People have been getting into arguments at grocery stores hoarding toilet paper, hand sanitizer, and bacterial soap among other things. News outlets have reported on Amazon and eBay pulling listings trying to “gouge” prices. But would price gouging create a market where items like this actual get rationed due to adjustments in demand? In this episode Derek goes over elasticity of prices and arguments for and against charging higher prices that would adjust supply and demand back to equilibrium. ...
Mar 16, 2020•20 min•Ep. 60
The Federal Reserve just announced an emergency 50 basis point cut in the fed funds rate. What does cutting interest rates mean? What are the differences in the fed funds rate, discount rate, and IOER or interest on excess reserves? How does a fed rate adjustment effect my mortgage rate? Plus, how do they figure what the probabilities are that the Fed will move rates at future meetings? What is the Fed Funds Rate? What is the Discount Rate? What is the IOER or interest on excess reserves? What i...
Mar 08, 2020•22 min•Ep. 59
Strong opinions exist on each side of this debate. Some believe plowing money to pay off the mortgage early is better. Others would rather step up their periodic investments and keep a low rate mortgage? In this episode Derek walks through how interest rates affect mortgage monthly payments. Key things to consider when evaluating which is better pay off early or invest. Also, what percentage of your monthly payment goes to principle and to interest depends on where you are in the loan and curren...
Mar 01, 2020•35 min•Ep. 58
Michael Lewis wrote the book “The Big Short” that later was turned into a movie starring Christian Bale, Steve Carrell, and Ryan Gosling, Brad Pitt, and Jeremy Strong. The movie focused on 3 different investors who bet against mortgage bonds before the Great Recession and housing market collapse using credit default swaps. Want to get a primer on swaps and how they work before you watch or re-watch the movie? What are Credit Default Swaps (CDS)? What do bond ratings mean? What are the annual pre...
Feb 15, 2020•25 min•Ep. 57
Bonds prices are a function of current interest rates compared to their present value of cash flows and return of capital (baring defaults) at maturity. So, with interest rates so low around the world, is this a period of higher risk in bonds (fixed income)? How much more sensitivity to interest rate changes do we currently see in the sector? How do callable bonds mute the positive effects of reductions in market rate of interest? How does the US Aggregate Bond Index compare to the Global Ex-US ...
Feb 09, 2020•25 min•Ep. 56
Tesla stock it seems is always in the news. Between it’s CEO Elon Musk and the latest price action, it has been commented on ad nauseum. Lately, the terms short squeeze and short interest ratio have been mentioned as CNBC commentators talk about those who have been betting against the stock and taking some losses of late. So what is short selling and what do the terms short interest ratio, days to cover, and short squeeze really mean? What is short selling? Borrowing shares to sell short What is...
Jan 26, 2020•20 min•Ep. 55
With the new decade came prediction after prediction trying to call what the next decade’s compounded growth rate will be. Many have said investors need to prepare for lower returns based on the numbers. But what if other prognosticators have a different view that is more bullish? We can’t predict future market returns, but we can talk through what they are looking at valuation and return wise to help you see both sides of it. Why are CNBC and FOX Business guests saying to expect lower future ma...
Jan 21, 2020•22 min
Recently I’ve been asked by several people about the FIRE movement. Financial Independence and Retire Early. This strategy relies on increasing percentage of salary in savings, reducing expenses, and assuming a compounded rate of return. Then when they have 25 times their desired retirement salary, they achieve the FI. So, does the math add up? Does the 4% rule still work? And what might they and aspiring retirees be missing? Sequence of returns may play a larger part plus the 10 years prior nee...
Jan 07, 2020•34 min•Ep. 53
Watching financial media, you hear terms like PE and Forward PE multiples, revenue, margins expanding or contracting, and share buybacks. So, what does it mean for a stocks price when multiples increase or decrease? What is the attribution for earnings increasing or decreasing? How do you calculate net profit margin? Earnings releases can be more complicated than they need to be. In this episode, Derek Moore explains scenarios in detail so you can gain a better understanding of all these terms a...
Dec 23, 2019•25 min•Ep. 52
Recently a JP Morgan analyst highlighted how wrong stock market predictions would have caused investors to lag the markets by up to 60%. What were some of the since disproven predictions? Why do people read and follow some of this stuff? Although analysts also have predictions that prove true, if you have a hedged portfolio strategy why should you even care what people are saying? Discussed in the episode are some calls by Elaine Garzarelli , Nouriel Roubini, Jeff Gundlach, Peter Schiff, Carl Ic...
Nov 26, 2019•29 min•Ep. 51
Jay Pestrichelli and Derek Moore are back to walk through several examples of how we hedge concentrated stock risk. Various techniques like direct hedging, covered calls, volatility selling overlay, and more are talked through. See how it would play out with stocks like Conagra, Apple, and Proctor and Gamble where they explain targets and outcomes when hedging was needed and when it wasn’t. What are the tradeoffs between upside capture and hedging? Plus, get a sense how it may be more complicate...
Nov 19, 2019•50 min•Ep. 50
ZEGA Financials’ Jay Pestrichelli joins to discuss how risky single stocks are and how we have developed a system to hedge that risk. Some people want to hold concentrated stock positions due to tax consequences and are reticent to sell. See how using a hedging strategy can help manage risk, schedule diversification, and use hedging profits to buy more shares otherwise known as the hedger’s opportunity. See the show notes below for links discussed in episode and other Jay and Derek episodes. Wha...
Nov 13, 2019•42 min•Ep. 49
You might have read that covered calls are a good way to hedge. They do have utility for investors, but they are not an optimal hedge. Understand how they only minimally reduce the downside while reducing the upside. Plus, see how low interest rates have undermined call premiums. What are covered calls? How much do covered calls hedge the downside? How do covered calls cap upside moves? Examples of covered calls and the premium received vs. downside hedge What are options collar strategies? What...
Nov 02, 2019•20 min•Ep. 48
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 in cash or bonds? Wouldn’t they want stocks when they were cheaper? This highlights how investors who panic an make rash decisions can do so at the very worst times. Why do investors panic? How do...
Oct 27, 2019•21 min•Ep. 47
You here quite a bit of talk about the top 1% of wealth in the media. But what if it was easier than you think to land yourself into the top 10% of wealth in the United States and across the world? Derek Moore takes you through the numbers explaining what asset levels it takes to get into various percentiles of net worth and runs the numbers on what type of assumed growth rates and contributions it might take over various time periods. How much net worth does it take to get into the top percenti...
Oct 20, 2019•24 min•Ep. 46
Post corporate tax cuts of 2018, share buybacks have been talked about both in positive and negative lights. Some think companies should use their free cash flow differently. But how do share buybacks benefit shareholders by boosting earnings per share? Key Takeaways: What are share buybacks? How share buybacks increase earnings per share or EPS Similarities between dividends and share buybacks How to calculate a share buyback yield versus dividend yield Uses of free cash flow to equity sharehol...
Oct 12, 2019•20 min•Ep. 45
No one likes paying capital gains tax (although better than losses). Yet what if you were paying on gains only due to inflation where your purchasing power didn’t grow? Recently some U.S. Senators wrote a letter to the Treasury Secretary Steve Mnuchin urging him to consider indexing capital gains for inflation. What would that mean for individual investors? What would it mean to index capital gains for inflation? Examples showing differences in capital gains tax due when cost basis is indexed fo...
Sep 29, 2019•19 min•Ep. 44
Debit and deficits continue to be in the news. This includes funding levels for public state pensions. But what does it mean to be underfunded or overfunded? What discount rate or investment return assumptions are they using and are they realistic? Derek Moore discusses and simplifies what makes up this discussion and ways that they could get on track. What makes a pension underfunded? Are investment return expectations realistic? Which states are the worst regarding funding levels? Differences ...
Sep 22, 2019•20 min•Ep. 43
It seems like lately there has been more an more talk about interest rates moving closer to zero in the U.S. So which bonds will move the most when rates move lower (or higher)? Derek talks through various types of bonds and how they are different plus see how to tell how much a change in rates can hurt or help investors holding bonds. We even touch on bond convexity! How do interest rates change the value of a bond? What is modified duration and how it can project a rise or fall in value? Intro...
Sep 15, 2019•24 min•Ep. 42
Companies can issue debt via bonds to raise capital. But how can you tell whether they have too much debt issued? What are some key ratios to look at to evaluate for yourself? Derek Moore explains how interest rates effect the cost of capital (WACC) and how to see when a stocks debt is maturing and what interest rates they must pay. And what are Zombie Companies? Interest Coverage Ratios Debt Ratio (Total Debt/Total Assets) Debit to Equity (Total Debt/Stockholders Equity) WACC Weighted Average C...
Sep 08, 2019•20 min•Ep. 41
Commentators on CNBC are always opining about whether a market is overvalued or undervalued. But how would you look for yourself to make your own opinion? In this episode Derek Moore reviews the S&P 500 Index earnings per share, forward earnings estimates, PE Ratio, Forward PE ratio, and more. Plus, a review of what composes earnings per share growth including margins, share count, and revenue. Learn how to form you own opinions. S&P 500 Index Earnings Per Share S&P 500 PE Ratio and ...
Sep 01, 2019•21 min•Ep. 40
Lately commentators have been trying to predict the next recession. But what would you look at to try and tell for yourself what the numbers are? In this episode Derek Moore reviews the 5 areas that the NBER per their site uses to develop their criteria to call recessions. What is a recession? NBER historical list of recessions Real GDP Growth Rate Real Median Income Growth in the U.S. Unemployment Rate Retail Sales Monthly Growth Rate Industrial Production Index Real versus Nominal Growth Rates...
Aug 24, 2019•23 min•Ep. 39
How risky is just holding a single stock in a portfolio? Often either through company stock grants or holding company shares for very long periods where it has appreciated investors may wind up holding either a single stock or just a few. This creates single stock risk and has both systematic stock risk and idiosyncratic stock risk. Derek Moore reviews how the volatility via the standard deviation may increase as well as some interesting historical data on Apple stock regarding its annual drawdo...
Aug 11, 2019•22 min•Ep. 38
Derek Moore explains the theory of time decay in options otherwise known as options theta. How does the erosion of time decay benefit option sellers? Plus, how much do position decay from day to day. How much of a factor is theta time decay relative to other things like volatility and underlying price movement? And how does options time decay work over weekends and long holiday weekends with regard to theta? Benefits of options time decay to option sellers What is options theta? How much do opti...
Aug 03, 2019•20 min•Ep. 37
Derek Moore and Jay Pestrichelli team up once again to discus how probabilities are used to understand where to sell short options to generate premium. Discussed in this episode are who is on the other side of the short volatility trade, how changes in implied volatility impact expected multiple standard deviations of expected movement, and how value at risk VAR impacts option premiums. Plus, they discuss how professional management adds value especially when option spreads widen and volatility ...
Jul 21, 2019•37 min•Ep. 36
Jay Pestrichelli once again joins host Derek Moore to discuss all things hedging and options. This week they talk through some surprising data Jay compiled that shows markets are within 3% its all-time highs 36% of the time. Many people like to try and time the market thinking markets are too high. Another data set shows often markets never get a pullback during bull runs. Plus, Jay and Derek test out new hedging analogies on the fly to see if they work. How often are stock markets within 3% of ...
Jul 07, 2019•40 min•Ep. 35
See what factors determine how an option is priced. Whether on a stock index or underlying stock, time, implied volatility, interest rates, dividends, and distance in or out of the money all play a role. Known as the Black-Scholes model, Derek breaks down the inputs and which ones are more significant not only to option premium levels but also changes in price. Explaining the option greeks Delta, Gamma, Theta, Vega, Rho What is implied volatility and why is it so important in options pricing? Ho...
Jun 30, 2019•19 min•Ep. 34
There are now over $12.5 Trillion dollars outstanding of negative yielding bonds. That’s right, theoretically you are paying some country to lend them money. In reality you don’t write a check twice a year. The idea of a negative yielding bond may not make much sense. Derek Moore will explain how negative yielding bonds work and how much more sensitive (and therefore risk) they are to changes in interest rates. Plus explain how the time value of money is thrown off by these low or negative rates...
Jun 23, 2019•22 min•Ep. 33
Want a Bond refresher? Derek Moore talks about how bonds work, what effects prices and rates, and how to look at corporations and their debt. How do bond ratings work and what do they mean? What is the interest coverage ratio? What is the corporate debt ratio? Differences between government and corporate debt How interest rates effect bond prices What is the yield to maturity? What is the yield to call and why do corporations call bonds early? What is a bonds coupon rate really mean? What is mod...
Jun 16, 2019•24 min
Broken Pie Chart | Episode 31 With Derek Moore Is The Federal Reserve Really That Bad At Long Range Economic Forecasts? Show Summary: In this episode Derek Moore discusses how the Federal Reserve economic survey projections have been off, especially for long run economic forecasts. He also clarifies the difference between the Fed Funds Rate, Discount Rate, and IOER or Interest on Excess Reserves. Plus, Derek explains where to find the probabilities for the Fed Funds rate by looking at the CME Fe...
Jun 12, 2019•23 min•Ep. 31
