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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

#291

Post by consilient »

heywhatupboys wrote: post #213
consilient wrote: post #184

Earlier quoted context omitted.

Ownership and allocation mechanism are mostly independent axes. Consider for instance Norway (extensive state ownership but highly market-oriented; in certain respects more liberal than the US) contemporary China (state control of most major firms but mostly market-oriented), Gaullist France (nationalized infrastructure plus minority state shares in other sectors, markets supplemented with indicative planning and sta…

> in certain respects more liberal than the US why would this be surprising? Don't believe for a second that the USA has a generally more liberal financial market than Scandinavia. Employment laws, trade, regulations, etc. are often wayyy less strict in Scandinavia.

It shouldn't be surprising, but American political discourse has unfortunately latched onto an extremely simplistic univariate model of economic policy. There's a common background assumption that redistribution, public ownership, fiscal policy, and all varieties of regulation rise or fall together.

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

#292

Post by alecco »

vecinu wrote: post #277
alecco wrote: post #272

Earlier quoted context omitted.

This is a terrible moment for index funds.

Hot take but I'll bite, what's your rationale? We're only ~9% down from VTI's ATH and what happens now doesn't matter when your investing horizon is 15+ years.

- Core inflation not going down

- Recession now undeniably starting (several friends in Tech are losing their jobs in companies doing well)

- Ballooning deficits and debt at every level

- High rates making debt ballooning faster

- USD dominance decreasing

That's known and now not matter of opinion but hard facts. Now, where to invest? I have no idea (and I'm pretty sure traditional investment knowledge doesn't work anymore), so I do money markets and take the hit until I figure something out. Maybe there's a non-hype AI application opportunity somewhere, who knows. Worrying too much makes you do dumb life-altering things. In uncertain times, I chose to invest the time in enjoying life a bit. Wait and see.

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

#293

Post by Summershard »

MrPatan wrote: post #266
croes wrote: post #262

Earlier quoted context omitted.

That Bitcoins still have a value when you sell them

1 BTC = 1 BTC

Well, not really. Tainted coins is a real, growing problem that BTC hasn't solved yet.

In short, BTC is not fungible.

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

#294

Post by heywhatupboys »

consilient wrote: post #291
heywhatupboys wrote: post #213

Earlier quoted context omitted.

> in certain respects more liberal than the US why would this be surprising? Don't believe for a second that the USA has a generally more liberal financial market than Scandinavia. Employment laws, trade, regulations, etc. are often wayyy less strict in Scandinavia.

It shouldn't be surprising, but American political discourse has unfortunately latched onto an extremely simplistic univariate model of economic policy. There's a common background assumption that redistribution, public ownership, fiscal policy, and all varieties of regulation rise or fall together.

good point. But HN should do better than that

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

#295

Post by alecco »

vecinu wrote: post #277
alecco wrote: post #272

Earlier quoted context omitted.

This is a terrible moment for index funds.

Hot take but I'll bite, what's your rationale? We're only ~9% down from VTI's ATH and what happens now doesn't matter when your investing horizon is 15+ years.

This is terrible advice BTW. I got it in 2007, also HN and FT forums convinced me. So I put significant savings in a couple of index funds. I lost 40% within months. Left it there and recovered only after 8 years (and that's not even adjusting for inflation or MM rate). Please be a bit more self-aware. I spent many years in finance and the more I learned, the more I realized how much I don't know.

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

#296

Post by gabereiser »

Quarrel wrote: post #104
gabereiser wrote: post #76

Earlier quoted context omitted.

>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? Because it was created by them, for that very purpose? Futures Contracts. Chicago Mercantile Exchange. Up until 1971 future contracts were ONLY for agricultural goods.

Metal futures have been traded on the London Metal Exchange since 1877, and before that at other venues on Threadneedle St. The Dutch (and after the idea had crossed the Channel, the English) were trading debt from the invention of exchanges. The CME might have started with FX futures in 1971, but they're hardly the first non-agricultural use.

You’re right but in America we use the agricultural example as it was a big shift in our market thinking. I didn’t know about metal futures but I did know about Dutch and how they created futures and securities. I believe the Dutch East India Co to be ahead of its time and because of world politics (and war) it didn’t survive and was nationalized. A lot of papers about our CME here in the states talks about it. I’m not an expert but I do know we use the agri example because it’s one most would be familiar with since it was a somewhat recent addition.

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

#298

Post by ineptech »

quickthrowman wrote: post #290
ineptech wrote: post #271

Earlier quoted context omitted.

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…

> financial speculation ... provides more accurate pricing and lowers transaction costs for the actual users of the futures contracts who take delivery of the commodity.

I understand and agree, as I've said pretty explicitly in both of the comments you responded to. I'm arguing that the finance sector should ideally be smaller than it is, but you're responding as if I said it should disappear entirely.

> 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.

I don't have any an animus against speculators; please try to read more charitably. The rapid growth of the finance industry over the last two generations is a result of the policies we've enacted, and the position that it should be smaller is an argument for different policies. Similarly, "it seems like we are pouring [too much] of our resources and brainpower in to designing exotic new ways to bet on the corn harvest" is a complaint about the system that incentivizes that outcome and the policies that produced it, not about the individuals acting within that system.

> I’m not sure what you’re trying to imply...

I wasn't suggesting that commodities are similar to housing in any way; I was saying that, since a lot of people seem to recognize the societal cost of speculation on housing specifically, that I was surprised to be downvoted for complaining about the cost of speculation more generally (which, I remind you again, is not the same as saying it shouldn't exist, only that our economy ought ideally to produce less of it).

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

#299

Post by scubbo »

scubbo wrote: post #66
alphanullmeric wrote: post #53

Earlier quoted context omitted.

Sounds like you worry too much about what other people do with their own time and money.

When it results in a concentration of wealth in the hands of people who can abuse it for political ends, or results in market crashes that cause knock-on impact to real humans - then yes, worrying about it is reasonable and justified.

Belittling people pointing out selfishness as merely being jealous is not the slam-dunk you believe it to be. And, as diordiderot points out, I'm not trying to _take_ anything from anyone, but rather pointing out that they way they accrue more wealth (and power, with which to continue to accrue more...) is dishonest, arises from inequity, and is a net-negative to society.

> if you follow the “force is only justified in response to force” principle

Ooh, ooh, do the Paradox of Intolerance next!

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

#300

Post by scubbo »

quickthrowman wrote: post #259
scubbo wrote: post #69

Earlier quoted context omitted.

Quite. The general response I get from questions like this to financial folks is that these markets and vehicles and products are important "for liquidity", but they can never quite tell me who liquidity benefits other than the system itself.

If you own equities (individual stocks, ETFs, mutual funds) then you benefit. More liquidity means lower bid/ask spreads which means lower transaction costs and higher returns (since you are paying lower transaction costs, more of your money is invested and it adds up over time) for every investor. The NYSE minimum tick size used to be 12.5 cents, then 6.25 cents. Once HFT firms started becoming more widespread, the…

> If you own equities (individual stocks, ETFs, mutual funds) then you benefit.

Right, yes - I as a relatively-wealthy individual certainly benefit from an effective market. But does _society_ benefit from the existence of a stock market in the first place? Does the increase in wealth for those at the top outweigh the comparative-loss (stagnation relative to inflation) to those who can't afford to buy-in? I find it hard to morally support a system whose justification boils down to "it redistributes wealth to the wealthier without providing any net-increase in quality of life".

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