue to utilize internet data in their strategies
Mentioned in this Episode:
Harvard Business Review Article https://hbr.org/2017/09/are-you-accurately-measuring-your-companys-digital-strength
Alpha DNA www.alphadnaim.com
Buy and Hedge Book by Wayne Ferbert and Jay Pestrichelli https://amzn.to/2xcfeZv
Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk
Welcome to the Broken Pie Chart Podcast Episode 6 Adding Downside Buffers to Investment Portfolios Using Options. In this episode Derek Moore is again joined by Jay Pestrichelli, founder of ZEGA Financial and co-author of the book Buy and Hedge to discuss using options to create positions which control but don’t own shares of stock market indexes. These positions have the goal of providing upside greater than the market while installing a downside buffer down to a certain level in case markets sell off. Also discussed is the idea of using fixed income as a funding source via dividends to pay for long stock ownership. This switches the risk from an un-buffered long stock profile to more of a short duration high yield fixed income risk profile.
Key Takeaways:
- • What are long stock portfolios with embedded downside buffers?
- • How are options utilized to reduce risk by building a synthetic long stock position?
- • Targets of utilizing a Buffered Index Growth strategy include greater upside participation.
- • Targets also include not participating in the first roughly 25% down moves in markets thus providing a buffer.
- • Understanding frequency and size of downside market moves.
- • Why everyone doesn’t adopt a Buffered Indexed Growth strategy
- • How a portfolio has the goal of shifting from a stock risk profile to a fixed income risk profile.
- • How short duration fixed income (bonds) can perform in various market conditions
- • Why losing less in a stock portfolio leads to potentially growing more over time
- • Those within 10 to 15 years of retirement may need more growth but can’t take more un buffered, un hedged equity risk
- • Bonds usefulness at low interest rates in portfolios may not be as helpful as they once were
Mentioned in this Episode:
Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk
Buy and Hedge Book by Jay Pestrichelli and Wayne Ferbert https://amzn.to/2xcfeZv
Welcome to the Broken Pie Chart Podcast Episode 5 Do Presidential, Senate, and House Party Affiliations Really Impact Stock Market Returns? In this episode host Derek Moore takes listeners through historical S&P 500 Index Total Returns back to 1923 matched up with the President, whether they were republican or democratic, as well as the party affiliation of the senate and house. Many might be surprised at the results when Derek explains the annual average stock market returns by various combinations of control. Plus, see how Presidents back 96 years average annual stock market returns have faired against one another. Including Presidents Coolidge, Hoover, FDR, Truman, Eisenhower, Kennedy, LBJ, Nixon, Ford, Carter, Reagan, G.H. Bush, Clinton, G.W. Bush, Obama, and Trump. Plus, see which presidents have enjoyed the best annual non-seasonally adjusted Gross Domestic Product (GDP) growth on an annual basis.
Key Takeaways:
- • What are the stock market historical results by past presidents?
- • How does the market do when comparing republicans to democrats?
- • How does the stock market perform when republicans or democrats control the presidency, senate, and house?
- • What are historical market returns based upon combinations of party’s president, senate, and house?
- • The time a president takes office in an economic cycle may have more to do with results
- • Should the Federal Reserve of the President get more credit for the stock market and economy?
- • Role of inflation and interest rates in stock market returns
- • What was President Obama’s average annual GDP growth rate non-seasonally adjusted?
- • How does Trump’s GDP annual growth rate in 2017 compare to past presidents?
- • Compare historical per president average annual GDP growth rate.
Mentioned in this Episode:
Article Showing Historical S&P 500 Returns by President, Senate, and House Party https://razorwealth.com/do-presidents-and-the-congress-really-impact-stock-market-returns/
Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk
Welcome to the Broken Pie Chart Podcast Episode 4 Hedged Equity and Protective Investment Strategies. This week host Derek Moore , author of Broken Pie Chart, is once again joined by Jay Pestrichelli of ZEGA Financial and author of Buy and Hedge. Investors often miss out because of staying un-invested for fear of large market drawdowns or try to pick the absolute market top and sell too early. Derek and Jay have a lively discussion around what exactly strategies that hedge downside risk are and how they may solve some dilemmas for investors. They also examine how the trick is shifting equity risk for more short duration fixed income risk while keeping the cost of downside protection low. Later they discuss how investors often want insurance at the very worst times when it costs the most while shunning the idea for protective strategies when they are the cheapest to put on. Learn how investors can look to have the goal of capturing much of the upside in markets while eliminating most of the downside.
Key Takeaways:
- • What are hedged equity strategies?
- • How do investment strategies protect the downside in portfolios?
- • Why do investors suffer from fear and greed?
- • Why simply getting long equities and buying puts is only half the story.
- • Derek Moore highlights parts of the book Buy and Hedge explaining who hedges work in portfolios
- • Jay Pestrichelli elaborates on the crafty change from Buy and Hold to Buy and Hedge
- • Are bonds and thus the old 60/40 portfolios a thing of the past?
- • Why investors within 10-20 years of retirement might need more growth that they think
- • When markets sell off substantially, it all goes down
- • Derek Moore elaborates on the chapter Why Diversification Fails from his book Broken Pie Chart
- • Later Jay and Derek discuss various approaches which offer only soft hedges and floors rather than hard floors.
- • Finally, they tease a future episode with a short introduction to providing downside buffers in portfolio strategies
Mentioned in this Episode:
Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk
Buy and Hedge Book by Jay Pestrichelli and Wayne Ferbert https://amzn.to/2P3gw17
Welcome to the Broken Pie Chart Podcast Episode 3 Short Volatility. In this episode Derek Moore and guest Jay Pestrichelli discuss the emergence of short volatility strategies. How selling option premium with short put spreads and short call spreads can potentially generate income. With the low interest rate environment bonds are experiencing, will short volatility strategies start nudging fixed income’s place in many portfolio pie charts? We also discuss how sometimes the VIX Index is mistakenly thought of as the only way to play volatility and how VIX strategies differ from other short volatility strategies.
Key Takeaways:
- • What are short volatility strategies?
- • Selling put and call credit spreads to generate income.
- • Should short volatility strategies be part of portfolios given low bond interest rates?
- • What is the VIX index?
- • Why selling volatility premium doesn’t necessarily mean the VIX
- • Broad based index options
- • How do probability calculations factor into position?
- • Implied volatility as a proxy for expected market moves
- • Implied volatility versus historical volatility
- • Risks in selling option premium
- • How high probability options selling might handle various market conditions
Mentioned in this Episode:
Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk
Buy and Hedge Book by Jay Pestrichelli and Wayne Ferbert https://amzn.to/2P3gw17
Welcome to the Broken Pie Chart Podcast Episode 2 Yield Curve Explained. In this episode we will explore what the yield curve is, how the difference between short term interest rates and long-term interest rates can change the shape and look of the yield curve. We also touch on why everyone seems to be talking about potential yield curve inversions and what that means for the economy. Discussion builds around giving some historical perspective on past recessions in the US where we saw a yield curve inversion prior to it although how far before is another story. While many perceive a yield curve inversion as a good predictor of a potential future recession, undoubtably in a post zero interest rate environment enabled by the Federal Reserve Bank in the post 2008 Great Recession world, some may argue that this time is different. We’ll look to cover why it may or may not matter this time.
Key Takeaways:
- What is the yield curve?
- Why is the shape of the yield curve important?
- How many of the past recessions did the yield curve invert?
- What is a yield curve inversion?
- While the US is experiencing a flat yield curve, other countries like Germany see a more normal shape to their yield curve
- Negative interest rates in many European government bonds especially on the short end of the curve
- Short duration bonds seeing highest percentage increase in rates
- The Federal Reserve Bank
- Reasons to stay invested even in the face of a yield curve inversion
- Historical references to time between a yield curve inversion and a recession
Mentioned in this Episode:
Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk
Bloomberg.com Country Government Bond Yields https://www.bloomberg.com/markets/rates-bonds
Federal Reserve Bank of St. Louis chart of spread between 10 Year Treasuries and 2 Year Treasuries https://fred.stlouisfed.org/series/T10Y2Y
Welcome to the Broken Pie Chart Podcast. This is episode 1, and I’m your host, Derek Moore. Today we’ll be discussing key factors in saving for retirement and a bit about retirement calculators. The genesis of this discussion came about when I was recently asked, “Do I have enough saved based upon my age? When do you think I can retire?”
Where you are as an investor is a function of several inputs. So I thought it would be helpful today if I went through some of the inputs that go into these calculations, such as: the percentage you’re investing annually, other means of income in saving, building equity, inflation, risk management, and more. I also talk about the different ways these calculators are programmed and what you have to be careful of, and consider, when inputting your information into these calculators.
Key Takeaways:
[:12] Today’s topic of discussion: retirement calculators and what to consider when saving for retirement.
[2:30] How these retirement calculators work and all the components you need to consider in your calculations.
[9:09] The most important factor in saving for retirement.
[10:42] The difference between the percentage of your contribution amount.
[13:29] Accommodating for inflation and why it matters.
[16:42] Why you shouldn’t depend fully on social security.
[19:16] Another extremely important factor: your return on investment.
[22:12] What would happen if we had a year like the 2008 market crash again?
[24:11] Other means of income in saving for your retirement.
[26:13] About the Monte Carlo simulation.
[27:12] Things to be careful of when calculating.
[29:27] If you have any questions, reach out to me at RazorWealth.com.
Mentioned in this Episode:
Cost-of-Living-Adjustment (COLA) Social Security
Monte Carlo Simulation
RazorWealth.com