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Value: Wow, things are priced optimistically.
Short-term trend: Reasons for optimism!
Long-term trend: There could be more bad stuff ahead.
Carry: There's a lot of uncertainty, so we'll pay you a lot to bet that things remain as they are.

Multi-factor: OK, everyone - let's vote!
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Darren
@ReformedTrader
"The rate futures (Fed fund, SOFR) markets are now pricing the chance of negative rates for 2021. Eurodollar rate options are showing volume and pricing that give negative rates a real albeit low probability of occurring."

mrzepczynski.blogspot.com/2020/05/future…
Read 3 tweets
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Darren
@ReformedTrader
1/ The Rate of Return on Everything (Jordà, Knoll, Kuvshinov, Schularick, Taylor)

"Our new, comprehensive data set includes total returns for equity, housing, bonds, and bills in 16 advanced economies from 1870-2015, revealing new insights and puzzles."

papers.ssrn.com/sol3/papers.cf…
2/ Returns of single-family homes = capital appreciation + estimated rental yield.

Caveats!
* A national housing index is not investable.
* Appreciation rates and (especially!) rental yields vary from region to region.
* Property taxes are not included (but management fees are).
3/ Housing has comparable returns to equities but w/ lower volatility (higher geometric return).

At first, this looks like the low vol factor, but the housing index is not investable. The 10% vol is probably not achievable.

Note the poor risk-adjusted returns of bonds as well.
Read 23 tweets
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Darren
@ReformedTrader
1/ Steady returns come from either extensive diversification (stocks+bonds+commodities+alts) or from taking hard-to-measure risks (paychecks with the risk of getting fired, hidden credit risk of a bond or insurance product, tail risk from selling options).
2/ Diversification much better.

A micro-business (no loans, no employees, no long-term real estate leases) diversifies income across multiple clients. Owning several reduces the risk of getting bored because you get to use multiple skills sets with different seasonal cycles.
3/ Low-probability but high-risk events matter a lot.

For example, in March, everything hit the fan at the same time: people's jobs, their leveraged homes, their stocks, the credit risks and illiquidity in corporate bonds and insurance products, and unanticipated health risks.
Read 4 tweets

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