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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

#281

Post by cjhowarddev »

alecco wrote: post #218

All these Financial guides are very interesting. But beware of falling into the illusion of being a good-enough active investor. It's like entering the Pro league as an overconfident amateur. The other players are the best in the universe. And they have cybernetic extensions: algorithmic trading with virtually limitless amounts of resources and information. And sometimes they have "alpha" you'll never, ever get your…

i feel that this assumes the large investors on wall.street are playing the same game as retail investors. Given the size and scale of their accounts, I'd imagine it's an entirely different playbook.

My (limited, retail only) experience tells my gut that most retail investors do it to get rich, and not to learn the markets, learn the risks, and build a business. They are different goals, granted both do seek to make long term gains.

I like to believe that retail investors can make it if they put in the effort and learn to manage risk appropriately. At least I need to tell myself that as I work towards making money in the markets myself.

I am definitely dumb money right now, and I could also be delusional, but saying there is no hope so give up and just do something else completely is just defeatist.

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

#282

Post by notahacker »

MrPatan wrote: post #280
notahacker wrote: post #268

Earlier quoted context omitted.

You started off asking "why do you still want the guys with guns solution" and insisting that blockchain provided a "trustless, decentralized" solution to the problems financial markets purport to solve. So I don't think it's a "straw man" to point out the answer to your question is market participants want promises actually delivered upon which you now admit is entirely dependent on the "guys with guns" (and/or trus…

No. Here's the quote I responded to originally, slightly expanded for your convenience and ease of use: > Similarly, building a somewhat straighter fibre (and then microwave towers) from Chicago to NY has no societal benefit I can discern. (But the solution to that is fintech and regulation, not crypto.) I've always been talking about technical infrastructure, you're the one who brought up delivery of oil barrels. If…

If you're purely focused on the GP's suggestion that the extra liquidity permitted by HFT might not generate enough benefits to the entities engaging in productive activity to warrant trading-specific infrastructure like dedicated fibre lines, you shouldn't even have needed to ask why he didn't consider this to be solved by a tech stack that uses the electricity consumption of a medium sized country to allow people to traded purely speculative synthetic assets :D (even a blockchain not computationally inefficient by design wouldn't stop arms races to be first in line to accept the trade, or the incentives to do so existing. At least regulators have the theoretical power to make life difficult for certain types of market participant)

The GP's wider point was the purpose of the finance industry is to facilitate real world productive activity. If the "decentralised" bit is isolated from that, you haven't got a decentralised alternative to financial markets.

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

#284

Post by chii »

alex_smart wrote: post #264
chii wrote: post #200

Earlier quoted context omitted.

> socities that do not have well-developed financial markets to directly see and appreciate the value financial markets Which is true, but there's another angle that needs discussing - that of a high-trust society vs low-trust society. In all places where there are well functioning financial markets, there exists a high trust society. This trust is the foundation on which the financial markets exist. So in poorer cou…

Rural India (unlike urban India) is relatively high trust environment. Everybody knows each other and there are lots of shared ethical values. But they still have to build their houses one brick wall at a time (lack of access to home loans) and be at the risk of financial ruin due to unpredictable life events (lack of access to insurance). Urban India is a very low trust environment, but people still have access to t…

> lack of access to home loans [in rural india]

i would imagine that high trust but only within the village is not really high trust. Anyone outside the village who would've otherwise had the capital to lend to this village would not trust them to repay the loans, and perhaps would also not trust that the authorities would come in to enforce the collection of collateral (and in any case, if you forcibly evicted the original owners of a property for debts, the other villagers are probably not going to let you live there peacefully).

> but not sure what [good governance] has to do with being a high trust or low trust society.

Good governance allows high trust to exist, which allows many other things to exist as a precondition.

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

#285

Post by jdaw1 »

jpmoral wrote: post #232

Question about the "Yields of Australian Commonwealth government bonds as of 21 January 2000" graph in Chapter 2 (page 13 of the A4 version): The y-axis (Yield in percent) values don't seem to match the data points. For example, the point for Feb '01 is labelled '7%' but the point is just above the 6% mark and well below the 6.5%. What am I not understanding?

Coupon is the bond’s interest rate, per 100 nominal. Yield is the effective return on the money per 100 cash paid, so allowing for price. Coupon ≢ Yield.

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

#286

Post by jdaw1 »

consultSKI wrote: post #247

Interesting insights... it is going to take me a couple of reads to comprehend all the value here. Thx JDAW P.S. Thx for the PDF version

Caution: the PDF is a bit behind the HTML. My fault. In particular, the (excellent) chart on the recent crash in fixed0-income price is not in the PDF.

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

#287

Post by yobbo »

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…

> you are not the optimal person to hold the risk that

The view presented here assumes that the market prices risk (premium) arbitrarily correctly, and then argues the benefits of that.

What is optimal depends on the premium and a subjective assessment of the risk. There is no guarantee that what market offers is optimal.

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

#288

Post by Ecco »

jdaw1 wrote: post #286
consultSKI wrote: post #247

Interesting insights... it is going to take me a couple of reads to comprehend all the value here. Thx JDAW P.S. Thx for the PDF version

Caution: the PDF is a bit behind the HTML. My fault. In particular, the (excellent) chart on the recent crash in fixed0-income price is not in the PDF.

An EPUB version would also be really cool :)

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

#289

Post by throwoutway »

logicchains wrote: post #195
DoingIsLearning wrote: post #194

Earlier quoted context omitted.

Isn't this the same discussion of infinite growth versus the ceiling of finite resources. It is logically not possible might take 20 years or 700 years but eventually a ceiling is reached.

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.

> If your barber finds a way to cut your hair 10% faster, that shows up in GDP growth.

No it doesn't. He'd need to profit from that effeciency first. Idle time is not reported in GDP

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

#290

Post by quickthrowman »

ineptech wrote: post #271
quickthrowman wrote: post #256

Earlier quoted context omitted.

The buyers and sellers of a futures contract are both trying to offload risk onto someone else. The risk profiles of both sides don’t always offset exactly, so speculators are necessary for functioning commodity futures markets (and markets in general). Also, price discovery is much more efficient with more liquidity, which is what speculators provide, in addition to risk assumption.

Sure, I get this and agree, but price discovery and facilitating markets are subject to diminishing returns just like anything else, right? I don't think I would've been downvoted for saying something like, "It's a problem that it's more lucrative to speculate on existing housing than to build new housing, so we should make regulatory changes to address that" and this feels analogous to me.

Commodities are fungible by definition and used in the production of all sorts of things. More commodities are constantly being grown/mined/pumped and sold onto the market.

More housing is being built, but housing is not fungible, nor is it used as an input for manufacturing. I’m not sure what you’re trying to imply by saying if you were making a completely different argument about housing speculation being bad, the reaction would be different. Of course it would, it’s a totally separate argument from the one we are having about commodity futures.

I’m not sure why you care so much about financial speculation, it provides more accurate pricing and lowers transaction costs for the actual users of the futures contracts who take delivery of the commodity.

In my opinion, your arguments are coming from an emotional place. Try and examine futures markets from a place where you aren’t thinking about greedy rich Wall Street guys, the amount of money they make is irrelevant to futures markets being useful tools for producers and consumers of commodities.

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