Friday, September 20, 2013

Degree of Leverage Required To Earn Average Returns in Various Interest Rate Trades

A very nice catch by the FT's Tracy Alloway:

This is almost exactly what I was thinking of when I intro'd yesterday's "Is Alpha Dead? Beating the Market Has Become Nearly Impossible":
Fortunately, in real markets anyway, you can take either side of  a bet.
That's why, when I see stories on the end of the commodity supercycle or some such, I get as interested on the short side as I would chasing the latest anti-obesity-drug-touting-biotech on the long.
It helps....
The returns are still there. You may have to leverage it up and it isn't easy money as you really better be right, but the returns are still available. And you don't have to gear it at 100:1 as LTCM did.

See also Izabella Kaminska's quick hit, "End of a commodity hedge fund era".