Whether owning a home or owning stocks creates strong opinions on both sides. But what would be a way to evaluate the differences? Historically how have returns of homes vs the S&P 500 Index compared? What homeowners miss about gains in the price of their home. Historical annualized returns housing vs the stock market Is your house an asset or a liability? How to think about your total true cost of owning a home Your home as a hedge on inflation Rent vs Own Historical median home prices Unit...
Oct 18, 2020•25 min•Ep. 90
Rates jumped 30% in the US Treasury 5-year maturities this past week! Off course they only went from .25% to .33%, but why are some analysts on CNBC saying the next 10 years bonds may not return the same amount? What are the risks in bonds should interest rates rise? Do bonds offer a negative real return after inflation? End of the Bull Market in Bonds? Bonds sensitivity to interest rate changes 1970s and 1980s inflation effect on bonds total returns The 60/40 portfolio in the future with low in...
Oct 12, 2020•22 min•Ep. 89
Your starting to hear about the options market pricing in huge volatility for November. This week, there was talk about the December contract getting bid up in case of a contested election. What does that mean? And how did volatility react during the Bush vs. Gore Florida recount and supreme court decision in the 2000 Presidential Election? VIX Futures VIX before and after Bush v Gore 2000 election November VIX futures vs October and December How much more volatility is the November futures pric...
Oct 06, 2020•21 min•Ep. 88
As October is here naturally the stories start to appear around volatility and historical market returns. Many people assume October is the worst month for the stock market. Is October the most volatile? What is the average stock market returns by month? In this episode we will review and answer those questions. Plus, is it more important for the market to expect volatility in the “implied volatility” vs historical volatility? Stock market returns in October Stock market volatility in October Hi...
Sep 27, 2020•20 min•Ep. 87
Jay Pestrichelli co-hosts this episode with Derek where they discuss the continued talk around Robinhood Traders buying deep out of the money options to force market makers to buy stock. Plus, they discuss the reported $4 Billion spent buy Softbank to purchase option positions in some tech names. How do market makers hedge and the challenges with short term deep out of the money call option buying? Plus, why they both hate and love the idea of covered calls. Robinhood Option Traders buying cheap...
Sep 19, 2020•47 min•Ep. 86
Lately you have probably heard analysts going on CNBC saying given where interest rates are valuations are or are not overstretched. But how do interest rates, and low interest rates, affect stock valuations? How to they affect the cost of capital and the ROIC or return on invested capital? How do you discount down future earnings based on a discount rate? Why interest rates matter to investors The present value of future earnings Interest rates and the WACC or weighted average cost of capital H...
Sep 13, 2020•21 min•Ep. 85
Many people know they should understand what their current net worth is. Many also know they should get a handle on their cash flow versus income. Yet it often seems too complicated. Lets uncomplicate personal finance a bit and see how to come up with your current assets and liabilities quickly and easily. Also, how to compile and work through your expenditures versus income. The larger expenses matter more than your little Netflix monthly expense Liquid vs Illiquid assets and liabilities Is a h...
Sep 07, 2020•27 min•Ep. 84
The US Presidential election season is in full swing. But does it matter for the Stock Market which party gets elected? Spencer Wright from Halbert Wealth joins Derek to review some surprising historical statistics around market returns and GDP growth. Including some surprising data on some Presidents you might have been better or worse. Plus, they go through Professor Alan Lichtman’s 13 Keys model to try and predict this year’s election. Historical stock market returns by Presidents and Party i...
Aug 30, 2020•1 hr 4 min
If you listen to CNBC or Bloomberg you probably hear analysts talking about how the Forward PE Ratio is higher than historical averages on the stock market. But how are they figuring these numbers? How does the drop in earnings in the S&P 500 in 2020 due to Covid19 compare with earnings drops in 2008 and 2009? How long did it take them to recover? What is a Forward PE Ratio? How is the Forward PE Ratio calculated? What is the Earnings Yield? How is Earnings Yield calculated? Drop in earnings...
Aug 23, 2020•24 min
For years many have pointed to the end of the 60/40 Portfolio’s reign as a mass recommended asset allocation. But even in 2020, it still worked as bonds rallied and interest rates dropped to record low levels in the US. But with rates this low, do the risks now outweigh any potential benefits? How much more could bonds rally due to changes in interest rates given where they are? How negative could rates go? What is 60/40 Stock Bond portfolio? Is it realistic to think bonds will have same run as ...
Aug 16, 2020•28 min•Ep. 81
In the recent Covid financial crisis the Federal Reserve “printed” a bunch of money that increased the money supply. This should lead to massive inflation, right? Well, maybe not if we look at the relationship between the velocity of money (how often the same dollar is used) and the inflation rate. See how to figure out the velocity of money. What is the money supply and where to find it? What is the Velocity of Money? What is the money supply? Difference between MZM, M1, and M2 money supply Rel...
Aug 09, 2020•25 min•Ep. 80
Apple released earnings last week but also announced their board authorized a 4-1 stock split. Do stocks splits matter anymore? And would a 4-1 Apple stock split completely shake up the weighting of the Dow Jones Industrial Index? Effect of Stock Splits Authorized stock split vs. implemented How a stock split affects a company’s market cap What changes around earnings history and price history post stock split? How are companies in the Dow Jones Index weighted? Price weighted indexes vs. market ...
Aug 02, 2020•16 min•Ep. 79
Last week we talked about Tesla’s potential to qualify for the S&P 500 Index. Post earnings, some new option traders were surprised by the stock and options prices post positive earnings release. Plus, a paper recently updated called “Day trading for a living?” compile data on day traders trading futures contracts. The results were not too promising but what did the paper leave out? Tesla options implied volatility in premiums post earnings release Robinhood traders on Reddit message boards ...
Jul 26, 2020•25 min•Ep. 78
Tesla has had a meteoric rise lately. At their recent high their market cap would have put them in the top 10 weighted companies of the S&P 500 Index. But will Tesla have the required consecutive quarters of positive earnings? What are the criteria for a company to be included in the S&P 500 Index? When does S&P do their index rebalancing? Which companies have been added and deleted from the index? Tesla current market cap What would Tesla’s weighting be if they made the S&P 500 ...
Jul 19, 2020•20 min•Ep. 77
Why doesn’t the stock market and economy both go up or down with one another at the same time? How is the market a forward-looking discounting mechanism? How do recessions and earnings expectations play into underlying price of the S&P 500 Index? Atlanta Fed GDP Now Comparing historical recessions by examining real GDP declines Great Depression vs. Financial Crisis vs 2020 Covid19 Recession Looking at consensus S&P 500 Index earnings forecasts 2020, 2021, and 2022 How the market does not...
Jul 12, 2020•25 min•Ep. 76
The Federal Reserve through their SMCCF or Secondary Market Corporate Credit Facility have been buying bond etfs and individual bonds. What have they been buying and how much? Where to find the list of ETFs and Bonds purchased by the Fed. Plus, TIPS or Treasury Inflation Protected Securities (Bonds). How do they work? How do they hedge against inflation? And How are TIPS bonds adjusted along with inflation. Where to find list of ETFs and bonds the Federal Reserve is buying? What is the Federal R...
Jul 06, 2020•28 min•Ep. 75
Semi co-host Jay Pestrichelli joins the program to discuss all things VIX Index, what it measures, how stocks and markets each have their own volatility, and how implied volatility in the options market can determine probability of future moves. What does the VIX Index represent? What is implied volatility in the options markets? What is the difference between implied volatility and historical or realized volatility in markets? How implied volatility helps calculate current market-based probabil...
Jun 28, 2020•47 min•Ep. 74
Often younger or newer investors just starting the process of saving and investing ask what the best strategy to build wealth quickly? The power of compounding and starting early are key, but periodically investing each month and making it automatic can build wealth surprisingly well. In this episode we talk about key areas in what younger investors should be doing including 401k, systematic investing, and how dollar cost averaging lets you buy more lower over time. Plus, surprising statistics r...
Jun 21, 2020•25 min•Ep. 73
Quasi co-host Jay Pestrichelli, CEO of ZEGA Financial, is back on to discuss whether the lower interest rates for longer crowd is on to something. Plus, while interest rates may cause home price inflation, the data points to other reasons car prices have continually risen. What is the real inflation rate? The Federal Reserve doing “whatever it takes” to keep rates down and buying bond funds. Plus, risk to bonds in a low rate period and what alternative strategies that use synthetic options to re...
Jun 14, 2020•48 min•Ep. 72
Graniteshares CEO William Rhind joins Derek Moore on the podcast to discuss how technology disruption is causing some companies to adapt and thrive while others falter. Can you focus on eliminating companies who are likely not positioned for the future while keeping those that are? How the Covid-19 crisis may have sped up many technology innovations while zombie companies face pressures. Value vs Growth debate. Was Dominos a tech company all along? Plus, European Football relegation and promotio...
Jun 07, 2020•42 min•Ep. 71
How does the social security administration estimate what your monthly benefits? How do they adjust prior earnings for inflation? You can look up your earnings history and monthly benefit estimate at the social security site, but how do they come up with their numbers? How do they determine the cost of living adjustments? How much difference is there in taking social security at age 62 vs full retirement age? What are some considerations in that decision? How social security uses your highest 35...
May 31, 2020•30 min•Ep. 70
Jay Pestrichelli, ZEGA Financials’ CEO joins Derek Moore to walk through how this bear market compares to the 2008 Financial Crisis, 1997-1998 Asian Contagion, and 2000-2001 Dotcom crash. Are all these bear markets the same? Jay explains his rule of 3 showing the catalyst in each and how they are different. Plus, Derek describes how this last sharp decline resembles the trading action in August of 1998. What lessons can we take out of bear markets with regards to how sectors and regions tend to ...
May 24, 2020•52 min•Ep. 69
Watching the financial news, we have been seeing some people make predictions of a deflationary period. At the same time others point to growing debt levels and Federal Reserve money printing as precursors to inflation. But what if deflation could be both good at the same time? Falling prices can happen by technological innovations or falling demand. One is better than the other. But for indebted countries, individuals, and companies’ deflation can increase the real value of debt. That is potent...
May 17, 2020•31 min•Ep. 68
2011 saw the release of Margin Call, a movie staring Kevin Spacey, Jeremy Irons, Demi Moore, Stanley Tucci and more. A very strong acting performance from the whole cast. But what was the problem they pointed to with their (Var) or Value at Risk Formula? What did the junior analysts figure out that the firm did not? Margin call was focused around 24 hours at an investment bank on the verge of a problem with their mortgage backed assets. Learn about another good finance movie plus an explanation ...
May 10, 2020•24 min•Ep. 67
In the 1990’s the term “Zombie Company” originated out of Japan during their lost decade. Today though we are hearing more and more about Zombie Companies in the U.S. Zombies are companies that only make barely enough net income to cover their annual interest costs on debt. Or, they may not even make enough to cover their annual debt and must borrow more money. What are Zombie Companies? Why are Zombie Companies bad? And how can you determine if a company is a Zombie Company or not? What are Zom...
May 03, 2020•22 min•Ep. 65
On April 20th, the price of a WTI (West Texas Intermediate) futures contract representing 1000 barrels of oil went to negative -$37 a barrel. How is it possible that you could theoretically be paid to buy oil? How do oil futures work and how storage of oil works with regard to the futures market? The quick answer is, no you cannot buy a single barrel of oil and store it in your garage. Plus, using a silly Ikea couch example to explain why people would pay you to take their oil. How did the price...
Apr 26, 2020•23 min•Ep. 65
Given the recent Coronavirus selloff in the markets, I thought it might be interesting to view investor actions through the prism of the 2008 crisis in this replay of an earlier podcast episode. Recently I found several different research pieces showing how at the very lows of the Great Recession in 2009 the percentage of funds in money market funds was at its highest. In 2009 the fund flows to bonds were greater than the previous 5 years combined. So why with equities so cheap did people stay i...
Apr 19, 2020•21 min•Ep. 64
Recently you’ve probably heard a lot of financial news media referring to the widening of spreads. Specifically, the High Yield Spread has widened above 1000 basis points. But what does it mean when the high yield spread increases? Get an overview on spreads widening or tightening. Plus, see how differently rated parts of the bond fixed income market see their spreads widen or narrow compared to US Treasury Bonds. What is the High Yield Bond Spread? What does it mean when bond spreads widen? Com...
Apr 05, 2020•22 min•Ep. 63
It’s official, we reached a bear market in stocks. But when and how long will a pending recession last? How do you know an official recession has been declared? What is a recession? Two consecutive quarters of negative GDP growth NBER vs GDP 2 quarters decline Calculate GDP C + I + G + (X – M) Annualizing GDP quarterly growth rate Cyclical, Structural, or Event Driven Bear Markets Supply Shocks vs Demand Shocks Recoveries: U Shaped vs. V Shaped vs. L Shaped Mentioned in this Episode: Percent cha...
Mar 31, 2020•33 min•Ep. 62
An official bear market has occurred and now down over 20% from recent highs. The speed of the 2020 decline only took 22 days to happen. How does that compare with previous bear markets? How long does it take to recover on average? And when do they officially call recessions? Get a sense of the numbers behind previous downturns. What is a Bear Market? Average Time from Peak to Trough in Bear Markets? Average Time from Trough to Peak recovery? What is the HY Yield spread and why it matters Does e...
Mar 22, 2020•31 min•Ep. 61
