Thursday, September 27, 2012

QE3 Fixed Income Aftermath

So what happens to fixed income after QE3? I thought it would be interesting to look at the max drawdowns versus the current 30-day SEC yields for a select cross-section of the fixed income ETF space for the past 52-weeks. All yields are quite compressed as is expected. Yields are so compressed that only MBB (US agency-based mortgage bonds) has a 30-day SEC yield exceeding the max drawdown. TIPs have negative yield as was true for quite a while now. It seems the contagion of return-free risk has spread to most of the fixed income ETF universe at this point.

Wednesday, September 26, 2012

Seeking Yield

Prolonged ZIRP has risk-averse conservative investors to a lot unlikely places. Mike Ashton, the Inflation Trader, who seldom recommends specific investments, has given a low-down on series I savings bond as a last bastion of "risk-free" inflation matching yield. Since TIPs are negative and nominal Treasuries have horrendously negative real yields, there aren't a lot of safe havens that make sense anymore. Investors have piled on corporates, emerging market debt, preferred shares, and even dividend-growers to bump up the scant yields they are seeing everywhere. Today, dividend-payers and growers (Schwab's dividend ETF (based on DJ US Dividend 100 Index) has a 30-day SEC yield of 2.99%) are looking like a relatively good deal when compared to Treasuries. But is all this risk worth it and what about the opportunity cost of sitting on short-term instruments? I bonds are interesting in that they have relatively high current yield (2.2%, the same as CPI-U) and are exempt for state income taxes (2.48% taxable equivalent yield for high income tax states). In fact, when the proceeds are used for educational purposes, it is also exempt for federal income taxes (meaning 3.8% taxable equivalent at maximum income tax rates). The term structure of these instruments are standardized: 30-years but redeemable penalty-free from 5-years. These instruments are not transferrable so there is no secondary market. The downside is that the excess fixed rate of return (set by Treasury) is guaranteed to be zero (which is better than TIPs right now) and each person can buy at most $10k worth of these.

Tuesday, September 25, 2012

Compiler Intermediate Representations

Recently I have been studying up on various intermediate representations for compilers. Heads and shoulders above the rest in popularity is of course LLVM. Interestingly, the more I read about and work with LLVM, the more I see the parallels with the FLINT intermediate representation used in Standard ML of New Jersey (SML/NJ). One of LLVM's key features is the so-called language-independent type system. This type system enables overloading of LLVM instruction opcodes to keep the instruction set small. The type system is also supposed to help debug optimizers. At least in terms of this application, FLINT's typed intermediate representation was also intended to help debug optimizer phases.

Apart from garbage collection, the other common facility intermediate representations and virtual machines must support is exception handling. LLVM supports exception handling and other forms of non-standard control flow through something evocative of delimited continuations in the form of two instructions invoke and unwind.

Wednesday, September 12, 2012

Political Apathy

It is very interesting that although the citizens in many other countries still look to America as a model in civil political discourse, we ourselves are growing increasingly disenchanted and cynical. At some level, I am not sure whether public discourse as a whole has taken the wrong road rather than just political discourse. Moreover, the apathy is even more startling. As we as a society become more polarized, we are simultaneously becoming more apathetic. The pollyanna in me tells me not to give up on democracy. Though we are constantly bombarded by talk shows and sound bytes, we have to recognize oratory hyperbole when we see it. As an oratory device, there is nothing inherently moral or amoral about hyperbole. One just has to be more discerning and careful about interpreting such claims and statements. Truly, the device is as old at public speaking itself. Although modern living has afforded with a multitude of means to get connected with our representatives, government, and each other, far more so than 100 years ago, can we really say that we are that much more engaged in public life? Take a step back. This country, although relatively young, has been through a whole lot of everything, from civil war, world wars, economic panics, and political scandals. Are politicians truly that much more untrustworthy when compared to that of the Gilded Age to warrant our disengaging from public life? In the days leading up to the Civil War, the country was truly divided. A President who was despised by whole swathes of the country was elected. Instead of disengaging from public life, whole states seceded from the Union. Truly, it is in these trying times that democracy must prove itself.

Saturday, September 8, 2012

The Federal Reserve in Pop Culture and Mainstream Politics?

photo by wallyg via PhotoRee

It is really quite interesting how the Federal Reserve ended up so squarely in the limelight in recent years. Sure, US Presidents, candidates, and other politicians have argued for and against national banks since the days of Andrew Jackson and Alexander Hamilton, but monetary policy has not been so close to the mainstream of political discourse in recent years as it is today.

Friday, September 7, 2012

Central Bank Intervention Risk: ECB Outright Monetary Transactions and Federal Reserve Quantitative Easing

It looks like all sorts of risk markets have taken off for the sky with all such markets looking at brand new multi-year highs or at least looking to reach there. Even today's underwhelming Nonfarm payroll jobs number could not dent the continued enthusiasm for central bank action past, present, and future. How long this will last is the question. In regards to the ECB, it is no longer hope but a known quantity, the newly announced and oftentimes leaked Outright Monetary Transactions (OMT) for "unlimited" bond buying on the short end of Euro sovereign debt. The bond buying program is said to be sterilized. Despite that claim, gold prices have shot up dramatically these past few weeks and continue to outperform risk markets. Next on tap is the FOMC decision. Some anticipate QE3 sooner than later, especially since Bernanke has mostly focused on the employment part of the Fed mandate as of late.