When Correlations go to 1, Short Volatility and Negative Convexity

2017 has been the year to sell volatility.  Volatility on nearly all asset classes has been compressed to historically low levels, which is a function of the world’s major Central Banks going into asset purchase overdrive for the past 18 months.  When you flood the global financial system with free money, people tend to leverage…

The Banking Crisis in Europe Continues (it never ended…)

You may have noticed in the news lately that there are a lot of concerns about Deutsche Bank (DB), Germany’s largest bank, so I thought it would be helpful to explain what all the fuss is about.  Last week, Angela Merkel said that there will not be a bail out and this morning there are…

Say Hello to Your New “Synthetic” Corporate Bonds

Investors have been “starved” for yield for years now and unfortunately interest rates aren’t going up anytime soon.  When looking at individual bonds, investors get to choose between high quality bonds at paltry yields or junk-rated bonds that look attractive but come with a slew of bad risks that often aren’t understood or appropriate for…

Why the Stock Market Dropped So Sharply

Two words – “The Fed.”  The two primary goals of the Federal Reserve’s Quantitative Easing efforts over the past few years were to inflate asset prices (stocks, real estate, etc.) and lower interest rates.  They call this the “wealth effect.”  In theory, they think that higher asset prices will increase confidence, which will increase spending, business…

Market Updates

Well that was exciting!  Please keep in mind that, as a long-term investor, what matters is the earnings power and yield of the companies in which you are invested.  Just because the price of a stock drops doesn’t mean that the underlying company is deteriorating – it simply means you have the chance to buy…