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Pricing Money: A beginner's guide to money, bonds, futures and swaps

jdawiseman.com

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Re: Pricing Money: A beginner's guide to money, bonds, futures and swaps

#91

Post by nostrademons »

droffel wrote: post #68
marcosdumay wrote: post #55

Earlier quoted context omitted.

The one goal of future contracts is for producers and consumers to be able to make deals before that production and consumption happens. Those are the primary dealers there, and I don't really remember where I got statistics, but AFAIK, they are about 10% of the volume. On top of those primary deals, a lot of people pile up making bets on secondary deals. Those are the people going for "hey, a lot more farms are grow…

> What about the crops they destroy because they would be less profitable? To clarify this point specifically, food self sufficiency is considered a national security issue. Consider the situation where a hostile country floods your market with cheap food products (below cost) until your country's farms go bankrupt due to an inability to compete. Once you stop producing food of your own, you give significant power to…

"floods your market with cheap food products (below cost)"

The hostile country will eventually go bankrupt because they are producing products below cost.

Re: Pricing Money: A beginner's guide to money, bonds, futures and swaps

#92

Post by cscurmudgeon »

panarchy wrote: post #38
lolpython wrote: post #24

Earlier quoted context omitted.

Farmers use futures contracts to protect against price risks [0]. As do energy suppliers [1]. [0] https://www.ers.usda.gov/webdocs/publications/99518/eib-219.... [1] https://emp.lbl.gov/publications/primer-electricity-futures-...

Why is it that every time someone mentions futures trading someone comes along to drop the farmer's crops example, do y'all really have no other examples? What percentage of futures trading is on farmers crops? What about the crops they destroy because they would be less profitable? Does the protection against monetary risk outweigh starving people to death? How well will it work if we create unsustainable land that…

> Why is it that every time someone mentions futures trading

They didn't just mentioned, they had an outsider negative take on it.

The best way is to respond with simple examples.

> What about the crops they destroy because they would be less profitable? Does the protection against monetary risk outweigh starving people to death? How well will it work if we create unsustainable land that the farmers can no longer grow crops on?

How does futures trading cause these negatives? If anything, trading reduces these risks. Countries with markets have large bounties as opposed to those that don't.

It is not a zero sum game.

Re: Pricing Money: A beginner's guide to money, bonds, futures and swaps

#93

Post by User23 »

jdaw1 wrote: post #85
tech_ken wrote: post #17

This is an excellent resource and a great read, but DAMN do money markets seem stupid as all get out to me. Where is the productive output of all these arbitrage shell games? How is this more than an abysmal waste of time and resources simply to make a small handful of bankers richer?

I’m the author. Thank you for saying it is an excellent read — that was no small amount of work. You ask “Where is the productive output of all these arbitrage shell games?”, which is a very fair question. The purpose of financial markets, sometimes but not always wholly achieved, is to transfer risks to those best able to hold them. E.g., you are not the optimal person to hold the risk that, through no fault of your…

It is an interesting reframe to think of insurance as a, roughly, ATM put.

Having some experience with both trading derivatives and gambling though, I’m fairly confident saying that it’s a distinction without a difference. In both cases a little guy with an understanding of risk and bankroll management and some aptitude for the game, which for trading is a Keynesian beauty pageant, can scrape up a few bucks. But most people are going to be fish for the house. The derivative markets are providing exactly the same service as casinos, albeit with considerably higher limits and opportunities for crafting complex bets.

Re: Pricing Money: A beginner's guide to money, bonds, futures and swaps

#94

Post by dataflow »

lbotos wrote: post #90
dataflow wrote: post #82

Earlier quoted context omitted.

I buy that there's some benefit, but I don't buy that it's significant. And I don't see any reason why I should believe this provides a net benefit to society. Sure it saves the original parties some money, but then a bunch of unrelated parties come in and siphoning money from the existing parties. Why should I believe this is net-benefiting society?

Your viewpoint here is kinda weird? The more something trades, the more likely we will have the right price . When things don't trade as much, we don't actually know what that thing is worth. This concept is a benefit to society as many things are interconnected and correlated, so the more accurate we can quickly find the current price (and expected future price) the more we can evaluate value . (Also, they aren't "s…

Just because you've improved the accuracy of a price for something, that doesn't mean whatever you're doing to achieve this is a net benefit to society, right? Surely the idea that this logic doesn't follow isn't weird?

Is the idea that society gets a net benefit from price distortions like minimum wage, subsidies, taxes, etc. also "weird"? These also make it hard to discover the "right price" for goods, therefore it's... weird to have them?

Re: Pricing Money: A beginner's guide to money, bonds, futures and swaps

#95

Post by tylerhou »

tech_ken wrote: post #27
rcme wrote: post #19

Earlier quoted context omitted.

Risk management is the product. Surely you agree that a product that reduces risk is worth something, right?

Sure I’m pro-risk management. So by arbing lending-rates which risks are mitigated?

E.g. interest rate risk. Maybe I've sold a bunch of variable-rate bonds before. But now I am worried about interest rates rising. I can't call the bond for some reason (maybe not enough money, maybe some regulatory reason). So I buy an interest rate swap that pays out if interest rates rise.

Re: Pricing Money: A beginner's guide to money, bonds, futures and swaps

#96

Post by hllooo »

nostrademons wrote: post #91
droffel wrote: post #68

Earlier quoted context omitted.

> What about the crops they destroy because they would be less profitable? To clarify this point specifically, food self sufficiency is considered a national security issue. Consider the situation where a hostile country floods your market with cheap food products (below cost) until your country's farms go bankrupt due to an inability to compete. Once you stop producing food of your own, you give significant power to…

"floods your market with cheap food products (below cost)" The hostile country will eventually go bankrupt because they are producing products below cost.

Not necessarily, if they can produce the crops more cheaply. Since each country ideally wants to secure it's own food supply, it's inevitable that many countries will find themselves subsidizing local production that would otherwise disappear in a competitive international market.

Additionally, hostile countries do not need to flood markets sustainably if the goal is simply to hollow out food production in the target country before taking more overtly hostile (i.e. military) actions.

Re: Pricing Money: A beginner's guide to money, bonds, futures and swaps

#97

Post by gmd63 »

lolpython wrote: post #24
tech_ken wrote: post #17

This is an excellent resource and a great read, but DAMN do money markets seem stupid as all get out to me. Where is the productive output of all these arbitrage shell games? How is this more than an abysmal waste of time and resources simply to make a small handful of bankers richer?

Farmers use futures contracts to protect against price risks [0]. As do energy suppliers [1]. [0] https://www.ers.usda.gov/webdocs/publications/99518/eib-219.... [1] https://emp.lbl.gov/publications/primer-electricity-futures-...

There is a societal benefit that comes with individuals internalizing their own costs of risk. Treating society like it's in an economic womb while Mother Finance shields it from the world of worries rewards ignorance and in my opinion accelerates us toward the world depicted in Idiocracy.

It is nice as a purchaser of such securities that you can build things more quickly than usual and transfer worry to someone who is willing to be worried for you. However I don't believe the SEC financial highway patrol has enough cruisers or sophistication to pull over enough abusers to deter the disproportionate fraud that increasingly arcane financial instruments create.

The costs of a few bad actors building piles of money illegitimately do not show themselves immediately. They pop up slowly, in dark money investments in destabilizing elections, funding of war criminals, market manipulation, etc. The societal cost of a charlatan having several lifetimes worth of an honest person's influence are grave and not to be laughed off.

Re: Pricing Money: A beginner's guide to money, bonds, futures and swaps

#99

Post by skybrian »

dataflow wrote: post #59
lolpython wrote: post #24

Earlier quoted context omitted.

Farmers use futures contracts to protect against price risks [0]. As do energy suppliers [1]. [0] https://www.ers.usda.gov/webdocs/publications/99518/eib-219.... [1] https://emp.lbl.gov/publications/primer-electricity-futures-...

I get why farmers do it but what's the societal benefit of letting a rando like me buy and sell (i.e. make bets on) such contracts? Do farmers really prefer that random people do this?

It's doubtful that farmers care about you in particular. However, in general, the societal benefit should be like a loan, like insurance, or both, depending on what it is.

Loans are useful and necessary because businesses need to buy things before they get paid. It can't all be done using Kickstarter! Farming works this way.

Insurance is useful because you get paid when something bad happens to you. On a day when you're glad that you had insurance, it means someone else lost a bet.

Buying insurance you don't actually need is kind of dumb because you'll lose on average, but people do sometimes win in casinos, too. Selling insurance when you can't afford to lose is risking disaster, but sometimes people get away with that too.

Re: Pricing Money: A beginner's guide to money, bonds, futures and swaps

#100

Post by Folcon »

jdaw1 wrote: post #85
tech_ken wrote: post #17

This is an excellent resource and a great read, but DAMN do money markets seem stupid as all get out to me. Where is the productive output of all these arbitrage shell games? How is this more than an abysmal waste of time and resources simply to make a small handful of bankers richer?

I’m the author. Thank you for saying it is an excellent read — that was no small amount of work. You ask “Where is the productive output of all these arbitrage shell games?”, which is a very fair question. The purpose of financial markets, sometimes but not always wholly achieved, is to transfer risks to those best able to hold them. E.g., you are not the optimal person to hold the risk that, through no fault of your…

Do you mean this[0] when you wanted to link to `the definitive reference book on old Vintage Port: Port Vintages`?

Also, welcome!

- [0]: https://www.portvintages.com/

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