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How To Earn 10% In A Low Yield Environment?
A key challenge for most investors is meeting return bogies, but as Citi notes in the following 6 slides, generating a 10% return in this low-yield environment is still possible (aside from riding short-squeezes in #N/A P/E stocks) as long as you have the intestinal fortitude for the kind of leverage required...
How to Earn 10% in a Low Yield Environment?
Although less acute than early in the year, a key challenge for at least some investors is meeting return bogies.
How Much Leverage is Needed to Earn 10%?
We looked at how much financial leverage is needed to earn 10% for select assets. Required leverage is certainly higher than the historical norm, but variations across the markets are extraordinary.
How Risky are Levered Positions?
With respect to what could happen to levered positions in a tail scenario (defined as the single worst monthly performance during the post-Lehman period), we find that the most resilient assets tend to be cash corporates.
We also looked at the likelihood of each asset generating a negative outcome, and again cash corporates tend to fair well.
We also looked at the chance of beating a 10% return bogey (post-Lehman era), and once cash corporates look fairly attractive.
And the Winner Is...
For various risk metrics we rank each asset relative to the overall group (from 1 to 13, with 1 being the best). Using the average score for our overall ranking, we find that corporates are compelling.
So there it is, levered loans is the most 'efficient' way to gain 10% on a risky/levered basis - oh aside from the fact that The Fed, just yesterday,. announced it plans to introduce new loan underwriting standards for just that business...
Source: Citi
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Leveraged loans - ponzinomics 101. This might be able to go on for a long fucking time, but I sure don't want to be trying to get through the theater door when somebody eventually notices the fire.
Yup, everything looks swell and on the up n' up until you run into a BEAR.
http://www.youtube.com/watch?v=KbuUWf56RTA
So, like if I would rather earn 20%, I should just double my leverage, right?
: )
Some of those "income" streams seem to hemorage "income" in adverse circumstances, what's double leverage on coronary bleeding? Obamacare?
What you are lose on individual transaction, can make up in volume, no?
Money History #2 with Mike Maloney
That's right, lever up the most illiquid asset out there. Wasn't this ass wipe around in 2008 and the CLO debacle? Either way there is MORE leverage in that space today due to all the newly created BDC's out there. This time these loans are going a LOT lower than the 40-45% decline they did in 2008/2009. Some of these BDC's, which are nothing more than leveraged closed-end funds, will get wiped out completely.
Pay off your credit cards.
I'll admit it, I hold some paper on the places I sell. 20% to 30% down, 6% to 7%, 15 years. Yeah, it could blow the fuck up in my face, but I could be dead from a heart attack tomorrow also. I've got plenty of cash and no income so holding first mortgages on the places I fix up and sell doesn't hurt me.
Also hard money loans backed by real estate can yield 10%. Bruce Norris of the Norris Group has some programs that have very low default rates, I think way less than 1% with 60% LTV. Prices have risen a lot since he started that business, so there might be more risk now.
I know a lot of people here are bearish on r.e., but all the money the Fed is printing to subsidize gov't spending is going somewhere. It may not be ending up in your neighborhood, but a lot of it does seem to be going into northern and southern CA. My biggest concern would be that by the time your loan is paid off in 8 years, the dollar will have lost half its value.
+100) beach blanket bingo. we have a vacant lot, maybe worth 250 now, i said to her, it will be worth a million, hold on to it (i just don't know what a milliion will be worth by then)
There is zero risk for TBTF. Lever away! Taxpayer funded rescue is just one phone call away. Now, where is the .25% overnite window speed dial?
ZIRP is just so beautiful. Everytime I think about going to cash and hanging out for a while the Bernak reminds me I will earn nothing. So why bother!
nailed it. zirp 4evah makes this strategy risk free.
zirp was the shot heard round the world
once you go zirp you'll never go back
Might as well sell SPX puts to fund it with, while you're at it.
Leveraged beta in the US equity market is a much better, safer bet.
Just get a job as a Congressional staffer and go to town on the insider trading.
yes but are those new standards tighter or looser, i'm betting on looser, its always looser, expand the money supply to accomodate the growth in profits, parrot your efforts to encourage more speculation in leverage on products suited for widows and orphans as a sure sign of economic growth. stock market 20K Obama runs for a 3rd term. nobody is going to change their stripes at this point
If this is not an indication of a top, I don't know what is.
Here, little Muppet.....
Buy the f***ing dip!
YAY! EZ 10% returns guaranteed! I like these odds from bookie Citi...here, hold my beer while I pile everything into Treasuries and leverage it up to the max!
Investing in top earners ain't what it used to be:
http://imageshack.com/a/img819/8277/1fjs.jpg
Hilarious, yet so sad. Maybe they'll just start cutting off the list at zero in the future?
The sad thing is that based on tables like these, compiled by faulty algo's other faulty algos make purchase and sell decisions.
Then and now, there are a plethora o rich fund managers getting 2 and 20 from just leveraging beta...what a country! And gotta love the pension funds, endowments, etc. who pay the fees.
How about 1,000% monthly? Take 10% of your portfolio, wait for the dip each month caused by "crisis" (really it just allows the option MMs to balance their books). Buy out of the money calls in the next month. Rinse and repeat until the Fed stops printing
10% till they collapse!
Media Gets It Wrong — Debt Ceiling Suspended (Permanently), Not Raised