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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

#221

Post by h2odragon »

borski wrote: post #190
ezconnect wrote: post #171

Earlier quoted context omitted.

He's saying you are required by law to buy insurance for your house because of government regulation. There's no way of saying no.

Please point me to this law. Unless you are in a mortgage, no law requires you to hold homeowner’s insurance, and you can absolutely self-insure, to my knowledge. The same is not true for auto insurance in most states, though most also have an option to self-insure by putting up collateral.

There may not be a law explicitly stating you have to have homeowner's insurance. But.

Without such insurance, specifically the "injury liability type" with its limits; then if someone gets injured on your property there may be no limit to your liability.

So even people who could afford the loss buy insurance because it is the best method of limiting intangible risks.

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

#222

Post by less_less »

aziaziazi wrote: post #206
logicchains wrote: post #195

Earlier quoted context omitted.

Growth doesn't require more resources. If your barber finds a way to cut your hair 10% faster, that shows up in GDP growth. Increasing efficiency leads to increased GDP.

How about industrie, craftsmanship and farming? Can they “grow” over a certain period of time while the required resources doesn’t?

Yes, of course. The quantity and quality of the output can certainly grow for a given resource input -- obviously with physical limits but we haven't generally reached those. It's possible to breed higher-yielding crops, design more efficient industrial processes, to craft with less waste, etc, and these have all been vastly improved over the past few centuries.

The problem is that these industries have also been growing by increasing resource consumption along with output, to a level that isn't sustainable (even without more growth) beyond this century or so.

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

#224

Post by HWR_14 »

chii wrote: post #209
HWR_14 wrote: post #78

Earlier quoted context omitted.

> If shares of companies are valued at fair prices it means that the finance departments for that companies can raise more capital. This only true of companies that were underpriced. Overpriced companies, either because of hype (Pets.com), fraud (Enron) or other reasons (maybe Jim Cramer issued a buy) do not benefit from a fairer price.

>> companies can raise more capital. > This only true of companies that were underpriced. You mean over-priced? because if a company is underpriced, they cannot raise capital as easily, since each share they raise would be underpriced, and thus the existing shareholders actually _lose_ value. An overpriced company is one where raising capital (via equity offering) is worth doing. If a company was under-priced, it wou…

I agree with your point, but you misread my statement. We were talking about whether a company would have an easier time raising money once they were correctly priced.

For the reasons you listed, it was hard for the underpriced company to raise capital and too easy for the overpriced company. But those distortions go away once it is fairly priced.

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

#225

Post by rytill »

borski wrote: post #191
jeron wrote: post #116

Earlier quoted context omitted.

I like how this guy has written two books on completely different subjects - Money and Wine

One could easily make the argument these are actually extremely closely linked.

As someone with little knowledge of wine, how are wine and money closely linked?

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

#226

Post by MrPatan »

croes wrote: post #192
MrPatan wrote: post #189

Earlier quoted context omitted.

> But the solution to that is fintech and regulation, not crypto Why? Now we have a trustless, decentralized, tech solution, why do you still want the "guys with guns" solution?

There is no such thing as trustless

Where's the trust in a bitcoin tx?

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

#227

Post by nsvd »

less_less wrote: post #220
pembrook wrote: post #186

Earlier quoted context omitted.

By referring to arbitrage as “games” OP’s comment has poisoned the well for this entire chain of responses. So to get an understanding, first we need to fix. A “game” implies non-productive or zero sum. By definition, an arbitrage is not that. Any arbitrage is the result of an inefficiency in prices or the economy. When someone arbitrages prices back to where they should be, they are performing a service that everyon…

> When someone arbitrages prices back to where they should be, they are performing a service that everyone else benefits from, and are rightly compensated for this. Now, are finance people compensated too much for correcting price discrepancies? If yes, then that’s another arbitrage opportunity! While I agree that finance serves a useful purpose, I don't understand this bit. Suppose hypothetically that arbitrage give…

I don't think it's the case that finance is over produced. If it were, then the value of financial services would drop.

Rather, because the gain produced by financial instruments is proportional to the wealth someone has, the returns of finance disproportionately benefit those with large amounts of wealth. One man can only make so much plumbing or being a mechanic, but can make an arbitrary about by investing in ETFs.

In other words, if the financial sector was largely a collection of small businesses run by middle class people, no one would think it was a problem that they make money. That would be great! But in reality it's a smaller amount of companies and smaller amount of wealthy people that benefit from it.

That problem isn't unique to finance, it affects many parts of our society.

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

#228

Post by jdaw1 »

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?

Society allows the people to trade futures, but makes it difficult. US brokers seem to make it very easy for “randos” to own equities, but difficult to trade futures. Recently, when I wanted to trade a one-by-one call spread on a commodity future (not saying which) via Interactive Brokers, the required initial margin would have been eight times my maximum possible loss. Bonkers! Hence trade not done.

And what would you rather happen? That you were prohibited?

As others have said, your counterparty won’t know who you are: hedge fund; commercial hedger; rando — unknown.

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

#229

Post by flagrant_taco »

chii wrote: post #211
hbarka wrote: post #205

Earlier quoted context omitted.

What about First Republic Bank?

I know less about FRB's failure. It was likely due to a domino effect from SVB's - specifically, FRB has a high uninsured ratio of deposits (they service rich people). The FDIC has announced that they will not do a repeat of what they did for SVB - insure the full deposit amount rather than just the $250k. Therefore, anyone with a large deposit in a small bank is going to want to move their money out into a "too big…

> They should've just lied, and said that they'd do it for another bank, if there's a need to; this would've stopped any fear of a run, and thus stop the run before any more dominos collapse.

While this may have prevented FRB, that's a very dangerous game to play should the bluff get called.

I'm strongly opposed to the idea that those given the power and authority to control or markets, as best they can, should world that power by lying to us. Lying because they think it's the best thing for us or because they don't think we can handle the truth is a slap in the face to the very trust that empowered them to begin with. Our leaders do this often and it's such a slippery slope - it either works and you feel emboldened to lie again or it backfires and we're all worse off.

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

#230

Post by borski »

h2odragon wrote: post #221
borski wrote: post #190

Earlier quoted context omitted.

Please point me to this law. Unless you are in a mortgage, no law requires you to hold homeowner’s insurance, and you can absolutely self-insure, to my knowledge. The same is not true for auto insurance in most states, though most also have an option to self-insure by putting up collateral.

There may not be a law explicitly stating you have to have homeowner's insurance. But. Without such insurance, specifically the "injury liability type" with its limits; then if someone gets injured on your property there may be no limit to your liability. So even people who could afford the loss buy insurance because it is the best method of limiting intangible risks.

People who can afford the loss buy insurance because it is simpler peace of mind to do so, not because it is the law.
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