Comments on: Fifteen Notes on the Credit Markets (and other markets) http://alephblog.com/2008/03/21/fifteen-notes-on-the-credit-markets-and-other-markets/ Helping Institutions and Ordinary People Invest Better by Focusing on Risk Control Mon, 13 Feb 2012 16:41:54 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: James Daileyhttp://alephblog.com/2008/03/21/fifteen-notes-on-the-credit-markets-and-other-markets/comment-page-1/#comment-17321 James Dailey Tue, 25 Mar 2008 15:44:09 +0000 http://alephblog.com/2008/03/21/fifteen-notes-on-the-credit-markets-and-other-markets/#comment-17321 Andrew, The taxation on commodity ETN's is still not final, as the IRS has not made a final ruling. At present, they are being treated as pre-paid forward contracts and I believe a 1 year holding period qualifies for long term capital gains, but that could change when/if the IRS rules. The mutual fund industry lobbying group is attacking capital hill with both guns blazing for obvious reasons, so we'll have to wait and see. As for other blogs, Seeking Alpha is a good place to start. I read Ritholtz and Jeff Matthews and also subsribe to Realmoney Silver and Minyanivlle.com which are "bloggish". I am a self taught investor with an undergraduate degree in finance and have the CFA designation, but I can truly say that without the web I would not have the career I have and love. It has truly been a blessing for me to have people like David be willing to share their vast knowledge and experiences. I also read John Hussman's weekly commentary, the Pimco boys' monthly commentaries, Jeremy Grantham's quarterly letters, Bill Fleckenstein, Mark Faber, Fred Hickey and Jim Stack. I try to listen to Jim Rogers wherever/whenever he speaks. Andrew,

The taxation on commodity ETN’s is still not final, as the IRS has not made a final ruling. At present, they are being treated as pre-paid forward contracts and I believe a 1 year holding period qualifies for long term capital gains, but that could change when/if the IRS rules. The mutual fund industry lobbying group is attacking capital hill with both guns blazing for obvious reasons, so we’ll have to wait and see.

As for other blogs, Seeking Alpha is a good place to start. I read Ritholtz and Jeff Matthews and also subsribe to Realmoney Silver and Minyanivlle.com which are “bloggish”. I am a self taught investor with an undergraduate degree in finance and have the CFA designation, but I can truly say that without the web I would not have the career I have and love. It has truly been a blessing for me to have people like David be willing to share their vast knowledge and experiences.

I also read John Hussman’s weekly commentary, the Pimco boys’ monthly commentaries, Jeremy Grantham’s quarterly letters, Bill Fleckenstein, Mark Faber, Fred Hickey and Jim Stack. I try to listen to Jim Rogers wherever/whenever he speaks.

]]> By: Andrewhttp://alephblog.com/2008/03/21/fifteen-notes-on-the-credit-markets-and-other-markets/comment-page-1/#comment-17317 Andrew Sat, 22 Mar 2008 17:24:14 +0000 http://alephblog.com/2008/03/21/fifteen-notes-on-the-credit-markets-and-other-markets/#comment-17317 James, do I have to hold the agricultural etn for a year to get long term gains treatment? Also, are there any other blogs you would recommend? Thank you so much for responding to my questions. I really appreciate it. James, do I have to hold the agricultural etn for a year to get long term gains treatment? Also, are there any other blogs you would recommend? Thank you so much for responding to my questions. I really appreciate it.

]]> By: James Daileyhttp://alephblog.com/2008/03/21/fifteen-notes-on-the-credit-markets-and-other-markets/comment-page-1/#comment-17315 James Dailey Sat, 22 Mar 2008 16:03:34 +0000 http://alephblog.com/2008/03/21/fifteen-notes-on-the-credit-markets-and-other-markets/#comment-17315 Hello Andrew, Two other reasons why an ETN vs the futures market are regulatory and taxes. At present, ETN's qualify (non currency that is) for long term capital gains treatment while futures are taxed at 60%/40%. Also, many people don't have access to trading futures and with good reason - they are extremely dangerous tools that can easily seduce people into taking more risk than they otherwise would due to the ability to use massive leverage. I personally trade futures but would never do so with my clients' assets, who are for the most part upper middle class and would not be thrilled with the kind of 5-10% per day swings I tolerate trading futures. As I believe most who trade futures have, I paid some tuition money during the first stretch of time learning to deal with leverage and unfortunately pay a refresher course fee on occasion when my arrogance gets the best of me. Hello Andrew,

Two other reasons why an ETN vs the futures market are regulatory and taxes. At present, ETN’s qualify (non currency that is) for long term capital gains treatment while futures are taxed at 60%/40%. Also, many people don’t have access to trading futures and with good reason – they are extremely dangerous tools that can easily seduce people into taking more risk than they otherwise would due to the ability to use massive leverage. I personally trade futures but would never do so with my clients’ assets, who are for the most part upper middle class and would not be thrilled with the kind of 5-10% per day swings I tolerate trading futures. As I believe most who trade futures have, I paid some tuition money during the first stretch of time learning to deal with leverage and unfortunately pay a refresher course fee on occasion when my arrogance gets the best of me.

]]> By: Alan Matthews The Dean of Dracuthttp://alephblog.com/2008/03/21/fifteen-notes-on-the-credit-markets-and-other-markets/comment-page-1/#comment-17314 Alan Matthews The Dean of Dracut Sat, 22 Mar 2008 04:07:30 +0000 http://alephblog.com/2008/03/21/fifteen-notes-on-the-credit-markets-and-other-markets/#comment-17314 Why downgrade the US when they can create money by using it power and authority to tax tax and tax again. Ther are plenty of rich people they can tax again and again. Where does most of the governments money come from??? TAX. Why downgrade the US when they can create money by using it power and authority to tax tax and tax again. Ther are plenty of rich people they can tax again and again. Where does most of the governments money come from??? TAX.

]]> By: Steve Miloshttp://alephblog.com/2008/03/21/fifteen-notes-on-the-credit-markets-and-other-markets/comment-page-1/#comment-17312 Steve Milos Fri, 21 Mar 2008 23:16:43 +0000 http://alephblog.com/2008/03/21/fifteen-notes-on-the-credit-markets-and-other-markets/#comment-17312 David, I don't know about calling for Fitch to downgrade to AA+; isn't it axiomatic that the sovereign credit rating is the highest possible, and hence every other USD issuer would be limited to AA+, at best? And wouldn't that therefore temporarily cause a problem, for funds that are limited to only holding AAA credits, and hence would be forced to sell? I suspect that you were suggesting the downgrade in jest, a case of saying that "the emporer has no clothes". How about Fitch just rating them AAA, with a negative outlook? :) Happy Easter, Steve David,

I don’t know about calling for Fitch to downgrade to AA+; isn’t it axiomatic that the sovereign credit rating is the highest possible, and hence every other USD issuer would be limited to AA+, at best? And wouldn’t that therefore temporarily cause a problem, for funds that are limited to only holding AAA credits, and hence would be forced to sell?

I suspect that you were suggesting the downgrade in jest, a case of saying that “the emporer has no clothes”. How about Fitch just rating them AAA, with a negative outlook? :)

Happy Easter,

Steve

]]> By: Andrewhttp://alephblog.com/2008/03/21/fifteen-notes-on-the-credit-markets-and-other-markets/comment-page-1/#comment-17311 Andrew Fri, 21 Mar 2008 17:45:47 +0000 http://alephblog.com/2008/03/21/fifteen-notes-on-the-credit-markets-and-other-markets/#comment-17311 Disregard my last question. Having reviewed the RJA prospectus, I assume the answer is the difficulty in replicating the holdings. Disregard my last question. Having reviewed the RJA prospectus, I assume the answer is the difficulty in replicating the holdings.

]]> By: Andrewhttp://alephblog.com/2008/03/21/fifteen-notes-on-the-credit-markets-and-other-markets/comment-page-1/#comment-17310 Andrew Fri, 21 Mar 2008 17:17:34 +0000 http://alephblog.com/2008/03/21/fifteen-notes-on-the-credit-markets-and-other-markets/#comment-17310 I appologize in advance if this question is foolish, but why bother with agricultural ETF's or ETN's if you have access to the futures markets? I appologize in advance if this question is foolish, but why bother with agricultural ETF’s or ETN’s if you have access to the futures markets?

]]> By: James Daileyhttp://alephblog.com/2008/03/21/fifteen-notes-on-the-credit-markets-and-other-markets/comment-page-1/#comment-17309 James Dailey Fri, 21 Mar 2008 15:29:41 +0000 http://alephblog.com/2008/03/21/fifteen-notes-on-the-credit-markets-and-other-markets/#comment-17309 David makes a great point on ETN's. I've used the relatively new Elements ETN in Ag (RJA) because I like the underlying index, but also because the credit backing the ETN is a Swedish Commercial bank that is owned by the Swedish government. I admit to being ignorant on the ownership agreement or that government's history of financial crisis management and/or backing up banks in such a crisis, but I would venture a guess that it is just as good if not better than owning credit of Barclays... which is probably to big to fail considering that the Brits bailed out a relatively small firm like Northern Rock. One must weigh the credit risk with the benefits of access to real index returns. Many of the ETF's suffer from managing futures positions and the gain/loss of returns from whether the futures curve is in backwardation or contango. One need only look at how the major Oil etf has done relative to spot crude prices to see this impact - it has been MAJOR. There is nothing worse than getting a trade/investment theme correct and failing to benefit because the vehicle used doesn't track what you expect it too! David makes a great point on ETN’s. I’ve used the relatively new Elements ETN in Ag (RJA) because I like the underlying index, but also because the credit backing the ETN is a Swedish Commercial bank that is owned by the Swedish government. I admit to being ignorant on the ownership agreement or that government’s history of financial crisis management and/or backing up banks in such a crisis, but I would venture a guess that it is just as good if not better than owning credit of Barclays… which is probably to big to fail considering that the Brits bailed out a relatively small firm like Northern Rock.

One must weigh the credit risk with the benefits of access to real index returns. Many of the ETF’s suffer from managing futures positions and the gain/loss of returns from whether the futures curve is in backwardation or contango. One need only look at how the major Oil etf has done relative to spot crude prices to see this impact – it has been MAJOR. There is nothing worse than getting a trade/investment theme correct and failing to benefit because the vehicle used doesn’t track what you expect it too!

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